Ch 1 introduction_om

OPERATIONS MANAGEMENT

K. [email protected]

[email protected]

mailto:[email protected]

mailto:[email protected]

OPERATIONS MANAGEMENT William J. Stevenson, 9th Edition, Tata Mcgraw Hill

Reference books:1. Operations Management, Theory and Practice - B.

Mahadevan2. Operations Management for competitive advantage –

Chase, Jacobs3. Production and Operations Management –

Paneerselvam4. Operations Management Russel & Taylor5. Operations Management- Jay Heizer, Barry Render,

Jagadeesh Rajashekhar

Assessment• INTERNAL (50)

– MID TERM 20– ATTENDANCE 05– CASE STUDY (G) 10– PRESENTATION (G) 05– CLASS TEST 10

• EXTERNAL (50) (Tentative/ subject to change)– SECTION A 5x2 = 10 All– SECTION B 4x5 = 20 Choice– SECTION C 5x10 =50 Choice– SECTION D 1x20 = 20 Compulsory

Syllabus

•Introduction•Forecasting•Product and service design•Capacity planning•Process selection•Facilities layoutLocation analysisDesign of work system

•SCM•inventory•APP•MRP/ERP•JIT / LEAN

•Network analysis•Quality•Acceptance sampling•Maintenance•Scheduling•Productivity •Reliability

OBJECTIVES• Introduction• Definition

– Management function

– Organization’s core function– Decision making – System perceptive

• Transformational• Value added

• Product /service – difference / similarities• Goods and service continuum• Why to study OM• Importance of OM• Scope of OM• Performance Objectives• Evolution• Current trends in OM/ Challenges in OM

Introduction

Organization --> product tangible/intangible

Products are combination of both goods /services

Heart of every organization are the activities that makes products. OPERATIONS

Operation describe what the organization does. Eg: IBM – make of computers

BA fly passengersBBC radio/TV programmes

What is Operations Management?

Can be viewed as

1) Management function

2) Organization’s core function

3) Decision Making

4) System

OM- Management function

Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services

The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s products and services

OM Across the Organization- core function

• Most businesses are supported by the functions of operations, marketing, and finance

• The major functional areas must interact to achieve the organization goals

OM Across the Organization - continued

• Marketing is not fully capable of meeting customer needs if they do not understand what operations can produce

• Finance cannot judge the need for capital investments if they do not understand operations concepts and needs

• Information systems enables the information flow throughout the organization

• Human resources must understand job requirements and worker skills

• Accounting needs to consider inventory management, capacity information, and labor standards

OM- organization core function

OperationsOperations

Plant Manager

Plant Manager

OperationsManager

OperationsManager

DirectorDirector

Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc

Manufacturing, Production control, Quality assurance, Engineering, Purchasing, Maintenance, etc

Finance Marketing

Functions - Airline

OperationsFinance/

AccountingMarketing

Ground

Support

Flight

Operations

Facility

MaintenanceCatering

Airline© 1984-1994 T/Maker Co.

Functions - Bank

OperationsFinance/

AccountingMarketing

Check

Clearing

Teller

Scheduling

Transactions

ProcessingSecurity

Commercial Bank

© 1984-1994 T/Maker Co.

Functions - Manufacturer

OperationsFinance/

AccountingMarketing

Production

ControlManufacturing

Quality

ControlPurchasing

Manufacturing

Typical role

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Business Operations OverlapBusiness Operations Overlap

Operations

FinanceMarketing

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Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal

OM Decisions

• All organizations are based on decisions• Decisions follow a similar path

– First decisions very broad – Strategic decisions• Strategic Decisions – set the direction for the entire

company; they are broad in scope and long-term in nature

– Following decisions focus on specifics - Tactical decision and operational

OM Decisions

• Tactical decisions focus on– Specific day-to-day issues

• Resource needs, schedules, & quantities to produce

– Tactical decisions are very frequent– Strategic decisions less frequent– Tactical decisions must align with strategic

decisions

OM- decision making perspective

Classification of operations management decision/production management functions

• Periodic/Continual Decision

• Planning and designing of production systems/Operations and control of production system

• Planning, organising and control decisions

• Strategic ( long term) and operational ( Short term) Decision

Productions management decision

Selection

Products

Processes

Equipment

Workforce

Location

Layout

Design

Products

Process Equipment

Jobs

Methods

Wage payment

Operating and

Control systems

System & Procedures

Updating

Involves revision of production system in the light of changing environment

Operating-controlling

Setting targets

Scheduling

Sequencing

Inventory control

Quality control

Production control

Cost control

Maintenance

Long Term ( STRATEGIC)

• Product selection and design

• Process selection and planning

• Facilities location ( minimize total “delivered to customer” cost)

