Introduction

Introduction to OM

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Course Learning Outcomes
▪ Explain the applications on operations management
▪ Solve problem related to production planning and production
management
▪ Perform financial analysis to evalute the performances of a production
system
▪ Justify the financial feasibility of an investment by considering time value
in decision making.

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Textbook & Assessment
Operations Management: Sustainability and
Supply Chain Management,

Jay Heizer, Barry Render, Chuck Munson,

Assessment
Assignment 1 20%
Assignment 2 10%
Midterm Test 20%
Final exam 50%

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Operations
Management
Introduction

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Major Operations (Goods and
Services)
▪ Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the product
3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the money

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Major Operations

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The Role of Operations in
Organization

Integration
between
Different
Functional
Areas of a
Business

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Operations Management
▪ Production is the creation of goods and services
▪ Operations management (OM) is the set of activities that
create value in the form of goods and services by
transforming inputs into outputs
(1) OM is one of three major functions of any organization; we
want to study how people organize themselves for
productive enterprise
(2) We want (and need) to know how goods and services are
produced
(3) We want to understand what operations managers do
(4) OM is such a costly part of an organization

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A Process View
Any activity
or group of
activities that
takes one or
more inputs,
transforms
them, and
provides one
or more
outputs for its
customers.

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The Supply Chain
▪ A global network of organizations and activities that
supply a firm with goods and services
▪ Members of the supply chain collaborate to achieve
high levels of customer satisfaction, efficiency and
competitive advantage

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Malaysia FMCO (1 – 14 June)

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The Supply Chain View
Each activity in a process should add value to
the preceding activities; waste and unnecessary
cost should be eliminated.

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The Supply
Chain View

1. Supplier relationship process –A process to select the suppliers of

services, materials, and information and facilitate the flow of these into the
firm.
2. New service/product development –A process to design and develop new
services or products from customer or market inputs.
3. Order fulfillment process –A process to produce and deliver services or
products to the external customer.
4. Customer relationship process –A process that identifies, attracts and
builds relationships with external customers and facilitates the placement
of orders.
5. Support Processes -Processes like Accounting, Human Resources,
Engineering, and Information Systems that provides vital resources and
inputs to the core processes
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Developing Missions and
Strategies
Vision & Mission statements tell an organization where it is
going
▪ Organization’s purpose for being
▪ Answers “What do we contribute to society?”
▪ Provides boundaries and focus

The Strategy tells the organization how to get there

Operations Strategy
Strategies require managers to
▪ Develop action plan to achieve mission
▪ Ensure functional areas have supporting strategies
▪ Exploit opportunities and strengths, neutralize
threats, and avoid weaknesses (SWOT)

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Strategies for Competitive
Advantage
1. Differentiation – better, or at least different
2. Cost leadership – cheaper
3. Response – more responsive
Competing on Differentiation
Uniqueness can go beyond both the physical characteristics
and service attributes to encompass everything that impacts
customer's perception of value
▪ DJI – better control and flying experience
▪ Walt Disney Magic Kingdom – experience differentiation
▪ Hard Rock Cafe – dining experience
Experience Differentiation
Engaging a customer with a product through imaginative
use of the five senses, so the customer “experiences” the
product
▪ Theme parks use sight, sound, smell, and participation
▪ Movie theatres use sight, sound, moving seats, smells,
and mists of rain
▪ Restaurants use music, smell, and open kitchens
Competing on Cost
Provide the maximum value as perceived by customer.
Does not imply low quality.
▪ Air Asia – low cost, efficient utilization of equipment
▪ Econsave – value, affordable
Competing on Response
▪ Flexibility is matching market
changes in design innovation
and volumes
▪ A way of life at Hewlett-
Packard
▪ Reliability is meeting
schedules
▪ German machine industry
▪ Quickness in design,
production, and delivery
▪ Johnson Electric,
Pizza Hut
OM’s Contribution to Strategy
Operations Strategy

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Differences between Goods
and Services
GOODS SERVICES
Tangible: The seat itself Intangible: Ride in an airline seat
Product can usually be kept in inventory (beauty Produced and consumed simultaneously: Beauty
care products) salon produces a haircut that is consumed as it is
produced
Similar products produced (iPods) Unique: Your investments and medical care are
unique
Limited customer involvement in production High customer interaction: Often what the customer
is paying for (consulting, education)
Product standardized (iPhone) Inconsistent product definition: Auto Insurance
changes with age and type of car
Standard tangible product tends to make Often knowledge based: Legal, education, and
automation feasible medical services are hard to automate
Product typically produced at a fixed facility Services dispersed: Service may occur at retail store,
local office, house call, or via Internet
Many aspects of quality for tangible products Quality may be hard to evaluate: Consulting,
are easy to evaluate (strength of a bolt) education, and medical services

Product often has some residual value Reselling is unusual: Musical concert or medical care

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Improving Productivity
A team of 10 analysts
continually look for ways
to shave time.

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Improving Productivity

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Productivity

▪ Measure of process
improvement
▪ Represents output relative to
input
▪ Only through productivity
increases can our standard of
living improve
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Productivity Calculations

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Production

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Multi-Factor Productivity

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Collins Title Productivity
(Labour Productivity)

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Collins Title Productivity
(Multi-Factor)

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Productivity Variables
▪ Labour - contributes about 10% of the annual
increase
▪ Capital - contributes about 38% of the annual
increase
▪ Management - contributes about 52% of the annual
increase
Key Variables for Improved
Labor Productivity
1. Basic education appropriate for the labor
force
2. Diet of the labour force (health)
3. Social overhead that makes labour
available, such as transportation and
sanitation (infrastructure)
▪Challenge is in maintaining and enhancing
skills in the midst of rapidly changing
technology and knowledge
Capital
Management
▪ Ensures labor and capital are effectively used to increase
productivity
▪ Use of knowledge
▪ Application of technologies
▪ Knowledge societies
▪ Labor has migrated from manual work to technical and
information-processing tasks
▪ More effective use of technology, knowledge, and capital
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