OPERATIONS

MANAGEMENT
7th Ed. By Slack

SESSION 1
PART I: Chapters 1, 2, 3, & 21
GRADING SCHEME:

1) ATTENDANCE: 10 points
2) HOMEWORK (1st HALF):
QUIZ # 1 (TBD week) 5th week 10 points
3) MIDTERM EXAM (8th week) (closed book – calculator is allowed) 20 points
4) HOMEWORK (2nd HALF):
QUIZ # 2 (TBD week) 14th week 10 points
5) FINAL EXAM (TB Scheduled) (closed book – calculator is allowed) 50 points

NOTE: No midterm/final exam make-up will be given unless a written permit issued by
the school administrator.

PART I: INTRODUCTION
CHAPTER 1: OPERATIONS MANAGEMENT
CHAPTER 2: OPERATIONS PERFORMANCE
CHAPTER 3: OPERATIONS STRATEGY
PART II: DESIGN
CHAPTER 4: PROCESS DESIGN
CHAPTER 5: INNOVATION & DESIGN IN
SERVICES & PRODUCTS
CHAPTER 6: SUPPLY NETWORK DESIGN
* Supplement: Break-even analysis
* Supplement: Forecasting
CHAPTER 7: LAYOUT AND FLOW
CHAPTER 8: PROCESS TECHNOLOGY
CHAPTER 9: PEOPLE, JOBS, &
ORGANIZATION
* Supplement: Work Study
PART III: DELIVER – PLANNING & CONTROLLING
OPERATIONS
CHAPTER 10: THE NATURE OF PLANNING & CONTROLLING
CHAPTER 11: CAPACITY MANAGEMENT
CHAPTER 12: INVENTORY MANAGEMENT
CHAPTER 13: SUPPLY CHAIN MANAGEMENT
CHAPTER 14: ENTERPRISE RESOURCES PLANNING
* Supplement: Material Requirement Planning (MRP)
CHAPTER 15: LEAN SYNCHRONIZATION
CHAPTER 16: PROJECT MANAGEMENT
CHAPTER 17: QUALITY MANAGEMENT
PART IV: IMPROVEMENT
CHAPTER 18: OPERATIONS IMPROVEMENT
CHAPTER 19: RISK MANAGEMENT
CHAPTER 20: ORGANIZING FOR IMPROVEMENT
PART V: CORPORATE SOCIAL RESPONSIBILITY (CSR)
CHAPTER 21: OPERATIONS & CORPORATE SOCIAL
RESPONSIBILITY
PART I: INTRODUCTION (SESSION 1)

CHAPTER 1: OPERATIONS MANAGEMENT

CHAPTER 2: OPERATIONS PERFORMANCE
CHAPTER 3: OPERATIONS STRATEGY
CHAPTER 21: CORPORATE SOCIAL RESPONSIBILITY (CSR)

* Homework: Productivity problems

 PART I: INTRODUCTION – CHAPTER 1: OPERATIONS MANAGEMENT, CHAPTER 2: OPERATIONS PERFORMANCE, CHAPTER 3:
OPERATIONS STRATEGY & CHAPTER 21: CORPORATE SOCIAL RESPONSIBILITY (CSR)
INTRODUCTION
Operations management refers to the systematic design,
direction and control of processes that transform inputs
into services and products for internal/external
customers.

and,

seeds,

, water,
ce Activities: plow,
machine, capital
investment Quality, speed,
dependability
flexibility => COST

As you study operations management, keep two principles in mind:

 Each part of an organization, not just the operations function, must design and operate processes that are part of a
supply chain and deal with quality, technology, and staffing issues.
 Each function of an organization has its own identity and yet is connected with operations through shared processes.
CHAPTER 3: OPERATIONS STRATEGY

 Top Management: corporate strategy (long-

term vision/mission: corp. policies) (top-
down)
 Middle Management:
 Develop short term plans then direct,
monitor, control implementation)
 Operation Management (Production)
 Daily execution – monitoring –
controlling – scheduling – feedback
(bottom-up)

