Definition of Operations

Management
 Definition of Operations
Management
 Operations Management is
concerned with the
production of goods and
services.
 It deals with the
management of resources
(inputs: machines, raw
materials, human skills, etc),
 AND the distribution of
finished goods and services
(outputs) to the customers.
Operations Function
 Operations function is much broader
than activities occur in a factory.
 Products must be developed,
 Materials must be purchased,
 Facilities must be maintained,
 Products must be distributed, and so
on.
Operations Function

Inputs Operations Function

Output Customers
Operations Function
 Operations function must also be well
integrated with other parts of business.
 Operations function is one of 3 primary
functions within a business: Finance,
Marketing, and Operations.
 Work of 3 primary functions overlaps
each other and all 3 must work to reach
the full potential of the system.
Operations Function
 In many companies,
operations function retains
the greatest percentage of
employees.
 And, it is responsible for
the largest part of the
budget.
Operations Function

Therefore, operations function plays a

significant role in success of
businesses.
Historical Evolution of
Operations Management
 Until the 19th century, the world was
mostly rural and agricultural.
 Most of the products were made by
highly skilled people called artisans.
 Under the apprenticeship system, an
artisan supervised the work of several
apprentices during long training period.
Historical Evolution of
Operations Management
 In the 18th century, most manufacturing was
performed by rural families in their own
homes under the domestic or cottage
industry system.
 Merchants supplied families in small towns
with raw materials and later found markets
for the finished products.
 The development of steam power and the
introduction of labor-saving equipment (or
automation) early in the 18th century led to
the development of the factory system.
Historical Evolution of
Operations Management
 The principle of the factory systems was simple:
 Assign workers a small set of tasks that they repeat
over and over.
 This reduces the time spent by workers in switching
tasks and they become specialized.
 The result is improved labor productivity and lower
production costs.
 Technological developments in 1850s transformed
factory system into mass-production.
 Factories became larger. They produced huge
volumes of identical products.
Historical Evolution of
Operations Management
 Manufacturing costs were reduced because
no time was needed for setting machines and
people to produce other types of products.
 As the sizes of the factories increased,
management of these operations became a
major problem.
 Frederick Taylor introduced systematic
approaches to operations management at the
turn of 19th century.
 His intent was to eliminate waste, especially
the wasted effort, in order to minimize costs.
Historical Evolution of
Operations Management
 Henry Ford combined the teachings of Taylor
with the concepts of labor specialization and
interchangeable parts to design the first
moving assembly line in 1913.
 In 1920s and 1930s, a series of studies were
conducted at the Hawthorne Works of
Western Electric by Elton Mayo.
 The results showed that psychological factors
were as important as scientific job design.
Historical Evolution of
Operations Management
 The Hawthorne Studies stimulated the
development of human relations
movement by demonstrating that
worker motivation is a crucial element
in improving productivity.
 As the complexity of operations
increased, sophisticated decision-
making tools were needed.
Historical Evolution of
Operations Management
 Some of the quantitative models and
statistical techniques used by modern
operations managers are:
1- Statistical Quality Control: Uses statistics in
the control of product quality by controlling
the processes by which products are made.
2- Economic Order Quantity: Used for finding
the least cost inventory ordering
Historical Evolution of
Operations Management
3- Gantt charts for sequencing operations
and Critical Path Method for finding
optimum completion time of operations.
4- Linear programming: A management
tool for optimum resource allocation
given some restrictions of the
resources.
Historical Evolution of
Operations Management
 The 1950s was the beginning of the
information technology era.
 The discovery of transistor by Shockley led to
the ability process data and information at
continuously decreasing costs.
 Today, you can imagine the difficulty of
monitoring inventories of hundreds of units
OR managing a large project without a
computerized system.
Historical Evolution of
Operations Management
 In the late 1950s and early 1960s
scholars began to write books dealing
specifically with the problems faced by
operations managers.
 These books also contained information
regarding the application of quantitative
models to operations management.
Types of Operations
 If a company has an ability to manufacture
tangible products, we call it a manufacturing
company.
 Manufacturing operations deal with
goods/tangible products. Example industries:
Agriculture, forestry and fishing, Mining,
Construction, etc.
 Inputs (raw materials, etc.) and outputs
(products) are tangible and visible objects.
Types of Operations
 Manufacturing transformation processes
are some kind of chemical or physical
processes (ex: welding, assembling).
 The other companies who are not
manufacturers are referred to as service
companies.
Types of Operations
 These deal with non-manufacturing
operations or service type operations.
Example industries: Transportation, Finance,
real estate, insurance, hotels, etc.
 Here, there are also inputs and outputs. The
output is a satisfied customer.
 Processes in service operations include giving
advice (consultant firms), transporting,
packaging, storing, serving (food), etc.
 Other examples: educational institutions,
repair shops, and barbers.
Types of Operations
 The change in the percentage of work force between
years 1900 and 1994 is as follows:
- Number of People working in finance, services, real
estate and insurance increased dramatically (graphic
illustration)
- People working in agriculture and mining declined
dramatically
- People working in communication and transportation
increased slightly
- People working in construction and manufacturing not
much changed
Types of Service
Operations
 Some service operations deal with tangible
outputs even though they do not
manufacture a product: examples are
distributors, mail service, library, etc.
 Other service operations deal with intangible
products. These are pure service operations:
examples are financial advice, counseling,
etc.
 Types of Service
Operations
In some service
operations, customer is
not present as a
participant: examples
are architectural
design, repairing
automobiles,
insurance, etc.
Types of Service
Operations

