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  New Generation University College ,

     Hargeisa Campus
Faculty of Business and Economics (FBE)
Course: Operations Management
Lecturer. Abdiaziz jama Ali (Alzizi)

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 Chapter 1

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Introduction to
Operations Management

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Operations Management
What is operations?
The part of a business organization that is responsible for
producing goods and services.

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How can we define operations Management?
 The management of systems or processes that create goods
or provide services.
Operations Management (OM) is a function that enables
organizations to achieve their goals through efficient
acquisition and utilization of resources. (Krajewski 2007)

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 Operations management :is the act of controlling and
directing the design, production and delivery of
products and service.

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 Operations management : as the design and
management of The transformation processes that
create value for society.
 Operations management is the administration of
business practices to create the highest level of efficiency
possible within an organization. It is concerned with
converting materials and labor into goods and services as
efficiently as possible to maximize the profit of an
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organization.
 Goods or Services
Goods are physical items that include raw materials,
parts, subassemblies such as motherboards that go into
computers and final products.

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•Automobile
•Computer
•Shampoo
Services :are activities that provide some combination of time,
location, form or psychological value.
•Air travel
•Education
•Legal counsel 5
Types of Operations
Operation Example

Goods Producing Farming, mining, construction,

manufacturing, power generation

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Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines

Exchange Retailing, wholesaling, banking,

renting, leasing, library, loans

Entertainment Films, radio and television,

concerts, recording

Communication Newspapers, radio and television

newscasts, telephone, satellites 6
The 3 basic functions of business organizations

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Operations: the Transformation process

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Supply Chain – a sequence of activities and organizations
involved in producing and delivering a good or service

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Supply Chain
Supply Chain – a sequence of activities and organizations
involved in producing and delivering a good or service

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Supply chain management (SCM) has been defined
as "a process-oriented approach to procuring,
producing, and delivering products and services to

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customers. SCM has a broad scope that includes sub-
suppliers, suppliers, internal operations, trade
customers, retail customers, and end users.

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3primary functions of business organizations overlap
 Marketing & Operations
• Demand data

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• Product and service design
• Competitor analysis
• Lead time data
Finance & Operations
• Budgeting
• Provision of funds
• Economic analysis of investment
• proposals
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Operation Interfaces

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THE SCOPE OF OPERATIONS MANAGEMENT

• The scope of operations management ranges across the

organization. Operations management people are involved in

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product and service design, process selection, selection and
management of technology, design of work systems, location
planning, facilities planning, and quality improvement of the
organization’s products or services.
• The operations function includes many interrelated activities, such
as forecasting, capacity planning, scheduling, managing inventories,
assuring quality, motivating employees, deciding where to locate
facilities, and more.

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We can use an airline company to illustrate a service
organization’s operations system.

The system consists of the airplanes, airport facilities, and

maintenance facilities, sometimes spread out over a wide territory:

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The activities include
• Forecasting such things as weather and landing conditions,
seat demand for flights, and the growth in air travel.

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• Capacity planning, essential for the airline to maintain cash
flow and make a reasonable profit. (Too few or too many
planes, or even the right number of planes but in the wrong
places, will hurt profits.)

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Facilities and layout, important in achieving effective use of
workers and equipment. Scheduling of planes for flights and for
routine maintenance; scheduling of pilots and flight attendants; and
scheduling of ground crews, counter staff, and baggage handlers

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• Managing inventories of such items as foods and beverages,
first-aid equipment, inflight magazines, pillows and blankets,
and life preservers.

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• Assuring quality, essential in flying and maintenance operations,
where the emphasis is on safety, and important in dealing with
customers at ticket counters, check-in, telephone and electronic
reservations, and curb service, where the emphasis is on efficiency
and courtesy.

