1 POM Framework

Why study Operations Management?
Systematic Approach
to Org. Processes
Business Education Operations Career Opportunities

Management
Cross-Functional
Applications
EMG213 - Production and Operations Management EMG213 - Production and Operations Management 2
Where are the OM Jobs? Why Operations Management?
• Operations is one of three major functions

(marketing, finance, and operations) of
any organization.
o Lack of understanding can result in functional “silos”.
• Organizations’ primary purpose is to
produce goods and provide service to
customers.
• Operations is such a costly
part of an organization.
EMG213 - Production and Operations Management 3 EMG213 - Production and Operations Management 4
Organizing to produce goods and/or provide services Functions - Bank
Organization
Commercial Bank
Marketing Operations Finance/

Accounting
Marketing Operations Finance
Teller Check Transactions

Security
Scheduling Clearing Processing
Support Support
Function Function
Bank Organizational Chart Functions - Airline
Commercial Bank
Operations Marketing Airline

Finance
Teller Scheduling Investments Loans
Check Clearing Security Commercial
Marketing Operations Finance/
Transactions Real Estate Industrial Accounting
processing
Financial
Facilities Accounting
design/layout Personal
Vault operations Mortgage Flight Ground Facility
Maintenance Catering
Auditing Operations Support Maintenance
Security Trust Department
Airline Organizational Chart Functions - Manufacturer

Airline
Operations Finance & Marketing

Ground support Traffic administration Manufacturing
equipment Accounting
Reservations
Maintenance Accounting
Payables Schedules
Ground Operations Tariffs (pricing) Finance/
Receivables Marketing Operations
Facility maintenance Sales Accounting
Catering General Ledger
Finance Advertising
Flight Operations
Crew scheduling Cash control
Flying International exchange
Manufacturing Production Quality
Communications rates Purchasing
Control Control
Dispatching
Management science
Manufacturing Organizational Chart 3 Basic Functions of Business Organizations
Manufacturing
Operations Finance & Accounting Marketing
Facilities: Disbursements/credits Sales
Construction:maintenance
promotions
Receivables Advertising
Production & inventory control Payables
Scheduling: materials control Sales
General ledger
Supply-chain management Market
Funds Management research
Manufacturing Money market
Tooling, fabrication,assembly International exchange “deciding what is needed” “doing it”
Design Capital requirements
Product development and design
Detailed product specifications
Stock issue
Industrial engineering Bond issues and recall
Efficient use of machines, space, and personnel
Process analysis
Dev’t and installation of production tools & equipment “securing resources”
Primary purpose is to produce
goods and services. Operations Interface
Perform Must interact Industrial

different but to achieve Eng’g
related organization’s
goals & Human Public
activities Operations
Resources Relations
objectives
Operations
Marketing Finance
Information
Technology Corplan
Accounting
Organizational Success = Interface
The Operations Function Operations is such a costly part of an organization.
 Operations function is responsible for the

creation of an organization’s goods and/or
services Manpower
 Operations is the core function of the resources PROCESS
organization
 50% or more of all the jobs are in the area of
operations.
Materials
 Operations function is responsible for a major
portion of the assets in most organizations Machines
Understanding Production/Operations Management Operations Management Defined
PRODUCTION
- is the creation of goods & services
OPERATIONS MANAGEMENT (OM)

- is the management of systems or processes that
create goods and/or provide services through
the transformation of inputs to outputs
INPUT PROCESS OUTPUT
Productive System Productive System ≈ Operations
• A system is defined as an organized effort to
meet a specific objective. Inputs Processes Outputs
• A system acts on inputs to produce outputs
through a series of processes. Labor, Goods
• A productive system is a system that adds value, capital,
management
Transformation and
services
economic or otherwise, in the conversion of
inputs to outputs.
 The outputs must be useful and valuable.
• Operation and productive system are
synonymous.
Feedback loop
20
Operations is responsible for the creation

Types of Productive Systems of goods and services
1. Extraction of materials or energy from
the environment.
o Mining, drilling, etc.
2. Biological growth and change.
o Agriculture, forestry, animal and fish
husbandry.
3. Tangible-output conversion systems.
o Physical goods and products.
4. Intangible-output conversion systems. Manufacturing
o Primarily, non-physical outputs. & production
service
• May have associated tangible outputs
5. Hybrid conversion systems.
o Mix of biological, tangible and intangible
outputs.
22
Understanding Operations in the Context of

the Business System… Business System Model
Customer Requirements Company Objectives
Sales & Business

Marketing Planning
Production Finance & other

&Operations Production Support
Business
Customer Satisfaction
Review
COMPLEXITY and CRITICALITY of
Operations - the Technical Core of any Organization
Operations Management
Finance/Accounting
 OM is complex because of
Production and Budgets
Inventory data Cost analysis
Capital budgeting requests Capital investments  all the different and yet interrelated activities
Capacity expansion and Stockholder
Orders for materials Technology plans requirements Product/Service
Production and delivery Availability  the large variety of tasks involved
Schedules Quality Lead-time estimates
Marketing
Suppliers
Requirements Design/ Status of order

Performance specs Delivery schedules  the large number of associated tools and techniques
Operations
Material availability
Quality data
Sales forecasts
Customer orders  OM is critical because if anything goes wrong,
Delivery schedules Customer feedback
Designs Promotions
Personnel needs
Skill sets
Hiring/firing  not only could it lose a customer or create bad will
Training
Performance evaluations
Legal requirements
Job design/work
measurement
Union contract negotiations  it could undermine the whole competitive strategy of
Human Resources the organization
Developing the Operations Management Framework What is a transformation process?
A transformation process is defined as a

Framework Elements user of resources to transform inputs
1. The Transformation Model into some desired outputs
2. The Three (3) Key Tasks of Operations
Management
INPUT PROCESS OUTPUT
3. The Operations Strategy
28
I. The Transformation Model Inputs

Input Transformed Resources
transformed
resources  Materials
Materials
Information
 Customers
Customers  Information
THE Goods
INPUT TRANSFORMATION OUTPUT and
PROCESS Services
Facilities
Transforming Resources
Staff  Operations Facilities
Input
transforming
 Operations Staff
resources
EMG213 - Production and Operations Management 29

