Overview of the module

 Module Name : Operations Management

 Number of learning hours : 36 hours

 Assignment criteria : A written assignment of

6000 words

 Recommended reading : An Introduction to

Operations Management by C.D.J. WATRES
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 Operations Management
 Definition : Operations Management

 Systematic direction, control, and evaluation

of the entire range of processes that
transform inputs into finished goods or
services.

 Diagram for OM : Classroom discussion

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The operations function involves the
conversion of inputs into outputs

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

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 Food Processor
Table 1.2

Inputs Processing Outputs

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

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 Hospital Process
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Superior

Hospital Surgery Treatment ,
Medical Supplies Monitoring Information
Equipment Medication
Laboratories Therapy

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Why Operations Management?
 Operations Management :
 is to incorporate efficiency and
effectiveness principles into the processes.
 is to incorporate innovation into the
processes to gain the competitive
advantage
 is to reduce costs and encourage
technological development in processes
for long term sustainability of the firm.

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Examples
 Introducing GPS navigation systems in
vehicles to locate the destination which
increases the efficiency of drivers.
 Traditional banking practices replace with
electronic banking concepts brings
innovation into business processes.
 Six sigma , ISO or CMM practices help
organization to reduce cost of it’s operations.
 eChanneling facility for Doctor reservation
 SFA automation to increase the interactive
level of Reps
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Organizing to Produce Goods and
Services
 Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the
product (Goods and Services)
3. Finance/accounting – tracks how well
the organization is doing, pays bills,
collects the money
4. Human Resources – provides labor,
wage and salary administration and
job evaluation

© 2011 Pearson Education, Inc.

 Organizing Charts for :

Service Organizations
and
Manufacturing Organization
Operations Management – Key elements

 Kaizen: Japanese term for a management philosophy

the stresses the need for continuous improvement.
 Optimization : Finding an alternative with the most cost
effective or highest achievable performance under the
given constraints , by maximizing desired factors and
minimizing undesired ones.
 Quality: goods and services that are reliable and perform
correctly.
 Efficiency: the amount of input to produce a given
output.
 Responsiveness to customers: actions taken to
respond to customer needs.

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 Ten Critical Decisions
Ten Decision Areas
1. Design of goods and services
2. Managing quality
3. Process and capacity
design
4. Location strategy
5. Layout strategy
6. Human resources and
job design
7. Supply-chain
management
8. Inventory, MRP, JIT
9. Scheduling
10. Maintenance
 Product design process
 Product design is more important than ever
because customers are demanding greater
product variety and are switching more
quickly to products with state-of-the-art
technology.
 The impacts of greater product variety and
shorter product life cycles have a
multiplicative effect on the number of new
products that need to be designed.

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Product design process …. Cont’d
 For example, just a few years ago, a firm
may have produced four different products
and each product may have had a product
life cycle of ten years. In this case, the firm
must design four new products every ten
years.
 Today, in order to be competitive, this firm
may produce eight different products with a
life cycle of only five years; this firm must
introduce eight new products in five years.
3-15
Product design – key attributes
 Organizations are embracing concepts such
as
 mass customization : It is the ability to quickly
design and produce customized products on a
large scale at a low cost.
 product disposal : re-cycle
 quality function deployment : translate customer
wants into working products
 time-based competition.

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The Facility Location Decision
 Decision Factors:
 Customer convenience
 Transportation costs
 Labor costs and availability
 Sources of supplies and raw materials
 Owner preferences for specific locations
 Government policies, rules, regulations and
incentives
 Site cost and availability
G.Dessler, 2003

LIS580- Spring 2006 17

May 18, 2006
Layout Strategy
 Layout
 The configuration of all the machines, employee
workstations, storage areas, internal walls, and
so forth that constitute the facility used to create
a firm’s product or service.

 Examples of different layout

 Production Layout
 A production system design in which every item to be
produced follows the same sequence of operations
from beginning to end, such as an assembly line.
 Ex: car wash operation G.Dessler, 2003

LIS580- Spring 2006 18

May 18, 2006
Production Layout for Carwash

LIS580- Spring 2006 19

May 18, 2006
 Fixed-Position Layout
 A production system arrangement in which the product
being built or produced stays at one location and the
machines, workers, and tools required to build the
product are brought to that location as needed, as for the
building of ships or other bulky products.

 Process Layout
 A production system design in which similar machines or
functions are grouped together.

G.Dessler, 2003

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May 18, 2006
 Process Layout (cont’d)

FIGURE 15–3
Source: Everett Adam Jr. and Ronald Ebert, Production and Operations
G.Dessler, 2003
Management (Upper Saddle River, NJ: Prentice Hall, 1992), p. 254.
LIS580- Spring 2006 21
May 18, 2006
 Process Layout (cont’d)
 Cellular Manufacturing Layout
 A combination of process and product layouts, in
which machines and personnel are grouped into
cells containing all the tools and operations
required to produce
a particular product
or family of products.

G.Dessler, 2003

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May 18, 2006
 Cellular – Different arrangements

Source: Source: Barry Render and Jay Heizer, Principles of Operations Management, FIGURE 15–4
2nd ed., © 1997. Reprinted by permission of Prentice Hall, Inc., Upper Saddle River, NJ. G.Dessler, 2003
LIS580- Spring 2006 23
May 18, 2006
 Inventory management
 Types of Inventory Items
 Raw materials and purchased parts from outside
suppliers.
 Components: subassemblies that are awaiting final
assembly.
 Work in process: all materials or components on the
production floor in various stages of production.
 Finished goods: final products waiting for purchase or to
be sent to customers.
 Supplies: all items needed but that are not part of the
finished product, such as paper clips, duplicating
machine toner, and tools.

