OPERATIONS MANAGER

 Makes strategic broad-scope decisions, tactical moderate-scope decisions, and runs the day-to-day operations
of the production system

STRATEGIC PLANNING
 Includes selecting products, choosing locations and technology, and overseeing new construction

TACTICAL DECISIONS
 Include setting employment and output levels, selecting equipment and controlling the flow of funds

PRODUCTION MANAGER
 Key responsibility is to achieve productive use of an organization's resources, often measured as the ratio of
outputs to inputs (PRODUCTIVITY RATIO)
o The closer the ratio is to 1.0, the higher the productivity; the closer the ratio is to 0.0, the lower the
productivity

PRODUCTIVITY
 Relates to an organization's ability to compete, and to the overall wealth and standard of living of a nation.
 Affected by work methods, capital, quality, technology, and management
 one of the primary responsibilities of a manager is to achieve productive use of an organization’s resources.
 Index that measures output (goods and services) relative to the input (labor, materials, energy, and other
resources) used to produce it

PRODUCTIVITY GROWTH
 Increase in productivity from one period to the next relative to the productivity in the preceding period

PARTIAL PRODUCTIVITY – single input

MULTIFACTOR PRODUCTIVITY
 More than one input

POSTWAR EXPERIENCE OF JAPANESE INDUSTRY

 Provided lessons in management effectiveness, quality low-cost production, and employee motivation
 Enabled Japan to overcome a prewar reputation for low quality, and to become a leading industrial power, even
though the country has limited natural resources

CORPORATE STRATEGY
 Overall strategy of the organization
 Affected by both Internal and external factors

OPERATIONS STRATEGY
 Should support the corporate strategy with a narrower focus
 Pertains to the transformation aspect of the organization's activities
 Often relates to cost, quality, flexibility, and availability of products or services

GOODS PRODUCTION
 Fabrication of a physical object through the use of labor, materials and equipment

SERVICES PRODUCTION
 Discharge of a function which has some utility

OPERATION MANAGEMENT
 Management of that part of an organization that is responsible for producing goods and/or services
 Management of systems or processes that create goods and/or provide services
 Creation of goods or services involves transforming or converting inputs into outputs
 ACTIVITIES:
o Forecasting
o Capacity Planning (cash flow and profit)
o Scheduling
o Managing Inventory
o Assuring quality
o Employee motivation
o Location of facilities

VALUE ADDED
 Differences between the cost of inputs and the value or price of outputs

WHY STUDY OPERATION MGT?

 1. That operations management activities are at the core of all business organizations, regardless of what business
they are in.
2. 50% or more of all jobs are in OM related areas such as customer service, quality assurance, production planning
and control, scheduling, job design, inventory management.
3. Activities in all of other areas of business orgs., such as finance, accounting, human resources, logistics,
marketing, purchasing are all interrelated with OM.

DIFFERENTIATING FEATURES OF PRODUCTION SYSTEMS

1. Degree of standardization
a. Standard output – degree of uniformity
b. Customized output – product or services is designed for a specific case
2. Type of Operation – construction, continuous process, mftg.
3. Production of goods vs service operations
o Goods results in an tangible output
o Service implies an act

ROLE OF OPERATION MANAGER – planner and decision maker.

Planner – strategies, competitions, control
Decision maker – uses quantitative methods, analysis of trade-off (eg. Overtime: weigh the values of increased
output against the higher cost of overtime)

TRENDS
1. E-commerce 5. Globalization
2. E-business /internet 6. Ethical Behavior (bus. scandal/US Fin. Crisis)
3. BPO (outsourcing) 7. Management of Supply Chains
4. System Approach

FORECASTING
 Imprecise, but the errors in prior forecasts are measurable
 Deemed to be in control when forecast errors are judged to be random
 A statement about the future value of the variable of interest
 Making an assumption
 Tells about the future

COMMON FEATURES
1. Forecasting techniques generally assume that the same underlying causal system that existed in the past will
continue to exist in the future.
2. Forecast are not perfect (allowance for errors)
3. Forecast for groups of items tend to be more accurate that forecasts for individual items.
4. Forecast accuracy decreases as the time period covered by the forecast – time horizon increases

ELEMENTS OF GOOD FORECAST

1. Timely
2. Accurate
3. Reliable
4. Meaningful units (how many dollars needed or what machine and skills needed)
5. In writing
6. Simple to understand and use
7. Cost-effective

STEPS IN THE FORECASTING PROCESS

1. Determine the purpose of the forecast
2. Establish a time horizon
3. Select a forecasting technique
4. Obtain, clean, and analyze appropriate data
5. Make the forecast
6. Monitor the forecast