EMG213 - Production and Operations Management
The Transformed Resources The Transforming Resources
Customer processing The materials, customers, and information are transformed
Example: International airport processes customers through its terminals. resources, they are changed in some way during the operation.
Individual passengers are processed into batches of customers ready to board the
right planes at the right times. Plane loads of arriving passengers are processed What transforms them are the transforming resources:
through customs and immigration and reunited with their bags and transport. - the operations facilities
Materials processing - the operations staff
Example: Airport also processes materials such as baggage, food, and aeroplanes.
In-bound aircraft are transformed into clean and re-fuelled out-bound aircraft.
Examples:
Incoming raw food is transformed into meals for staff and passengers.
1)The cleaners, caterers, and re-fuellers transform the aircraft;
Information processing 2) The check-in staff, departure lounges, and restaurants
Example: Airport’s operation also processes a large amount of information – plane
schedules, air traffic control (ATC) information, and individual requests from transform the passengers.
passengers. ATC information is transformed into departure and arrival times on
the passenger information screens.
Customer/Materials/Information
Processing Operations
Process : Value-Adding Operations
Very few operations are exclusively engaged in processing

only customers, or materials, or information. Manufacturing or Service?
Yet one usually predominates, for example:

1) Airport’s operations predominantly transform
customers
2) Plastics manufacturing operations predominantly Tangible Act
transform materials
All of them, however, transform all three – information,

customers, and materials – to a greater extent.
Variety of Operations Production of Goods vs. Delivery of Services
Operations Examples • Production of goods – tangible output

Goods Producing Farming, mining, construction, • Delivery of services – an act
manufacturing, power generation
• Service job categories
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses, – Government
hotels, airlines – Wholesale/retail
Exchange Retailing, wholesaling, banking, – Financial services
renting, leasing, library, loans – Healthcare
Entertainment Films, radio and television,
– Personal services
concerts, recording
Communication Newspapers, radio and television – Business services
newscasts, telephone, satellites – Education
Key Differences Manufacturing versus Service
1. Customer contact Characteristic Manufacturing Service

2. Uniformity of input Output Tangible Intangible
3. Labor content of jobs Customer contact Low High
4. Uniformity of output Uniformity of input High Low
5. Measurement of productivity Labor content Low High

Uniformity of output High Low
6. Production and delivery
Measurement of productivity Easy Difficult
7. Quality assurance
Opportunity to correct High Low
8. Amount of inventory quality problems
High
Types of Operations Types of Transformation Processes

The degree of standardization and the volume of output of a
product or service influence how a firm organizes production.
TYPE Example
SINGLE,  Physical (manufacturing)
LARGE
SCALE
 Locational (transportation)
PRODUCT or  Storage (warehouse)
SERVICE
BATCHES
CONTINOUS
PROCESS
 Exchange (retail)
(PROJECT)
 Physiological (health care)
 Psychological (entertainment)
CUSTOMIZED MASS  Informational (communications)
INDIVIDUAL PRODUCTION
UNITS of
OUTPUT
(JOB SHOP)
40
Consider the JOLLIBEE Operations Transformation Process

1. The volume dimension
The organization: • High volume operations supplying repetitive or standardized products and
services allow repeatability, specialization, and systematization usually resulting
• STORES materials, food in relatively low unit costs.
• Low volume operations have a wider range of available options, with less
• TRANSPORTS to branches predictability and fewer opportunities for repetition and systematization.
2. The variety dimension
• MANUFACTURES by cooking and • The greater the variety of products or services produced, the more flexible the
operation has to be.
assembling the food 3. The variation dimension
• EXCHANGES for cash with customers • Variation is concerned with the change in patterns of demand for products or
services.
also • Little variation in demand allows some organizations easily to plan and control
their activities, resulting in a high utilization of resources.
• INFORMS by advertising 4. The customer contact dimension
• All operations have some degree of customer contact, but some have much more
than others.
41 EMG213 - Production and Operations Management
Operations Within Operations Output
Most operations are a complex set of interrelated smaller Goods Services
operations each with a specific function. (Tangible Product) (Intangible Product)
These sub-operations interact together, each having its own Can be resold Reselling unusual
transformation process. Can be inventoried Difficult to inventory
This complex network of micro-operations form internal Some aspects of quality Quality difficult to measure
customer-supplier relationships, which together provide the measurable
goods, services, and information to the external customer. Selling is distinct from Selling is part of service
All parts of an organization, whether micro-operations or indeed production
other functions such as marketing or finance, can be viewed as Product is transportable Provider, not product, is
often transportable
operations in their own right. Site of facility important for cost Site of facility important for
Each such operation will provide goods and/or services to customer contact
internal or external customers, and each will have to design, Often easy to automate Often difficult to automate
plan, control and improve its outputs and the processes by Revenue generated primarily Revenue generated primarily
which it creates those outputs. from tangible product from the intangible service
44
Characteristics of Goods Characteristics of Service

 Intangible product; can
 Tangible product not be inventoried
 Consistent product  Produced and
definition consumed at same time
 Production usually  Often unique
separate from  High customer
consumption interaction
 Inconsistent product
 Can be inventoried definition
 Low customer  Often knowledge-based
interaction  Frequently dispersed
Goods Versus Services Service or Good?

Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product) “If you drop it on your foot, it won’t hurt you.”
Can be resold Reselling unusual (Good or Service?)
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure
measurable
Selling is distinct from Selling is part of service
production
Product is transportable Provider, not product, is “Services never include goods and goods
often transportable never include services.” (True or False?)
Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily
from tangible product from the intangible service
EMG213 - Production and Operations Management Table 1.3 47 EMG213 - Production and Operations Management 48 8
Thinking Challenge Thinking Challenge
The distinction between goods & services is
seldom clear. Almost all goods have some service. Good Service
100% 75 50 25 0 25 50 75 100%
An automobile requires maintenance. Classify (1) | | | | | | | | |
computer, (2) fast-food restaurant, (3) dentist, (4) Automobile
counseling on the scale below.
Computer
Good Service
100% 75 50 25 0 25 50 75 100% Fast-Food Restaurant
| | | | | | | | |
Automobile Dentist
Counseling
INPUT-TRANSFORMATION-OUTPUT RELATIONSHIPS
What about McDonald’s? FOR TYPICAL SYSTEMS
System Primary Resources Primary Transformation Typical
• Service or Manufacturing? Inputs Functions desired result
Hospital Patients Mds, nurses Transportation Healthy individual

medical Health care
equipment (physiological)
• The company certainly manufactures Restaurant Hungry

customers
Food, chef,
wait-staff,
Well-prepared,
well-preserved food;
Satisfied customers
enviroment agreeable enviroment

tangible products (physical and exchange)
Automobile Sheet steel, Tools, Fabrication and assembly of High-quality
factory engine parts equipment, cars cars
workers (physical)
College or High school Teachers, Imparting knowledge and Educated
University graduates books skills Individual
• Why then would we consider McDonald’s a classrooms (Informational)
Department Shoppers Displays, Attract shoppers, promote Sales to satisfied

service business? store stock of
goods,
products, fill orders
(exchange)
customers
sales clerks
EMG213 - Production and Operations Management 51 9

Operations as a Transformation Process Essence of Operations

Value - Added
Transformation/
INPUT INPUTS Conversion
Material PROCESS
OUTPUT Land OUTPUTS
Machines TRANSFORMATION Goods-Service
Human Cutting, Drilling
Labor PROCESS Bundle - Goods
Management Raw Materials Transportation / Storage
Capital Canning, Construction
- Services
Equipment
Facilities Farming, Mining
Information Mixing, Packing

Feedback Consulting
Feedback
Feedback Feedback
Control
Essence of Operations How To Add Economic Value Doing OM
• Effectiveness means doing the right things to

VALUE-ADDED is the term used to create the most value for the customer and the
describe the difference between the cost company.
of inputs and the value or price of outputs
• Efficiency means producing a good or providing
WASTE, as defined by most businesses, a service by using the smallest input of
is anything that does not add value resources.
• Productivity is the amount of output

Economic Value = Profit accomplished relative to the amount of inputs
used to produce the output.
P/OM and Productivity Other Factors Affecting Productivity
• Standardization
Labor Capital
• Quality
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
Technology Management • Scrap rates
Factors Affecting Productivity
• New workers
Other Factors Affecting Productivity Measuring Productivity

Outputs
• Safety Productivity =
Inputs
• Shortage of IT workers
• Layoffs • Partial measures
= output / (single input)
• Labor turnover
• Multi-factor measures
• Design of the workspace = output /(multiple inputs)
• Incentive plans that reward productivity • Total measure
= output / (total inputs)
Uses of Productivity Measures Measures of Productivity
• Measure of the effective use of resources

o usually expressed as the ratio of output to input Partial Output Output Output Output
• Productivity ratios are used for measures Labor Machine Capital Energy
o Planning workforce requirements
o Scheduling equipment Multifactor Output Output
o Financial analysis measures Labor + Machine Labor + Capital + Energy
• Measure of process improvement.
o Compare productivity before and after any changes. Total Goods or Services Produced
• Economic result: measure All inputs used to produce them
o increase productivity  improve the operation 
increase revenue and/or reduce operating costs 
increase profit and profitability.
Examples of Partial Productivity Measures Multi-Factor Productivity
Labor Units of output per labor hour

Units of output per shift
Productivity Value-added per labor hour Output
Productivity =
Machine Units of output per machine hour Labor + Material + Energy
machine hour + Capital + Miscellaneous
Productivity
Capital Units of output per dollar input
Dollar value of output per dollar input
Productivity
Units of output per kilowatt-hour o Also known as total factor productivity.
Energy
Dollar value of output per kilowatt-hour o Output and inputs are often expressed in dollars.
Productivity
Example: Collins Title Productivity Example: Collins Title Productivity

Old System: Old System:
Staff of 4 works 8 hrs/day 8 titles/day Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day Payroll cost = $640/day Overhead = $400/day
New System: New System:
14 titles/day Overhead = $800/day 14 titles/day Overhead = $800/day
Old multifactor 8 titles/day

Old labor 8 titles/day = = .0077 titles/dollar
= productivity
productivity 32 labor-hrs = 0.25 titles/labor-hr $640 + 400
14 titles/day New multifactor 14 titles/day

New labor = = .0097 titles/dollar
= = 0.4375 titles/labor-hr productivity $640 + 800
productivity 32 labor-hrs
75% improvement 26% improvement
Another Example Solution
7040 Units Produced MFP = Output

Labor + Materials + Overhead
Sold for $1.10/unit
MFP = (7040 units)*($1.10)
Cost of labor of $1,000 What is the
$1000 + $520 + $2000
multifactor
Cost of materials: $520 productivity?
MFP = 2.20
Cost of overhead: $2000
Exercise on Productivity Measurement Exercise on Productivity Measurement

Given: You have just determined that your service employees
You have just determined that your service have used a total of 2400 hours of labor this week to
employees have used a total of 2400 hours of process 560 insurance forms. Last week the same
crew used only 2000 hours of labor to process 480
labor this week to process 560 insurance forms. forms.
Last week the same crew used only 2000 hours
of labor to process 480 forms. Which productivity measure should be used?
Answer: Could be classified as a Partial Measure of
Labor Productivity.
Questions: Is productivity increasing or decreasing?
1. Which productivity measure should be used? Answer: Last week’s productivity = 480/2000 = 0.24,
2. Is productivity increasing or decreasing? and this week’s productivity is = 560/2400 = 0.23. So,
. productivity is decreasing slightly.
Productivity vs. Efficiency Efficiency, Effectiveness, and Value
• Both productivity and efficiency are measures • Efficiency means producing a good or
of output, but … providing a service by using the smallest
• Productivity is a measure of output in terms of input of resources.
the utilization of input resources.
• Effectiveness means doing the right
• Efficiency is a measure of output in terms of
the utilization of productive capability or
things to create the most value for the
“capacity.” company.
• So, productivity and efficiency are NOT the
same thing. • Customer Value = Quality
o Cannot use the terms interchangeably.
Price
Transformation is
OM Involves Managing Transformations
enabled by the 5 Ps or the 5 Ms of OM
The administration of processes that transform 5 Ps 5 Ms
inputs into output bundles of goods and services
• People • Man
Transformation • Plants • Machines
Process
Input Output
(Value Adding) • Parts • Materials
• Processes • Methods
• Planning & • Money &
Control Management
© 1984-1994 T/Maker Co.
The Fundamental Purpose of OM Developing the Operations Management Framework
Framework Elements
1. The Transformation Model
2. The Three (3) Key Tasks of Operations
Management
Operations Management Defined The 3 Key Tasks of Operations Management

