CHAPTER ONE

NATURE OF OPERATIONS MANAGEMENT

 INTRODUCTION
Operation is concerned with the transformation of a range
of inputs into the required output (services) having the
requisite quality level
 Management is the process of obtaining and utilizing
resources to produce useful goods and services so as to
meet the goals of the organization.
Operations management, as is the case with every
functional area within an organization, can be defined
from several perspectives;
one being with respect to its overall role and contribution
within an organization;
 the other focusing more on the day-to-day activities
that fall within its area of responsibility.
INTRODUCTION
Organizational Perspective:

 Management of the direct resources that are required to

produce and deliver an organization’s goods and services.

Operational Perspective:

 The day-to-day activities within the operations management

function focus on adding value for the organization through its
transformation process. - Actual conversion of inputs into
outputs
INTRODUCTION
Production management is concerned with the
manufacturing of goods:
Examples of goods:
cars
books
chairs
computers
houses
etc.
INTRODUCTION
Operations management is also concerned with the
management of service industries as well as the
manufacturing of goods.
INTRODUCTION
Examples of services:
retailing/food
banking
education
health care
utilities
insurance
government agencies
etc.
OVERVIEW OF OPERATIONS
MANAGEMENT MODEL
Operations management considers how the input are
transformed into goods or services.

Control is when something is learned about the goods or

services that is used to more effectively transform
future goods or services.
OPERATIONS MANAGEMENT
QUESTIONS
1. How many items will be demanded next month?

2. How many items should be produced next month?

3. How many workers are needed to satisfy the

proposed production level?
OPERATIONS MANAGEMENT
QUESTIONS
4. If a plant is built, how should the activities be
scheduled so that the project is completed on time,
within budget, and with acceptable quality?

5. How is the quality of our output measured and

how is it improved?

6. If tires are needed, how many should be ordered?

 DEFINITIONS
There is no one single definition given to the term
production and operations management. Some of them:
• OM may be defined as the design, operation and
improvement of the production systems that create the
firm’s primary products or services.

•Joseph G .Monks defines Operations Management as

the process whereby resources, flowing within a defined
system, are combined and transformed in a controlled
manner to add value in accordance with policies
communicated by management.
Operations management contains following the keywords:
 Resources
• Refers about input of production.
Systems
• Systems are the arrangement of components
•It contains subsystem such as personnel, engineering,
finance and operations.
•Achievement of any system depends on its design
(among input transformation and output) and its control.
Transformation
•The transformation process applied will be in the form of
technology to the inputs.
 Effectiveness of transformation measured
productivity.
 The Transformation Process within OM

External factors
Inputs Adjust Measure Outputs
Transformation Process
(Materials and/or
(Goods and
customers) Services)
Components

Feedback
 EXAMPLE OF TRANSFORMATION
PROCESS
Automobile factory
Input
 EXAMPLE OF TRANSFORMATION
PROCESS
Automobile factory
Input
steel, plastic
glass, paint
tools
equipment
machines
personnel, buildings
utilities, etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
Automobile factory
Input
steel, plastic
glass, paint
tools Transformation
equipment process
machines
personnel, buildings
utilities, etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
Automobile factory
Input
Output
steel, plastic
glass, paint
tools Transformation
equipment process
machines
personnel, buildings
utilities, etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
Automobile factory
Input
Output
steel, plastic Car
glass, paint
tools Transformation
equipment process
machines
personnel, buildings
utilities, etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
Hospital
Input
 EXAMPLE OF TRANSFORMATION
PROCESS
Hospital
Input
patients, doctors
nurses, drugs
beds
building
medical equipment
support staff, computers
utilities, etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
Hospital
Input
patients, doctors
nurses, drugs Transformation
beds Process
building
medical equipment
support staff, computers
utilities, etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
Hospital
Input Output
patients, doctors
nurses, drugs Transformation
beds Process
building
medical equipment
support staff, computers
utilities, etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
Hospital
Input Output
patients, doctors A treated
patient
nurses, drugs Transformation
beds Process
building
medical equipment
support staff, computers
utilities, etc.
EXAMPLE OF TRANSFORMATION
PROCESS
Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
 EXAMPLE OF TRANSFORMATION
PROCESS
Food Processing
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 EXAMPLE OF TRANSFORMATION
PROCESS
University
Input
 EXAMPLE OF TRANSFORMATION
PROCESS
University
Input
students, professors
secretaries
 EXAMPLE OF TRANSFORMATION
PROCESS
University
Input
students, professors
secretaries, drugs
 EXAMPLE OF TRANSFORMATION
PROCESS
University
Input
students, professors
secretaries, drugs
 EXAMPLE OF TRANSFORMATION
PROCESS
University
Input
students, professors
secretaries, lab equipment
dormitories
staff, computers
buildings
etc.
 EXAMPLE OF TRANSFORATION
PROCESS
University
Input
students, professors
secretaries, lab equipment
dormitories
staff, computers Transformation
buildings process
etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
University
Input Output
students, professors
secretaries, lab equipment
dormitories
staff, computers Transformation
buildings process
etc.
 EXAMPLE OF TRANSFORMATION
PROCESS
University
Input Output
students, professors A more highly
secretaries, lab equipment educated
dormitories student
staff, computers Transformation
buildings process
etc.
 Who take a responsibility of operations
management?
Operations managers
Its responsibilities are:
 processing inputs into outputs.
They bring together production plan
They combine materials, capacity and knowledge
available in the production facility.
Run production system under design system
Design production schedule
 Controlled the process as per predetermined
parameter like cost, inventory level, machinery
capacity, quality and other.
RESPONSIBILITIES OF OPERATIONS MANAGEMENT
 Controlling
 Planning
– Inventory
 Capacity,
– Quality
utilization
 Location
– Costs
 Organization
 Choosing products
– Degree of standardization
or services
– Subcontracting
 Make or buy
– Process selection
 Layout  Staffing
 Projects
– Hiring/lay off
 Scheduling – Use of overtime
 Market share – Incentive plans
 Plan for risk
reduction, plan B?
 Forecasting
 Why study OM ?
•To Study how people organize themselves
for productive enterprise.
•To know how goods and services are
produced.
•To understand what operations managers do.
•Because it is such a costly part of an
organization.
 HISTORICAL DEVELOPMENT OF OPERATION
MANAGEMENT

