Introduction to Operations

Management

Learning ObjectivesLearning Objectives

Define the term operations management Identify the three major functional areas of

organizations and describe how they interrelate

Compare and contrast service and manufacturing operations

Learning ObjectivesLearning Objectives

Differentiate between design and operation of production systems

Describe the key aspects of operations management decision making

Identify current trends that impact operations management

Operations ManagementOperations Management

Operations Management is:

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

Operations Management affects: Companies’ ability to compete Nation’s ability to compete internationally

Marketing

The OrganizationThe Organization

The Three Basic Functions

Organization

Finance Operations

The Basic FunctionsThe Basic Functions

Marketing – generates demand Production/operations – creates the

product Finance/accounting – tracks how well the

organization is doing, pays bills, collects the money

Value-Added ProcessValue-Added Process

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

Value-Added & Product Value-Added & Product PackagesPackages

Value-added is the difference between the cost of inputs and the value or price of outputs.

Product packages are a combination of goods and services.

Product packages can make a company more competitive.

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

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

Goods vs ServiceGoods 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

Operations Management includes: Forecasting chapter 3 Product and service design chapter 4 Capacity planning chapter 5, 6 Motivating employees chapter 7 Deciding where to locate facilities chapter 8 Assuring quality chapter 9, 10 Supply chain management chapter 11 Inventories, planning and MRP chapter 12,

13, 14 JIT and lean operation chapter 15 Scheduling chapter 16 Project management chapter 17 Management of waiting line chapter 18 More… such as Maintenance

Scope of Operations ManagementScope of Operations Management

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

Decline in Manufacturing JobsDecline in Manufacturing Jobs

Productivity Increasing productivity allows companies to

maintain or increase their output using fewer workers

Outsourcing Some manufacturing work has been outsourced

to more productive companies

Why Manufacturing Matters ?Why Manufacturing Matters ?

A lot of workers are in manufacturing jobs More than half of the total R&D performed is

in the manufacturing industries Manufacturing workers earn an average of

salary more than service workers When a manufacturing job is lost, an average

of 2.5 service jobs are lost

Challenges of Managing Challenges of Managing ServicesServices

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,

except specialist services Employee turnover is higher Input variability is higher Service performance can be affected by worker’s

personal factors

Decision Making of OMDecision Making of OM

System Design

– capacity– location– arrangement of departments

– product and service planning

– acquisition and placement ofequipment

WhatHow

Who

Where

When

Which

Decision Making of OMDecision Making of OM

System operation– personnel– inventory– scheduling– project

management– quality assurance

WhatHow

Who

Where

When

Which

OM and OM and Decision Making ToolsDecision Making Tools

Models Quantitative approaches Analysis of trade-offs Priorities Establishing Ethical Issues

ModelsModels

A model is an abstraction of reality.

– Physical– Schematic– Mathematical

Models Are BeneficialModels Are Beneficial

Easy to use, less expensive Require users to organize Increase understanding of the problem Enable “what if” questions Consistent tool for evaluation and

standardized format Power of mathematics

Limitations of ModelsLimitations of Models

Quantitative information may be emphasized at the expense of qualitative information

Models may be incorrectly applied and results misinterpreted

Nonqualified users may not comprehend the rules on how to use the model

Use of models does not guarantee good decisions

Quantitative ApproachesQuantitative Approaches

Often to obtain optimal solution to

managerial problem

• Linear programming

• Queuing Techniques

• Inventory models

• Project models

• Statistical models

Analysis of Analysis of Trade-OffsTrade-Offs

Decision on the amount of inventory to stock Increased cost of holding inventory

Vs. Level of customer service

Priorities Establishing Priorities Establishing (Pareto Phenomenon)(Pareto Phenomenon)

• A few factors account for a high percentage of the occurrence of some event(s).

• 80/20 Rule - 80% of problems are caused by 20% of the activities.

Ethical IssuesEthical Issues

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

Business Operations OverlapBusiness Operations Overlap

Operations

FinanceMarketing

Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal

Trends in BusinessTrends in Business

Major trends The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Agility (faster moving of technology and

fashion) Ethical behavior

Management TechnologyManagement Technology

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

Product and service technology Process technology Information technology

Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainSimple Product Supply Chain

Supply Chain: A sequence of activitiesAnd organizations involved in producingAnd delivering a good or service

Other Important TrendsOther Important Trends

Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production