MODULE 5: Operations Management SL/HL: Unit 5.1 The role of operations management Unit 5.2 Production methods Unit 5.4 Location HL Only: Unit 5.3 Lean production and quality management Unit 5.5 Production planning Unit 5.6 Research and development Unit 5.7 Crisis management and contingency planning

Unit 5.1: The role of operations management

Learning outcome: Define operations and describe their relationship with other business functions Comment on operations management in organizations producing goods and/or services Discuss operations management strategies and practices for ecological, social (human resource), and economic sustainability

What are “operations” Refer to the fundamental activities of organizations: What they do and what they deliver How they produce the goods and services to meet consumers’ needs and wants Production can take a variety of forms: Large-scale capital intensive production such as oil refineries or car plants Small business such as bakery, restaurants schools

Operations management Often referred to as PRODUCTION which is concerned with providing the right goods and services in the right quantities and at the right quality level in a cost-effective and timely manner.

Operations Management The study of operations provides the opportunity to investigate how products are made – at a very concrete level. A simple input-output model can represent how operations are the result of a transformational process. (see page 473 Fig. 5.1 c) The finished product can then be packaged, transported, maybe exported or imported, and then commercialized and sold or bought.

Operations management and business functions Marketing Human Resource Management Finance Operations

Operations and business functions The relationship between operations and the other business functions is easy to understand: All business functions depend on one another. As a consequence, the operations manager of a large company is in a good position to work with the other departments and make valuable recommendations. For example:

Operations and business functions 1 of 4 The operations manager has direct experience of the economies of scale or diseconomies of scale that may take place on the factory floor, or may help identify some of the strengths and weaknesses of the organization that other departments would not necessarily know about, for example machinery obsolescence or likely costs of maintenance in the foreseeable future.

Operations and business functions 2 of 4 The operations manager can suggest which forms of non-financial rewards (such as job rotation or teamwork) may be suitable (or not) for the organization: the HR manager may not appreciate the fact that some forms of motivation may be very good in theory, but not in practice.

Operations and business functions 3 of 4 The operations manager may know which production costs (such as some semi-variable energy costs) could be cut, which would in turn have an impact on the break-even point and the organization’s margin of safety.

Operations and business functions 4 of 4 The operations manager can advise on which product extension strategies may be easily implemented (or not). The marketing manager may have interesting ideas that would, however, result in diseconomies of scale.

Note it is important the you understand that operations is not just about “doing and delivering” (despite the negative image that operations may have): operations management is an integral part of the organization and its decision-making process.

Operations management in 4 sectors of the economy Examples: Primary sector – mining and harvesting Secondary sector – industrial manufacturing Tertiary sector – open heart surgery Quaternary sector – business consultancy

Operations management and sustainability In a typical example of a large factory, operations management is about planning, organizing, and controlling the different elements and stages of the production process, from choosing the most appropriate raw materials and equipment, to ensuring that the finished products is of the standard required. The input-output model reminds us of the responsibilities of an operations manager. If the finished product is not of the standard required (ex. defective), the operations manager will need to identify where in the process an error occurred. The role of operations manager, however, is wider than just ensuring that production is correctly planned and executed; operations managers also have to take several other factors into account: economic, social and ecological factors.

Ecological (or environmental) factors Refer to the fact that more and more managers understand the negative impact that their organization may have on the natural environment, especially different forms of pollution, such as air pollution, water pollution or noise pollution. This is also called ecological sustainability See page 475 Box 5.1.a.

Social factors Refer to the fact that more and more organizations are becoming aware of their responsibility toward their workers, as internal stakeholders, and toward local communities, as external stakeholders. As a consequence, they seek to ensure that all employees are fairly treated, that their working conditions are acceptable, and that the quality of life for local people is not negatively affected by the decisions taken by the organization (for example in the case of expansion or relocation. This is also called social sustainability. See page 475 Box 5.1.b.

Economic factors Refer to the fact that budgets must be respected; wastage must be kept to a minimum and whenever possible, further savings should be made, for example through greater efficiency (often measured in monetary terms). The aim is to use the available resources and raw materials to their best advantage ensuring profitability over the long term (as a profitable organization is more likely to continue to operate from one year to the next). This is also called economic sustainability

Economic factors Refer to the fact that budgets must be respected; wastage must be kept to a minimum and whenever possible, further savings should be made, for example through greater efficiency (often measured in monetary terms). The aim is to use the available resources and raw materials to their best advantage ensuring profitability over the long term (as a profitable organization is more likely to continue to operate from one year to the next). This is also called economic sustainability

The Triple Bottom Line

The ‘triple bottom line’ stresses the fact that business decisions should not only consider financial aspects (i.e. breaking even and making money for shareholders), but also the well-being of local communities and the natural environment. Although this is relevant for all business functions, it is particularly relevant for operations, as manufacturing activities may have more negative impacts than marketing campaigns or financial transactions. In many cases, though, the ‘triple bottom line’ remains an ideal rather than a reality, as economic aspects largely drive most commercial organizations.

Plastic Carrier Bag Levy Question 5.1.1 Plastic Carrier Bag Levy

CUEGIS Pages 477-478

REVIEW TERMS

Capital Intensive Means that the manufacturing or provisions of a product relies heavily on machinery and equipment, e.g. automated production systems.

Ecological Sustainability Refers to the capacity of the natural environment to meet the needs of the current generation without jeopardizing the ability of future generations to meet their needs.

Economic Sustainability Refers to development that meets the economic needs of the present generation using existing available resources without compromising the ability of future generations to meet their needs.

Labor Intensive Means that the manufacturing or provision of a product relies heavily on labor, e.g. teaching and legal services.

Operations Management Is concerned with providing the right goods and services in the right quantities and at the right quality level in a cost-effective and timely manner.

Production Process Refers to the method of turning factor inputs into outputs by adding value in a cost-effective way.

Social Sustainability Examines social interactions and structures that are necessary for sustainable development, i.e. it is the ability of the society to develop in such a way that it meets the social wellbeing needs of the current and future generations.

Sustainability Promotes intergenerational equity, i.e. production enables consumption of goods and services for the people of today without compromising consumptions for future generations.

Value Added Occurs during the production of a good or service because the value of the output is greater than the costs of production. Businesses cannot earn a profit if this does not occur in the production process.