ENVIRONMENT
 The design and control of the systems OM is
responsible for the productive use of raw concerned
with the
materials, human resources, equipment, design,
and facilities in the development of a planning & Transformation
product or services. control, and Design Process Improvement
improvement
of an
 The design, operation, and improvement of organization’s
Planning
production systems that create the firm’s resources and
processes to & Control
primary products or services. (best produce
definition, WHY?) goods or
services.
ENVIRONMENT
Scope of Operations Management System Design
1. SYSTEM DESIGN 2. SYSTEM OPERATION • Design of Products and Services
– involves decisions relating to – involves management of
• Process Selection
 system capacity  personnel
 geographic locations of  inventory planning & • Technology Choice
facilities control • Facility Location
 arrangement of  scheduling
departments  project management
• Facility Layout
 layout of equipment  quality assurance • Capacity Planning
 product or service
planning
 acquisition of equipment.
Designing Products and Services Designing Products and Services

 Design is the activity of determining the purpose,  Design is the activity of determining the purpose,
physical form, shape, and composition of products and physical form, shape, and composition of
services, and also, importantly, designing the products and services, and also, importantly,
processes that will be used to produce them. designing the processes that will be used to
produce them. (concurrent design)
 Design is done to fulfill not only for its current and
identified requirements, but also with the possible  Design is done to answer 3 questions:
demands of the next year or even the next 10 years in 1. How the product will look like? (form)
mind. 2. How the product will perform? (function)
3. How the product will be made? (production)
 Design is an important activity that will ensure the long-
term success of the organization.  Design must deliver the value proposition
(order qualifiers & order winners)
Goods Contain Services / Services Contain Goods Defining A Product-Service Bundle
Automobile • Good
Computer
Installed carpeting
 a tangible object or product
Fast-food meal • Service
Restaurant meal/auto repair
 intangible and perishable
Hospital care
Advertising agency/ • Facilitating services
investment management
 allow benefits of the good’s intended use
Consulting service/
teaching • Facilitating goods
Counseling
 transfer of a service’s value to customer
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |
Percent of Product that is a Good Percent of Product that is a Service
The Goods – Services Continuum Providing The Right Goods And Services
Product-service bundle
Value-adding system
Performance measuring system
Customer satisfaction feedback
Customer satisfaction equals [product
benefits] minus [service bundle
performance] minus [customer
expectations]
Develop the Value-Adding System SERVICES : Front and Back Office

System components
o managerial infrastructure
o service delivery system Back Office
o manufacturing process
o linkages among components Service Provider
Customer contact plays important role
o customer role in value-adding process Front Office Line of Sight
o line of sight; design efficiency
Customer
EMG213 - Production and Operations Management 87 EMG213 - Production and Operations Management 88 10
Design of Goods & Services Process Selection

 Involves determining how to produce a product
• Order qualifiers or provide a service
o Characteristics that customers perceive as  Reflects how the firm has chosen to
minimum standards of acceptability to be  compete in the marketplace
considered as a potential purchase  reinforce product decisions
• Order winners  automate or not (technology choice)
o Characteristics of an organization’s goods or  Facilitates the achievement objectives
services that cause it to be perceived as better  Meet or exceed customer requirements
than the competition  Meet cost & managerial goals
 Has long-run effects
 product & volume flexibility
 costs & quality
Process Selection Facility Location
 Considers key aspects of:
 Capital Intensity - the mix of capital (i.e., equipment,  Location is a major revenue factor
automation) and labor resources used in the – Affects amount of customer contact.
production process. – Affects volume of business.
 Process Flexibility - the ease with which the system – Two rules:
can be adjusted to changes in demand, technology, Rule 1: Go where your customers are located.
products or services, and resource availability. And draw them in to your facility.
Rule 2: There are no exceptions to Rule 1.
 Vertical Integration - the extent to which the firm will
produce the inputs and control the outputs of each
stage of the production process  Location is also a major cost factor
• Affects shipping and production costs
 Customer Involvement - the role of the customer in (e.g., labor).
the production process • Costs vary greatly between locations.
Facilities Layout System Design Decision Areas

 Facilities layout means the location or arrangement of
everything within and around the facility that provides the
product and the service.
 Areas of Concern:
Communication
Service Areas Material Attributes

Layout
Warehousing Decision Work Flow
Safety Material Flow
 Good layout
 is a “revenue multiplier”
 leads to customer service.
 provides flexibility for future rearrangement / growth
System Operation Planning & Controlling the Operation

 Planning & control of operations is a major
• Capacity (Aggregate) Planning task for all operations managers
• Supply Chain Planning
 Coordinating all different internal operations
• Inventory Planning & Control to ensure that materials and customers are in
• Material Requirements Planning the right place at the right time for the right
operation.
• Production Scheduling
• Quality Control  Planning & control is the activity of deciding
what the operations resources should be
doing, then making sure that they really are
doing it.
Reconciling Demand with Supply Operations Planning and Control
• Capacity planning and control – planning and control
at an aggregate level
Supply of PLANNING Demand for • Inventory planning and control – managing physical
products and AND CONTROL products and inventory to meet intermediate or end demand
services services • Supply chain planning & control – ensuring the best
flow of goods and services through the supply network
The • Materials Requirements Planning (MRP) – planning
activities and control of dependent demand items with the aid of a
which computer-based information system
The reconcile The
operation’s operation’s • Short-term scheduling – detailed planning of the
supply
resources customers operation including loading, sequencing and scheduling
and
decisions
demand
• Quality planning & control – ensuring the quality of
goods and services produced

