Operation Management:

Overview of Operation Management:

 Outline

• Definition of Operation Management

• Describe the differences between service and manufacturing
operations
• Identify major historical developments in OM
• Identify current trends in OM
 Meaning of OM

Operation: transformation of a range of

inputs into the required output
OM: the design, operation,
(services) or what the company does.
and improvement of the
systems that create and
Management: is the process combining deliver the firm’s primary
and converting various resources into products and services.
value added outputs.

The business function responsible for planning , coordinating , and controlling the resources
needed to produce products and services for a company.
OM is used in service oriented industry and PM is for manufacturing.
 Why Operation Management?

 Increase competitive advantage: (Performance and Cost)

 Career Opportunities: OM, PM, Purchasing, quality and inventory manager
 Every organization has an operations function.
 Core functional area of firm
 Cross functional application (affects/affected by other function).
 Why Operation Management?

Organization

$ Products

Finance Operations Marketing

Demand
Funding Needs
 OM’s Transformation Role
• The goal of operations management is to maximize efficiency while producing goods
and services that effectively fulfill customer needs.

• 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

 Goods vs Service
Characteristic Goods Service
Goods: physical items that Customer contact Low High
include raw materials, parts, Predictability Higher Lower?
and final products: Automobile, Productivity High Low?
Labor content Low High
PC, Oven, Shampoo…
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult?
Services: activities that provide
Opportunity to correct High Low
some combination of time, problems
location, psychological value: Inventory Much Little
Air travel, Education, Hair cut… Evaluation Easier Difficult
Patentable Usually Not usual
1-7
 Service and Manufacturing
Steel Making Home Auto repair Maid Service Teaching
Automobile remodeling Appliance Manual car Lawn mowing
fabrication Retail sales repair wash
High Percentage Low Percentage
goods goods
Low Percentage High Percentage
service service

Manufacturing
M&S Service

Goods and services often occur jointly

Growth of the Service Sector

• Service sector growing to 50-

80% of non-farm jobs

• Global competitiveness

• Demands for higher quality

• Huge technology changes

• Time based competition

• Work force diversity

 Production system
Value added

A system is a set of interrelated parts that must work together, it takes

input and provide output. 10
 Production system
A system is a set of
Value added
interrelated parts
that must work
together, it takes
input and provide
output.

• Store: The value is enhanced if the entity is kept

• Alter: This refers to change in the form or state of the inputs.
Physical as in manufacturing, or sensual or psychological such as
the feeling of comfort or satisfaction after getting cured from an
illness.
• Transport: It may have more value if located somewhere other than
where it currently is. Entity may include people, goods or garbage.
in a protected environment for some period of
time, such as potatoes in cold storage or food
grains in warehouses.
• Inspect: The value of an entity may be enriched
through an inspection as we better understand
its properties and can therefore take more
informed decisions regarding their purchase,
use, repair etc. 11
 Scope of OM

Design decisions:
Forecasting, Capacity planning, product
design, process design, layout and locations.

Operation Strategic (long-term) decisions

decisions Operation decisions:

quality assurance, production planning,
scheduling and control, inventory and project
management, job assignment. Involves
Tactical and operational and control decisions
 Historical Milestones in
When do OM started? POM
1. Hand Crafting: Ancient production (Axum, Lalibela, Egypt Pyramid)

2. Industrial revolution: Production system before 1700 was cottage then by the middle of 1800
replaced by factory.

3. Post civil war period: Industries start to boom in USA.

4. Scientific management: using d/f techniques for increasing production…standardization and

specialization.

5. Human relations and Behavioralism: Psychological and sociological factors affect motivation and
production as well.

6. Operation Research: uses quantitative techniques such as LP, forecasting models for helping
decision making in OM. Applied in WWII then expanded by return solders to d/f firms.
• Scientific Management: Frederick Taylor (1911) sought to redesign jobs using

similar principles to those used in designing machines.

• Moving Assembly Line: Henry Ford introduced the assembly line brought the

cars to the workers instead of workers bringing all the parts and tools to a fixed

location.

• During 2nd world war, mathematical model was introduced for optimum
decision making (OR)

• Recent periods: TQM, E-Commerce, JIT, SCM, BPR, ERP I, II, III
Competitive Priorities Operations Strategy Timeline
 Challenges in OM
 Globalization: competition, markets, financing, strategy,

 Rapid advancement of technology

 Growth of internet creates new industries and new challenges?

 Scarcity of production resources

 Social-responsibility issues Environment and ethical issues.

 Service Sector
 Service Jobs are often less structured
 Customer contact is generally much higher
 Employee involvement
 Employee turnover is high in services
 Higher Input variability in many service
 Service performance can be adversely affected by many factors like attitudes
 Customers increasingly expect high quality + low price with quick delivery (increasing
need
 End!

Thank You!