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 Course outline
CHAPTER 1 : INTRODUCTION to OPERATIONS
MANAGEMENT

CHAPTER 2 : OPERATIONS STRATEGY,

COMPETITIVENESS and PRODUCTIVITY

CHAPTER 3 : DESIGN of the OPERATION SYSTEM

CHAPTER 4 : CAPACITY PLANNING, FACILITY LAYOUT

and JOB DESIGN

CHAPTER 5 : QUALITY MANAGEMENT and CONTROL

CHAPTER 6 : OPERATIONS PLANNING and CONTROL

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 Chapter-1
Introduction to OPERATIONS MANAGEMENT

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1.1. Introduction
 Productivity, quality, e-(business: manufacturing, merchandising or service), global
competition, and customer service are very much in the news, and all are part of
operations management.
Imagine your business is failing, employees strike, competition is taught, customers are
demanding timely, consistent and high quality products, and time and resource saving
seems less likely. All these are the results of operations failure.
Planning an MBA program, market assessment, curriculum development, review and
approval, determination of cost of running the program and setting fee/course or credit
hour, site (location) selection and rental of school building, recruiting staff, opening of
the program (promotion, students registration, preparing and providing identification
assigning of students into different sections), and running the program (course
allocation and scheduling).
 They underscore the need for effective operations management.
Operations:
 Are the core of every organization.
 Are the tasks that create value.
 Operations are that part of a business organization which are responsible for producing
goods and/or services. Production is the creation of goods and services.

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Goods are physical items that include raw materials, parts, subassemblies such as leather that
go into shoes or bags, and final products such as cell phones, automobiles, furniture.
Services are activities that provide some combination of time, location, form, or
psychological value. E.g., library, internet, transportation, telephone conversation, etc. (the
TV you watch, every e-mail you send, every telephone conversation you have, etc.)
The operations function in business can also be viewed from a more far-reaching
perspective: The collective success or failure of companies’ operations has an impact on the
ability of a nation to compete with other nations, and on the nation’s economy.
The ideal situation for a business organization is to achieve a match of supply and demand.
Having excess supply or excess capacity is wasteful and costly; having too little means lost
opportunity and possible customer dissatisfaction. The key functions on the supply side are
operations and supply chains, and marketing on the demand side.
While the operations function is responsible for producing products and/or delivering
services, it needs the support and input from other areas of the organization, mainly from
marketing and finance (as such three basic functional areas of a business organization
include operations, finance, and marketing).

Operations Finance

Marketing
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• Operations management is responsible for managing this (operations) core.
• Operations management (OM) is, thus, the management of systems or processes that
create goods and/or provide services.
• Operations management is the administration of business practices to create the highest
level of efficiency possible in converting materials and labour into goods and services as
efficiently as possible to maximize the profit of an organization.
• Broadly, Operations management (OM) is the set of activities, which include planning,
designing, organizing, executing and monitoring operations, that creates value in the form
of goods and services by transforming inputs into outputs, and implementing business
strategy.

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 Operations management (OM) is a discipline that its techniques are applicable throughout the
world to virtually all productive enterprises. It doesn’t matter if the application is in a bank,
service office, a hospital, a restaurant, a department store, or a manufacturing or factory—the
production of goods and services.
 The efficient production of goods and services requires effective applications of the concepts,
tools, and techniques of OM.

1.2. Historical Development of Operation Management

 Systems for production have existed since ancient times, even at the time of hunting.
 The production of goods for sale, at least in the modern sense, and the modern factory
system had their roots in the Industrial Revolution.
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A. Industrial Revolution (1770’s):
 The Industrial Revolution began in the 1770s in England and spread to the rest of
Europe and to the United States during the 19th century.
 Prior to the industrial revolution, goods were produced in small shops by craftsmen and
their apprentices. Under that system, it was common for one person to be responsible for
making a product, such as a piece of furniture or a farming equipment/tool, from start to
finish. Only simple tools were available; the machines in use today had not been
invented.
 A number of innovations in the 18th century changed the face of production forever by
substituting machine power for human power; the invention and innovations of the 18 th
century transformed the manufacturing process from a Craft production (a system in
which highly skilled workers use simple, flexible tools to produce small quantities of customized
goods, but the system was slow, costly and with no economies of scale) into an Industrial
revolution which gives a boost to guiding standards, mass production, rapid growth of factories,
employment of large size of people, and expansion of production operations.

