WEEK 1 MODULE
Video: Introduction to Operations
Management + Stevenson Chapt 1 ppt
OPERATIONS
- What you do in the buss.
- Producing goods/ services
- EX: Restaurant → making & serving food
OPERATIONS MANAGEMENT
- Managing systems/ processes to create
goods/ provide services
GOODS
- Raw materials, partially assembled prdt,
final prdt (physical items)
SERVICES
- Activities providing time, loc., form, or
psychological value
- EX: Air travel, education, haircut
SUPPLY CHAIN
- Seq. of activities & orgs that produce &
deliver a good/service
Suppliers’ suppliers → Direct Suppliers →
Producer → Distributor → Final Customer
TRANSFORMATION PROCESS
GOODS-SERVICE CONTINUUM
- Not purely service or purely goods
WHY STUDY “OM”
- Every part of buss is affected by
operations
- Service jobs are related to operations
- To better understand the world, global
dependencies of companies & nations,
reasons why companies success/fail,
impt. of working w others
3 BASIC FUNCTIONS OF OPERATIONS
- Marketing, Operations, Finance
MARKETING
- Identifies who are the customers & how
to bring them in
OPERATIONS
- makes/does smth
FINANCE
- Collecting, managing money
OVERLAP F & O
- Budgeting, provisions of funds
OVERLAP M & O
- Demand data, prdt/service design,
competitor analysis, lead time data
PROCESS
- 1 or + actions that turn input to outputs
1. UPPER MNGMNT PROCESS: operations
of the whole org
2. OPERATIONAL PROCESSES (OP): core
process making up the value stream
3. SUPPORTING PROCESSES: supports
OP
SUPPLY & DEMAND
PROCESS VARIATION
1. VARIETY OF GOODS/ SERVICES
OFFERED: greater the variety, the
greater the variation in
production/service reqs
2. STRUCTURAL VARIATION IN DEMAND:
predictable , impt. in capacity planning
3. RANDOM VARIATION: natural variation
present in all processes, can’t be
influenced by managers
 - EX: Restaurant: during 3pm - 5pm,
Weekdays don’t have much customers
BUT 12nn and 6pm, Weekend
restaurant is packed
4. ASSIGNABLE VARIATION: identifiable
sources, can be reduced, eliminated by
analysis & corrective action
-Variations can disrupt & add in addt costs,
delays, shortages, & inefficient work systems
SCOPE OF OPERATIONS MANAGEMENT
- Has activities across the org
- EX: forecasting, capacity planning,
scheduling, assuring quality, deciding
where to locate facilities, etc.
OPERATIONS MANAGER
- All activities relating to producing
goods/services
- Guide the buss by decision making
- EX: System design/operation decisions
SYSTEM DESIGN DECISIONS
- Capacity (area lot size), facility
location/layout, prdt & service planning,
acquisition of equip.
- Need long term commitment of
resources
- Know parameters of system operation
SYSTEM OPERATION DECISIONS
- Tactical & operational
- Management of personnel, inventory
mngmnt & control, scheduling, proj.
management, quality check
- Vital stake in system design but mainly
on operation decisions
OM DECISION MAKING
- Have alternatives that impact
costs/profits
APPROACH OF DECISION MAKING
- Modeling tool is used in decision
making
MODEL: abstraction of reality, simplifying smth
- Simplification of real-life phenomena
- Omit unimpt details of real-life systems
so that attention is focused on impt
aspects of real-life system
- EX: like the mini condo models seen in
malls , model out of anything just to
map out how you want the real-life
thing to look life
TO USE A MODEL PROPERLY
BENEFITS OF MODELS
LIMITATIONS OF MODELS
- Quanti info is emphasized at expense of
quali info
- May be incorrectly applied & results
misinterpreted
- Models don’t guarantee good decisions
QUANTITATIVE APPROACH
- decision making that seeks to reach
mathematically optimal sols
- Supported by comp calculations
- Work w quali approaches
PERFORMANCE METRICS
- Help mange & control operations
- Profits, cost, quality, productivity,
flexibility, inventory, scheds, forecast
accuracy
TRADE-OFFS
- Giving up 1 for something else
- Carrying more inventory (expense) to
get greater lvl of customer service