As you study operations management,

keep two principles in mind:
 Each part of an organization, not just
the operations function, must design
and operate processes that are part of
a supply chain and deal with quality,
technology, and staffing issues.
 Each function of an organization has its
own identity and yet is connected with
operations through shared processes.
 Direct, Design, Monitor and Control of those fundamental activities and processes that organizations use to produce goods
and services that people use every day to stay competitive and profitable.
 A process is any activity or group of activities that takes one or more inputs, transforms them, and provides one or more
outputs for its customers. [ INPUT(S) – PROCESSES – OUTPUT(S) ] (For organizational purposes, processes tend to be
clustered together into operations.)

 An operation is a group of resources performing all or part of one or more processes. Processes can be linked together to
form
 A supply chain, which is the interrelated series of processes within a firm (internal suppliers/customers) and across different
firms (external suppliers/customers) that produce a service or product to the satisfaction of end users / customers. A firm
can have multiple supply chains, which vary by the product or service provided.
 Supply chain management is the synchronization of a firm’s processes with those of its suppliers and customers to match
the flow of materials, services, and information with customer demand. (Chapter 13 – Supply Chain Management.
3) What is the input–transformation–output process?

 All operations can be modelled as

input–transformation–output
processes.
 Most operations create and deliver a
combination of services and products,
rather than being a ‘pure’ service or
‘product’ operation.
Core Processes (Figure 1.4)
a set of activities that delivers value to external customers (employees (1) interact with external customers to: (a) build
relationships with them, (b) develop new services and products; and (2) interact with external suppliers, and produce the
service or product for the external customer. Examples include a hotel’s reservation handling, a new car design for an auto
manufacturer, or Web-based purchasing for an online retailer like amazon.com.
 Employees in the supplier relationship process select the suppliers of services, materials, and information and facilitate
the timely and efficient flow of these items into the firm. Working effectively with suppliers can add significant value to the
services or products of the firm. For example, negotiating fair prices, scheduling on-time deliveries, and gaining ideas and
insights from critical suppliers are just a few of the ways to create value.
 Employees in the new service/product development process design and develop new services or products. The services
or products may be developed to external customer specifications or conceived from inputs received from the market in
general.
 The order fulfillment process includes the activities required to produce and deliver the service or product to the
external customer.
 Customer Relationship Process, sometimes referred to as Customer Relationship Management (CRM): Employees
involved in the Customer Relationship process identify, attract, and build relationships with external customers, and
facilitate the placement of orders by customers. Traditional functions, such as marketing and sales, may be a part of this
process.
Support Processes (Figure 1.4)
provides vital resources and inputs to the core processes and is essential to the management of the business. Firms have
many support processes. Examples include budgeting, recruiting, and scheduling. Support processes provide key resources,
capabilities, or other inputs that allow the core processes to function.
 The Human Resources function in an organization provides many support processes such as recruiting and hiring workers
who are needed at different levels of the organization, training the workers for skills and knowledge needed to properly
execute their assigned responsibilities, and establishing incentive and compensation plans that reward employees for
their performance.
 The legal department puts in place support processes that ensure that the firm is in compliance with the rules &
regulations under which the business operates.
 The Accounting function supports processes that track how the firm’s financial resources are being created and allocated
over time.
 The Information Systems function is responsible for the movement and processing of data and information needed to
make business decisions.
Support processes from different functional areas like Accounting, Engineering, Human Resources, and Information Systems
are therefore vital to the execution of core processes.
 4) What is the process hierarchy?
 All operations are part of a larger supply network which, through the individual
contributions of each operation, satisfies end customer requirements.
 All operations are made up of processes that form a network of internal customer–
supplier relationships within the operation.

Engine block To end user:

Oil tank FINAL ASSEMBLY FINISHED GOODS:
Piston/igniter Internal/external INPUT:
Spark plugs …
PROCESSES:
customer
1. Engine
1. How many
2. Transmission
workers on
Engine Assy. Supplier 3 3. Battery
Processes assembly line? AN AUTOMOBILE
4. Alternator
2. Skills?
5. Radiator
Experience?
6. Front axie
3. What should be
Engine 7. Front Steering &
put in first and
Suspension
when?

