2. What is Operations Management?
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• Production is the creation of goods and services
• Operations Management (OM) is the set of activities
that creates value in the form of goods and services by
transforming inputs into outputs
3. What Is Operations Management?
INPUT
• Material
• Machines
• Man
• Money
Transformation
Process
OUTPUT
• Goods
• Services
Feedback & Requirements
1. Inputs are any resources used to create goods and services.
2. Output is goods and services resulting from the transformation
process.
3. Transformation process; is any activity or group of activities that
takes one or more inputs and transform and add values to them and
provides out puts for customers and clients.
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4. Organizing to Produce Goods and Services
Essential functions:
Marketing – generates demand
Production/operations – creates the product
Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money.
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5. Organizational Charts
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Operations
Teller Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Maintenance
Security
Finance
Investments
Security
Real estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Commercial Bank
7. Marketing
Sales
promotion
Advertising
Sales
Market
research
Organizational Charts
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Operations
Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply chain management
Manufacturing
Tooling; fabrication; assembly
Design
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space,
and personnel
Process analysis
Development and installation of
production tools and equipment
Finance/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Manufacturing
8. What Operations Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
9. Scope of OM
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Ten Decision Areas
Design of goods and services
Managing quality
Process and capacity design
Location strategy
Layout strategy
Human resources and job design
Supply chain management
Inventory management
Scheduling
Maintenance
10. The Critical Decisions of OM
Design of goods and services
What good or service should we offer?
How should we design these products and
services?
Managing quality
How do we define quality?
Who is responsible for quality?
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11. The Critical Decisions Om
Process and capacity design
What process and what capacity will these
products require?
What equipment and technology is necessary for
these processes?
Location strategy
Where should we put the facility?
On what criteria should we base the location
decision?
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12. The Critical Decisions OM
Layout strategy
How should we arrange the facility?
How large must the facility be to meet our plan?
Human resources and job design
How do we provide a reasonable work
environment?
How much can we expect our employees to
produce?
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13. The Critical Decisions OM
Supply chain management
Should we make or buy this component?
Who are our suppliers and how can integrate into our
e-commerce program?
Inventory, material requirements planning, and JIT
How much inventory of each item should we have?
When do we re-order?
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14. The Critical Decisions OM
Intermediate and short–term scheduling
Are we better off keeping people on the payroll
during slowdowns?
Which jobs do we perform next?
Maintenance
Who is responsible for maintenance?
When do we do maintenance?
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15. Where are the OM Jobs?
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
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16. Manufacturing Operations and Service Operations
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Production of Goods Versus Delivery of Services
• Goods are physical items that include raw materials, parts,
subassemblies, and final products.
E.g. Automobile, Computer, Shampoo
• Services are activities that provide some combination of
time, location, form or psychological value.
E.g. Air travel, Education, Haircut, Legal counsel
17. Characteristics of Goods
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Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
18. Characteristics of Service
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Intangible product
Produced and consumed
at same time
High customer interaction
Inconsistent product
definition or people's
personal perceptions of
the service can be quite
different
Often knowledge-based
Frequently dispersed
19. Goods Versus Services
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• Can be resold
• Can be inventoried
• Some aspects of quality
measurable
• Selling is distinct from
production
• Product is transportable
• Site of facility important for cost
• Often easy to automate
• Revenue generated primarily
from tangible product
Attributes of Goods
(Tangible Product)
Attributes of Services
(Intangible Product)
• Reselling unusual
• Difficult to inventory
• Quality difficult to measure
• Selling is part of service
• Provider, not product, is
often transportable
• Site of facility important for
customer contact/Revenue.
• Often difficult to automate
• Revenue generated primarily
from the intangible service
21. The Heritage of OM
Division of labor (Adam Smith 1776; Charles
Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/ Sorenson 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922)
Quality control (Shewhart 1924; Deming 1950)
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23. Operations strategy & competitiveness
Productivity Measurement
What is strategy?
Organizational strategy vs Operational strategy?
Org. strategy provides overall direction for the
organization (broad in scope)
Operation strategy deals with the operation aspect of
the org(narrower in scope). It relates to products,
processes, methods, quality, cost, scheduling,etc.
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25. Conti...
Mission
The reason for existence for an organization
Goals
Provide detail and scope of mission
Strategies
Plans for achieving organizational goals
Tactics
The methods and actions taken to accomplish strategies
• Operations strategy – The approach, consistent with
organization strategy, that is used to guide the operations
function.