SYSTEM: set of related parts that work together
- Buss org is a system w subsystems
(marketing, operations, finance system)
SYSTEM APPROACH
- Emphasize interrelationships among
subsystems
- The whole is > the sum of its parts
- Output & objectives take precedence
over any one subsystem
ESTABLISHING PRIORITIES
- Certain issues/items are impt than
others
- Focus attention to the efforts that will
do most good
PARETO PHENOMENON (80/20 rule)
- Few factors account for high % of
occurrence of some events
- Few factors should receive highest
priority
- Applied to all areas & lvls of mngmnt
HISTORICAL EVOLUTION OF OM
1. INDUSTRIAL REVOLUTION
- Pre-IR: CRAFT PRODUCTION where
highly skilled workers use flexible tools
to make small quantities of customized
goods
- England 1770s → Division of Labor
(Adam Smith) 1776 →Steam engine
1780s → Cotton Gin & Interchangeable
Parts (Eli Whitney (1792)
2. SCIENTIFIC MANAGEMENT
- Frederick Winslow Taylor: Believed in
Science of Mngmnt based on
observation, measurement, analysis, &
improvement of work method & econ
incentives
- Mngmnt responsible for planning,
selecting workers, finding best way to
perform each job, cooperation between
mngmnt & workers, separate mngmnt
activities from work activities
3. HUMAN RELATIONS MOVEMENT
- impt of human element in job design
4. DECISION MODELS & MNGMNT
SCIENCE
5. INFLUENCE OF JAP MANUFACTURERS
- dev mngmnt practices that up
productivity
- Credited w fueling quality revolution
- Just-in-time production
ISSUES FOR OPERATIONS MANAGERS
1.Economic Conditions (going
strong/weak)
2. Innovating (how to make smth new)
3. Quality Problems (how to make sure
quality is good)
4. Risk Management
5. Competing in global economy (your
product is now in china, so how to
stand out there)
ENVIRONMENTAL CONCERNS
- SUSTAINABILITY: using resources that
don’t harm envi & support human
existence
- includes measures that incorporate
social criteria in decision making
- Areas Affected: Prdt & service design,
consumer educ prgms, disaster prep &
response, supply chain waste mngmnt,
outsourcing decisions, basically “ALL”
ETHICAL ISSUES IN OPERATIONS
- Issues arise in OM: Fin states, worker &
prdt safety, quality, envi, community,
hiring & firing, closing facilities, workers
rights
NEED FOR SUPPLY CHAIN MNGMNT
- Not managing beyond own operations
& immediate suppliers lead to problems
- Differing inventory lvls, inventory
stockouts, late deliveries, quality probs
SUPPLY CHAIN ISSUES
COMPETITIVENESS
 - to be able to sell goods in the
marketplace
- dictates if buss prospers, gets by, / fails
- how effectively org meets customers’
wants & needs compared competitors
- compete w/ combination of mrkting &
operational functions
- Mrktng influences competition by:
identifying wants/needs, pricing &
quality, advertising & promotion
> Hierarchical Planning:
1. MISSION
- reason for existence
- expressed in mission statement
(purpose & what buss are they in)
> MISSION STATEMENT: basis for org goals
(describe scope of mission)
2. GOALS
- S.M.A.R.T: Specific, Measurable,
Achievable, Realistic, Time Bound
- detail explains scope of the mission
- organizational destinations
3. STRATEGIES
- plans for achieving org goals
- road map to reach organizational
destination
- gives direction & alignment of goals &
strats of the functional units
- Long, intermediate, or short term
- SWOT Analysis
- Assessment of its own strengths
> ORGANIZATIONAL STRATEGIES
- strats that are for the whole org
- support org’s mission & goals
> FUNCTIONAL LVL STRATEGIES
- strats that relate to each department &
supports achievement of org’s strat
LOW COST STRAT
- outsource to countries that do low
labor cost
SCALE BASED “
- capital intensive methods for high
output & low unit cost
SPECIALIZATION “
- narrow prdt line to focus on quality
leading to higher quality
HIGH QUALITY “
- higher than competitors
4. TACTICS: methods & actions to
accomplish strats, “how to”
5. OPERATIONS: “doing” part