• Facilities layout and material handling

• Capacity planning

SHORT TERM (OPERATIONAL)

• Production planning, Scheduling and control

• Inventory planning and control

• Quality Assurance

• Work and Job Design

• Maintenance and replacement

• Cost reduction and control

OM Decisions

Operations Management – system based

• OM Transforms inputs to outputs

– Inputs are resources such as

• People, Material, and Money

– Outputs are goods and services

OM’s Transformation Process

Diagrammatical expression

INPUTS PROCESS

OUTPUTS•Human resources(Workers, managers)

•Capital(Equipment, facilities)

•Purchases(Materials, services)

•Land

•Energy

Goods

Services

Transformation

depends on type

of

facility

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OM – system perspectiveOM – system perspective

The operations function involves the conversion of inputs into outputs

Inputs Land Labor Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment

Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy

Operations

The process of changing input into output and thereby adding value to some entity

Value added by performing “operation” Function

• Alter - change in the form or state of input: physical – manufacturing;

sensual/psychological – feeling comfort or satisfaction

• Transport - located somewhere other than where it currently

is. Entity like people, garbage or goods.• Store - kept in a protected environment for some period

of time ( ware house)• Inspect - value of the entity may be enriched through

an inspection as we better understand its properties and then make a decision ( repair, decision regarding purchase)

OM’s Transformation Role

• To add value

– Increase product value at each stage

– Value added is the net increase between output product value and

input material value

• Provide an efficient transformation

– Efficiency – perform activities well at lowest possible cost

What is a Transformation Process?

Defined

A transformation process is defined as a use of resources to transform inputs into some desired outputs

Transformations

• Physical--manufacturing

• Locational--transportation

• Exchange--retailing

• Storage--warehousing

• Physiological--health care

• Informational--telecommunications

OM

InputsInputsInputsInputs OutputsOutputsOutputsOutputsConversionConversionSubsystemSubsystemConversionConversionSubsystemSubsystem

ControlControlSubsystemSubsystem

ControlControlSubsystemSubsystem

•Product

•Service

• External– Legal, Economic, Social,

Technological• Market

– Competition, Customer Desires, Product Info.

• Primary Resources– Materials, Personnel,

Capital, Utilities

• Physical (Manufacturing)• Locational Services

(Transportation)• Exchange Services (Retailing)• Storage Services (Warehousing)• Other Private Services (Insurance) • Government Services

(Federal, State, Local)

Monitoring and feedback control

• Establish standards of performing or outputs

• Measures actual performance

• Compare the difference between the actual and planned

• Take appropriate remedial actions by changing inputs revising plans, Changing priorities, Expediting the progress etc.,

Hybrid organizations

• Some organizations are a blend of service/manufacturing/quasi-manufacturing (QM) organizations

• QM characteristics include– Low customer contact & Capital Intensive

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Types of OperationsTypes of Operations

Operations ExamplesGoods Producing Farming, mining, construction ,

manufacturing, power generationStorage/Transportation Warehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, banking,renting, leasing, library, loans

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and televisionnewscasts, telephone, satellites

Goods & Services

• Services• Intangible product• Product cannot be

inventoried• High customer contact• Short response time• Labor intensive

• Manufacturing• Tangible product• Product can be

inventoried• Low customer contact• Longer response time• Capital intensive

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Goods vs ServiceCharacteristic Goods Service

Customer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High Low

Inventory Much Little

Evaluation Easier Difficult

Patentable Usually Not usual

Comparison: ContinuumComparison: Continuum

Physical nature of product

Inventories Customer contact

Customer response

time

Quality

Resource Size

Location

CATEGORIES

Comparison: Continuum

Intangible, Perishable(ideas, concepts, information)

Physical, durable

PHYSICAL NATURE OF PRODUCTS

TOWARDS SERVICESTOWARDS MANUFACTURING

Output less able to be inventoried

Output can be inventoried

INVENTORY - ABLE


CUSTOMER CONTACT WITH PRODUCTION

Low or no contact

Customer contacts with distributor / retailer

High contact

Customer as “special inputs”

TOWARDS MANUFACTURING TOWARDS SERVICES

Services industries with low customer contact ?

CUSTOMER RESPONSE TIMELong Short

Difficulty matching capacity with demand – demands fluctuate.