Capacity (Aggregate) Planning Inventory Management

The essence of the task is to reconcile the supply of capacity What to order?
with the level of demand which it must satisfy.
How much to order? When to order?
Inventory
Capacity Demand Process Number Demand

Other
Stage & Value Type
 Inventory • Promotion & price
 Hire or layoff • Back ordering
 Overtime or idle time • Counter-seasonal Raw Mat'l A Items Mainten.
Independent
 Subcontract product mixing WIP B Items Repair
Dependent
Fin. Goods C Items Operating
 Part-time workers
EMG213 - Production and Operations Management EMG213 - Production and Operations Management
Supply Chain Planning & Control Supply Chain Planning & Control
• is concerned with the flow of goods and services

through the supply network, from suppliers through to
customers.
• is focused on satisfying end customers
Production
Purchasing RM Distribution
FG
Receiving Conversion
Storage Storage
102
Short-Term Scheduling Scheduling Criteria
• Deals with timing of operations The correct scheduling technique depends on

• Establishing the timing of the use of equipment,  Volume of orders
facilities and human activities in an organization  Nature of operations
• Effective and efficient scheduling can be a  Complexity of jobs

competitive advantage  Importance placed on each of the following
 Faster movement of goods through a facility means scheduling criteria:

better use of assets (efficiency) and lower costs 1) Minimize completion time or process times
(productivity) 2) Maximize utilization of staff equipment and
 Additional capacity resulting from faster throughput facilities
improves customer service through faster delivery 3) Minimize Inventory (WIP & FG)
 Good schedules result in more reliable deliveries 4) Minimize customer waiting time
QUALITY PLANNING AND CONTROL Quality Management

Quality is often defined as „consistent
Customer
conformance to customers‟ expectations‟.
This definition does not take into account of the fact that the quality of Product Service Marketing
the product/service may be perceived differently by different customers.
Packaging and Quality Product

Quality is the „degree of fit between Storage Product Design
customers‟ expectations and their
perception of the product or service‟. Inspection Procurement
and Test
This definition integrates the operations’ view of quality, concerned with trying Process
to meet customer’s expectations, and the customer’s view of quality. Production
Design
Quality Management Dimensions of Quality for Goods

QC QA TQM
organization &  Operation
Focus product or service process
customer Quality  Reliability & durability
 Conformance
ensures meeting provides adequate provides a philosophy
Aim  Serviceability
specifications confidence and set of principles
 Appearance
measuring / planned / integrated /  Perceived quality
Activities
correcting systematic disciplined
Importance of Quality 10 Critical OM Decision Areas
1. Service and/or product design
Market Gains  Costs & 2. Quality management
Reputation market share 3. Process selection, capacity design
Volume  Company’s 4. Location
Price reputation
Improved Increased 5. Layout design
 Product
Quality Profits
liability
6. Human resources, job design
Lower Costs 7. Supply-chain management
Productivity  Productivity
improvement 8. Inventory management
Rework/Scrap
Warranty 9. Scheduling
10.Maintenance
The Critical OM Decisions The Critical OM Decisions

 Service and/or product design  Layout design
 What good or service should we offer?
 How should we design these products and  How should we arrange the facility and material
services? flow?
 Quality management  How large must the facility be to meet our plan?
 How do we define quality?  Human resources and job design
 Who is responsible for quality?
 Process and capacity design  How do we provide a reasonable work
 What process and what capacity will these products environment?
require?  How much can we expect our employees to
 What equipment and technology is necessary for produce?
these processes?
 Location  Supply-chain management
 Where should we put the facility?  Should we make or buy this component?
 On what criteria should we base the location  Who are our suppliers and who can integrate into
decision? our e-commerce program?
The Critical Decisions OM Responsibilities

 Inventory, material requirements planning • PLANNING
 How much inventory of each item should we have? • ORGANIZING
 When do we re-order?
• STAFFING
 Intermediate and short–term scheduling
 Are we better off keeping people on the payroll during • DIRECTING and
slowdowns? • CONTROLLING
 Which jobs do we perform next?
of activities relating to the creation of goods
 Maintenance and services through the transformation of
 Who is responsible for reliability and maintenance? inputs into outputs
 When do we do maintenance?
 How do we build and maintain reliable systems?
Examples of the Responsibilities of
Operations Managers OM Responsibilities…extended
Planning Organizing • Planning
Capacity Degree of centralization • Organizing & Staffing
Location Process selection
Products and Services • Leading & Motivating
Make or Buy
Staffing • Directing
Layout
Projects Hiring/Laying off • Controlling and
Scheduling Use of overtime • Business Development
Controlling  Manage for the long term
Directing
Inventory Control  Do not remain as a one-product business
Incentive plans
Quality Control
Issuance of work orders  Pursue sustainable growth & profitability
Costs
Productivity Job assignments
Decision-Making Approaches in OM Models

The chief role of an operations manager is that of planner and decision
maker. He exerts considerable influence over the degree to which the A model is an abstraction of reality.
goals and objectives of the organization are realized.
 MODELS – Physical
– Schematic
 QUANTITATIVE METHODS
– Mathematical
 ANALYSIS OF TRADE-OFFS
 SYSTEMS APPROACH
 ESTABLISHING PRIORITIES What are the pros and cons of models?
 ETHICS
Models Are Beneficial Quantitative Approaches

• Easy to use, less expensive
• Linear programming
• Require users to organize
• Systematic approach to problem • Queuing techniques
solving
• Increase understanding of the problem • Inventory models
• Enable “what if” questions • Project models
• Specific objectives
• Consistent tool • Statistical models
• Power of mathematics
• Forecasting techniques
• Standardized format
Analysis of Tradeoffs Systems Approach
“The whole is greater than the sum of the parts.”
Examples
• in deciding on the amount of inventory
(customer service level vs. additional inventory)
• in selecting a piece of equipment (merits of
extra features relative to its cost)
Suboptimization
• in scheduling of overtime to increase output
(value of increased output against higher OT
costs – higher labor costs, lower productivity, • Emphasizes interrelationships among subsystems
lower quality, and greater risk of accidents) • Is important to take into account the impact on all
parts of the system.
Establishing Priorities Ethics in Operations Management