QUALITATIVE FORECAST SYSTEMS

 Include expert or executive opinions, sales force composites, opinion surveys and the Delphi technique
o Delphi method – includes a sequence of questionnaires administered to a select group of qualified
experts; the design of each questionnaire is based upon the results of the previous questionnaire

QUANTITATIVE FORECAST SYSTEMS

 Include naïve forecasts, exponential smoothing, moving averages, and associative (regression-based) systems
o Naive model
 Forecast for any period equals the previous period’s actual value.
 The value for the next period is predicted to be the same as it was in the previous period.
  For data that has cyclical or seasonal variations, the "last period" would be the previous
corresponding period, such as "the forecast for this Friday is actual demand for last Friday."
 A trend version of a naive model is that the difference between the value for this period and the
value for the next period will be the same as the difference between the last period and this
one.
o Exponential smoothing
 Weighted averaging method based on previous forecast plus a percentage of the error (alpha)
 Adaptive forecasting technique with some advantages over other types of moving averages and
other statistically based measures.
 The calculations are simple.
 The weighting pattern can be changed simply by changing the smoothing constant
 Both exponential smoothing and simple moving averages smooth the data and lag
changes in a time series.
 If there is trend in the historical data, single exponentially smoothed forecasts tend to lag
behind the actual values. Therefore, it is necessary to incorporate trend adjustments, with
double smoothing.
o Associative techniques
 Involve the use of predictor (independent) variables in equation form to estimate values of
the variable of interest (dependent variable)
o Least squares analysis
 Used to obtain the coefficients of the regression equation
o Moving averages and trend lines
 Technique that averages a number of recent actual values
 Can be used to compute monthly, weekly or daily indexes that show how one part of a "season"
compares to the average value of a time series. These seasonal indexes are used in conjunction
with trend calculations to generate predictions that take account of fluctuations in demand or
economic activity within a period of a year.
o Weighted average
 Same as MA except that it assigns more weight to the most recent values in a time series

THE ACCURACY OF A FORECAST SYSTEM DEPENDS UPON:

1. Accuracy of the historical time series data
2. Similarity of patterns between the past and the future
3. Grouping or aggregation of the data series
4. Time lapse between the historical periods and the period for which the prediction is being made choice of a
model

FORECAST ACCURACY
Forecast error – the difference between the value that occurs and the value that was predicted for a given time period

TYPE
1. MEAN ABSOLUTE DEVIATION (MAD) – the average absolute forecast error; how far the actual values were from
the predictions for previous periods, on the average
2. MEAN SQUARED ERROR (MSE) – the average of squared forecast errors
3. MEAN ABSOLUTE PERCENT ERROR (MAPE) – the average absolute percent error

TRACKING SIGNAL (TS)

 Measure of the bias of the differences between the actual values and the predictions

Capacity and financial decisions are made first, followed by decisions on location of the facility, design of the
product, layout and work systems.

CAPACITY
 The upper limit or ceiling on the load that an operating unit can handle
 Upper limit on output
 If products are similar enough, capacity is measured in common units or rates of output
 When products are dissimilar, capacity is in units of resources used: machine time, labor hours, etc.
 Capacity is not measured in dollar units, because there can be substantial changes in prices over the life cycle of
the product

CAPACITY DECISION
 Involves the type of equipment or facilities to be employed in producing the product or service, how much
capacity or equipment is needed, and when it is needed. These decisions are often costly and difficult to modify.

Effective capacity is less than the design capacity, because the system may have alternative product-mix strategies,
because of changes in design of the product and quality specifications, job requirements or work rules. Actual output
would usually be less than effective capacity, because of shortages, delays, bottlenecks or changes in demand.
Planning considerations involve long-run trends, seasonal shifts in demand, and joint and competing products and
services.

LINEAR BREAKEVEN MODEL

 Assumes that there is only one product, all production is sold, variable cost per unit of output is constant, and
that there is no change in fixed costs or in per unit revenues, regardless of volume. If there are major deviations
from these assumptions, a nonlinear model should be used instead of a linear one

DIFFERENT MEASURES OF CAPACITY

 Efficiency is the ratio of actual output to effective capacity
 Utilization is the ratio of actual output to design capacity

COST-VOLUME ANALYSIS
 Focuses on relationships between cost, revenue and volume of output
 On the optimum size of a plant, helps in determining the optimum design capacity, for a variety of output rates

BREAKEVEN POINT (BEP) – the volume of output at which total cost and total revenue are equal