LOCATIONRegional, national or international markets

Local markets (near the customer)


SIZELarge facilities Small facilities

RESOURCESCapital intensive (more automation)

Labour intensive


MEASUREMENT OF QUALITYEasy to measure – Quantitative nature

Harder to measure – subjective assessments


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Automobile assembly, steel making

Home remodeling, retail sales

Automobile Repair, fast food

Goods-service ContinuumGoods-service Continuum

Computer repair, restaurant meal

Song writing, software development

Goods Service

Surgery, teaching

Similarities

Process and the use of technology

Concern for quality, productivity and customer

Choices – capacity, location, layout of facilities

Package offered - goods and services

On the other hand…

• 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

Core services are basic things that customers want from products they purchase

Core ServicesDefined

Core Services Performance Objectives

OperationsManagemen

t

Flexibility

Quality

Speed

Price (or cost Reduction)

Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way

Value-Added ServicesDefined

Value-Added Service Categories

OperationsManagement

Information

Problem Solving

Sales Support

Field Support

Definition : OM

57

Operations management is an area of business that is concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient and effective.

APICS The Association for Operations Management defines operations management as "the field of study that focuses on the effective planning, scheduling, use, and control of a manufacturing or service organization through the study of concepts from design engineering, industrial engineering, management information systems, quality management, production management, inventory management, accounting, and other functions as they affect the organization"

Operations refers to the production of goods and services, the set of value-added activities that transform inputs into many outputs

http://en.wikipedia.org/wiki/Business_operations

http://en.wikipedia.org/wiki/Efficient

http://en.wikipedia.org/wiki/Effective

http://en.wikipedia.org/wiki/APICS

MANUFACTURING AND SERVICES

Manufacturing OrganizationsUse operations management in the transformation process of turning raw materials into physical goods.

Service OrganizationsUse operations management in creating nonphysical outputs in the form of services (the activities of employees interacting with customers).

IMPORTANCE OF OM

- It encompasses both services and manufacturing.

- It is important in effectively and efficiently managing productivity.

- It plays a strategic role in an organization’s competitive success.

- Synergies must exist with other functional areas of the organization

Operations account for 60-80% of the direct expenses that burden a firms profit.

Objective of OM

• Produces the goods/service in required quantity and of quality as per schedule at a minimum cost that determine the extent of customer satisfaction.

Performing objective • Efficiency “doing things right”• Effectiveness “doing the right things”• Quality conform to quality specification • Lead time time elapsed in the conversion

process (minimize) - Q, Inventory• Capacity Utilization manpower/ machines etc.• Flexibility flexibility of producing a

combination of o/p, satisfy the customers needs

objective of Production Management

• to produce the desired product or specified product byspecified methods so that the optimal utilization of available resources is met with.

• production management is responsible to produce the desired product, which has marketability at the cheapest price by proper planning, the manpower, material and processes.

• Production management must see that it will deliver right goods of right quantity at right place and at right price.

Why to Study Operations Management?

Business Education

Systematic Approach to Org. Processes

Career Opportunities

Cross-Functional Applications

OperationsManagement

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• Operations Management includes:– Forecasting– Capacity planning– Scheduling– Managing inventories– Assuring quality– Motivating employees– Deciding where to locate facilities– Supply chain management– And more . . .

Scope of Operations ManagementScope of Operations Management

HIGHLIGHTS

• Management technology• Ethical issues• OM in practice• Evolution/ History

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Management Technology

• Technology: The application of scientific discoveries to the development and improvement of goods and services

• Product and service technology• Process technology• Information technology

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Ethical Issues

• Financial statements• Worker safety• Product safety• Quality• Environment• Community• Hiring/firing workers• Closing facilities• Worker’s rights

POMPOM

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSalesFinanceFinance

OM in Practice

• OM has the most diverse organizational function• Manages the transformation process• OM has many faces and names such as;

– V. P. operations, Director of supply chains, Manufacturing manager

– Plant manger, Quality specialists, etc.• All business functions need information from OM in

order to perform their tasks

• OM is the business function that is responsible for managing and coordinating the resources needed to produce a company’s products and services.

• Its role of OM is to transform organizational inputs into company’s products or services outputs

• OM is responsible for a wide range of decisions, ranging from strategic to tactical.

• Organizations can be divided into manufacturing and service organizations, which differ in the tangibility of the product or service

• A number of historical milestones have shaped OM. Some of the more significant of these are the Industrial Revolution, scientific management, the human relations movement, management science, and the computer age

• OM is highly important function in today’s dynamic business environment. Among the trends with significant impact are just-in-time, TQM, reengineering, flexibility, time-based competition, SCM, global marketplace, and environmental issues

• OM works closely with all other business functions

Business Information Flow

Introduction to POM - The Origins

Sakichi Toyoda receives a patent for a wooden loom

philosophy of “KAIZEN” is born out of the need to compete.

Henry Ford invents the moving assembly line

•Toyoda Motor Company Ltd. is created.

•Kiichiro Toyoda builds a plant at Koromo and through the imbalance caused by piece work, hangs a sign in his new production shop that reads “JUST IN TIME”.

•Taichi Ohno moves to the Toyota Motor Company Ltd.

