DBM 623

OPERATIONS MANAGEMENT
TOPIC I
Overview of Operations Management
1..1 Definition of terms used in operation management
1..2 Historical evolution of operations management
1..3 Objectives and characteristics of operation management
1..4 Transformation process in operations management
1..5 Product versus services operation
1..6 Frameworks for analyzing operations
1..7 Scope of operations management
1..8 Roles of an operations manager
1..9 Interrelationships of operations department with other department

INTRODUCTION

Definition of terms used in operation management

1. Product is an artifact or service made or provided to satisfy consumer needs.

2. Production is a transformation process whereby goods/ services are brought
into being.
3. Operations this is a term which embraces all activities required to create and
deliver an organizations goods or services to its customers or clients.
4. Management; a. members of executive/ administration of an
organization/business
b. managers or employers
c. techniques/Practice or science of managing or controlling
d. skillful / resourceful use of materials, time and other
production factors
5. Manage – this is to exercise control or dominion often in a tactful/guided
manner. This involves planning, organizing staff, directing and controlling
activities relating to production of goods and services.
6. Operations management:
 Is defined as the design, operation and the improvement of systems that
creates and delivers the firm’s primary products and services.
 Operations management is the process of obtaining and utilizing resources to
produce useful goods and services so as to meet the goals of the
organization. It is concerned with the management of the entire systems that
produce goods and services and delivers the products.
 Operations management is also concerned with the management of service
industries as well as the manufacturing of goods. Examples of services:
retailing/food, banking, education, health care, utilities, insurance,
government agencies
 Operations management considers how the inputs are transformed into
goods or services.
 Control is when something is learned about the goods or a service that is
used to more effectively transform future goods or services.
7. Production management is concerned with the manufacturing of goods:
Examples of goods: cars, books, chairs, computers houses etc.

 Production and operations management concerns itself with the conversion

of inputs into outputs using physical resources so as to provide the desired
utility of form, place or combination.
 Production and operation management (POM) is the management of an
organization's production system, which converts input into the organization
's products and services
 Operation management relies on efficiency and effectiveness
  Effectiveness: It’s doing right thing to create the most value for the
company e.g. minimizing waiting time for customers.
 Efficiency: Doing something at the lowest cost. (Using the least input of
resources to produce quality products)

Historical evolution of operations management

YEAR CONCEPT TOOLS

1910’S - Principle of scientific - Formalized time study and work

management/industrial study concept actively scheduling
psychology/moving assembly about and pool applied to inventory.
line/economy.

1930’s - Quality control - Sampling inspection and statistical

tables for quality control.

1940’s -Multi disciplinary team - Simplex method for linear

programming.

1950’s- Extensive development of - Simulation, waiting line theory,

60’s operations research tools decision theory, mathematical
program project scheduling
techniques of PERT/CPM.

1970’s - Wide spread use of computers - Inventory control, forecasting,

in business/service quality and project management, mass
productivity production in the service sector.
1980’s - Manufacturing strategy - Manufacturing as a competitive
paradigms, JIT, TQC and weapon.
factory automation.

1990’s TQM, BPR, electronic - quality awards ISO, 9000/quality

enterprise and supply chain function development/continuous
management improvement paradigm, radical
improvement paradigm
www/internet,

2000’s E-Commerce. www, internet.

Reasons for Studying Operations Management

- Provides a systematic way of looking at the organization process by using

analytical thinking to deal with the real world problems.
- Provides an understanding to modern approaches in managing operations
(employees are expected to be knowledgeable).
- Provides interesting career opportunities, e.g. supply chain management,
quality assurance.
- The concepts of OM are widely used in managing other functions of
business.

Objectives and characteristics of operation management

a. Objectives of POM
1. Produce the desired quantity/quality of products and services
 2. Better Organization- With proper POM there will be an organized production
system hence maximum utilization of raw materials and available machines.

3. Optimum use of equipment hence good return on capital.

4. Optimum use of personnel and raw materials
5. Better customer service due to meeting deadlines
6. Better profit margins
7. Minimize cost of output.

b. The Characteristics of operations management of a core business are:

1. Understand customer needs

2. Understand the organizations’ financial performances
3. Great Planner (Either on time Delivery or Business Development or New
product development )
4. Effective communication between stakeholders
5. Performs under pressure
6. Tracks & Measures Staff Performance
7. Being realistic
8. Focuses on Quality of products/services
9. P & L Management
10.Safety Conscious
11.Effective Supply chain management

Transformation process in operations management

3.4 Transformation processes

A transformation process is any activity or group of activities that takes one or

more inputs, transforms and adds value to them, and provides outputs for
customers or clients. Where the inputs are raw materials, it is relatively easy to
identify the transformation involved, Where the inputs are information or people,
the nature of the transformation may be less obvious. For example, a hospital
transforms ill patients (the input) into healthy patients (the output).