• A few factors account for a high percentage of • worker safety
the occurrence of some event(s).
• product safety
• 80/20 Rule - 80% of problems are caused by
• quality
20% of the activities.
• the environment
How do we identify the vital few? • the community
• hiring and firing workers
• closing facilities
Pareto Phenomenon • workers‟ rights
Hierarchy of Operations Management Decisions System Improvement
 All operations, no matter how well managed,

Broad Scope
• Product Selection Design
are capable of improvement.
• New facility construction Resource Planning
Long - Term • Choice of location
Strategic Capacity / Capability Building  When products and services have been
• Choice of technology
designed and the operation’s work is being
Moderate Scope
Medium - Term • Employment levels
Capacity Utilization planned and controlled, this is not the end of
Tactical Effectiveness in Meeting
• Output levels
Market Demand operations management’s direct responsibilities.
• Inventory policies
Narrow Scope
•Scheduling personnel Efficiency
 The continuing responsibility of all operations
Operational
Short - Term •Adjust output rates Management Productivity managers is to improve the performance of their
•Controlling quality
•Inventory replenishment operation.

126
Improving the Operations Performance Performance Measurement Fundamentals
 Failure to improve at least as fast as competitors or Performance Measure

at the rate of customers’ rising expectations is to A quantification of how well activities
within a process or the outputs of a
condemn the operations function always to fall short process achieve a specified goal
of what customers expect and what the organization
as a whole requires from it.
 Emphasis has shifted markedly towards making
improvement as one of the main responsibilities of
operations managers. It deals with four (4) main
areas:
 Metrics (Performance Management)
 Continuous Improvement (Kaizen) Cost-based measures
address the financial
Quality-based measures Time-based measures
examine how well focus on speed and
 Waste Elimination (Lean Thinking) side of performance products or services responsiveness
 Ethics and CSR (Sustainability) meet customer needs

127 EMG213 - Production and Operations Management 128
Effective Performance Measurement Continuous Improvement

• Focused on the needs and expectations of
customers and stakeholders
• Simple to understand and easy to use
• Close to operations
• Aligned with organizational goals
• Stimulates continuous improvement
Continuous Improvement PDCA Model of Continuous Improvement

Employs the PDCA cycle:
 Plan. The examination of the current
method or the problem area being studied
and the formulation of a plan of action.
 Do. The implementation of the plan.
 Check. The evaluation of the plan
against expected performance
improvement.
 Act. The consolidation or standardization
of successful change and the re-planning,
doing, checking, acting of unsuccessful
change.
The Importance of Planning in Solving Problems Continuous Improvement
Old Adage:
“If you always do what you always did,

you‟ll always get what you always got.”
Competitive Corollary:
“If the other guy gets BETTER, you‟re

gonna get LESS.”
NVA
Wastes Goals of Lean Manufacturing
• Elimination of wastes
LEAN is
“A systematic approach to • A continuous flow of
identifying and eliminating waste material from raw material
(non-value added activities) to finished goods
through continuous improvement
by flowing the product at the
• Produce only what is
pull of the customer in pursuit of
needed
perfection.”
Lean = Eliminating Waste Eight Types of Lean Wastes
Non-Value Value-Added
Added 5%
95%
- Overproduction
- Waiting
- Transportation
- Non-value-added Processing
- Excess Inventory
- Defects
- Excess Motion
- Underutilized Employees
Typically 95% of all lead time is non-value-added.
Acronym for the Eight (8) Lean Wastes The 3 Mu’s
D efects Muda
O verproduction (Waste)
W aiting
Mura
N on-value-added (NVA) processing
(Unevenness)
T ransportation
I nventory (excess) Muri
M otion (excess) (Strain)
E mployees (underutilized)
Mu’s are indicators of system inefficiency!
139 140
LEAN = ELIMINATING WASTE False Efficiency versus Real Efficiency
Eliminating Waste Means Working Smarter, Not Harder

200 units by 10 persons 250 units by 10 persons = Muda of 50 units
We need
250 units by 10 persons only 200
200 units by 8 persons = KAIZEN
More units
Same Value
Work
Value + More Waste
Waste
Value = More Work
More Value
Value
+ Less Waste
Waste
= Same Work False Efficiency Real Efficiency
House of Lean LEAN Principles

• Specify Value
• Identify Value Stream PERFEC
• Make Value Flow TION
• Pull Production
PULL
• Pursue Perfection
FLOW
VALUE
STREAM
VALUE
Perfection means. . . Lean Manufacturing & Productivity
 Correct specification of value to the customer

 Use of process which is:
 Capable – right every time (TQM, 6 Sigma)
 Available – always able to run (TPM) Triangle

of Productivity
 Adequate – uniform capacity for continuous
flow (Manufacturing Cells)
 Timely – produce only what is needed (JIT) PROCESS MANAGEMENT
 Elimination of wasteful NVA steps (Lean)
 Focus on continuous improvement (PDCA)
EMG213 - Production and
145Operations Management 145 EMG213 - Production and Operations Management 146
The Challenge Of Social Responsibility Corporate Social Responsibility

 Operations managers function in a system “… every organization must assume
where they are subjected to constant changes full responsibility for its impact on
and challenges. These come from stakeholders employees, the environment,
such as customers, suppliers, owners, lenders,
customers, and whomever and
and employees.
whatever it touches. That is social
 These stakeholders and government agencies responsibility.”
require that operations managers respond in a
socially responsible way in maintaining a clean
Peter Drucker
environment, a safe workplace, and
ethical behavior and also in being involved in
community development.
Sustainability & the Triple Bottom Line Sustainability & the Triple Bottom Line
•Meeting the bottom line of not just economic • Economic returns

