FOREIGN TRADE UNIVERSITY

INSTRUCTOR: DAO MINH ANH (PhD.)

FACULTY OF BUSINESS ADMINISTRATION
EMAIL: [email protected]
COURSE CONTENT
 Section 1: Introduction to Operations Management
 Section 2: Demand forecasting
 Section 3: Product and service design; Process
selection; Capacity planning
 Section 4: Location planning; Facility layout; Design of
work system, Project management (Scheduling)
 Section 5: Inventory management
 Section 6: Material requirements planning
 Section 7: Service management
FOREIGN TRADE UNIVERSITY
Learning Objectives
 Define the term operations management
 Identify the three major functional areas of
organizations and describe how they interrelate
 Compare and contrast service and manufacturing
operations
 Describe the operations function and the nature of
the operations manager’s job
Learning Objectives
 Differentiate between design and operation of
production systems
 Describe the key aspects of operations management
decision making
 Briefly describe the historical evolution of operations
management
 Identify current trends that impact operations
management
Operations Management
 What is operations?
 The part of a business organization that is responsible
for producing goods or services
 How can we define operations management?
 The management of systems or processes that create
goods and/or provide services
Goods or Service?
Goods are physical items that include raw materials, parts, subassemblies,
and final products.
•Automobile
•Computer
•Oven
•Shampoo

Services are activities that provide some combination of time, location,

form or psychological value.
•Air travel
•Education
•Haircut
•Legal counsel
Operations Management
 “Operations Management (OM) is defined as the design,
operation, and improvement of the production systems
that create the firm’s primary products or services”
(Chase and Aquilano,1995)

“ OM is the management of processes or systems that

create goods and/ or provide services”
(Stevenson, 2002)

 ”OM is the set of activities that creates value in the form

of goods and services by transforming inputs into
outputs”
(Slack et.al., 2007)
Example of Operations
Back office operation in a bank Kitchen unit manufacturing
operation

They are
all
Retail operation
operations Take-out / restaurant operation
Operations Management
 The best way to start understanding the nature of
‘operations’ is to look around you
 Everything you can see around you has been
processed by an operation
 Every service you consumed today (radio station,
bus service, lecture, etc.) has also been produced
by an operation
 Operations Managers create everything you buy,
sit on, wear, eat, and throw away
Supply Chain
Supply chain – a sequence of activities and
organizations involved in producing and delivering
a good or service

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers customers
 Value-Added Process
The operations function involves the conversion of inputs
into outputs

Feedback = Measurements taken Control = The comparison of feedback

at various points in the against previously established standards to
transformation process determine if corrective action is needed
 Value-Added
 Value-added is the difference between the cost of
inputs and the value or price of outputs.

 The greater the value-added, the greater the

effectiveness of the operations.

 In nonprofit org’s, the value of outputs (e.g., highway

construction, police and fire protection) is their value
to society.

 In for-profit org’s, the value of outputs is measured by

the prices that customers are willing to pay for the
goods or services.
 Value-added Process
INPUT
TRANSFORMED
RESOURCES
-Materials
-Information
- Customers

GOODS
TRANSFORMATION
INPUT OUTPUT AND
SERVICES
-Facilities
- Staff
INPUT
TRANSFORMING
RESOURCES
 At a confectionary factory
Transformed
resources …

➢Flour, sugar,
flavour, etc...
➢Packaging -Mixing flour and sugar
- Adding water
Input Baked
- Stirring Cake
resources - Baking
Transforming
resources …

➢Equipment
(oven,...)
➢Fittings
➢Staff

Source: Slack et al (2007) Pearson

 At Prêt a Manger
Transformed
resources …

➢Ingredients
➢Packaging
➢Customers
Served and
satisfied
Input customers
resources

Transforming
resources …

➢Equipment
➢Fittings
➢Staff

Source: Slack et al (2007) Pearson

 Types of Production/Operations
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
Production of Goods vs. Service Operations
PRODUCTION OF GOODS SERVICE OPERATIONS
 Goods – oriented  Act – oriented
 Tangible output  Intangible output
 Example:  Example:
- A bicycle - Hair cut
- A clock radio - Health care
- A fridge - Banking services
- A cake - Restaurant services
- etc... - etc...
 Manufacturing or Service?