> Operations influence competition:
- prdt/service design (reflect joint efforts
of fin. resources, operation capabilities,
supply chain capabilities, wants &
needs etc.)
- cost (affects pricing decisions & profits)
- productive orgs have
competitive cost advantages (?)
- Outsourcing to have lower cost,
high productivity/ good quality
- loc (convenience for customers)
- near inputs —> low input costs
- near markers → low transpo
costs & fast delivery
- quality (customers judge quality, how
well prdt will satisfy its purpose)
- quick response (provide customers w
new/ improved prdts immediately)
- how quick can bring out new
prdts or how fast delivery is
- flexibility (tailor need, specific design)
- how fast response to change
- prdt design alters, volume
demanded
- inventory mngmnt
- matching supply w demand
- too much nor too little
- supply chain mngmnt
- alignment of internal & external
operations
- flow of materials to achieve
timely & cost-effective delivery
of goods throughout the
system
- service (warranties, follow-ups after
purchase)
- after-sales activities
 - value-added in customer’s eye
PRODUCTIVITY
- effective use of resources, ratio of
output to input
- tracks operating unit’s performance
over time
- judges performance of the industry
- reducing time needed to perform work
> FORMULA: output / input = Productivity
- can be used for a person, dept, org, or
entire country
> IF HIGH PRODUCTIVITY…
- high living standards
- then competitors →competitive advntg
- pricing & profit effects
- less chance to be replaced by foreign
industry
- Nations want higher productivity
because it makes their (local) goods
and services more attractive, offsets
inflationary pressures associated with
higher wages, and results in a higher
standard of living for their people.
PRODUCTIVITY GROWTH
● increase productivity of diff periods
FACTORS THAT AFFECT PRODUCTIVITY
- Capital, quality, tech, mngmnt,
methods, safety, layoffs
IMPROVING PRODUCTIVITY
1. have productivity measure for all
operations
2. know critical operations
3. make ways to improve productivity
4. make SMART goals
5. advocate that management
encourages productivity improvement
6. measure and boast improvements
7. productivity isn’t same as efficiency
SERVICE SECTOR PRODUCTIVITY
- involves intellectual activity
- high degree of variability
- useful measure related to productivity
—> Process Yield
- ratio of output of good prdt to
the quantity of raw material
input
- for service, example, ratio of
student acceptance to the total
num of students approved for
admission
CORE / DISTINCTIVE COMPETENCIES
● special attributes that give org’s
competitive edge
● effectivity → core competencies align w
strats
STRATEGY FORMULATION
- take into account Core Competencies &
Envi Scanning (SWOT)
- “External” Envi Scanning: Internal
Factors (S & W), External Factors (O &T)
> Deepen of Internal Factors
- human resources, facilities &
equipment, fin resources, customers,
prdt & services, tech, suppliers
> Deepen of External Factors
- Econ, Pol, Legal, Tech, Compet., Markets
- Order Qualifiers: customers’s
minimum “prdt characteristic”
standards for them to want to buy it
- Order Winner: prdt characteristics that
makes it better than competitors’
Operations Strategy
● aligned w org strat to guide operations
function
Quality-Based Strategy
● improve quality of all
phases/departments of an org
● tries to erase poor quality reputation,
help maintain quality image, catch up
w competitors, helps cost reduction
strat
Time-Based Strats
● how to reduce time on finishing tasks
● reduced time —> high productivity —>
lower costs & higher quality
● use this in : planning time, prdt design
“, processing “, changover “, delivery “,
complaint response “
Agile Operations
● competitive advantage strat where org
is flexible to adapt & excel in a changing
envi
● cost, quality, reliability, flexibility
Balanced Scorecard Approach
-top-down management system to clarify