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• Motivating and training employees in all phases of operations.
Locating facilities according to managers’ decisions on which cities
to provide service for, where to locate maintenance facilities, and
where to locate major and minor hubs

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Operation management and Decision
Making.
• The chief role of an operations manager is that of
planner/decision maker. In this capacity, the operations

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manager exerts considerable influence over the degree to
which the goals and objectives of the organization are
realized. Most decisions involve many possible alternatives
that can have quite different impacts on costs or profits.
Consequently, it is important to make
informed decisions.

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Operations management professionals make a
number of key decisions that affect the entire
organization. These include the following:

• What: What resources will be needed, and in what amounts?

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• When: When will each resource be needed? When should
the work be scheduled? When should materials and other
supplies be ordered? When is corrective action needed?
• Where: Where will the work be done?

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• How: How will the product or service be designed? How will the
work be done (organization, methods, equipment)? How will
resources be allocated?

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• Who: Who will do the work?

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Why study Operations Management?

• Career Opportunities abound

• Operations manager

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• Purchasing manager
• Supply chain manager
• Distribution manager
• Quality manager
• Etc.

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Role of the Operations Manager
• The Operations Function consists of all activities directly
• related to producing goods or providing services.

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• A primary function of the operations manager is to guide the
• system by decision making.
• System Design: product/service planning, capacity, location,
layout,
• System Operation: quality, inventory, scheduling, supply
management
• (purchasing/sourcing)

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 Production system

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 The production system:

It is that activity whereby resources, flowing within a

defined system, are combined and transformed in a
controlled manner to add value in accordance with the
policies communicated by management.

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Production system has the following characteristics:

• Production is an organized activity, so every

production system has an objective.
• The system transforms the various inputs to useful

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outputs.
• It does not operate in isolation from the other
organization system.
• There exists a feedback about the activities, which is
essential to control and improve system
performance.

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Classification of Production System

• Production systems can be classified as Job Shop, Batch, Mass and

Continuous Production systems.

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 CONTINUOUS PRODUCTION
Production facilities are arranged as per the sequence of
production operations from the first operations to the finished
product.

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The items are made to flow through the sequence of operations
through material handling devices such as conveyors, transfer
devices, etc.

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Characteristics
• Continuous production is used under the following
circumstances:

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• Dedicated plant and equipment with zero flexibility.
• Material handling is fully automated.
• Process follows a predetermined sequence of operations.
• Component materials cannot be readily identified with final
product.
• Planning and scheduling is a routine action

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Advantages
Following are the advantages of continuous production:
• Standardization of product and process sequence.
• Higher rate of production with reduced cycle time.
• Higher capacity utilization due to line balancing.

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• Manpower is not required for material handling as it is
completely automatic.
• Person with limited skills can be used on the production line.
• Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of continuous production:
• Flexibility to accommodate and process number of products
does not exist.
• Very high investment for setting flow lines. 28

• Product differentiation is limited

 MASS PRODUCTION
•
Manufacture of discrete parts or assemblies using a
continuous process are called mass production. This

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production system is justified by very large volume of
production. The machines are arranged in a line or product
layout. Product and process standardization exists and all
outputs follow the same path.

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Characteristics
Mass production is used under the following circumstances:
• Standardization of product and process sequence.
• Dedicated special purpose machines having higher

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production capacities and output rates.
• Large volume of products.
• Shorter cycle time of production.
• Lower in process inventory.
• Perfectly balanced production lines.
• Flow of materials, components and parts is continuous and
without any back tracking.
• Production planning and control is easy.
• Material handling can be completely automatic. 30
Advantages
Following are the advantages of mass production:
• Higher rate of production with reduced cycle time.
• Higher capacity utilization due to line balancing.

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• Less skilled operators are required.
• Low process inventory.
• Manufacturing cost per unit is low.
• Limitations
Following are the limitations of mass production:
• Breakdown of one machine will stop an entire production line.
• Line layout needs major change with the changes in the
product design.
• High investment in production facilities. 31
• The cycle time is determined by the slowest operation
BATCH PRODUCTION
•
Batch production is defined by American Production and

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Inventory Control Society (APICS) “as a form of manufacturing
in which the job passes through the functional departments in
lots or batches and each lot may have a different routing.”It is
characterized by the manufacture of limited number of
products produced at regular intervals and stocked awaiting
sales.