 However, the major changes were not supported by management theory and practice;
thus an enlightened and more systematic approach to management was much needed.
B. Scientific Management (1911):
 The scientific management era brought widespread changes to the management of
factories.

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 The movement was spearheaded by the efficiency engineer and inventor Frederick
Winslow Taylor, who is often referred to as the father of scientific management.
 Taylor believed in a “science of management” based on observation, measurement,
analysis and improvement of work methods, and economic incentives.
 Taylor also believed that management should be responsible for planning, carefully
selecting and training workers, finding the best way to perform each job, achieving
cooperation between management and workers, and separating management activities
from operational activities.
 Taylor’s methods emphasized maximizing output, but were not always popular with
workers, who sometimes thought the methods were used to unfairly increase output
without a corresponding increase in compensation.
 Certainly some companies did abuse workers in their quest for efficiency. In 1911, Tylor
published his classic book, The Principles of Scientific Management, which partially
provided response to employees abuses.

A number of other pioneers also contributed heavily to this movement, including:

 Frank Gilbreth was an industrial engineer who developed principles of motion economy that
could be applied to incredibly small portions of a task.
 Motivation to enhance productivity of workers
 Henry Gantt recognized the value of nonmonetary rewards to motivate workers, and
developed a widely used system for scheduling, called Gantt charts.
 Harrington Emerson applied Taylor’s ideas to organization structure and encouraged the use
of experts to improve organizational efficiency.
 Henry Ford, the great industrialist, employed scientific mgmt techniques in his factories.
 Among Ford’s many contributions was the introduction of mass production to the
automotive industry, a system of production in which large volumes of
standardized goods are produced by low-skilled or semiskilled workers using
highly specialized, and often costly, equipment.
 Ford was able to do the mass production by taking advantage of a number of
important concepts; the key concept that launched mass production was
interchangeable parts.
 The basis for interchangeable parts was to standardize parts so that any part in a
batch of parts would fit any automobile coming down the assembly line (i.e., parts of
a product made to such precision that they do not have to be custom fitted), which
results in a tremendous decrease in assembly time and cost.
 A second concept used by Ford was the division of labour, which Adam Smith
wrote about in The Wealth of Nations (1776).
 Division of labour means that an operation, such as assembling an automobile, is
divided up into a series of small tasks, and individual workers are assigned to one of
those tasks.
 Together, these concepts enabled Ford to tremendously increase the production rate
at his factories using readily available inexpensive labour.
 Both Taylor and Ford were hated by many workers, because they held workers in
such low regard. This paved the way for the human relations movement.
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C. The Human Relations Movement (1920 – 60):
 Whereas the scientific management movement heavily emphasized the technical
aspects of work design, the human relations movement emphasized the importance of
the human element in job design.
 Lillian Gilbreth, a psychologist and the wife of Frank Gilbreth, worked with her husband,
focusing on the human factor in work.
 Many of her studies in the 1920s dealt with worker fatigue. In the following decades,
there was much emphasis on motivation (e.g., during the 1930s, Elton Mayo’s study
revealed that in addition to the physical and technical aspects of work, worker motivation
is critical for improving productivity).
 During the 1940s, Abraham Maslow developed motivational theories, which Frederick
Hertzberg refined in the 1950s.
 Douglas McGregor added Theory X and Theory Y in the 1960s. These theories
represented the two ends of the spectrum of how employees view work.
 Theory X, on the negative end, assumed that workers do not like to work, and have to be
controlled—rewarded and punished—to get them to do good work. Theory Y, on the