(financial) performance, but social and (PROFIT)
environmental performance as well. • Positive social impacts
(PEOPLE)
•Also referred to as People, Planet & Profits • Environmental care
or 3P’s by Shell (PLANET)
Environmental Social
Triple Bottom Line
Economic
(Elkington 1997)
Sustainability
Ethics and Social Responsibility Operations Managers & Decision Making
• worker safety
In making decisions, operations managers
• product safety
must consider how their decisions will affect
• quality all stakeholders.
• the environment Finding solutions that will be in the best
• the community interests of all stakeholders is not always
• hiring and firing workers easy, but it is a goal that all operations
managers should strive to achieve.
• closing facilities
• workers‟ rights
Developing the OM Framework (con’t) Developing the Operations Management Framework
Input Transformation Process + 3 Key Tasks

transformed
resources ENVIRONMENT
Framework Elements
Materials
Information
Customers
1. The Transformation Model
Design Improvement
INPUT
THE Goods 2. The Three (3) Key Tasks of Operations
TRANSFORMATION OUTPUT and
Planning
PROCESS Services Management
& Control
Facilities
Staff
ENVIRONMENT
Input
transforming
resources
Why Some Organizations Fail Strategic Management
• Too much emphasis on short-term VISION

VISION Must be articulated to provide
“unity of direction”
financial performance 
• Failing to take advantage of strengths MISSION
MISSION Goals, Values , Objectives
and opportunities 

includes determining:
STRATEGY
• Failing to recognize competitive threats 1) Target market
2) Level of investment
• Too much emphasis in product and STRATEGY 3) Means of allocating resources and
developing distinctive competencies
service design and not enough on 4) Functional area strategies, including:
improvement – The marketing strategy
– The financial strategy
• Neglecting operations strategy ORGANIZATIONAL
– The operations strategy
SUCCESS
Planning Hierarchy Business/Functional Strategy
long-term enterprise
Mission
Goals
planning horizon
corporate level
Organizational Strategies
Functional Goals
Finance Operations Marketing
Strategies Strategies Strategies
Tactics Tactics Tactics
Operating Operating Operating operational

short-term
procedures procedures procedures
Importance of Operations Strategy Operations Strategy Across the Organization
• Essential differences between operational • Business strategy defines long-term plan

efficiency and strategy: • Operations strategy support the business
o Operational efficiency is performing tasks well, even strategy
better than competitors
• Marketing strategy needs to fully understand
o Strategy is a plan for competing in the marketplace operations capability
• Operations strategy ensures all tasks • Financial plans in effect support operations
performed are the right tasks activities.
159 160
Three Inputs to a Business Strategy Developing an Operations Strategy

Operations Strategy: a plan for the design and
management of operations functions
o is developed after the business strategy
o focuses on specific capabilities which give it a
competitive edge – competitive priorities
161
162
Operations Performance Objectives Strategy starts with Competitive Priorities
There are eight (8) possible competitive priorities

It is important to realize that even the most for operations, which fall into four groups:
original and brilliant strategy can be rendered
totally ineffective by an inept operations function. Cost 1. Low-cost operations
Quality 2. High-performance design
Operations must go about ensuring that it
3. Consistent quality
contributes effectively to the organization’s
Time 4. Fast delivery time
strategy by clearly understanding the long-term
goals of the organization and translating the needs 5. On-time delivery
of customers into desirable capabilities, or 6. Development speed
Flexibility 7. Customization
“competitive priorities”.
8. Volume flexibility
Operations Strategy – Designing the Operations Function Operations Strategy

• Understanding the organization’s
strategic intentions
• Translating them into operations
performance objectives to guide
operations decisions about the design,
planning, control, and improvement of
operations resources and processes
165 166
Operations Strategy guides

OM Planning and Decision-Making Operations Strategy
Marketplace
This is followed by developing selected
Business Strategy capabilities that relate to the product or
service itself, delivery system, and volume
Finance Strategy Operations Strategy Marketing Strategy factors.
Operations Management A firm gains an advantage with its operating
system by outperforming competitors in terms
Production System
Outputs
of one or more of these capabilities.
Inputs
Materials
People Plants Parts Processes
Goods Competitive advantage is derived from
Customers
Information
Services consistently satisfying customers
Planning & Control Systems
Long-term profitability comes from sustained
5P’s of Production = OM Enablers competitive advantage
How It Works Strategy Formulation
If competitive Distinctive Competencies

advantage, Company Distinctive
The special attributes or abilities that give
leads to Mission competencies an organization a competitive edge.
achieving affect
 Price
Business
Strategy  Quality
 Time
Functional Area
 Flexibility
Strategies
 Service
Marketing Operations Fin./Acct.  Location

Decisions Decisions Decisions
Operations Strategy Quality and Time Strategies
• Quality-based strategies
Customer Needs Business Strategy o Focuses on maintaining or
improving the quality of an
Alignment organization’s products or
services
Operations Strategy Core o Quality at the source
Competencies
• Time-based strategies
OM Decisions o Focuses on reduction of
Processes, Infrastructure, and Capabilities
time needed to accomplish
tasks
EMG213 - Production and Operations Management 171 BUS118 - Production and Operations Management 172
Michael Porter’s Strategies Competing on Differentiation

Competitive Uniqueness can go beyond both the
Advantage!
Differentiation physical characteristics and service
(Better)
attributes to encompass everything that
impacts customer’s perception of value
Quick Cost  Safeskin gloves – leading edge products

Response Leadership
 Walt Disney Magic Kingdom –
(Faster) (Cheaper)
experience differentiation
© 1995 Corel Corp.  Hard Rock Cafe – theme experience
Competing on Cost Competing on Response
Provide the maximum value as

perceived by customer. Does not imply  Flexibility is matching market changes in
low quality. design innovation and volumes
 Institutionalization at Hewlett-Packard
 Southwest Airlines – secondary
airports, no frills service, efficient  Reliability is meeting schedules
utilization of equipment  German machine industry
 Wal-Mart – small overheads, shrinkage,  Timeliness is quickness in design,
distribution costs
production, and delivery
 Franz Colruyt – no bags, low light, no
music, doors on freezers  Johnson Electric, Bennigan’s, Motorola
Operations Strategy Operations Management

 is the means by which the firm deploys its o is a very immediate occupation (technical core)
resources to achieve its competitive goals
 is the sum total of all decisions concerning o involves hundreds of minute-by-minute decisions
the production, storage, and distribution of throughout the working week (system operation)
goods
Important Operations Strategy Decisions include: o is guided by the operations strategy in the direction of
1) Design of Goods & Services 6) Human Resources the organization’s longer-term goals (system design)
2) Managing Quality 7) Supply Chain Management
3) Process Strategy 8) Inventory Management
9) Scheduling
o creates the role and objectives of the operations so
4) Location Strategy
5) Layout Strategies 10) Maintenance they contribute to and support the organization’s
ultimate business strategy (value creation)
Operations Role in Strategy Implementation Historical Development of POM

