1-1 Introduction to Operations Management

Operations
Management

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1-2 Introduction to Operations Management

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1-3 Introduction to Operations Management

Learning objectives
 After completing this unit, you will be able to:

 Define Operations management

 Discuss history of operations management
 Discuss manufacturing and service
operations
 Scope of operations management
 Explain operations decision making

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1-4 Introduction to Operations Management

Introduction
 Aim of business/organization?

 The aim of any service, public sector, retail or industrial

operation is to
deliver goods and services with the right
quality,
quantity,
cost and availability
that will satisfy the customers’ needs while at the same
time
making most effective use of resources and profit.
 This can only be achieved by giving attention to the design of
products, processes and work for employees, and through
competent planning and control
1-5 Introduction to Operations Management

Definition of terms
 Operations - is responsible for the production of good and
services
 are jobs or tasks consisting of one or more elements or
subtasks, perfromed typically in one location. or

 are the businss activities that a firm engages in to convert

materials into finished products or services, sell them to
customers, and earn a profit

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1-6 Introduction to Operations Management

Operations manager
1-7 Introduction to Operations Management

OM …
 Operations management is the business function that plans, organizes,

coordinates and controls the resources needed to produce a company’s

goods and services (Reid & Sanders, 2013).

 A group of interrelated activities, which are involved in the production of

certain goods and services, is called operations management.

 Operations management is a management function that involves the

management of people, equipment, technology, information and many

other resources used for the operations.

 It is the central core function of every organization whether it is a small or

big organization and producing goods or services.

1-8 Introduction to Operations Management
OM …
Operations Management

The management of systems or processes

that create goods and/or provide services

Organization

Finance Operations Marketing

Figure 1.1

 The main objective of operations/production management is the

production of goods and services of right quality and quantity at the
right time and right manufacturing cost (Kumar & Suresh, 2009)
1-9 Introduction to Operations Management
History of OM

• Production/operations systems have

existed since the existence of human
beings. However,
• The modern production system had
their roots in the Industrial revolution.

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1-10 Introduction to Operations Management
Historical evolution of OM
Concept Time Explanation
Industrial revolution Late 1700s Brought in innovations that changed
production by using machine power instead
of human power. Examples
• Steam Engine – James Watt
• Division of labour – Adams Smith
• Interchangeable parts – Eli Whitney
Scientific management Early Brought the concepts of analysis and
1900s measurement of the technical aspects of
work design and development of moving
Activities
Month assembly lines and mass production. Eg
Jan Feb Mar Apr May
• Friedrich Taylor –
Title selection
Proposal writing • The Glibreths
Proposal submission • Henry L. Gantt – Gantt Chart
Questionnaire prep. Distr.
and collection • Henry Ford – Assembly line
Data analysis
Paper submission
Presentation
1-11 Introduction to Operations Management
Historical evolution of OM

Human relations 1930s to Focused on understanding human elements

movement 1960s of job design, such as worker motivation
and job satisfaction.
Management science 1940s to Focused on the development of quantitativ
1960s techniques to solve operations problems.
Computer age 1960s Enabled processing of large amounts of
data and allowed widespread use of
quantitative procedures

Environmental issues 1970s Considered waste reduction, the need for

recycling, and product reuse.

Just-in-time systems (JIT). 1980s Designed to achieve high-volume

production with minimal inventories
1-12 Introduction to Operations Management
Historical evolution of OM
Concept Time Explanation
Total quality management 1980s Sought to eliminate causes of production defects.
(TQM)
Reengineering 1980s Required redesigning a company’s processes in
order to provide greater efficiency and cost
reduction.
Global competition 1980s. Designed operations to compete in the global
market

Flexibility 1990s
Offered customization on a mass scale.

Time-based competition 1990s Based on time, such as speed of delivery.

1-13 Introduction to Operations Management
Historical evolution of OM….
Concept Time Explanation
Supply chain management 1990s Focused on reducing the overall cost of
the system that manages the flow of
materials and information from suppliers
to final customers.

Electronic commerce 2000s Uses the Internet and World Wide Web for
conducting business activity.

Outsourcing and flattening of 2000s

the world Convergence of technology has enabled
outsourcing of virtually any job
imaginable from anywhere around the
globe, therefore “flattening” the world.