For demonstration purpose ONLY -

5) How do operations processes have different characteristics?
 Operations differ in terms of their volume of the outputs, the variety of outputs, the
variation in demand for their outputs, and the degree of ‘visibility’ of customers & a
firm’s operations (may spark “favorable/unfavorable” perception).
Service and Manufacturing Processes
CHAPTER 3: OPERATIONS STRATEGY

 Sr. Management: corporate strategy (long-

term vision/mission)
 Operations Management: tactical strategy
(develop short-term operations based on
vision/mission) & daily activities
Operations strategy specifies the means by which
operations implements corporate strategy and
helps to build a customer-driven firm. It links long-
term and short-term operations decisions to
corporate strategy and develops the capabilities
the firm needs to be competitive. It is at the heart
of managing processes and supply chains. A firm’s
internal processes are only building blocks: They
need to be organized to ultimately be effective in a
competitive environment. Operations strategy is
the linchpin that brings these processes together
to form supply chains that extend beyond the
walls of the firm, encompassing suppliers as well
as customers. Since customers constantly desire
change, the firm’s operations strategy must be
driven by the needs of its customers.
Direct, Design, Monitor and Control of those fundamental activities and processes that organizations use to produce goods
and services that people use every day to stay competitive and profitable.
 A process is any activity or group of activities that takes one or more inputs, transforms them, and provides one or more
outputs for its customers. [ INPUT(S) – PROCESSES – OUTPUT(S) ] (For organizational purposes, processes tend to be
clustered together into operations.)
 An operation is a group of resources performing all or part of one or more processes. Processes can be linked together
to form
 A supply chain, which is the interrelated series of processes within a firm (internal suppliers/customers) and across
different firms (external suppliers/customers) that produce a service or product to the satisfaction of end users /
customers. A firm can have multiple supply chains, which vary by the product or service provided.
 Supply chain management is the synchronization of a firm’s processes with those of its suppliers and customers to
match the flow of materials, services, and information with customer demand.

VOCAB
- Synchronization = the fact of happening
at the same time or moving at the same
speed as something else; the act of
making something do this
 Use this section in place of
Process Strategy Decisions Krajewski pages 111 - 124
Chapter 5: Design in Services & Products
Chapter 8: Process Technology (Automation)
Chapter 9: People, Job & Organization
3) Design a detailed layout (Related to Chapter 5: Design in Services & Products)
After finding a satisfactory block plan, the final step translates it into a detailed representation, showing the exact size
and shape of each center; the arrangement of elements (e.g., desks, machines, and storage areas); and the location of
aisles, stairways, and other service space. These visual representations can be two-dimensional drawings, three-
dimensional models, or computer-aided graphics. This step helps decision makers discuss the proposal and problems
that might otherwise be overlooked. Such visual representations can be particularly important when evaluating high
customer-contact processes.