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Characteristics
• Batch production system is used under the following
circumstances:

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• When there is shorter production runs.
• When plant and machinery are flexible.
• When plant and machinery set up is used for the production
of item in a batch and change of set up is required for
processing the next batch.
• When manufacturing lead time and cost are lower as
compared to job order production.

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Advantages
Following are the advantages of batch production:
• Better utilization of plant and machinery.
• Promotes functional specialization.
• Cost per unit is lower as compared to job order production.

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• Lower investment in plant and machinery.
• Flexibility to accommodate and process number of products.
• Job satisfaction exists for operators.
• Limitations
Following are the limitations of batch production:
• Material handling is complex because of irregular and longer flows.
• Production planning and control is complex.
• Work in process inventory is higher compared to continuous production.
• Higher set up costs due to frequent changes in set up.
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JOB SHOP PRODUCTION

Job shop production are characterized by

manufacturing of one or few quantity of products
designed and produced as per the specification of

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customers within prefixed time and cost.
The distinguishing feature of this is low volume and
high variety of products.
A job shop comprises of general purpose machines
arranged into different departments. Each job
demands unique technological requirements,
demands processing on machines in a certain
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Characteristics
The Job-shop production system is followed when there is:
• High variety of products and low volume.

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• Use of general purpose machines and facilities.
• Highly skilled operators who can take up each job as a
challenge because of uniqueness.
• Large inventory of materials, tools, parts.
• Detailed planning is essential for sequencing the requirements
of each product, capacities for each work centre and order
priorities.

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Advantages
Following are the advantages of job shop production:
• Because of general purpose machines and facilities variety of
products can be produced.

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• Operators will become more skilled and competent, as each job
gives them learning opportunities.
• Full potential of operators can be utilized.
• Opportunity exists for creative methods and innovative ideas.
• Limitations
Following are the limitations of job shop production:
• Higher cost due to frequent set up changes.
• Higher level of inventory at all levels and hence higher inventory
cost.
• Production planning is complicated. 37
• Larger space requirements.
Difference between goods and service
production system
• here is a major difference between goods and services based
on both tangible as well as intangible factors. Goods :are

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basically objects or products which have to be manufactured,
stored, transported, marketed and sold. Lays chips, BMW,
Adidas are some companies manufacturing goods.
• Services: on the other hand are output of individuals and they
can be a collective or individualistic action or performance by
an individual. For example a barber or a chartered accountant
are giving individual services. Airlines on the other hand have
airplanes which is a product but travelling by airplanes is a
service (airlines are one of the most competitive service
sectors today).
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Ownership Transfer

• When buying a service, the service ownership is not

transferred to the end customer. If you buy a car then the car

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is yours. But if you buy a ticket for an airline, then the airline is
definitely not yours
• Intangibility
• How do you measure service? In a restaurant, the dish can be
measured, but the efforts gone in making the same dish by
two different chefs cannot be measured from the customer
end. The time and effort gone for giving service to the
customer is intangible.

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Involvement of customer

• When comparing the difference between goods and services

we have to look at the involvement of customer as well. In

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services involvement of customers is much more than in
products. For example – ATM’s are services wherein customer
has to use the machine. The same goes for vending machines
as well as for self service restaurants.

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Quality

• In case of products, mass manufacturing is common. And mass

manufacturing means uniformity. However, services involve a

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lot of manual labour due to which the quality may vary each
time. Uniformity in services is a factor which each service
owner tries for. For example – The major challenge of food
chains like Subway, Pizza hut and dominos is to give the same
quality over and over again, whereas in local restaurants the
quality of food may vary time to time from the same
restaurant.