Tangible Act of

Output Service
 Differences between Production of
Goods and Services Operations
Characteristics Goods Services
Output Tangible Intangible
Uniformity of output High Low
Uniformity of input High Low
Labour content Low High
Measurement of Productivity Easy Difficult
Customer Contact Low High
Opportunity to correct quality problems before High Low
delivery to customer

Evaluation Easier More difficult

 Goods vs. Services
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)

 Can be resold  Reselling unusual

 Can be inventoried  Difficult to inventory
 Some aspects of quality  Quality difficult to measure
measurable
 Selling is distinct from  Selling is part of service
production
 Product is transportable  Provider, not product, is
often transportable
 Site of facility important for  Site of facility important for
cost customer contact
 Often easy to automate  Often difficult to automate
 Revenue generated primarily  Revenue generated primarily
from tangible product from the intangible service
Goods-service Continuum
“Goods and services occur jointly.”
The Organization

The Three Basic Functions

Organizing to Produce Goods and
Services
Basic functions:

 Marketing – generates demand

 Production/ operations – creates the product

 Finance / accounting – tracks how well the

organisation is doing, pays bill, collects the money, etc.
Function Overlap
 Finance & operations
 Budgeting
 Economic analysis of investment
proposals
 Provision of funds
 Marketing & operations
 Demand data
 Product and service design
 Competitor analysis
 Lead time data
Some inter-functional relationships between the operations
function and other core and support functions

Understanding of the
capabilities and
Engineering/ constraints of the Product/service
technical operations process development
function function
Understanding of
Analysis of new process technology New product and
technology options needs Understanding of the
Provision service ideas capabilities and
of relevant constraints of the
Accounting and data operations process
finance function
Market
Financial analysis Operations requirements
for performance
and decisions function
Understanding of Marketing
human resource needs Understanding Provision of systems for function
of design, planning and
Recruitment infrastructural
development control, and
and system improvement
and training needs

Human Information
Resources Technology (IT)
function function
Source: Slack et al (2007) Pearson
 Operations Management at IKEA

Design a store layout

which gives smooth and Ensure that the jobs of
Design elegant products
effective flow all staff encourage their
which can be flat-packed
efficiently contribution to business
success

Site stores of an Continually examine and

appropriate size in the improve operations
most effective locations practice

Maintain cleanliness Monitor and enhance

and safety of storage quality of service to
area customers
Arrange for fast
replenishment of
products

Source: Slack et al (2007) Pearson

Process Management
Process - one or more actions that transform inputs
into outputs

Three Categories of Business Processes:

Upper-management These govern the operation of the

processes entire organization.
Operational processes These are core processes that
make up the value stream.
Supporting processes These support the core
processes.
Supply & Demand
Operations &
Sales & Marketing
Supply Chains

Wasteful
Supply
> Demand Costly

Opportunity Loss
Supply
< Demand Customer
Dissatisfaction

Supply
= Demand Ideal
 Process Variation
Four Sources of Variation:

Variety of goods or services being The greater the variety of goods and services offered, the
offered greater the variation in production or service
requirements.

Structural variation in demand These are generally predictable. They are important for
capacity planning.

Random variation Natural variation that is present in all processes.

Generally, it cannot be influenced by managers.

Assignable variation Variation that has identifiable sources. This type of

variation can be reduced, or eliminated, by analysis and
corrective action.

Variations can be disruptive to operations and supply chain processes. They

may result in additional costs, delays and shortages, poor quality, and
inefficient work systems.
 Scope and Objectives of OM
SCOPE
• Design of goods/services; process/system; location and
facility layout;
• Materials handling;
Design & • Determination of capacity;
Planning • Design of jobs, determination of remuneration system
and work standards

• Scheduling of activities;
• Planning and control of inventory
• Control of quality
Operation & • Scheduling maintenance; facilities replacement;
Control performance measurement.
Scope and Objectives of OM
OBJECTIVES Specification

- Conversion of input for

customer satisfaction Costing Timing

- Utilization of resources Maximum

effect from
resources
Role of the Operations Manager

The Operations function consists of all activities directly

related to producing goods or providing services.