•Ohno begins to perfect the “Just-in-Time” concepts introduced by Kiichiro

Toyota brings the Toyota Production System to the United States in collaboration with GM

Womack and Jones publish “The Machine that

Changed the World “

1890 Late 1890’s

Central figures who originated the idea of "Eliminating Waste",

Lillian Gilbreth brings psychology into the mix by studying the motivations of workers and how attitudes affected the outcome of a process. Frank Gilbreth develops Motion Study and invented Process Charting.

Frederick W. Taylor develops the principles of Time Study and standardized work.

1937 1943

1908 1980 1990

Before: cars were built in one spot and the workers moved from car to car. This was called the “gypsy production” system.

After: Ford used a big rope and winch to pull the cars along the assembly line and kept the workers stationary

1990

Historical Events in Operations Management

Era Events/Concepts Dates Originator

Industrial

Revolution

Steam engine 1769 James Watt

Division of labor 1776 Adam Smith

Interchangeable parts 1790 Eli Whitney

Scientific Management

Principles of scientific

management1911 Frederick W. Taylor

Time and motion studies 1911Frank and Lillian Gilbreth

Activity scheduling chart 1912 Henry Gantt

Moving assembly line 1913 Henry Ford

Historical Events in Operations Management (cont.)


Human Relations

Hawthorne studies 1930 Elton Mayo

Motivation theories1940s Abraham Maslow1950s Frederick Herzberg1960s Douglas McGregor

Operations Research

Linear programming 1947 George DantzigDigital computer 1951 Remington RandSimulation, waiting

line theory, decision

theory, PERT/CPM

1950sOperations research groups

MRP, EDI, EFT, CIM1960s, 1970s

Joseph Orlicky, IBM

and others



Quality

Revolution

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)TQM (total quality

management)1980s

W. Edwards Deming,

Joseph JuranStrategy and

operations1980s

Wickham Skinner,

Robert HayesBusiness process reengineering

1990sMichael Hammer,

James Champy

Six Sigma 1990s GE, Motorola


Era Events/Concepts Dates OriginatorInternet Revolution

Internet, WWW, ERP, supply chain management

1990s ARPANET, Tim

Berners-Lee SAP,

i2 Technologies,

ORACLEE-commerce 2000s Amazon, Yahoo,

eBay, Google, and others

Globalization WTO, European Union, and other trade agreements, global supply chains, outsourcing, BPO, Services Science

1990s

2000s

Numerous countries

and companies

Business Operations: Definition

Early Concepts : 1776 – 1880

Scientific Management Era : 1880-1910

Mass Production Era: 1910-1980

Lean Production Era: 1980-1995

Mass Customization Era: 1995- present

Cost Focus

Quality Focus

Customization Focus

Significant Events in OM

• Division of labor (Smith, 1776)

• Standardized parts (Whitney, 1800)

• Scientific Management (Taylor, 1881)

• Coordinated assembly line (Ford 1913)

• Gantt charts (Gantt, 1916)

• Motion Study (the Gilbreths, 1922)

• Quality control (Shewhart, 1924)

• CPM/PERT (DuPont, 1957)

• MRP (Orlicky, 1960)

• CAD

• Flexible manufacturing systems (FMS)

• Manufacturing Automation Protocol (MAP)

• Computer Integrated Manufacturing (CIM)

Current Issues in OM

• Coordinate the relationships between mutually supportive but separate organizations.

• Optimizing global supplier, production, and distribution networks.

• Increased co-production of goods and services

Current Issues in OM (cont’d)

• Managing the customers experience during the service encounter

• Raising the awareness of operations as a significant competitive weapon

POM in Global economy

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• Product Architecture• Service Design – Current Vs Future• Industry Verticals• Centers of Excellence

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Challenges of Managing Services

• Service jobs are often less structured than manufacturing jobs

• Customer contact is higher• Worker skill levels are lower• Services hire many low-skill, entry-level workers• Employee turnover is higher• Input variability is higher• Service performance can be affected by worker’s

personal factors

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Trends in Business• Major trends

– The Internet, e-commerce, e-business– Management technology– Globalization– Management of supply chains– Outsourcing– Agility– Ethical behavior

Discussion

• With regard to the type of businesses below, detail the:

– Input, processes, output– Extent of client/customer participation– Nature and source of information

• Types of business:– Educational institution– Factory manufacturing iron pipes– Jewellery store

ASSIGNMENT

• TRENDS IN OM• CHALLENGES OF OM

SUMMARYComponents of POM

• Planning• Organizing• Controlling• Models and Behaviour

Summary

• It is a management function

• Organization’s core function

• Every organization has OM function

– Service or Manufacturing

– For profit or Not for profit