• The traditional view of manufacturing management

began in eighteenth century when Adam Smith (1776)
recognized the economic benefits of specialization of
labor.
• Production Management becomes the acceptable term
till 1950s.
• In 1970s, the most obvious change, reflected in the new
name Operations Management was a shift in the
service and manufacturing sectors of the economy.
 1.3 MANUFACTURING OPERATIONS AND SERVICE
OPERATIONS

1.3.1 MANUFACTURING OPERATIONS

 Manufacturing is the transformation of raw materials
into finished goods for sale, or intermediate processes
involving the production or finishing of semi-
manufactures.
• Manufacturing implies production of a tangible output.
• product-oriented.
1.3.2 SERVICE OPERATIONS

• Service is defined as either as Services are deeds,

processes, and performances.
• Add value to our personal lives
Characteristic Manufacturing Service
1. Output Tangible Intangible
2. Customer contact Low High
3. Uniformity of output High Low
4. Labor content Low High
5. Uniformity of input High Low
6. Measurement of Easy Difficult
productivity
7. Opportunity to correct Easy Difficult
quality problems
8. Storage Can be inventoried Not
 1.4 OPERATIONS DECISION MAKING

Even minor decisions determine the company’s success or

failure. It ranges from simple judgmental to complex analysis
which can also involve judgment (objective and subjective
data),
The major areas in which operations managers make
decisions are:
1.Strategic (long term) decision
2.Tactical (intermediate term) decision
3.Operational planning and control (short term) decision
1.Strategic (long term) decision

The strategic issue usually broad, addressing

questions such as:
How will we make the product?
Where do we locate the facility or facilities?
How much capacity do we need?
When should we add more capacity?
2. Tactical (intermediate term) decision

An issue on which OM concentrates on this level

includes:

How many workers do we need?

When do we need them?
Should we work over time?
When should we have material delivered?
Should we have a finished goods inventory?
3. Operational Planning & control (short term
decision)

Management with the respect to operational planning

control is narrow and short term. Issues at this level
include:

 What jobs do we work on today or this week?

 Whom do we assign to what tasks?
 What jobs have priority?
 Framework for Decision-Making
An analytical and scientific framework for
decision implies the following systematic steps:

1.Defining the problem.

2.Establish the decision criteria.
3.Formulation of a model. (R/ship among
variable)
4.Generating alternatives.
5.Evaluation of the alternatives.
6.Implementation and monitoring.
1.5 PRODUCTIVITY MEASUREMENT
• Productivity is defined in terms of utilization of resources, like
material and labour.
• In simple terms, productivity is the ratio of output to input.
• Productivity is closely linked with quality, technology and
profitability
• The productivity is ratio of values of output to the cost of
inputs. It should be greater than 1.
• Productivity can be improved by
a) controlling inputs,
b) improving process so that the same input yields higher
output, and
c) by improvement of technology.
• Productivity can be measured at firm level, at industry level, at
national level and at international level
Modern Dynamic Concept of Productivity
Example 1.
Three employees process 600 insurance policies in a week.
They work 8 hrs. per day, 5-days per week. Find labour
productivity.
Example 2
A team of workers make 400 units of a product, which is
valued by its standard cost of 10 birr each (before markups
for other expenses and profit). The accounting department
reports that for this job the actual costs are:
• 400 birr for labour,
• 1000 birr for materials and
• 300 birr for overhead.
• Calculate multi-factor productivity.
SCOPE OF PRODUCTION/OPERATIONS
MANAGEMENT
Location of
Maintenance Facilities
Management
Plant Layout
& Material
Handling

Production/
Materials
Management Operations Product
Management Design

Quality Process
Control Production
Design
Planning
and
Control
THE END!!!