G.Dessler, 2003

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May 18, 2006
The Role of Inventory Management
 Inventory Management
 The process of ensuring that the firm has
adequate inventories of all parts and supplies
needed, within the constraint of minimizing total
inventory costs.
 Inventory Costs
 Ordering (setup) costs
 Acquisition costs
 Holding (carrying) costs
 Stockout costs
G.Dessler, 2003

LIS580- Spring 2006 25

May 18, 2006
Inventory Costs
 Ordering (Setup)
Costs
 The costs, usually
fixed, of placing an
order or setting up
machines for
a production run.
 Acquisition Costs
 The total costs of all
units bought to fill an
order, usually varying
with the size of the
order.
LIS580- Spring 2006
 Inventory-Holding
(Carrying) Costs
 All the costs
associated with
carrying parts or
materials in
inventory.
 Stockout Costs
 The costs associated
with running out of
raw materials, parts,
or finished-goods
inventory.
G.Dessler, 2003
26
May 18, 2006
 Quality Management
 Quality
 The extent to which a product or service is able
to meet customer needs and expectations.
 Customer’s needs are the basic standard for
measuring quality
 High quality does not have to mean high price.
 ISO 9000
 The quality standards of the International
Standards Organization.

G.Dessler, 2003

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May 18, 2006
 Quality management – Cont’d
 Total Quality Management (TQM)
 A specific organization-wide program that integrates all
the functions and related processes of a business such
that they are all aimed at maximizing customer
satisfaction through ongoing improvements.
 Also called: Continuous improvement, Zero defects, Six-
Sigma, and Kaizen (Japan)
 Malcolm Baldridge Award
 A prize created in 1987 by the U.S. Department of
Commerce to recognize outstanding achievement in
quality control management.

G.Dessler, 2003

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May 18, 2006
 Total Quality Management

 Total quality management (TQM) consists

of organization-wide efforts to install and
make permanent climate in which an
organization continuously improves its ability
to deliver high-quality products and services
to customers.
1-30
 How to Win a Baldridge Award
 Is the company exhibiting senior executive
leadership?
 Is the company obtaining quality information and
analysis?
 Is the company engaging in strategic quality
planning?
 Is the company developing its human resources?
 Is the company managing the entire quality
process?
 How does the company measure operational
results?
 Does the company exhibit a customer focus?
G.Dessler, 2003

LIS580- Spring 2006 31

May 18, 2006
Supply Chain Management
 Supply Chain Management
 The integration of the activities that procure
materials, transform them into intermediate
goods and final product, and deliver them to
customers.

G.Dessler, 2003
LIS580- Spring 2006 32
May 18, 2006
 Trends in Supply Chain
Management
 Supplier Partnering
 Choosing to do business with a limited number of
suppliers, with the aim of building relationships that
improve quality and reliability rather than just improve
costs.
 Channel assembly
 Organizing the product assembly process so that the
company doesn’t send finished products to its distribution
channel partners, but instead sends the partners
components and modules. Partners become an
extension of the firm’s product assembly process.

G.Dessler, 2003
LIS580- Spring 2006 33
May 18, 2006
 The Supply Chain

Source: Adapted from Jay Heizer and Barry Render, Operations FIGURE 15–15
Management (Upper Saddle River, NJ: Prentice Hall, 2001), p. 434. G.Dessler, 2003
LIS580- Spring 2006 34
May 18, 2006
 Managing Services
 Service Management
 A total organization-wide approach that makes
quality of service the business’s number one
driving force.
 Why Service Management Is Important
 Service is a competitive advantage.
 Bad service leads to lost customers.
 Customer defections drain profits.

G.Dessler, 2003
LIS580- Spring 2006 35
May 18, 2006
 Moment of truth:
 Defined as “Any episode in which a customer
comes into contact with any aspect of the
organisation and gets an impression of the
quality of service” (Albrecht 1988).

 Good customer service is all about improving

the moment of truth
The Service Triangle (Karl Albrecht)

Well-Conceived
Service
Strategy

Customer-
Customer-Friendly
Oriented
Systems
Front-line People

G.Dessler, 2003
LIS580- Spring 2006 37
May 18, 2006
Statistics: Advantages of keeping
customers
 Repeat customers spend 33% more
than new customers.
 It costs 6 times more to acquire a
new customer than it does to keep
an existing one.
 As little as a 5% increase in customer
retention can increase profits by 25
to 95%.
 Facts about customer service

 54% to 70% of customers who

complain will do business with you
again if they feel their problem is
resolved. That figure jumps to 95% if
the customer feels the complaint has
been resolved quickly.
 Outstanding customer service is now
rated as being more important than
low prices and quality products!
Operations Planning And Control
Techniques
 Operations or Production Planning
 The process of deciding what products to
produce and where, when, and how to
produce them.
 Operations or Production Control
 The process of ensuring that the specified
production plans and schedules are being
adhered to.
 Techniques
 Gannt chart , PERT , CPA
G.Dessler, 2003

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May 18, 2006
PERT Chart for Building a House

FIGURE 15–6
G.Dessler, 2003

LIS580- Spring 2006 41

May 18, 2006
 Activity

 Critically asses the Operation Strategy of

your organization using the ten-critical
decision points stated in the theory. Provide
necessary recommendations to improve the
operational efficiency of the organization?

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Operations Management in Service
Sector

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 Goods Vs Services
Key Differences

1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity

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 Key Differences

6. Production and delivery

7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

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 Goods vs Service
General Classification
Characteristic 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 usual1-46
Scope of Operations Management
 Operations Management includes:
 Forecasting
 Capacity planning
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 Supply chain management
 And more . . .
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