Transformation processes include:

 changes in the physical characteristics of materials or customers

 changes in the location of materials, information or customers
 changes in the ownership of materials or information
 storage or accommodation of materials, information or customers
 changes in the purpose or form of information
 changes in the physiological or psychological state of customers.

Often all three types of input – materials, information and customers – are
transformed by the same organization. For example, withdrawing money from a
bank account involves information about the customer's account, materials such as
cheques and currency, and the customer. Treating a patient in hospital involves not
only the ‘customer's’ state of health, but also any materials used in treatment and
information about the patient.

One useful way of categorizing different types of transformation is into:

 manufacture – the physical creation of products (for example cars)

 transport – the movement of materials or customers (for example a taxi
service)
 supply – change in ownership of goods (for example in retailing)
 service – the treatment of customers or the storage of materials (for example
hospital wards, warehouses).

• Inputs →
• Money
• Converter/operative →
• Raw
systemmateria
• Outputs
• Machinery
ls,
•• products
Equipment
Metho
•• Services
Space/land
ds
•• Scraps
Expertise
Utilitie
•• Knowledge→
Experience
s
• Manpo
wer
• Inform
ation
• time
 Product versus services operation

Differences between goods and services

Goods Services
1. Tangible i.e. physical 1. Not tangible.
2. Separable from the owner. 2. Cannot be separated from the
3. Location and direct customer services provider.
involvement are not essential. 3. Location of service facility and
4. Delayed consumption direct customer involvement in
5. Equipment intensive production creating the output are essential.
6. Quality easily measured 4. Immediate consumption
7. Production and consumption not 5. Labor intensive production
simultaneous 6. Quality very difficult to measure
7. Production and consumption are
simultaneous

Common ground and differences between manufacturing and services

Common Ground Differences

 Entail customer satisfaction as a key  Uniformity of input
Service operations are subject to more variability
measure of effectiveness
of inputs than manufacturing operations are. Each
 Require demand forecasting patient, each lawn, each TV presents a specific
 Require design of both the product problem.
and the process  Labor content of jobs
Manufacturing -capital intensive
 Involve purchase of materials,
Service -higher labor content
supplies, and services
 Uniformity of output
 Require equipment, tools, buildings,
Products--standardization, low variability, smooth,
and skills, etc. efficient
Service--customization, variable, slow.
 Store
Goods may be stored
Services are consumed during delivery, cannot be
stored.
 Measurement of productivity
In manufacturing, measurement is more
straightforward
In service operation, measurement is more
difficult due to variations in demand intensity.
 Customer contact
Service involves a much higher degree of
customer contact than manufacturing does.
The performance of a service typically occurs at
the point of consumption.
Manufacturing allows a separation between
production and consumption.

Difference between manufacturing and service

 Characteristic Manufacturing Service
Output Tangible Intangible
Customer Contact Low High
Uniformity high Low
Labor content Low High
Uniformity of output High Low
Store of output Easy Difficult
Measurement of production Easy Difficult

Frameworks for analyzing operations

An operational framework is a guide to a company's policies, goals,

standards, procedures and training. The framework sets out the way the
company does business and promotes a corporate culture and identity. An
operational framework may also include principles of good governance and
set out company values and divisions within the firm. Each operational
framework contains different elements. they include

Organization

The operational framework generally describes the corporate organization or

management structure. This includes how leaders will govern the company and the
hierarchy of its divisions or management teams. For example, the framework may
set out the levels of management, from the CEO to department heads and ordinary
managers. Accompanying this might be a chart illustrating the corporate hierarchy.
In smaller firms, this section might simply state the corporate structure, such as
owner-operator.