Customer Involvement
reflects the ways in which customers become part of the process and the extent of their participation. Starbucks faces a
different kind of customer variability – It allows customers to choose among many permutations of sizes, flavors, and
preparation techniques in its beverages.
Possible Disadvantages
disruptive, making the process less efficient. Customers may raise their expectations if having choices (interpersonal
communication), or having quality implications (favorable/unfavorable of the facilities/employees) which may Interfere
with the current cost.
Possible Advantages
Some customers seek active participation in and control over the service process, particularly if they will enjoy savings
in both price and time. The manager must assess whether advantages outweigh disadvantages, judging them in terms
of the competitive priorities and customer satisfaction.
 Resource Flexibility
High task divergence and flexible process flows require more flexibility of the process’s resources—its employees,
facilities, and equipment.
Workforce
flexible workforce: Members of a flexible workforce are capable of doing many tasks, either at their own workstations
or as they move from one workstation to another (require greater skills & pay)
Equipment
Low volumes mean that process designers should select flexible, general-purpose equipment.
The break-even quantity in When volumes are low (because
Figure 3.7 is the quantity at customization is high), process 1
which the total costs for the is the better choice.
two alternatives are equal. At
quantities beyond this point, Total cost = F + cQ
the cost of process 1 exceeds
that of process 2. Unless the When volumes are high (because
firm expects to sell more than customization is low), process 2
the break-even amount, is the better choice.
which is unlikely with high
customization and low
volume, the capital
investment of process 2
is not warranted.
 Capital intensity is the mix of equipment and human skills in the process; the greater the
Capital Intensity relative cost of equipment, the greater is the capital intensity.
Automation is a system, process, or piece of equipment that is self-acting and self regulating. Although automation is
often thought to be necessary to gain competitive advantage, it has both advantages and disadvantages. Thus, the
automation decision requires careful examination.
ating Manufacturing Processes (Related to Chapter 8: Process Technology & Chapter 9: People – Job &
Substituting labor-saving capital equipment and technology for labor has been a classic way of improving productivity and
quality consistency in manufacturing processes (Volume is high & customization is low). One big disadvantage of capital
intensity can be the prohibitive investment cost for low-volume operations. Generally, capital-intensive operations must
have high utilization to be justifiable. Also, automation does not always align with a company’s competitive priorities. If a
firm offers a unique product or high-quality service, competitive priorities may indicate the need for hand labor and
individual attention rather than new technology.
Fixed Automation Manufacturers use two types of automation: (1) fixed and (2) flexible (or programmable).
(1) Fixed automation produces one type of part or product in a fixed sequence of simple operations (when demand
volumes are high, product designs are stable, and product life cycles are long. Drawbacks: large initial investment
cost and relative inflexibility.
(2) Flexible (Programmable) can be changed easily to handle various products. The ability to reprogram machines is
useful for both low-customization and high-customization processes. In the case of high customization, a machine
that makes a variety of products in small batches can be programmed to alternate between products. When a
machine has been dedicated to a particular product or family of products, as in the case of low customization and a
line flow, and the product is at the end of its life cycle, the machine can simply be reprogrammed with a new
sequence of tasks for a new product. Ex. An industrial robot – its arm has up to 6 standard movements.
Automating Service Processes
Using capital inputs as a labor-saving device is also possible for service processes. In educational services, for example,
long-distance learning technology now can supplement or even replace the traditional classroom experience by using
books, computers, Web sites, and videos as facilitating goods that go with the service. Justifying technology need not be
limited to cost reduction. Sometimes, it can actually allow more task divergence by making available a wide menu of
choices to the customer.

Technology in the future will surely make possible even a greater degree of customization and variety in services that
currently only human providers can now deliver. Beyond cost and variety considerations management must understand
the customer and how much close contact is valued. If the customers seek a visible presence and personal attention,
technologies reduced to sorting through a variety of options on the Internet or over the telephone might be a poor
choice.

The need for volume to justify expensive automation is just as valid for service processes as for manufacturing processes.
Increasing the volume lowers the cost per dollar of sales. Volume is essential for many capital-intensive processes in the
transportation, communications, and utilities industries.
3) Corporate Social Responsibility (CSR) – Chapter 21

The issue of how CSR objectives can be included in operations management’s activities is important from an
ethical and a commercial point of view.
hical, Workforce Diversity, and Environmental Issues
Businesses face more ethical quandaries than ever before, intensified by an increasing global presence and rapid
technological change. As companies locate new operations and acquire more suppliers and customers in other
countries,

 Potential ethical dilemmas arise when business is conducted by different rules. Some countries are more sensitive
than others about conflicts of interest, bribery, discrimination against minorities and women, discrimination of
other cultures/customs because of diversified work-forces, minimum-wage levels, and unsafe workplaces.
Managers must decide whether to design and operate processes that do more than just meet local standards. In
addition, technological change brings debates about data protection and customer privacy. In an electronic world,
businesses are geographically far from their customers, so a reputation of trust is paramount.
 In the past, many people viewed environmental problems, such as toxic waste, poisoned drinking water, poor air
quality, and climate change as quality-of-life issues; now, many people and businesses see them as survival issues.
The automobile industry has seen innovation (Chapter 5: Designing Services & Products) in electric and hybrid
cars in response to environmental concerns and economic benefits arising from using less expensive fuels.
Industrial nations face a particular burden because their combined population consume proportionally much
larger resources. Just seven nations, including the United States and Japan, produce almost half of all greenhouse
gases. Now, China and India have added to that total carbon footprint because of their vast economic and
manufacturing expansion over the past decade.