Big data analytics. 2010s - Applies math and statistics to large

present volumes of structured and unstructured
data to gain unprecedented business
1-14 Introduction to Operations Management

Current trends in operations management

 Lean systems

 A concept that takes a total system approach to creating efficient

operations

 Enterprise resource planning (ERP)

 Large, sophisticated software systems used for identifying and

planning the enterprise-wide resources needed to coordinate all
activities involved in producing and delivering products

 Customer relationship management (CRM)

 Software solutions that enable the firm to collect customer-

specific data
1-15 Introduction to Operations Management

Current trends in operations management

 Cross-functional decision making

 The coordinated interaction and decision making that occur

among the different functions of the organization
1-16 Introduction to Operations Management

Reconfigurable Manufacturing system

 Reconfigurable manufacturing systems enable

 rapid changes in

 structure,

 hardware, and

 software components,

 enabling efficient production and

 response to market or intrinsic system changes.

1-17 Introduction to Operations Management

Six sigma

 Six Sigma, developed from 1985 to 1987 at Motorola,

 is a quality management approach with control limits of six

standard deviations.

 Introduced by General Electric's Jack Welch in 1995

 it involves
 defined steps,

 financial targets, and

 tools like trending charts.

1-18 Introduction to Operations Management

Other trends

 CAD
 CAD/CAM systems enable companies to
design and manufacture goods faster, more
efficiently, and at lower costs.

 Computer-Integrated Manufacturing
(CIM)
 systems automate and integrate company
operations, revolutionizing the production
process.
1-19 Introduction to Operations Management

Manufacturing of goods and delivering services

 Manufacturing
 is the transformation of raw materials into finished goods
for sale, or intermediate processes involving the production
or finishing of semi-manufactures.
 Service/s
 are deeds, processes, and performance or
 is a time-perishable, intangible, experience performed
for a customer acting in the role of a co-producer
1-20 Introduction to Operations Management
Typical Characteristics of Services and Goods Producers

Primarily Goods
Primarily Service Continuum of
Producers
Producers Characteristics
Mixed
Intangible, nondurable Tangible, durable

Output can’t be inventoried Output can be inventoried

High customer contact Low customer contact

Short response time Long response time

Labor intensive Capital intensive

Low uniformity of output High uniformity of output

Not usually patentable Usually patentable

Difficult productivity measurement Easy productivity measurement

Less opportunity to correct problems better opportunity to correct problems

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1-21 Introduction to Operations Management

Similarities

 Both use technology

 Both have quality, productivity, & response issues

 Both must forecast demand

 Both will have capacity, layout, and location issues

 Both have customers, suppliers, scheduling and staffing issues

 Manufacturing often provides services

 Services often provides tangible goods

1-22 Introduction to Operations Management

The scope of operations management

 Though the scope of OM varies from company to company, for
most of the companies it is nearly the same. See the following
figure Location of
facilities Plant layout and
material handling
Materials
management
Operations
Management Product design
Maintenance
management
Production
planning
and control
Quality control
Process design
1-23 Introduction to Operations Management
Responsibilities
Responsibilities ofof operations
Operations manager
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
1-24 Introduction to Operations Management

Key
KeyDecisions
decisionsof
ofOperations Managers
operations manager

 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed
 Who
To do the work
1-25 Introduction to Operations Management

Ten Critical Decisions

 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?

1-26 Introduction to Operations Management

The Critical Decisions

 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?
1-27 Introduction to Operations Management

The Critical Decisions

 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?

1-28 Introduction to Operations Management

The Critical Decisions

 Supply chain management

 Should we make or buy this component?

 Who are our suppliers and who 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?
1-29 Introduction to Operations Management

The Critical Decisions

 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?
1-30 Introduction to Operations Management

Why study Operations management?

 Core of business (inevitable), it plays as exactly similar as

an engine plays in a car

 Covers 50% of the business process

 The rest 50% business functions are interrelated to OM

 Operations manager controls the processes by which

value is added from conversion of inputs to outputs

 Manage inputs materials, inventory, services, land and

energy, human and capital resources
 1-31 Introduction to Operations Management

Marketing IS Finance

Customer dd Current operating Capital investment

capabilities Information planned
Customer needs
Inventory level Financial
feedback
measures
Output rates Capital
Need for new Budgets
Technological requirement
products
capabilities Stockholders
requirements
Operations management

Billing info Operations Product specs

capabilities Labor skills
Process Current
improvement performance Technological
measure Design trade-offs Labor costs
requirements Labour
requirements

Accounting Engineering HR

Information flow between operations and other business functions

1-32 Introduction to Operations Management
Options for Increasing Contribution
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%

Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 15% – 2,100 – 3,600 – 2,550 – 4,500
Contribution $ 11,900 $ 20,400 $ 14,450 $ 25,500
1-33 Introduction to Operations Management

End of Chapter one