1. As a support to business strategy • JIT and TQC
 develop its resources to provide the capabilities • Manufacturing Strategy Paradigm
needed to enable the organization to achieve its
• Service Quality and Productivity
strategic goals
 adapt itself to support the strategic intent • Total Quality Management and Quality Certification
• Business Process Reengineering
2. As the implementer of business strategy • Six-Sigma Quality
 “operationalize” and implement the chosen strategy
• Supply Chain Management
3. As the driver of business strategy • Electronic Commerce
 “drive” the strategy by developing core competencies • Service Science
to give the business a long-term competitive
advantage
Significant Events in Operations Management Major Trends
 The Internet, e-commerce, and e-business
 Management of technology
 Globalization
 Management of supply chains
 Agility
 Ethical behavior
 Operations strategy
 Working with fewer resources
 Cost control and productivity
 Quality and process improvement
 Increased regulation and product liability
 Lean production
 Ecological responsibility
EMG213 - Production and Operations Management 181 EMG213 - Production and Operations Management
Changing Challenges for the Operations Manager Changing Challenges for the Operations Manager
Past Causes Future

Local or Low -cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just -in -time
shipments reducing investment in shipments
inventory
Low - bid Quality emphasis requires that Supply -chain
purchasing suppliers be engaged in product partners
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer -aided design, and alliances,
international collaboration collaborative
designs
New Challenges in OM Completing the POM Framework
From To Input
transformed Transformation Process + 3 Key Tasks
resources
Local or national focus Global focus
ENVIRONMENT
Batch shipments Just-in-time Materials
Information
Low bid purchasing Supply chain partnering Customers
Lengthy product Rapid product Design THE Improvement

development development, alliances INPUT TRANSFORMATION OUTPUT
Goods
and
PROCESS
Standard products Mass customization Planning Services
& Control
Job specialization Empowered Facilities

Staff
employees, teams ENVIRONMENT
Input
transforming
resources
POM Framework POM Framework
The The
ENVIRONMENT ENVIRONMENT
Operations Operations
Input Strategic Input Strategic
transformed Objectives transformed Objectives
resources Operations resources Operations
The The
Strategy Strategy
Operations Operations
Materials competitive role
Materials competitive role
Information & position Information & position
Customers Customers
Design THE Improvement Goods Design THE Improvement Goods
INPUT TRANSFORMATION OUTPUT INPUT TRANSFORMATION OUTPUT
and and
PROCESS
Planning Services PROCESS
Planning Services
& Control & Control
Facilities Facilities
Staff Staff
ENVIRONMENT ENVIRONMENT
Input Input
transforming Transformation Process + 3 Key Tasks + Strategy transforming Transformation Process + 3 Key Tasks + Strategy
resources resources (value) (management) (driver)
The Operations Management Challenge
The operations manager‟s job

is to implement an OM
strategy, provide competitive
advantage, deliver the value
proposition, and increase
productivity.

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Why study Operations Management?

Business Education Operations Career Opportunities

Where are the OM Jobs? Why Operations Management?

• Operations is one of three major functions

Organizing to produce goods and/or provide services Functions - Bank

Marketing Operations Finance/

Teller Check Transactions

Operations Marketing Airline

Airline Organizational Chart Functions - Manufacturer

Operations Finance & Marketing

Manufacturing Organizational Chart 3 Basic Functions of Business Organizations

Perform Must interact Industrial

The Operations Function Operations is such a costly part of an organization.

 Operations function is responsible for the

 Operations is the core function of the resources PROCESS

Understanding Production/Operations Management Operations Management Defined

OPERATIONS MANAGEMENT (OM)

INPUT PROCESS OUTPUT

Operations is responsible for the creation

Understanding Operations in the Context of

Sales & Business

Production Finance & other

Requirements Design/ Status of order

Developing the Operations Management Framework What is a transformation process?

A transformation process is defined as a

I. The Transformation Model Inputs

EMG213 - Production and Operations Management 29

Very few operations are exclusively engaged in processing

Yet one usually predominates, for example:

All of them, however, transform all three – information,

Variety of Operations Production of Goods vs. Delivery of Services

Operations Examples • Production of goods – tangible output

1. Customer contact Characteristic Manufacturing Service

5. Measurement of productivity Labor content Low High

Types of Operations Types of Transformation Processes

Consider the JOLLIBEE Operations Transformation Process

Characteristics of Goods Characteristics of Service

Goods Versus Services Service or Good?

Hospital Patients Mds, nurses Transportation Healthy individual

• The company certainly manufactures Restaurant Hungry

enviroment agreeable enviroment

• Why then would we consider McDonald’s a classrooms (Informational)

Department Shoppers Displays, Attract shoppers, promote Sales to satisfied

EMG213 - Production and Operations Management 51 9

Operations as a Transformation Process Essence of Operations

Information Mixing, Packing

• Effectiveness means doing the right things to

• Productivity is the amount of output

P/OM and Productivity Other Factors Affecting Productivity

Other Factors Affecting Productivity Measuring Productivity

• Measure of the effective use of resources

Examples of Partial Productivity Measures Multi-Factor Productivity

Labor Units of output per labor hour

Example: Collins Title Productivity Example: Collins Title Productivity

Staff of 4 works 8 hrs/day 8 titles/day Staff of 4 works 8 hrs/day 8 titles/day

Old multifactor 8 titles/day

14 titles/day New multifactor 14 titles/day

7040 Units Produced MFP = Output

Exercise on Productivity Measurement Exercise on Productivity Measurement

Productivity vs. Efficiency Efficiency, Effectiveness, and Value

© 1984-1994 T/Maker Co.

The Fundamental Purpose of OM Developing the Operations Management Framework

Operations Management Defined The 3 Key Tasks of Operations Management

Designing Products and Services Designing Products and Services