OPERATION MANAGEMENT

LESSON 1

FIGURE 1.1 The management of systems or processes that create goods and/or provide
services.

FIGURE 2.1 The difference between the cost of inputs and the value or price of output. The
greater the value added the greater the profit.

Goods-service Continuum
FIGURE 1.3
Steel production Home remodeling Auto Repair Maid Service
Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash

Lawn mowing

High percentage goods Low percentage goods

Low percentage service High percentage service

Food Processor
TABLE 1.1

INPUTS PROCESSING OUTPUTS

Raw Vegetables Cleaning Canned vegetables
Metal Sheets Making cans
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

Hospital Process
TABLE 1.2

INPUTS PROCESSING OUTPUTS

Doctors, nurses Examination Healthy patients
Hospital Surgery
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

Production of Goods vs. Delivery of Services

● Production of goods –tangible output\

● Delivery of services –an act
 ● Service job categories
✔ Government
✔ Wholesale/retail
✔ Financial services
✔ Healthcare
✔ Personal service
✔ Business services
✔ Education

Key Differences
1. Customer contact

2. Uniformity of input

3. Labor content of jobs

4. Uniformity of output

5. Measurement of productivity

6. Production and delivery

7. Quality assurance

8. Amount of inventory

Scope of Operations Management

● Operations Management in an airline co. includes:
❖ Forecasting - weather and landing conditions
❖ Capacity planning - too few or too many planes will hurt profit
❖ Scheduling - maintenance schedules of planes, pilots and attendants schedule
❖ Managing inventories - food and beverages, first aid equipment
❖ Assuring quality - safety of passengers and efficiency
❖ Motivating employees - in all phases of operations
❖ Deciding where to locate facilities - manager’s view to locate facilities.
❖ And more . . .
 ● The operations function
❖ Consists of all activities directly related to producing goods or providing services.

Responsibilities of Operations Management

Planning Organizing

❖ Capacity * Degree of centralization

❖ Location * Process selection
❖ Products & services Staffing
❖ Make or buy * Hiring/laying off
❖ Layout * Use of Overtime
❖ Projects Directing
❖ Scheduling * Incentive plans

Controlling/Improving * Issuance of work orders

❖ Inventory * Job assignments

❖ Quality
❖ Costs
❖ Productivity

Key Decisions of Operations Managers

1. What
What resources/what amounts
2. When
Needed/scheduled/ordered
3. Where
Work to be done
 4. How
Designed
5. Who
To do the work

Business Operations Overlap

Operations
Marketing
Finance

Operations Interfaces

HISTORICAL EVOLUTIONS OF OM
• Great Wall of China, Egyptians Pyramid, etc. provide examples of the human ability to
organize for productions.
• The Industrial Revolution in the 1770’s in England and spread to the rest of Europe and US
during the 19th century. Prior to that time, goods were produced in small shops by craftsmen
and their apprentices.

Craft production- system in which highly skilled workers use simple tools to produce small
quantities of customized goods.
Scientific Management

Frederick Taylor
❖ the father of Scientific Management

Henry Ford
❖ Mass production(low-skilled worker use specialized machinery to produce high volume
of goods), division of labor(breaking up a production process into small tasks, so that
each worker performs a small portion of the overall job)

Japanese
❖ Just-In-Time principles

Trends in Business

Major trends
❖ The Internet, e-commerce, e-business
❖ Management technology
❖ Globalization
❖ Management of supply chains
❖ Agility

COMPETITIVENESS, STRATEGY, AND PRODUCTIVITY

Competitiveness:
How effectively an organization meets the wants and needs of customers relative to
other that offer similar goods or services.