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Inventories are absent

• Production and consumption of services happens at the same

time. This does not mean that the raw material is not present

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to provide the service. For example in a restaurant, a dish is
made only after you order it. The raw material and the chef
might be present. But the production does not begin unless
and until there is a customer to consume the service.
• and the trains should run on time. Because time is important.
• Thus the difference between goods and services is based on
many different factors. These factors have become more and
more acute as the services sector rises in demand.

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Historical Development of OM
• The Industrial Revolution
• Post-Civil War Period

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• Scientific Management
• Human Relations and Behaviorism
• Operations Research
• The Service Revolution

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The Industrial Revolution
• The industrial revolution developed in England in the 1700s.
• The steam engine, invented by James Watt in 1764, largely

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replaced human and water power for factories.
• Adam Smith’s The Wealth of Nations in 1776 touted the
economic benefits of the specialization of labor.
• Thus the late-1700s factories had not only machine power but
also ways of planning and controlling the tasks of workers.

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The Industrial Revolution
• The industrial revolution spread from England to other European
countries and to the United Sates.
• In 1790 an American, Eli Whitney, developed the concept of

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interchangeable parts.
• The first great industry in the US was the textile industry.
• In the 1800s the development of the gasoline engine and electricity
further advanced the revolution.
• By the mid-1800s, the old cottage system of production had been
replaced by the factory system.
• . . . more

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Post-Civil War Period
• During the post-Civil War period great expansion of
production capacity occurred.

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• By post-Civil War the following developments set the stage for
the great production explosion of the 20th century:
• increased capital and production capacity
• the expanded urban workforce
• new Western US markets
• an effective national transportation system

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Scientific Management
• Frederick Taylor is known as the father of scientific
management. His shop system employed these steps:

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• Each worker’s skill, strength, and learning ability were
determined.
• Stopwatch studies were conducted to precisely set standard
output per worker on each task.
• Material specifications, work methods, and routing sequences
were used to organize the shop.
• Supervisors were carefully selected and trained.
• Incentive pay systems were initiated.

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Scientific Management
• In the 1920s, Ford Motor Company’s operation embodied the
key elements of scientific management:

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• standardized product designs
• mass production
• low manufacturing costs
• mechanized assembly lines
• specialization of labor
• interchangeable parts

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Human Relations and Behavioralism
• In the 1927-1932 period, researchers in the Hawthorne
Studies realized that human factors were affecting production.

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• Researchers and managers alike were recognizing that
psychological and sociological factors affected production.
• From the work of behavioralists came a gradual change in the
way managers thought about and treated workers.

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Operations Research
• During World War II, enormous quantities of resources (personnel,
supplies, equipment, …) had to be deployed.
• Military operations research (OR) teams were formed to deal with

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the complexity of the deployment.
• After the war, operations researchers found their way back to
universities, industry, government, and consulting firms.
• OR helps operations managers make decisions when problems are
complex and wrong decisions are costly.

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The Service Revolution
• The creation of services organizations accelerated sharply
after World War II.

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• Today, more than two-thirds of the US workforce is employed
in services.
• About two-thirds of the US GDP is from services.
• There is a huge trade surplus in services.
• Investment per office worker now exceeds the investment per
factory worker.
• Thus there is a growing need for service operations
management.

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The Computer Revolution
• Explosive growth of computer and communication
technologies

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• Easy access to information and the availability of more
information
• Advances in software applications such as Enterprise Resource
Planning (ERP) software
• Widespread use of email
• More and more firms becoming involved in E-Business using
the Internet
• Result: faster, better decisions over greater distances

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Today's Factors Affecting OM
• Global Competition
• Quality, Customer Service, and Cost Challenges

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• Rapid Expansion of Advanced Technologies
• Continued Growth of the Service Sector
• Scarcity of Operations Resources
• Social-Responsibility Issues

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End of Chapter 1

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