other end of the spectrum, assumed that workers enjoy the physical and mental aspects of
work and become committed to work. The Theory X approach resulted in an adversarial
environment, whereas the Theory Y approach resulted in empowered workers and a more
cooperative spirit.
 In the 1970s, William Ouchi added Theory Z, which combined the Japanese approach
with such features as lifetime employment, employee problem solving, and consensus
building, and individual decision making and responsibility.
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D. Decision Models and Management Science (1915; 1960 – 70’s):
 The factory movement was accompanied by the development of several quantitative
techniques.
 F. W. Harris developed one of the first models in 1915: a mathematical model for
inventory order size.
 In the 1930s, three co-workers at Bell Telephone Labs (H. F. Dodge, H. G. Romig, and W.
Shewhart), developed statistical procedures for sampling and quality control.
 In 1960s and 1970s, management science techniques were highly regarded; in the 1980s,
they lost some favour. However, the widespread use of personal computers and user-
friendly software contributed to a resurgence in the popularity of these techniques.
 The Influence of Japanese Manufacturers
 A number of Japanese manufacturers developed or refined management practices that
increased the productivity of their operations and the quality of their products, due in part
to the influence of Americans W. Edwards Deming and Joseph Juran. This made them
very competitive, sparking interest in their approaches by companies outside Japan.
 Japanese approaches emphasized quality (quality revolution) and continual improvement,
worker teams and empowerment, and achieving customer satisfaction.
 The influence of the Japanese on U.S. manufacturing and service companies has been
enormous and promises to continue for the foreseeable future.
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 Operations Today
Advances in information technology and global competition have had a major influence on
operations management. While the Internet offers great potential for business organizations,
it also comes with potential threats (risks) that need a clear understanding to exploit
potential opportunities. the Internet has altered the competition and transactions from a
traditional physical way into e-business and e-commerce. E-business is receiving increased
attention from business owners and managers in developing strategies, planning,
procurement and decision making. The advancement of technology changes the way how
companies compete and interact with their customers; it also alters their operational
activities. Operations management is primarily concerned with three kinds of technology:
product and service technology, process technology, and information technology (IT). All
three can have a major impact on costs, productivity, and competitiveness.
The Scope of OM:
The scope of operations management ranges across the organization. Operations
management people are involved in 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.
The very reason why we learn OM is therefore due to the fact that every aspect of business
affects or is affected by operations.
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1.3. Manufacturing Operations and Service Operations
(Production of Goods versus Delivery of Services)
Broadly, business organizations are classified into three: Manufacturing, merchandising
and service.
I.Manufacturing Sector Companies: are those that purchase raw materials and other components and
convert them into finished products. E.g., textile factories, cement factories, etc.
II.Merchandising – Sector Companies: are those that purchase and sell tangible products without
changing their basic form. This sector includes companies engaged in retailing, distributing or
wholesaling.
III.Service Sector Companies: are the enterprises that provide services to their customers. E.g., law
firms, accounting & audit firms, banks, insurance companies, transportation companies, advertising
agencies, etc.
From a production operation perspective, there are two types of outputs:
 Products (physical goods), and

 Services (abstract or nonphysical)

 Manufacturing operations is where people, processes and equipment come

together to add value to material and produce goods for sale.
 Production of goods results in a tangible output, such as an automobile, eyeglasses, table,
chair, cloth, a refrigerator; such manufacturing usually takes place in a factory.