Example of Distinctive Competencies:

Price Low Cost U.S first class postage Motel-

6, Red Roof Inns
 Quality High-performance design or high Sony TV
quality Consistent quality Lexus, Cadillac
Pepsi, Kodak, Motorola

Time Rapid delivery Express Mail, Fedex,

On-time delivery One-hour photo, UPS

Flexibility Variety Burger King

Volume Supermarkets

Service Superior customer service Disneyland

Nordstroms

Location Convenience Banks, ATMs

Business Compete Using Marketing

❖ Identifying consumer wants and needs

❖ Pricing
❖ Advertising and promotion

Business Compete Using Operations

❖ Product and service design

❖ Cost
❖ Location
❖ Quality
❖ Quick Response

Why Some Organization Fail

❖ Too much emphasis on short-term financial performance

❖ Failing to take advantage of strengths and opportunities
❖ Failing to recognize competitive threats
❖ Neglecting operations strategy
❖ Too much emphasis in product and service design and not enough on improvement
❖ Neglecting investments in capital and human resources
❖ Failing to establish good internal communications
 ❖ Failing to consider customer wants and needs

VALUE

VALUE = QUALITY + FLEXIBILITY + SPEED

COST

MISSION / STRATEGY / TACTICS

MISSION STRATEGY TACTICS

How does mission, strategies and tactics relate to

decision making and distinctive competencies?

STRATEGY:

An organization's strategy has a long – term impact on the nature and characteristics of the
organization.
❖ Strategies affect the ability of an organization to compete or in a nonprofit organization,
the ability to serve its intended purpose.
❖ We will talk about organization strategies and operations strategies. (strategy relates to
the plans that determine the direction an organization takes in pursuing its goals.)
❖ The nature of organization's strategies depend on its mission.

MISSION:

An organization’s mission is the basis of the organization; the reason for its existence.
❖ Missions vary from organization to organization, depending on the nature of their
business.
❖ A hospital’s mission would be to provide health care.
 ❖ A construction company’s mission might be to construct new, single family units.
❖ An insurance firm’s mission might be to provide life insurance only or perhaps a full
range of insurance (home, auto, life, accident).
❖ Part of the mission of nonprofit organizations is to provide services to clients, while part
of mission for profit organization is to provide profits for owners (stakeholders, partners
etc.).
It is important that an organization should have a clear and simple mission statement, i.e, one
which answers the question like “what business are they in”. The mission statement should
serve to guide formulation of strategies for the organization as well as decision making at all
levels. Some organizations might not have a mission statement, w/o clear mission, an
organization is unlikely to achieve its true potential, there is little direction for formulating
strategies.

➢ Strategies are plans for achieving organizational goals. If you think goals as destination,
then
➢ strategies are the road maps for reaching the destinations, goals provide substance to
over all mission.
➢ Strategies provide for decision making.
➢ Goal: of an organization many be to capture a certain percent of market share for a
product, another goal may be to achieve a certain level of profitability.
➢ Tactics: are methods and actions used to accomplish strategies.
➢ They are more specific in nature than strategies.
➢ Provide guidance and direction for carrying out actual operation.

You might can think of tactics as the how to do part of the process (e.g; how to reach the
destination) actual doing part of the process.
Generally speaking, organization have overall strategies called organizational strategies, which
relate to the entire organization, and they also have functional strategies, which relate to each
of functional area of the organization.
Organizational strategies should support the goals and mission of the organization. Similarly
functional strategies should support the overall strategies of the organization.

Strategy

● Strategies
Plans for achieving organizational goals
● Mission
The reason for existence for an organization
 ● Mission Statement
Answers the question “What business are we in?”
● Goals
Provide detail and scope of mission
● Tactics
The methods and actions taken to accomplish strategies

PLANNING AND DECISION MAKING

Strategy Example

Example 1
Rita 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
Examples of Strategies
❖ Low cost
 ❖ Scale-based strategies
❖ Specialization
❖ Flexible operations
❖ High quality
❖ Service

Strategy and Tactics

• Distinctive Competencies
The special attributes or abilities that give an organization a competitive edge.

❖ Price
❖ Quality
❖ Time
❖ Flexibility
❖ Service
❖ Location

Operations Strategy
• Operations strategy – The approach, consistent with organization strategy, that is used to
guide the operations function.

Strategy Formulation
❖ Distinctive competencies
❖ Environmental scanning
❖ SWOT
❖ Order qualifiers
❖ Order winners

Strategy Formulation
• Order qualifiers - characteristics that customers perceive as minimum standards of
acceptability to be considered as a potential purchase.
• Order winners - characteristics of an organization’s goods or services that cause it to be
perceived as better than the competition