In some others, customer is present:

examples are health care, hair cut,
travel, etc.
Types of Manufacturing
Operations
 Some companies are make-to-stock
producers. These firms make items that are
completed and placed in stock before
customer order is received. Ex: Arcelik plant.
 Some companies are make-to-order
producers. These complete the end item only
after receiving a customer order.
Types of Manufacturing
Operations
 Because manufacturer cannot anticipate what
each customer wants. Example: a metal
fabrication shop, which gives the desired
shape to any kind of metal.
 When the company produces standard
modules and assembles these modules
according to the specifics of a customer
order, this is an assemble-to-order producer.
 Examples are: PVC window assemblers, and
modular kitchen board assemblers.
Types of Manufacturing
Operations
 The extent to which a factory has the
flexibility to produce a variety of products is
another characteristic used to distinguish
between types of factories.
 One extreme is to produce custom products
in low volume or in single units. Example is a
metal fabrication shop.
Types of Manufacturing
Operations
 Other extreme is to produce a standard
product in very high volume. Example:
nuts and nails.
 According to variety and volume of
production, operations are categorized
as 1) Job Shops, 2) Repetitive
Manufacturing, and 3) Batch
Manufacturing.
Types of Manufacturing
Operations
Job Shops
 The volume of each product is low.
Generally produces make-to-order,
custom products in accordance with
design supplied by the customer.
 Needs general-purpose production
equipment (e.g., Turn, welding
machine, etc.)
Job Shops
 Each job may be unique AND may
require a special set of production
steps. Further, each job may require a
particular routing.
 There are no standard routings.
Products follow different paths.
Job Shops
Job Shops
 Examples of job shops are woodworking
shops, and metal fabrication shops.
 May require an inventory of some of the
raw materials.
 BUT, here the largest percentage of the
inventory is Work in Process (WIP).
 Work in Process is the inventory that
accumulates in between process stages.
Repetitive Manufacturing
 These are mass production facilities
that produce high volumes of the same
products.
 They are usually make-to-stock
producers.
 Automated, special-purpose equipments
are used.
Repetitive Manufacturing
 WIP is low because the items move
quickly in the plant.
 Examples are television, radio, and
telephone producers.
 Product(s) follow the same path:
Batch Manufacturing
 Many mfg. Operations fall between job
shops and repetitive mfg. These are
called batch mfg.
 Batch means a single production run
AND batch size means the quantity
produced in a single production run.
 It may be lass than 100 units OR up to
a few 1000 units.
Batch Manufacturing
 The batch mfg company makes a batch
of one product, then switch over (set
up) the equipment AND make a batch
of another item.
 Production equipment should be more
flexible than repetitive mfg. AND it is
generally less flexible than job shops.
 Batch Manufacturing
 Here, products
having same or
similar processes
may be grouped into
a product family.
 Examples are small
had tools (e.g., drill,
screw driver), and
hand mixers.
Project type
 A project is a highly flexible AND low volume
type operation.
 Usually the item to be produced stays in a
fixed place AND all the resources come to it.
 At the end of production, resources leave the
place.
 Examples are ship construction, bridge
construction, buildings and large machines.
Project type
 Some types of service operations may
also be called as Projects because they
involve a team of people over a period
of time and then they leave the project.
 Example: Developing a software
package may be a project type of
service operation.
Continuous flow (flow
shop)