vision & strat & put them in action
● make objectives, metrics & targets for
those
● initiatives to achieve obj
● what links finance, customer, internal
buss process, learning & growth
● monitor results
2ND SYNC CLASS
FORECASTING
● intuitive
● rely on experience of the
person predicting a forecast of
future perf or trends
● short-term demand estimates (
for indiv prdts) help know
daily/weekly management of
org’s activities i.e. scheduling
personnel & ordering raw
materials
● Long term of overall demand
help strat making, i.e. long term
capacity & location needs
● process of predicting a future event
based on historical data
● educated guessing
● underlying basis of all buss decisions
WHY NEED FORECAST?
● Forecast are almost always wrong
● every buss attempt is based on
forecasting
● not all are derived from sophisticated
methods, only “BEST” educated
guesses for valuable planning, then no
forecasts and no planning
DIFFERENCE OF FORECAST & PLANNING
● planning is the RESPONSE to Forecast
● forecasts reduce some uncertainly
which helps managers
● forecasts is a statement abt future
value of a variable i.e. demand
IMPT OF FORECASTING IN OM
● dpets throughout the org depend on it
to make and execute plans
● finance needs it to project cash flow &
capital reqs
● HUman resources use it to anticipate
hiring needs
● production uses it for plan production
lvls, workforce, material reqs,
inventories, etc.
● demand isnt the only variable of
interest to forecasters
● manufacturers —> absents, machine
avaialbility, material costs, transpo &
production lead times, etc.
● Serice providers —> population, other
demographic variables, weather etc.
3 TYPES OF FORECASTS
● Short-range (0 - 3 mons)
● detailed use of system
● job scheduling & worker
assigning
● Medium ( 3 mon - 2 yrs)
● detailed use of system
● sales & prdtion panning
● Long Range ( < 2 yrs)
● DEsign of system
● new prdt planning
QUALITATIVE FORECAST
● opinions, gathering info
1. EXECUTIVE JUDGEMENT: opinion of a
grp of high level experts or managers is
pooled
2. SALES FORE COMPOSITE: Each
regional salesperson sales estimate. Are
reviews to make sure if realistic.
regional forecasts are pooled at district
and national lvls for overall forecasts
3. MARKET RESEARCH/ SURVEY: get
input from customers abt future
purchaisng plans. Questionnaires,
consumer panels, testers of prdt
 4. DELPHI METHOD: eliminated effects of
group potential dominance of the GUIDE PRINCIPLES TO FORECASTING
most vocal members. Group 1. Forecasts are more accurate for larger
interviewed has indivs from inside & groups of items.
outside org 2. Forecasts are more accurate for shorter
1. Each expert in the grp makes periods of time.
their own forecast in 3. Every forecast should include an
statements —> coordinator estimate of error.
collects & summarizes 4. Before applying any forecasting
statements —> gives summary method, the total system should be
then gives more Qs + need understood.
feedback abt the input of 5. Before applying any forecasting
others—> repeat steps until method, the method should be tested
consensus reached and evaluated.
6. Be aware of people; they can prove you
QUANTITATIVE FORECAST wrong very easily in forecasting

TIME SERIES MODELS

● predict future bast on past data (past
continues to influence future)
● Components: Random, Trend, Seasonal,
Composite

1. NAIVE APPROACH
● demand of NEXT PERIOD is SAME as
MOST RECENT PERIOD
● i.e. May profit 23 —> June Profit 23
1. MOVING AVE
● (2.a.) SIMPLE MOVING AVE
● averages are good estimators of future
behavior
● little or no trends
● for smoothing

● (2.b.) WEIGHTED MOVING AVERAGE

● emphasizes recent data

● weights; decrease for older data, sum is

1.0
● assume on ave is a good estimator of
future behavior

1. EXPONENTIAL SMOOTHING
● most recent observation has the
highest predictive value
● more weight to recent time period
● increasing “a” makes forecast more
sensitive to recent data
FORECAST EFFECTS of SMOOTHING
CONSTANT “a”