When designing and operating processes, managers should consider integrity, respect for the individual, and
customers satisfaction along with more conventional performance measures such as productivity, quality, cost, and
profit.
4) COMBINATION OF TBL/STAKEHOLDER/CORPORATE SOCIAL RESPONSIBILITIES

Triple bottom line, stakeholder and CSR objectives form the backdrop to operations decision making, but running
operations at an operational day-to-day level requires a more tightly defined set of objectives. These are the five
basic ‘performance objectives’ and they apply to all types of operation.

 Do things right (error-free goods/services) = QUALITY

 Do things fast (no stretching time) = SPEED
 Do things on time (to keep delivery promises) = DEPENDABILITY
 Ability to change/adopt accordingly to situations = FLEXIBILITY
 Do things inexpensively (if at all possible) = LOW COST
PART I: INTRODUCTION

CHAPTER 2: OPERATIONS PERFORMANCE

CHAPTER 2: OPERATIONS PERFOMANCE

Operations are judged by the way they perform. However, there are many ways of judging performance
and there are many different individuals and groups doing the judging.

1) Broad approach to measure operations performance: TBL/3BL (Social [PEOPLE], Environment [PLANET],
Economic [PROFIT]) Bottom Line
2) How stakeholders judge operations performance
3) Corporate Social Responsibility (CSR) – Chapter 21: Corporate Social Responsibility (CSR)
4) Direct operations-related aspects of performance:
a. Quality (Chapter 17 – Quality Management & Supplement: Statistical Process Control)
b. Speed
c. Dependability
d. Flexibility
e. Cost/Profit

5) Examine how performance objectives trade off against each other.

Why O.M. performance is vital to any organization?
 Ability to MAKE PROFITS (producing physical goods (tangible) or services (intangible) to satisfy market demands.
Can “make-or-break” any entity.
 Often face new challenges: economic, social, political and technological environment changes – decisions to
be made pending situation(s)/condition(s).

1) Broad approach on Operations Performance.

Triple Bottom Line (TBL)/(3BL): Social (PEOPLE),

Environmental (PLANET), Economic (PROFIT)
Bottom Line
 Known as “PEOPLE, PLANET, PROFIT” -
meaning that organizations should measure
themselves not just on the traditional
economic profit that they generate for their
owners, but also on the impact their
operations have on society (broadly, in the
sense of communities, and individuals
(company’s employees) & the environment.
2) The stakeholder perspective on Operations Performance
Stakeholders can be:
 INTERNAL STAKEHOLDERS: employees
 EXTERNAL STAKEHOLDERS: investors, external suppliers
 A direct commercial relationship with the organization such as suppliers, customers, company’s
shareholders.
 Environment Protection Agency (EPA).

It is a responsibility of the operations function to understand the (sometimes conflicting) objectives of its
stakeholders and set its objectives accordingly.
 QUALITY is important

 Quality is consistent conformance to customers’ expectations.

 All operations regard quality as a particularly important objective.
 When quality means consistently producing services and products to specification it not only leads to external
customer satisfaction, but makes life easier inside the operation as well because:
 Quality reduces costs
 Quality increases dependability
 Quality means different things in different operations (Hospital, Automobile plant, Bus company, Supermarket):
SPEED is important

 Speed means the elapsed time between customers requesting products or services and them receiving them.
 Speed reduces inventories. (Chapter 12: Inventories)
 Speed reduces risks: to better forecast next events.
 Speed means different things in different operations (Hospital, Automobile plant, Bus company, Supermarket):
DEPENDABILITY is important

 Dependability means doing things in time for customers to receive their goods or services exactly when they are
needed, or at least when they were promised.
 Dependability saves time (wasted time translates to higher cost), money, and gives stability.
 Dependability means different things in different operations (Hospital, Automobile plant, Bus company,
Supermarket):
FLEXIBILITY is important

 Flexibility means being able to change the operation in some way. This may mean changing what the operation
does, how it is doing it, or when it is doing it. Specifically, customers will need the operation to change so that it can
provide four types of requirement:
 product/service flexibility – the operation’s ability to introduce new or modified products and services;
 mix flexibility – the operation’s ability to produce a wide range or mix of products and services;
 volume flexibility – the operation’s ability to change its level of output or activity to produce different
quantities or volumes of products and services over time;
 delivery flexibility – the operation’s ability to change the timing of the delivery of its services or products.

 Flexibility means different things in different operations (Hospital, Automobile plant, Bus company, Supermarket):
COST is important
 To the companies which compete directly on price, cost will clearly be their major operations objective. The lower
the cost of producing their goods and services, the lower can be the price to their customers. Even those
companies which do not compete on price will be interested in keeping costs low ($ saved meaning higher profit).
 The operation will spend its money on staff (the money spent on employing people), facilities, technology and
equipment (the money spent on buying, caring for, operating and replacing the operation’s ‘hardware’) and
materials (the money spent on the ‘bought-in’ materials consumed or transformed in the operation).
 Cost means different things in different operations (Hospital, Automobile plant, Bus company, Supermarket):
Keeping operations costs down
All operations have an interest in keeping their costs as low as is compatible with the levels of quality, speed,
dependability, and flexibility that their customers require.
The measure that is most frequently used to how successful an operation is at doing this is productivity.
Productivity is the ratio of what is produced by an operation to what is required to produce it. indicate

Often partial measures of input or output are used so that comparisons can be made. For example, in the
automobile industry productivity is sometimes measured in terms of the number of cars produced per year per employee.
This is called a single-factor measure of productivity.

This allows different operations to be compared excluding the effects of input costs. One operation may have
high total costs per car but high productivity in terms of number of cars per employee per year. The difference between
the two measures is explained in terms of the distinction between the cost of the inputs to the operation and the way
the operation is managed to convert inputs into outputs. Input costs may be high, but the operation itself is good at
converting them to goods and services. Single-factor productivity can include the effects of input costs if the single input
factor is expressed in cost terms, such as ‘labor costs’. Total factor productivity is the measure that includes all input
factors.
To improve productivity: reduce the cost of its inputs while maintaining the level of its outputs when needed.
Cost reduction through internal effectiveness: Each of the various performance objectives (Quality, Speed,
Dependability, Flexibility, Cost) has several internal effects, but all of them affect cost. So one important way to improve
cost performance is to improve the performance of the other operations objectives

How do operations performance objectives trade off against each other?

Trade-offs are the extent to which improvements in one performance objective can be achieved by sacrificing performance
in others.
HOMEWORK ASSIGNMENT 1: Productivity calculations

1) Calculate the productivity for the following operations:

a. Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week.
b. A team of workers makes 400 units of a product, which is sold in the market for $10 each. The accounting
department reports that for this job the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead.

2) Natalie Attire makes fashionable garments. During a particular week, employees worked 360 hours to produce a batch of
132 garments, of which 52 were “seconds” (meaning that they were flawed). Seconds are sold for $90 each at Attire’s
Factory Outlet Store. The remaining 80 garments are sold to retail distribution at $200 each. What is the labor
productivity ratio of this manufacturing process?

3) Student tuition at Boehring University is $150 per semester credit hour. The state supplements school revenue by $100
per semester credit hour. Average class size for a typical 3-credit course is 50 students. Labor costs are $4,000 per class,
materials costs are $20 per student per class, and overhead costs are $25,000 per class.
a. What is the multifactor productivity ratio for this course process?
b. If instructors work an average of 14 hours per week for 16 weeks for each 3-credit class of 50 students, what is the
labor productivity ratio?