Policies

The operational framework will generally outline company policies. These can
include guiding principles on behavior, employment and promotion. It might also
contain general guidelines for all employees to follow. These can include
directives such as always act with fairness and integrity, support roles must be
adequately staffed and responsive, always use good governance and risk
management procedures and managers will have an open-door policy. These
guidelines are in the operational framework to establish and develop a company
ethos and culture. The document might also outline which markets the company
will target and where it will focus research and development spending

Processes and Procedures

Most companies include guidelines for core processes and procedures in their
operational frameworks. The framework does not generally list exact instructions
for processes, such as how to operate various types of equipment. Instead, it sets
guidelines for broader matters, such as how to conduct business planning and when
to do an audit. The framework might have procedures for managing workflow,
policies for bidding on contracts and for allocating assets to company divisions. It
may also include specific information on procedures for hiring, facilities
management and customer relations.

Multiple Frameworks

Companies might have more than one operational framework. An organization

might develop a framework to achieve a particular goal. The company might
design a green framework, stating environmental goals for each section of the
business. An innovations framework may outline policies, procedures and
management changes the company will use to achieve innovation and growth.

o Scope of operations management

The scope of operations management is based on the interrelationship of the

following three aspects, namely: 

1. Structural aspects, in the form of input that will be transformed according to

criteria of the desired products, machinery, equipment, formulas and
models. 
2. Functional aspects, namely the link between the component input, with
interaction internal functions of the planning, implementation, control, and
 improvements to obtain optimum performance, so that operations can be run
continuously. 
3. Environmental aspects, is the tendency that occurs outside the system, such
as community, government, technology, economics, political, social,
cultural, demonstrated ability to adapt.

Each manager will carry out basic functions of management processes.

Management process consists of planning, organizing, setting up employees,
directing, and controlling.
Operations managers implement these management processes in decision making
in operations management.

Based on the aspects mentioned above, the scope of operations management is

defined to be ten important decisions in operations management are as follows:
1. The design of products and services
2. Quality management
3. The strategy process
4. Strategic location
5. Layout strategy
6. Human resources
7. Supply chain management
8. Inventory management
9. Scheduling
10. Maintenance

Roles of the Operations Manager

People in operations roles act as multipliers, aiming to enable those in the

organization to maximize their productivity. They oversee the functions crucial to

every top performing organization, such as Management, overseeing budgets,

helping to hire and train new staff, etc.

Roles/ Functions of the Operations Manager Include:

 Functions Activities involved

Planning: They determine the objectives and goals of  Capacity

the organization and develop programs, policies and  Location
 Layout
procedures that will help the organization attain them  Projects
 Products and services
 Make or buy
 Scheduling
Organizing: They develop the structure of individuals,  Degree of
centralization
groups, departments and divisions to achieve objectives
 Subcontracting
Staffing: They determine labor requirements and the  Hiring/laying off
best way to recruit, train, retrain, and terminate  Use of overtime
personnel necessary for achieving objectives

Directing/Leading: They lead, supervise and motivate  Incentive plans

personnel to achieve objectives.  Issuance of work
orders
 Job assignments
Controlling: They develop the standards and  Inventory control
communication network necessary to ensure that the  Quality control
 Work-in process
organization is pursuing appropriate plans and control
achieving objectives  Process control

Interrelationships of operations department & other functional areas of

Management

Most organizations are made up of individual functional units that are represented
as departments that ultimately provide customer satisfaction in their own unique
way. Management of operations should be performed using systems approach
where independent functional areas are unified with the aim of satisfying both the
internal and external customers. In a typical functional area, operations
contributions can be achieved in the following ways;
Sales and Marketing
1. Establishing customer requirements
2. Identify product features as determined by the customer
3. Establishing the price the customer is willing to pay for a given level quality
4. To continuously obtain feedback on product quality for continuous
improvement
5. Ensuring customer satisfaction by providing quality after sale services

Research and Development

1. Develop technical specifications for the products
2. Provide measures and specifications on product services required to produce a
quality product.
3. To translate information collected from the customer into product requirement
4. Develop ways of continuously improving product or service offering
5. Develop standards for evaluating product and service quality

Purchasing Department
1. Selecting suppliers who are able to deliver quality materials and parts
2. Establish products requirements in line with specifications developed by the
research department
3. Establish long term supplier relationships based on trust
4. Informing supplier of any problems/defects encountered in the use of the
product
5. Measuring quality of products as they are received from suppliers.

Human Resource
1. Recruitment of qualified staff
2. Developing training to continuously empower employees
3. Initiate a reward and recognition system based on quality performance
4. Carry out job design and work measurements to ensure high quality output.
Finance and Accounting
1. Allocation of resource to quality management
2. Measurement of cost of quality i.e. cost of compliance and cost of non-
conformance
3. Evaluation of quality investment
o