‘Operations’ or ‘operations management’ is concerned with the use
of resources called inputs – land, labour and capital – to provide
outputs in the form of goods and services. In doing this, operations
managers must be concerned with:
• efficiency of production − keeping costs as low as possible
will help to give competitive advantage
• quality − the good or service must be suitable for the purpose
intended
• flexibility and innovation − the need to develop and adapt to
new processes and new products is increasingly important in
today’s dynamic business environment.
Essentially, operations managers are aiming to produce goods and
services of the required quality, in the required quantity, at the time
needed, in the most cost-effective way. To do this, operations
managers must understand the transformation process.
The production or transformation process
In all businesses at all stages of production, the production process
is basically the same. ‘Inputs’ are converted or transformed into
‘outputs’, and this is sometimes called the ‘transformation’ process.
This can be illustrated quite simply (see Figure 28.1).
Figure 28.1: The transformation process
This process applies to both manufacturing and service industries.
By ‘production’, we mean the making of tangible goods, such as
computers, and the provision of intangible services, such as
banking. The aim in all cases is to ‘add value’ to the inputs that are
bought in by the business so that the resulting output can be sold
at a profit.
The degree of value added to the inputs will depend on a number
of factors (not all of which are operations management issues):
• The design of the product or the nature of the service.
Does this allow for economic manufacture, whilst appearing to
have quality features that will enable a high price to be
charged? Some customers are prepared to pay higher prices
for products that offer better quality than cheaper substitutes.
• The efficiency with which the input resources are
combined and managed. For example, by reducing waste,
the operations management department will increase the
value added by the production process. Increasing productivity
will reduce costs per unit and this will increase added value if
the customer prices remain unchanged. So efficient operations
processes and operations decisions are closely linked to value
added.
• Being able to convince consumers to pay more for the
good or service than the cost of the inputs. A good
example is the market for luxury ice creams, where the
marketing campaigns increase the willingness of consumers
to pay far in excess of input costs for the product.
The operations process can involve many stages before physically
selling the good or service. These include:
• converting a consumer need into a product that can be
produced efficiently
• organising operations so that production is carried out
efficiently, e.g., ordering stocks to arrive on time
• deciding on suitable production methods
• setting quality standards and checking they are maintained.
Resources used in operations
All business operations require resources – these are the
production inputs.
• Land. All businesses need somewhere to operate from, even
if it is the bedroom of a sole trader operating an internet-based
website design service. Of course, some businesses require
large sites for the extraction of minerals or the manufacture of
finished products.
• Labour. All business activity requires some labour input. This
could be the manual labour of a gardener or the mental skills
of a research scientist. The quality of the labour input will have
a significant impact on the operational success of a business.
The effectiveness of labour can usually be improved by
training in specific skills – but trained workers will become
sought after by other businesses and may leave.
• Capital. This refers to the tools, machinery, computers and
other equipment that businesses use to produce the goods
and services they sell. The term ‘capital’ can also mean the
amount the owners of a business invest to set it up. Efficient
operations often depend on capital equipment, and, in
competitive markets, the more productive and advanc