Some products flow

continuously
through a linear
process AND usually
the products are not
discrete.
Continuous flow (flow
shop)
 These types of operations are called
continuous flow (flow shop) operations
and sometimes also called as process
type operations (as opposed to discrete
operations).
 Examples are chemical, oil, petroleum,
and sugar refineries.
The Race For Competitive
Excellence
 Global competition intensified
companies’ competitive struggles to
survive.
 Businesses must be “world-class”
competitors today.
The Race For Competitive
Excellence
 Companies gain market share when
invest in product and process
development AND in equipment that
would raise their competitiveness.
The Race For Competitive
Excellence
The role of Customer
Satisfaction in
Competitiveness
 Customers
determine how
successful a
business will be.
 Customers compare
a company’s
offerings with its
competitors’
offerings.
The role of Customer
Satisfaction in
Competitiveness
 Adding what customers value is an
important key.
 Value is based on customers’
perceptions of the worth of a good.
The role of Customer
Satisfaction in
Competitiveness
 Some customers consider only the
purchasing price of a product. Some
others consider the total cost over the
long-term use of the product.
 A company must understand its target
market.
The role of Customer
Satisfaction in
Competitiveness
 Based on the needs and perceptions of their
target customers, they should either improve
their products,
 OR reduce the cost of the product IN ORDER
TO enhance the customers’ value.
 Ex: Cheap Japanese cameras offer %90 of
the functions offered by expensive German
camera.
The role of Customer
Satisfaction in
Competitiveness
 To achieve a high value ratio, a company
must 1) be very effective at producing what
customers desire, and 2) be very efficient in
using all the resources.
 An excellent company is the one that who 1)
is better than most of the companies in its
industry at providing customer satisfaction,
and 2) will retain a strong market share.
The role of Customer
Satisfaction in
Competitiveness
 Of course, to provide satisfaction on a
long-term basis, a company must also
remain financially healthy.
 Customer satisfaction leads to customer
loyalty, which is crucial to long-term
profitability.
The role of Customer
Satisfaction in
Competitiveness
 The factors that influence customers’
buying decision can be grouped into six
broad categories:

1) Selling price (product cost), 2)

Quality, 3) Dependability, 4) Flexibility,
5) Time, and 6) Service.
1) Selling Price (Product
Cost)
 A cost efficient company keeps its
capital, labor, and operating costs lower
than its competitors
 AND provide the customer with the
lowest selling price.
1) Selling Price (Product
Cost)
 Price is a function of product cost.
 A common practice was to simply
calculate selling price by adding a
margin (profit) to the product cost:

Cost + Desired Profit = Selling price

1) Selling Price (Product
Cost)
 However, today, many firms are
operating in a buyers’ market rather
than a sellers’ market.
 In a buyers’ market, customers are
informed about competitors’ prices and
competition is much more intense.
1) Selling Price (Product
Cost)
Therefore, these
firms should provide
the best value to the
customers while
ensuring that total
costs are lower than
market-dictated
prices.
1) Selling Price (Product
Cost)
 This means to calculate price as follows:

Market-dictated price - Cost = Profit

 Consumers are also concerned with the

total cost of owing a product, not just
the initial purchase price.
1) Selling Price (Product
Cost)
 When buying an automobile, for
example, consumers compare operating
costs (gas economy) and maintenance
costs as well as the selling prices.
 In summary, most prices are market-
driven, and customers are price-
sensitive. Therefore, operation costs
must be tightly controlled.
2) Quality
 A company emphasizing quality
provides a level of quality superior to its
competitors (and even pay some extra
to do so). Ex: Rolex hand watches.
 Customers always expect high-quality
products.
Dimensions of Quality
1- Performance. Ex: Quick acceleration
capability of a car.
2- Features. Ex: Air-conditioning in a car.
3- Reliability. When I get into the car, I
want to be sure it will start.
Dimensions of Quality
4- Durability. I want a car that will last at
least 10 years.
5- Aesthetics. I want a good looking,
sport car.
6- Professionalism. I want professional
service, maintaining, and repairing for
my car.
3) Dependability

A dependable company can be relied on to

have its products available for customers at
any time.
3) Dependability
It delivers products on the scheduled and
promised time. Service is excellent.
Ex: Aygaz, or the advertisement of
Mogaz.
Customers do not want to buy products
of the companies that they cannot trust.
They want dependable producers.
4) Flexibility
 Flexibility is the ability to respond to
new situations. It has several
dimensions as well:
1- Product flexibility refers to the ability to
quickly develop new products and
modify existing ones to meet changing
market requirements.
4) Flexibility
2- Process flexibility is the ability to
produce a broad range of products,
switch from one product to another
quickly and easily, and handle variations
in the raw materials used.
3- Infrastructure flexibility is the ability of
a firm to adapt itself and its
organizational structure to changes.
4) Flexibility
 Customer needs and preferences are
continually evolving.
 Therefore, flexibility is important if a
firm is to respond quickly to changes in
marketplace.
5) Time
Time is money. Firms that can design,
produce, and distribute their products
faster than the competitors incur lower
production costs
5) Time
 AND this allows them to capture a
greater market share.
 Time is important for customers.
Products must be designed, produced,
and delivered quickly.
6) Service
 Today the notion of service includes
introducing a wide variety of products
to the market, making commitments to
the customers, helping them install
their products at home and providing
after-sales support and guarantees.
6) Service

Customers always appreciate and value the

provision of service before and after the
sale.
6) Service
 Some books take only the major 4 of
these factors excluding the last two
(time and service).
 Service factor can be considered as a
dimension of dependability and time
factor can be considered as a flexibility
issue.
 6) Service
 Each of the four
dimensions of these
competitive
capabilities can be
seen as a corner of a
pyramid.
6) Service
 Companies should try to occupy as much
space in this pyramid. But it is hard to be
best in all dimensions. Because there are
trade-offs among these dimensions, that is,
being good in one dimension can be a reason
for being bad in other dimension(s).
 Which one of these measures is the most
important to you? Why?