OPERATIONS

MANAGEMENT
OPERATIONS AND PRODUCTIVITY
LECTURE 1 (CHAPTER 1)
 WHAT IS OPERATIONS MANAGEMENT?

 Production is the creation of goods and services

 Operations Management - management of the set

of activities that creates value in the form of
goods and services by transforming inputs into
outputs

 Applies
to both manufacturing and service
organizations
2
ORGANIZATIONAL FUNCTIONS

 Marketing
 Gets customers

 Operations
 creates product or service

 Finance/Accounting
 Obtains funds
 Tracks money
3
FUNCTIONS - BANK

Commercial Bank

Marketing Operations Finance/

Accounting

Teller Check Transactions

Security
Scheduling Clearing Processing

4
FUNCTIONS - AIRLINES

Airlines

Marketing Operations Finance/

Accounting

Flight Ground Facility Catering

Operations Support Maintenance

5
FUNCTIONS - MANUFACTURING

Manufacturing

Marketing Operations Finance/

Accounting

Manufacturing Production Quality

Purchasing
Control Control

6
WHY STUDY OM?
 OM is one of three major functions (marketing, finance,
and operations) of any organization

 To know how goods and services are

produced/delivered

 To understand what operations managers do

 OM is a costly part of an organization

 OM presents interesting career opportunities e.g. SCM,

7
QA, Process Re-engineering, etc
TEN CRITICAL DECISIONS
 Service, product design ……. Ch. 4
 Quality Management ……… Ch. 5, 5S
 Process, capacity design …... Ch. 6, 6S
 Location ….……………….... Ch. 7
 Layout design ………..…….. Ch. 8
 Human resources, job design.. Ch. 9, 9S
 Supply-chain management … Ch. 10,10s
 Inventory management ….…. Ch. 11, 13, 15
 Scheduling .………………… Ch. 12, 14
9
 Maintenance .……………….
TEN CRITICAL DECISIONS
 Service and product design
 What product or service should we offer?
 How should we design these products and services?
 Quality management
 How do we define quality?
 Who is responsible for quality?

10
TEN CRITICAL DECISIONS - CONTINUED
 Process and capacity design
 What processes will these products require and in what order?
 What equipment and technology is necessary for these
processes?
 Location
 Where should we put the facility
 On what criteria should we base this location decision?

11
TEN CRITICAL DECISIONS - CONTINUED
 Layout design
 How should we arrange the facility?
 How large a facility is required?

 Human resources and job design

 How do we provide a reasonable work environment?
 How much can we expect our employees to produce?

12
TEN CRITICAL DECISIONS - CONTINUED
 Supply chain management
 Should we make or buy this item?
 Who are our good suppliers and how many should we have?

 Inventory, material requirements planning,

 How much inventory of each item should we have?
 When do we re-order?

13
TEN CRITICAL DECISIONS - CONTINUED
 Intermediate, short term, and project scheduling
 Is subcontracting production a good idea?
 Are we better off keeping people on the payroll during
slowdowns?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?

14
 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 SC partners, ERP
purchasing suppliers be engaged in product
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
15
CHANGING CHALLENGES FOR THE OPERATIONS
MANAGER
Past Causes Future
Standardized Affluence and worldwide Mass
products markets; increasingly flexible customization
production processes
Job Changing socio-cultural scene. Empowered
specialization Increasingly a knowledge and employees, teams,
information society.

Low cost Environmental issues, ISO Environmentally

focus increasing disposal costs sensitive
production, Green
manufacturing,

16
CHARACTERISTICS OF GOODS

 Tangible product
 Production usually
separate from
consumption
 Consistent product
definition
 Low customer interaction
 Can be inventoried
17
CHARACTERISTICS OF SERVICE
 Intangible product (Intangibility)
 Produced & consumed at same
time (simultaneity)
 Inconsistent product definition
(Heterogeneity)
 High customer interaction
 Often unique
 Often knowledge-based
18
 Frequently dispersed
GOODS CONTAIN SERVICES / SERVICES CONTAIN GOODS
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
19
Percent of Product that is a Good Percent of Product that is a Service
 SERVICE/PRODUCT BUNDLE

Core Service
Element Core Goods Example
Example
Business Custom clothier Business hotel

Core Business suits Accommodation

Peripheral
Garment bag Bath robe
Goods
Peripheral Deferred payment
In house restaurant
Service plans
Variant Coffee lounge Airport shuttle
THE SERVICE PACKAGE
 Supporting Facility: The physical resources that must be
in place before a service can be sold. Examples are
golf course, hospital, hotel.
 Facilitating Goods: The material consumed by the buyer
or items provided by the consumer. Examples are food
items, legal documents, golf clubs, medical history.
 Information: Operations data or information to enable
efficient and customized service. Examples are patient
medical records, seats available on a flight, customer
preferences, location of customer to dispatch a taxi.
THE SERVICE PACKAGE (CONT.)

 Explicit Services: Benefits readily observable by the

senses. The essential or intrinsic features. Examples are
absence of illness after treatment, smoothly running
vehicle after tune up, on-time departure.

 Implicit Services: Psychological benefits or extrinsic

features which the consumer may sense only vaguely.
Examples are privacy of loan office, security of a well
lighted parking lot, staff courtesy.
PRODUCTIVITY
 Measure of process improvement
 Represents ratio of output to input

Productivity Units produced

= Input used
 Only through productivity increases can our
standard of living improve

23
MULTI-FACTOR PRODUCTIVITY

Productivity
= Output
Labor + material + capital + energy + Misc

24
MEASUREMENT PROBLEMS

 Quality may change while the quantity of inputs and

outputs remains constant

 External elements may cause an increase or decrease in

productivity

 Precise units of measure may be lacking

25
 SERVICE PRODUCTIVITY
Reasons for low productivity in services
 Frequently individually processed
 Often an intellectual task performed by professionals
hence often difficult to mechanize
 Growth of low productivity activities e.g. food
preparation, laundry, house cleaning

26
TACO BELL - IMPROVING SERVICE PRODUCTIVITY
 Revision of menu to include meals that are easy to
prepare
 Substantial portion of food preparation shifted to
suppliers e.g. pre-cooking, predicing, etc
 Efficient
design of layout and automation of
operations
 Training and empowerment of management to
increase competence – reduce labor
27