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Service operations: is an open transformation process of converting inputs (consumers) to
desired outputs (satisfied consumers) through the appropriate application of resources
(family, material, labour, information, and the consumer as well). Services are economic
activities that produce time, place, form, or psychological utility. A service firm is defined as
one that derives more than 50 percent of its sales from providing services (intangible
products).
Delivery of service generally implies an act.
Operations management for services has the functional responsibility for producing the
services of an organization and providing them directly to its customers.
The majority of service jobs fall into these categories:
Professional services (e.g., financial, health care, legal).
Mass services (e.g., utilities, Internet, communications).
Service shops (e.g., tailoring, appliance repair, car wash, auto
repair/maintenance).
Personal care (e.g., beauty salon, spa, barbershop).
Government (e.g., Medicare, mail, social services, police, fire).
Education (e.g., schools, universities).
Food service (e.g., restaurants, fast foods, catering, bakeries).
Shipping and delivery (e.g., truck, railroad, boat, air).
Transportation (e.g., mass transit, taxi, airlines, ambulance).
Travel and hospitality (e.g., travel bureaus, hotels, resorts).
Miscellaneous services (e.g., copy service, temporary help).
Etc
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Characteristics of Goods/products and services

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1.4. The systems view of Operations Management
 A system is a group of interrelated items in which no item studied in isolation
will act in the same way as it would in the system.
 A system is divided into a series of parts or subsystems, and any system is a
part of a larger system.
 The system’s boundary defines what is inside the system and what is outside.
A system’s environment is everything outside the system boundary that may
have an impact on the behavior of the system.
 A system’s inputs are the physical objects of information that enter it from the
environment and its outputs are the same which leave it for the environment.
 The activities in an operations system can be classified as input,
transformation process and output.
 Transforming resources are the elements that act on, or carry out, the
transformation process on other elements. These include such elements as
labour, equipment/plant and energy.

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 The transformed resources are the elements which give the operations system
its purpose or goal. The operations system is concerned with converting the
transformed resources from inputs into outputs in the form of goods and
services.
 There are three main types of transformed resource of
 materials which can be transformed either physically (e.g. manufacturing), by
location (e.g. transportation), by ownership (e.g. retail) or by storage (e.g.
warehousing);
 information which can be transformed by property (e.g. accountants), by
possession (e.g. market research), by storage (e.g. libraries), or by location
(e.g. telecommunications) and
 customers they can be transformed either physically (hairdresser), by storage
(e.g. hotels), by location (e.g. airlines), by physiological state (e.g. hospitals),
or by psychological state (e.g. entertainment).

 Two types of transforming resources are facilities (e.g. building and

equipment) and human resource (the people involved in the operations).

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 The sub-systems of a business firm related to specific business disciplines are
termed the functional areas of a business.
 The three main functional areas in a business are the operations, marketing
and finance functions.
 The marketing function works to find and create demand for the firm’s goods
and services by understanding customer needs and developing new markets.
The need for marketing and operations to work closely together is
particularly important as the marketing function will provide the
forecast of demand from which operations can plan sufficient
capacity in order to deliver goods and services on time.
 The finance function is responsible for the obtaining and controlling of funds
and covering decisions such as investment in equipment and price-volume
decisions.
 Other functions which play a supporting role in the organization include the
personnel (HR) function which play a role on the recruitment and labour
relations, the research & dev’t function which generates and investigates the
potential of new ideas and the information technology function which supplies
and co-ordinates the information needs of the organization.
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1.5. Operations and decision Making
 Decisions are either Strategic or tactical/operational
 Strategic Decisions – set the direction for the entire company; they are broad
in scope and long-term in nature.
 Tactical decisions: focus on specific day-to-day issues like resource needs,
schedules, & quantities to produce

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 The chief role of an operations manager is that of planning and decision making.
In this capacity, the operations 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; it is this important to make informed decisions.
 The key decisions that operations managers make, which affect the entire
organization include:
 What: What resources will be needed, and in what amounts?
 When: When will each resource be needed? When should the work be scheduled?
should materials and other supplies be ordered? When is corrective action needed?
 Where: Where will the work be done?
 How: How will the product or service be designed? How will the work be done
(organization, methods, equipment)? How will resources be allocated? Who: Who
will do the work?

All these decisions are operational decisions that operational managers are
responsible for.

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