Introduction to Operations Management

Advanced
Advanced Operations
Operations Management
Management

Instructor:
Instructor: Dr.
Dr. Rizwan
Rizwan Ahmed
Ahmed
Lecture outline
 Why study Operations
Management
 What is Operations
Management
 Manufacturing and Service
Operations
 Operations and Productivity
 Conclusion
Operations Management is:

 A management function

 An organization’s core function

 In every organization whether Service

or Manufacturing, profit or Not for
profit
 Operations incur 60-80% of a business
cost © Wiley 2010 3
Operations Management is:

The business function

responsible for efficiently
planning, coordinating, and
controlling the resources needed
to produce products and
services for a company
© Wiley 2010 4
Role of OM: A Transformation Process

 OM Transforms inputs to outputs

 So Operation Management is a set

of activities that creates value in
the form of goods and services by
transforming inputs into outputs;
A transformation process
OM’s Transformation Process
• a series of activities along a value chain extending from supplier to
customer
• activities that do not add value are superfluous and should be eliminated

6
OM’s Transformation Role

 To add value
 Increase product value at each stage
 Value added is the net increase between output
product value and input material value

 Provide an efficient transformation

 Efficiency – means performing activities well for
least possible cost
Some Types of
Transformation Process
 Physical: as in manufacturing
operations
 Locational: as in transportation
operations
 Exchange: as in retail operations
 Physiological: as in health care
 Psychological: as in entertainment
 Informational: as in communication
Manufacturing vs. Service Operations

 Differences
Services Goods
Output Intangible Tangible
Consistency Low High
Output consumption Immediate Long term
Output Inventoried No Yes
Centralization Low High
Standardization Low High
Customer contact Extensive Little
Labor Intensity High Low
Quality Subjective Objective
Automation Difficult Easy
Manufacturing vs. Service
Operations
 Both use technology
 Both have quality, productivity, & response
issues
 Both must forecast demand
 Both will have capacity, layout, and location
issues
 Both have customers, suppliers, scheduling
and staffing issues
 Manufacturing often provides services
 Services often provides tangible goods
© Wiley 2010 10
 Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

Figure 1.4
© 2008 Prentice Hall, Inc. 1 – 11
Role of Operations Manager

 The job of an operations

manager?
 Develop & Implement the
operations strategy
 Improve
 Productivity
 Cost

 Quality

 Gain competitive advantage

What is Productivity?
Defined
Productivity is a common
measure on how well resources
are being used. In the broadest
sense, it can be defined as the
following ratio:
Outputs
Inputs
One of the main objectives of operations
management is to improve productivity!
How to Improve Productivity?

One of the main objectives of operations

management is to improve productivity!

Operations in every organization

consist of a large number of
micro activities or micro
operations.
Slight improvements in these micro
operations may increase
productivity to a large extent.
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways to
shave time. Some
improvements:
Operations improvements have helped
Starbucks increase
Stop requiring signatures yearly8 revenue
Saved seconds per
outlet by $200,000
on credit card purchases pertotransaction
$940,000 in six
under $25 years.
Productivity
Change the size of the ice has Saved
improved14by 27%, or
seconds
scoop about 4.5%
per per year.
drink
New espresso machines Saved 12 seconds
per shot
 Partial Measure Productivity

 Partial measures of productivity =

 Output or Output or Output or

Output
Labor Capital Materials
Energy
Productivity measures may be different in
different industries and organizations

Retail???
Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

 Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous

 Also known as total factor productivity

Multiple resource inputs  multi-factor productivity

 Example of Productivity
Measurement
 You have just determined that your service
employees have used a total of 2400 hours of
labor this week to process 560 insurance forms.
Last week the same crew used only 2000 hours of
labor to process 480 forms.
 Is productivity increasing or
decreasing?
 Answer: Last week’s productivity =
480/2000 = 0.24, and this week’s
productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.
 Example of Productivity
Measurement
 John makes wooden boxes in which to ship
motorcycles. John and three other employees invest
a total of 10 hours each per day making 120 boxes
 What is their productivity?
120 boxes
1.1 (a) = 3.0 boxes/hour
40 hours
 After redesigning the process they are producing
125 boxes with same labor. What is productivity
now?
125 boxes
(b) = 3.125 boxes/hour
40 hours
 Change in Productivity? = 0.125 boxes/hour
 Percent change in productivity?
0.125 boxes
percentage change = = 4.166%
3.0
 Example of Productivity
Measurement
 Kleen Carpets cleaned 65 rugs in October
consuming following resources

Labor 520 hrs at $13 per hr

Solvent 100 gallons at $5 per
gallon
Machine rental 20 days at $50 per day
 (a) What is the Labor productivity per dollar
65 65
(a) Labor productivity = =
(520 × 13) $6,760
= .0096 rugs per labor $
 (b) What is multifactor productivity
65
(b) Multifactor 65
productivity (520 × $13) + (100 × $5) + (20 × $50) = = .00787 rugs per $
$8,260
 Assignment

 Consider the company you work in.

 Find out if there any metrics or KPA in place for
for productivity measurement?
 Discuss/suggest at least 3 productivity metrics
which can be most relevant to your company
and why.
 Discuss how productive is your company and
how the productivity can be increase

 Expected length: 2 A4 pages