Introduction to Operations Management

i. Meaning
ii. Functions of business organization
iii. Differentiating features of production system
iv. Scope of Operation Management
v. Operation manager and mgt. process
vi. Operation manager and decision making,
vii. Historical evolution
viii.Recent trends in operation mgt
 Meaning

• OM involves the planning, coordinating, and

executing all activities that create goods and
services.

• Operation management: The management of

systems or processes that creates goods
and/or provides service
 Operations Management

• Create operational systems.

• Manage (plan, organize, staff, direct and
control) the activities relating to the
production of goods and/or services with
maximum efficiency (at the lowest cost)
and effectiveness (in the eyes of the
customer).
• Improve those processes continuously to
create competitive advantage.
 Operations Management

Structural
Elements
Create the
Technology New Product Development
Process
Vertical Integration
Innovation
Capacity
Facilities

> > > > > Manage the

Infrastructural Inputs Conversion Outputs Process
Elements
Quality Management
Planning & Control Evaluate
On
Workforce Improve the
Organization
Time Flexibility Process
Cost Service
Quality
 The Operations System

The operations system transforms inputs into

desired goods and services.
EXTERNAL
FACTORS

INPUTS PROCESS OUTPUTS

FEEDBACK
Material flow
Information Flow
 Corporate Strategy

Business Unit Strategy

Competitive Priorities & Positioning

Cost, Quality, Time, Flexibility, Service

Marketing Operations Strategy

Operations Strategy

Management 4 Ps
Structural
Facility Location
Infrastructural
Workforce
~ Place
Capacity Quality
Product
The Context Price
Vertical Integration
Process Technology
Policies/Procedures
Organizational Structure
Promotion

Execution Processes

Customer Satisfaction (Internal & External) Performance

Market Share Measures
Quality Measures
Cost Measures
 Types of Conversions

• Physical
• Chemical
• Locational
• Educational
• Entertained
 The Organization

Organization

Finance Operations Marketing

 Operation

• Consists of all activities directly related to

producing goods or providing services.
• The production function exists both in
manufacturing and service,
• Inputs are used to obtain finished goods or
services using one or more transformation
process (storing, transporting, cutting).
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
Hospital Process

Table 1.2
Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
 Finance

• The finance function comprises activities

related to securing resources at favorable
prices and
• Allocating those resources throughout the
organization.
 Marketing

• Marketing consists of selling and/ or

promoting the goods or services of an
organization.

• makes advertising and pricing decisions.

• is also responsible for assessing customer

wants and needs, and for communicating
those to operation and design people.
 Differentiating features of production system

▪ We can differentiate production system by

three ways. They are
i. Degree of standardization
ii. Type of operation
iii. Mfg. operation versus service operations
 Degree of standardization

• Production system produces output that

ranges from highly standardized to highly
customize.

• Standardized output means that there is a

high degree of uniformity in goods or services.
Such as
– radio, television, computer and newspapers.

• Customized out put means that the product is

designed for a specific case or individual. Such
 Types of operation

1. Project: a set of activities directed towards a

unique goal, usually large scale, with a
limited time frame.
2. Job shop: An organization that renders unit
or lot production or service with varying
specifications, according to customer needs.
3. Batch processing: A system used to produce
moderate volumes of similar items.
4. Continuous processing: A system that
produces highly uniform products or
continuous services, often performed by
 Process-Product Matrix
Product
Each Unique – Commodity–
Wide Variety Little Variety

Consistent
Opportunities Line Flow
for real • Continuous
advantage • Discrete
Flow Batch
Patterns
Job Shop
????
Jumbled Project
 Mfg operation versus service operations
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 usual
 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 . . .
 Operation manager and decision-making

• There are some approaches of decision-

making. Manager needs to follow the
approach to take decision.
i. Uses Model
ii. Quantitative approach
iii. Analysis of Trade off
iv. System approach
v. Establishing priorities
vi. Ethics
Models

A model is an abstraction of reality.

– Physical
– Schematic
– Mathematical Tradeoffs

What are the pros and cons of models?

Models 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 Models

Quantitative information may be emphasized over

qualitative
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 Approaches

▪It is an attempt to obtain mathematically optimum solution

of a managerial problem.
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
Analysis of Trade-Offs

Operation manager has to take trade off decisions.

▪ Such as selecting a piece of equipment, a manager must evaluate the merits of
extra features relative to the cost of those features.

Decision on the amount of inventory to stock

– Increased cost of holding inventory

Vs.
– Level of customer service
Systems Approach
▪System is a set of interrelated parts that must work together.

“The whole is greater than

the sum of the parts.”

Suboptimization
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.

How do we identify the vital few?

Ethical Issues

Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Worker’s rights
Historical Evolution of Operations Management

Table 1.7
Industrial revolution (1770’s)
Scientific management (1911)
– Mass production
– Interchangeable parts
– Division of labor

Human relations movement (1920-60)

Influence of Japanese manufacturers

Trends in Business

Major trends
– The Internet, e-commerce, e-business
– Management technology
– Globalization
– Management of supply chains
– Outsourcing
– Agility
– Ethical behavior
– Lean Production
 Significant Developments

• Division of Labor
• Standardized Parts
• Scientific Management
– Time and Motion Study
– Efficiency Improvement
– Wage Incentives
• Assembly Lines
• Motivation and Behavioral Issues
 Significant Developments

• Operations Research
• Computers and Information Technology
- Computer Aided Design (CAD)
- Computer Aided Manufacture (CAM)
- Computer Integrated Manufacture (CIM)
• Flexible Manufacturing Systems (FMS)
• Cellular Manufacturing
• JIT, Lean Manufacturing
• Total Quality Management, Six Sigma
• Mass Customization