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26. Strategy Example
Meron is a high school student. She would like to have a
career in business, have a good job, and earn enough
income to live comfortably.
Question: Discuss Meron Mission, goal, strategy,
tactics and operations to realize her mission?
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27. Conti...ed
Meron is a high school student. She would like to have a
career in business, have a good job, and earn enough
income to live comfortably
• Mission: Live a good life
Goal: Successful career, good income
Strategy: Obtain a college education
Tactics: Select a college and a major
Operations: Register, buy books, take
courses, study, graduate, get job
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28. Strategy Factors
Price
Quality
Time
Flexibility
Service
Location
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30. Key Internal Factors
Human Resources
Facilities and equipment
Financial resources
Products and services
Technology avelablity
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31. Competitiveness: Definition
How effectively an organization meets the wants
and needs of customers relative to others that
offer similar goods or services.
Business organizations compete through some
combination of their marketing and operations
functions
Core competency refers to the capabilities,
knowledge, skills and resources that constitute its
"defining strength.
The resources/strengths that we have compare to
other production industries or service
organizations
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32. Businesses Compete Using Marketing
Identifying consumer wants and needs
Pricing
Advertising and promotion
Businesses Compete Using Operations
Product and service design Cost
Location Quality
Quick response Flexibility
Inventory management Supply chain management
Service and service quality Managers and workers
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33. Why Some Organizations Fail?
Putting too much emphasis on short-term financial
performance at the expense of R&D
Failing to take advantage of strengths and opportunities
Neglecting (do not give high Emphasis) to operations
strategy
Failing to recognize competitive threats
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34. Why Some Organizations
Fail?
Placing too much emphasis in product and service
design and not enough on process design and
improvement.
Neglecting investments in capital and human
resources
Failing to establish good internal communications
and cooperation among different functional areas
Failing to consider customer wants and needs.
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35. Productivity
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Productivity
A measure of the effective use of resources, usually expressed as
the ratio of output to input
Productivity is the ratio of outputs (goods and services) divided
by the inputs (resources such as labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output only and not a
measure of efficiency
36. Feedback loop
Outputs
Goods
and
services
Processes
The U.S. economic system
transforms inputs to outputs
at about an annual 2.5%
increase in productivity per
year. The productivity
increase is the result of a mix
of capital (38% of 2.5%), labor
(10% of 2.5%), and
management (52% of 2.5%).
The Economic System
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Inputs
Labor,
capital,
management
37. Measure of process improvement
Represents output relative to input
Only through productivity increases can our standard
of living improve
Productivity
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Productivity =
Units produced
Input used
39. Measures of Productivity
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Partial Output Output Output Output
measures Labor Machine Capital Energy
Multifactor Output Output
measures Labor + Machine Labor + Capital + Energy
Total Goods or Services Produced
measure All inputs used to produce them
40. Productivity Calculations
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Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
Labor Productivity
One resource input single-factor productivity
41. Measures of Productivity
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Two workers paint tables in a furniture shop. If the workers paint
22 tables in 8 hours What is productivity?
Labor productivity = Output
Labor*working hours
Labor productivity = 22 tables
2 works* 8 hours
Labor productivity = 1.375 tables/hour
42. Multi-Factor Productivity
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Output
Labor + Material + Energy +
Capital + Miscellaneous
Productivity =
Output and inputs are often expressed in dollars or other
currency.
Multiple resource inputs multi-factor productivity
43. Example 3
7040 Units Produced
Cost of labor of $1,000
Cost of materials: $520
Cost of overhead: $2000
What is the multifactor/total productivity?
Ans. 2.0 units per dollar of input
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MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)
$1000 + $520 + $2000
MFP = 2.0 units per dollar of input
44. Measurement Problems
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Quality may change while the quantity of
inputs and outputs remains constant
External elements may cause an increase or
decrease in productivity
Precise units of measure may be lacking
45. Productivity Variables
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Labor - contributes about 10% of
the annual increase
Capital - contributes about 38%
of the annual increase
Management - contributes about
52% of the annual increase
46. Key Variables for Improved Labor
Productivity
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o Basic education appropriate for the labor force
o Diet of the labor force
o Maintaining and enhancing skills in the midst of
rapidly changing technology and knowledge
Using this and subsequent slides, you might go through in more detail the decisions of Operations Management. While greater detail is provided by these slides than the earlier one, you may still decide to have the students contribute examples from their own experience.