A primary function of the operations manager is to guide the

system by decision making.
 System design decisions
 System operation decisions
System Design Decisions
• System design
– Capacity
– Facility location
– Facility layout
– Product and service planning
– Acquisition and placement of equipment
• These are typically strategic decisions that
• usually require long-term commitment of resources
• determine parameters of system operation
System Operation Decisions
• System operation
• These are generally tactical and operational decisions
– Management of personnel
– Inventory management and control
– Scheduling
– Project management
– Quality assurance
• Operations managers spend more time on system operation
decision than any other decision area
• They still have a vital stake in system design
 OM Decision Making
 Most operations decisions involve many alternatives that can have
quite different impacts on costs or profits
 Typical operations decisions include:
 What: What resources are needed, and in what amounts?

 When: When will each resource be needed? When should the

work be scheduled? When should materials and other supplies
be ordered?
 Where: Where will the work be done?

 How: How will he product or service be designed? How will the

work be done? How will resources be allocated?
 Who: Who will do the work?
History of OM
Historical Evolution of OM
 Industrial Revolution
 Scientific management
 Human relations movement
 Decision models and management science
 Influence of Japanese manufacturers
Industrial Revolution
 Pre-Industrial Revolution
 Craft production - System in which highly skilled workers
use simple, flexible tools to produce small quantities of
customized goods
 Some key elements of the industrial revolution
 Began in England in the 1770s
 Division of labor - Adam Smith, 1776
 Application of the “rotative” steam engine, 1780s
 Cotton gin and interchangeable parts - Eli Whitney, 1792
 Management theory and practice did not advance appreciably
during this period
Scientific Management
 Movement was led by efficiency engineer, Frederick
Winslow Taylor
 Believed in a “science of management” based on observation,
measurement, analysis and improvement of work methods, and
economic incentives
 Management is responsible for planning, carefully selecting and
training workers, finding the best way to perform each job,
achieving cooperation between management and workers, and
separating management activities from work activities
 Emphasis was on maximizing output
Human Relations Movement
 The human relations movement emphasized the
importance of the human element in job design
 Lillian Gilbreth – applications of psychology
 Elton Mayo – Hawthorne studies on worker motivation, 1930
 Abraham Maslow – motivation theory, 1940s; hierarchy of needs,
1954
 Frederick Hertzberg – Two Factor Theory, 1959
 Douglas McGregor – Theory X and Theory Y, 1960s
 William Ouchi – Theory Z, 1981
Decision Models & Management
Science
 F.W. Harris – mathematical model for inventory management,
1915
 Dodge, Romig, and Shewart – statistical procedures for sampling
and quality control, 1930s
 Tippett – statistical sampling theory, 1935
 Operations Research (OR) Groups – OR applications in warfare
 George Dantzig – linear programming, 1947
Influence of Japanese Manufacturers
 Refined and developed management practices that
increased productivity
 Credited with fueling the “quality revolution”
 Just-in-Time production
Key Issues for Operations Managers
Today
 Economic conditions
 Innovating
 Quality problems
 Risk management
 Competing in a global economy
 New Challenges in OM
FROM TO

 Local /national focus  Global focus

 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain partnering

 Lengthy product  Rapid product

development development, alliances

 Standard products
 Mass customization

 Job specialization  Empowered employees,

teams
The Need for Supply Chain Management
 In the past, organizations did little to manage the
supply chain beyond their own operations and
immediate suppliers which led to numerous problems:
 Oscillating inventory levels
 Inventory stockouts
 Late deliveries
 Quality problems
Supply Chain Issues
1. The need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-business
7. The complexity of supply chains
8. The need to manage inventories
 New characteristics of OM

Flexible Sustainable
Management Development

 Concentration on  Environmental
operations strategy in responsibility
corporate strategy  Corporate downsizing
 Total quality management  Lean production
 New technology
 Globalization
 Why Study OM?
 OM is one of three major functions (marketing,
finance, and operations) of any organization
 We want (and need) to know how goods and
services are produced/ delivered
 We want to understand what operations managers
do
 OM is such a costly part of an organization
 Where are the OM Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement