LECTURE 1: INTRODUCTION TO OPERATIONS MANAGEMENT

INTRODUCTION

In this lecture, you will be introduced to the discipline of operations management and its
fundamental role in ensuring that the goods and services we use in our day-to-day lives are
produced and successfully delivered to use. This lecture will also make you understand the
difference between operations management and general management

1.2 Objectives

By the end of this lecture, you will be able to:

1 Explain the concept and importance of operations management

2 Describe what operations managers do

3 Explain the differences between goods and services

4 Define the concept of value and explain how the value of goods and services can be
enhanced

5 Describe a customer benefit package

6 Narrate the historical developments in Operation Management

7 Explain the principles of operations management

1.3 OVERVIEW OPERATIONS MANAGEMENT

Operations management discipline involves ensuring that goods and services are produced and
delivered successfully to customers. Operations management is the only means by which managers
directly affect the value delivered to all stakeholders, customers, investors employees, and society
Effective operations management/delivers high-quality goods or services that meet customers
demand, motivate and develop skills of people who do the actual work and maintain efficient
operations for adequate return on investment while at the saine time protecting the environment.

Chase and Aquilano also define Operation Management as the design, operation, and
improvement of the production/service delivery system that creates the firm's products or services.
A critical analysis of this definition follows;

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i) Design;

Involves coming up with new products and services to satisfy unmet customer requirements. It
also covers the design of production capacity and facilities layout for effective and efficient
workflow. Design still encompasses design work of work systems which entails use of shifts to
reduce fatigue and performance measurement systems.

ii) Operation;

The operating system has to be run to produce a good or offer a service. The key issues of
consideration include the length of the shifts, scheduling orders for actual production, and
production operation planning strategies for demand management

iii)Improvement;

The system has to be improved to offer a better service or to produce. Improvement of operating
systems is not an option but is mandatory because of three reasons;

• Tastes and preferences of customers keep on changing with time making customers demand
different products or services.

Technology improvement gives opportunity to organizations to serve customers hetter.

Organizations have to take advantage of technology to design new goods or services of modify
methods of delivery. • Competition will challenge organizations to improve their outputs.

1.4 THE VALUE OF OPERATION MANAGEMENT STUDY

Many undergraduate students out of curiosity ask, "If I specialize in operations management will
I really get a job?" This may also be the same question you are asking. Below is a narrative of the
careers in this discipline and an exploration of other reasons why general knowledge in operations
management is necessary to you even if you will not be an operations major.

1. For career opportunity e.g.

There are a wide variety of career options in the field of operations management. Some key
opportunity areas are:

i. Operations Manager

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The operations manager is focused on optimizing general corporate infrastructure by monitoring
and changing the work environment, vendor selection, supply chain management, real estate and
budgets,

ii. Materials Manager

Stores a product through all phases from production to finished goods, shipping between
departments, transportation to distribution centers, warehouses, and customers. Materials mangers
must insure that the firm has the right item, at the right time, for the right price.

iii. Industrial Production Manager

Coordinates the activities of production departments of manufacturing firms. They are responsible
for the production scheduling, staffing, quality control, equipment operation and maintenance,
inventory control, and coordinating the unit's activities with that of the other departments.

iv. Operations Research Analyst

Decides on the best allocation of resources within an organization or system. Resources include
time, money, people, space, and raw materials. They might also compare competing research
projects to determine what one performs best on time, results, and cost given a fixed set of
resources and recommend what project to keep and what project to drop. Jobs include: industrial
engineer, systems analyst, office manager, forecaster.

v. Quality Assurance Manager

Works on the prevention of product deficiencies through prevention, detection, and correction.
They ensure that production goals and quality are met. They might sample, inspect, and test
operations and set standards. Jobs include: quality assurance manager, inspector, technician.

vi. Facilities Coordinator

Designs the physical environment of a company. Work on building design, furniture and associated
equipment.

vii. Logistics Manager

Responsible for supply chain management in a key area of an organization. Focused on timeliness,
efficiency and accuracy in receiving and shipping goods.

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2. To understand cross functional relationships

our today's work environment, employees work in cross-functional teams which is a group of
people with different functional expertise working towards a common goal. The team may include
people from finance, marketing, operations, and human resources departments. Typically, it
includes employees from all levels of an organization. Members may also come from outside an
organization (in particular, from suppliers, key customers, or consultants). Cross-functional teams
require a wide range of information to reach their decisions. They need to draw on information
from all parts of an organization's information base and all functional areas.

3. It provides a systematic way of understanding business processes/organizations

Operations management knowledge enables you develop analytical skills which form the
fundamentals of good decision-making skills. Analytical skills allow you to deconstruct a situation
and look at its barest. When you are able to see a situation for what it really is and then understand
the factors and everything that is involved in it, you will have a more rational approach in finding
a solution for it. In the end, you make decisions that will be the most beneficial to the business;
decisions based on rational reasoning and not gut feelings only.

For example, if you want to reduce production cost, you can know what to attack to reduce the
cost by breaking it into constitute elements as follows;

▪ Constituents of production cost and how to reduce it:

▪ Purchase of raw materials-changing the source to cheaper areas/sources
▪ Delivery of raw materials- use the cheapest means of transport
▪ Storage/warehouse- purchase the goods just when needed (just-in-time)

1.4 OPERATIONS MANAGEMENT: HISTORY

The first step in understanding and identifying the key issues in Operation Management (OM)
situations is to review the historical perspectives that dominated management thought since the
19th century. Many aspects of earlier viewpoints, philosophies and schools of thought remain
relevant today and can provide the careful observer with valuable insight into present day OM
situations. Historical development in essence gives a picture of, where we have come from, are
and are going.

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Since 1900, the major schools of thought, have fallen within one of the historical perspectives, of
management thought: The structural perspective, generally held at the turn of the 19th century,
evolved from that time to encompass the theory of scientific management, classical theory,
bureaucracy, decision theory, and systems theory. The human perspective, which first appeared in
the 1920s, eventually included Schools of thought focused on human relations, group dynamics,
and leadership research. The development of management theory dates back to the days of ancient
civilizations of Egypt, Greece, and Rome.

Traditionally management has been defined as forecasting and planning, Organizing,

commanding, coordinating and controlling. Management is the process of designing &
maintaining an environment in which individuals working together, in-groups, efficiently to
accomplish selected aims:

As managers, people carry out the functions of planning, organizing, staffing, leading, and
controlling, and applies to any kind of organization & managers at all levels. The aim of all
managers is the same, to create a surplus. Managing is concerned with productivity; effectiveness
& efficiency.

These gave him ample experience and opportunity to know first-hand the problems and attitudes
of workers & saw the great opportunities for improving management quality.

INDUSTRIAL REVOLUTION

Historically, the field of Operations Management has evolved in a very short span of time. Its roots
go back to the Industrial Revolution, which started in the 1770s with the following important
developments:

• The division of labour concept, espoused by Adam Smith

• The steam engine invented by James Watt
• The interchangeable parts, concept developed by Eli Whitney

Despite a lack of formal theory, economists such as Adam Smith sowed the seeds of labour theory.
Smith spoke approvingly of a pin manufacturer who divided the work into a number of branches',
causing the separation of pin manufacturing into 18 different operations. This separation of
activities permitted workers to concentrate on only one task & thus radically increased the quality

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of pins that could be manufactured in a day. Smith also emphasized the importance of proper
machinery to facilitate labor. However, management prior to 1900 can be best described as using
the rule of thumb.

Adam smith is given much of the credit for the theoretical development of the economics of
modern production. In his book, The Wealth of Nations, he pointed out that where workers are
organized to produce large quantities of an item, the labor required should be divided into discrete
tasks. He believed that this division of labor would produce several benefits such as.

• Workers who continually performed the same task would acquire skill at it.
• Time normally lost in switching from one task to another, would be saved
• A worker's increased concentration on a task would lead to the development of special
tools & techniques for its easier/faster accomplishment.

Division of labor characteristic described by Adam Smith has continued its evolution and
refinement all the way to the factories, hospitals, schools, government agencies, stores, libraries,
restaurants, and other organizations.

In 1832 a mathematician, Charles Babbage, extended Smith's work by recommending the use of
scientific methods to analyze problems. In particular, he suggested the use of time study, unit
costing, research & development, economic location analysis, bonus payments & pay based on
skill requirements

Babbage is also known for his 'difference engine', and his 'analytical engine' the forerunners of
today's computer. Both were never completed because a different engine was faced by a lack of
tooling technology & financial backing was withdrawn for the analytical engine by the Chancellor
of the Exchequer since it was believed to be indefinitely expensive.

SCIENTIFIC MANAGEMENT

Frederick Winslow Taylor

Almost half a century passed after Babbage before anyone addressed the problem of managing
factories. In 1898, a US National Tennis Champion, Frederick Winslow Taylor, turned his
attention to the factories and began a movement that eventually earned him the title, "father of
scientific management'. He gave up going to college and started as an apprentice pattern maker

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and machinist in 1875. In 1878, he began working for the Midvale Steel Company whose president,
William Sellers, was an advocate of experimentation in factory methods. Taylor adopted some of
Sellers' ideas among many other of common knowledge, and organized them to form a unique
philosophy of management.

He worked as a machinist (apprentice/common laborer), foreman, master mechanic and finally as

Chief Engineer after earning a degree through evening study. He invented high-speed steel -
cutting tools.

Always looking for the best way to do things, he developed techniques to systemize & improve
economies of work motion. He established a complete management philosophy that included time
analysis, wage incentives, infrastructure to separate the responsibilities of management (planning)
and workers (doing), an accounts system & principles for running business on a scientific basis.
Taylor described his new management philosophy in the book, "The Principles of Scientific
Management, Published in 1911. In this classical book, Taylor offered the following definition of
the Scientific Management "The kind of management, which conducts business or affairs by
standards established by facts or truths gained through systematic observation, experiment or
reasoning". Scientific management was mainly concerned with improved methods of production.
It was a rebellion against the ald managerial problem solving through trial & error, the rule of
thumb. The advent of scientific management around the turn of the 20 century is probably the
major historical landmark for the field: Therefore, this event more than any other can be considered
as the beginning of the field of Operations Management.

Taylor was convinced that, the scientific method, which provides a logical framework for the
analysis of problems, could be applied to the management process. The method consists of
defining the problem, gathering data, analyzing data, developing alternatives & selecting the best
alternative. He believed that use of scientific method would direct the manager to the most efficient
way work could be performed. Taylor sincerely believed that scientific management practices
would benefit employer through increased output and workers, who would receive more income.
But he stressed that scientific management would require both manager & employees to undergo
a revolution in thinking,

The greater part of Taylor's work was oriented towards improving management of production
operations. The classic case of the pig iron experiment at Bethlehem Steel Company where

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laborers would pick up 92 pounds pigs in the car. In a group of 75 laborers, Taylor determined the
average output was about 12.5 tons per man per day. By applying the scientific method, he
developed;"

• An improved method of work

• A prescribed amount of rest on the job
• A specific standard of output and
• Payment by the unit of output

After Taylor's recommendations were implemented, the average output per worker rose from 125
to 48 tons per day, and the daily pay rose from $1,15 to $1,85 under the incentive system. He
concluded that the problem of productivity arose from ignorance of both management and workers.
Part of this ignorance was due to the fact that both the managers and the workers did not know
what constituted a 'fair day's work' and a 'fair day's wage'. Also, both the managers and workers
were concerned with how they would divide the profit, rather than increase the profit so that both
owners & workers could get more. Taylor's patterns for high-speed steel-cutting tools & other
inventions as well as his early engineering consulting works made him very well off.

Taylor's dedication to systematic planning and study of processes of all kinds pervaded his life.
With a specially designed tennis racket, he played on a national doubles, tennis championship team
When playing golf, he used clubs designed individually to achieve a predictable lie; his friends
reportedly refused to play with him when he used a particular putter because of its accuracy.
Legend has it that Taylor died of Pneumonia in a hospital with his stopwatch in his hands.

Taylor’s philosophy was not greeted with approval by all his contemporaries. Some unions
resented or feared scientific management, with some justification. In too many instances, managers
of the day were quick to embrace the mechanisms of Taylor's Philosophy, time study, incentive
plans, and so forth, but ignored their responsibility to organize and standardize the work to be
done.

Hence there were numerous cases of rate cutting, labor overwork & poorly designed work
methods. Taylor's ideas were however widely accepted in contemporary Japan where his books,
the Principles of Scientific Management, and The Secret of Saving Lost Motion, translated into
Japanese, sold more than two million copies. To date, there is a strong legacy of Taylorism in
Japanese approaches to manufacturing management (Chase Aquilano & Jacobs).

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Taylor inspired legions of contemporaries, colleagues and followers who were many and included
the following: Frank & Lillian Gilbreth, Henry Ford, Henry Gantt whose works are well known to
management scholars.

Frank and Lillian Gilbreth

Among the earliest proponents of eliminating waste were the husband and wife team of Frank
(1868-1924) and Lillian (1878-1972) Gilbreth. They extended Taylor's time study to a detailed
analysis of motion. Their philosophy of working smarter and not harder meant that every task had
to be carefully studied and all wasted motion should be eliminated to arrive at the best way to do
the job. During their lifetimes, they applied this philosophy to almost every conceivable kind of
work. Frank owned a construction company that specialized in brick building. Applying one-best-
way philosophy to the task of bricklaying. he reduced the number of basic motions for laying a
brick from 8 to 6. At a time when bricklayers were laying about 500 bricks a day, his bricklayers
averaged 2600.

Frank, is considered by most people, as the father of motion study. He stressed the application of
principles of motion economy to the most, minute details of tasks in an attempt to identify the 'one
best way' of performing a given task. He also developed the well-known motion study technique
involving the use of 'therbligs' and chronocyclegraphs. He introduced new detailed techniques of
analyzing job from the point of view of time, motion and fatigue.

Lillian is known for human relation work in the field. Her book, "The Psychology of
Management", is one of the earliest works concerning the human factor in business organizations.
From her studies dealing with worker fatigue and psychology, she gained the title of the first lady
of management'.

Though important contributors to management thought, they could hardly be called the parents of
TQM or IT since these go far beyond their thinking & in some instances stand counter to it.

• They were specifically interested in the waste of motion while there are many types of
waste;
• In any process, there is no such a thing as one-best-way, if there ever was, it would only be
temporary & superseded by still better way Cl;
• JIT/TQM stand by the premise that seeking out waste and finding better ways is the
responsibility of everyone not just managers
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Henry Gault: 1913

Henry Gantt's best-known contribution to management is the charting system he developed for the
Work Scheduling in Production. However, he also developed some original incentive pay systems
and emphasized the importance of worker psychology in areas such as morale. He advocated
efficiency and argued, that workers should be given bonuses to ensure that they completed jobs on
time. Cantt also emphasized that corporations should publicly state the social responsibility of
management and business.

Henry Ford, 1912-1930

Ford utilized Eli Whitney's idea of interchangeable parts and a continuous workflow concept he
saw in Switzerland to bring 'mass production' to large-scale industry. He arranged, workstations
into an assembly line with a moving belt for parts, each worker performing a specialized task on
the parts as they went by.

Ford is known for his concern for human elements in production, with his first 'sociological
departments" being the framework for today's HR departments.

Moving assembly line: the year 1913 saw the introduction of one of the machine age's greatest
technological innovations, the moving assembly line for the manufacture of Ford Cars. Before the
line was introduced, in August of that year one worker assembled each autoworker performing a
small unit of work and the chassis being moved mechanically, the average labor time per chassis
was 93 minutes. This technological breakthrough, coupled with concepts of scientific
management, represents the classic application of labor specialization.

HUMAN RELATIONS SCHOOL

Elton Mayo, 1933

Mathematical and statistical developments dominated the evolution of OM from Taylor's time up
to around the 1940s. An exception was the Hawthorne studies, conducted in the 1930s by a
research from the Harvard Graduate School of Business administered and supervised by
sociologist Elton Mayo. These experiments were designed to study the effects of certain
environmental changes on assembly workers' outputs at the Western Electric Plant in Hawthorne,

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Illinois. The unexpected finding, reported in Management and the Worker (1939) by F. J.
Roethlisberger and W. J. Dickson, intrigued sociologists & students of traditional scientific
management. To the surprise of the researchers, changing the level of illumination for example
had much less effect on output than did the way in which the changes were introduced to the
workers. I.e. reduction in illumination, in some instances led to increased output because workers
felt an obligation to their group to keep output high. Discoveries such as these had tremendous
implications for work design & motivation and ultimately led many organizations to establish
personnel management & human relations departments.

Mayo emphasized the human & social factors in work. The emphasis on human relations in
management for so many years following this study gave birth to the term the human relations
school of management thinking. Mayo felt that 'scientific management' often emphasized technical
skills at the expense of adaptive skills.

Further research established prepositions of the human relation school, such as:

• Employee's behavior depends primarily on the social and organizational circumstances of

work
• Leadership style, group cohesion and job satisfaction are major determinants of the output
of working groups
• Employees work better if they are given a wide range of tasks to complete
• Standards set internally by a working group influence employees' attitudes and
perspectives more than standards set by management.
• Application of the division of labor can make work so boring, trivial and meaningless that
productivity actually goes down.

Human behavior theorists, notably Douglas McGregor and A. H. Maslow made significant
contributions to the theories of leadership, motivation and organizational design. Their school of
thought explicitly recognized the role of interpersonal relations in determining workplace
behavior, and this demonstrated that factors other than pay, can motivate workers.

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 OPERATIONS RESEARCH

Scientists & engineers have been involved with military activities for as long as recorded history.
World War II, with its complex problems of logistics control & weapons systems design, provided
the impetus for the development of the interdisciplinary, mathematically oriented field of
operations research (OR). It brings together practitioners in such diverse fields as mathematics,
psychology & economics. Specialists in those disciplines form a team to structure & analyze a
problem in quantitative terms so they can obtain mathematically optimal solutions. It provides
many of the quantitative tools used in OM as well as other management disciplines.

OR is the application of scientific methods to study & devise solutions to managerial problems.
Employing a decision focus, the systems approach, & mathematical models, OR has helped solve
allocation, scheduling, planning, inventory, layout, control and location problems.

OPERATION MANAGEMENT'S EMERGENCE AS A FIELD:

In the late 1950s scholars & researchers in the field began to generalize the problems & techniques
for manufacturing management to other productive organizations, such as petroleum & chemical
processors and wholesalers and the name for the field evolved into 'production management'. The
intent of this term was to stress the fact that the field had become a functional management
discipline in itself and not just a set of manufacturing techniques.

In the late 1950s & early 1960s, scholars began to deal specifically with OM as opposed to
industrial engineering or OR. Writers such as Edward Bowman and Robert Fetter. (Analysis for
Production and Operations Management (1957) and Elwoord S. Buffa (Modern Production (1961)
noted the commonality of problems faced by all productive systems and emphasized the
importance of viewing production operations as a system. They also emphasized the useful
applications of waiting line theory, simulation & linear programming that are now standard topics
in the field.

In later 1960s the field expanded even further to embrace the service sector of the economy. Since
the want production seemed to connote product organizations, the more general term 'operations"

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was substituted to emphasize the general basis of the field. Transition from production to
operations is ongoing

The marked increase in demand for services has been mainly, negative, lack of productivity
growth. The inefficiency of services is evidenced by the constant and often bitter criticism of for
instance, railroads, public schools, health care & many other such systems. Only in recent
years(Jack, Meredith) have service sector organizations received the same attention from
researchers, as had been paid to manufacturers. Many of the concepts and ideas developed for the
manufacturing sector can be modified & applied to service industries. For example, the problem
of school bus routing, health center scheduling & Layout have been addressed with modification
of manufacturing management methods with encouraging results. In 1973 Chase Aquillano's first
edition of operations management, stressed the need "to put the management back into operations
management".

SUPPLY CHAIN MANAGEMENT

The Origins & Roots of purchasing & Supply Management: Purchasing has been considered one
of the basic functions common to an organization. Charles Babbage addressed the topic in his
book, on the Economy of the Machinery and Manufacturing, 1832.

There are few historical records on the origin of purchasing. This is because in the dim past people
bought materials from suppliers to make articles for sale and not for use. Before 1900 there were
few instances of purchasing departments separate and distinct from production and other operating
departments. The first book dealing specifically with the purchasing function was published in
1887. These were railroad publications, written by railroad personnel. This can be explained by
the predominance, at that time, of the railroad organizations.

At about the same time, occasional articles began to appear in some trade publications dealing
with some purchasing aspects. James M. Cremer, the engineer as a purchasing agent, August 1908
issue of Cassier's Magazine. John C. Jay, Jr., general manager of sales of Pennsylvania steel
Corporation: Iron Age: January 1913: suggested the organization of a group to promote the
interests of purchasing agents through more publicity regarding their activities. This did not result
in the formation of the National Association of Purchasing Agents immediately, but it indicated
an emerging interest in the purchasing function. The National Association of Purchasing Agents

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of America was founded in 1915. Purchasing came of age during the early part of World War I,
under the impact of expanded production brought about by the war. At its fifty-second annual
convention in Washington, D. C in May 1967, the association voted to change its name to "The
National Association of Purchasing Management" in recognition of the managerial status that
purchasing had attained.

Many of the scholarly principles on which purchasing & supply are built are taken from economics.
The principles of determining the organization's requirements, selecting the optimal source,
establishing a far & reasonable price & establishing & maintaining mutually beneficial
relationships with the most desirable supplier provide the conceptual backbone of the purchasing
and supply function. The evolutionary nature of management in this field is such that continued
study and self-improvement are necessary.

Harvard University has long recognized the importance of purchasing and supply management.
They offered the first course during the 1917 1918 academic year. Today, the Harvard Business
Review continues Harvard's tradition by publishing numerously timely articles on the subject.
Today over forty colleges and universities in the United States offer degree-granting programs in
the area of purchasing and supply management. Similar programs exist in Europe, Australia, Asia
and the rest of the Americas. The impact of procurement professional on the quality, cost and
productivity of their organization is one of the keys to competitiveness in the marketplace and such
competitiveness is the basis of value-adding employment.

H. B. Twyford, purchasing: Its Economic Aspects and Proper Methods, 1915, was prophetic when
he wrote "A (purchasing) staff which is entirely unsympathetic with the particular needs of the
user of the material will fail to grasp what is one of the essential things for their department. They
will be dealing with papers and accounts not with men and things.

Howard T. Lewis of Harvard University, Industrial Purchasing 1938. The recent past has witnessed
major events, which have had a direct impact upon the significance of the procurement function
in business and the economy. Some of these events have triggered renewed interest in developing
close vendor relations to minimize safety margins of inventories. In addition, increased
international competition has forced industries to look at foreign purchasing practices, resulting in
a renewed respect for Japanese style of close vendor relations. High interest rates and expensive

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inventories have caused increased respect for output-input system, in which purchased materials
would ideally move from the seller's finished goods line to the buyer's using areas.

The 1950's recession diverted the attention to cost-cutting efforts on purchased supplies. 1960s
and 1970s, Purchasing and management frequently used manual systems to manage inventory.
Buyer's major focus was price reduction and shutdowns prevention. The idea is to apply a total
system approach to managing the flow of information, materials & services from raw material
suppliers, through factories & warehouses to the final customer. Recent trends such as outsourcing
& mass customization are forcing companies to maximize the speed of response to change in
customer expectations.

COMPUTER AND MRP CRUSADE

The computer allowed the fast & relatively inexpensive development of management information,
expedited the solution of OR models that were heretofore too large for manual solution, provided
support for business functions & formed a basis for automation.

The major development of the 1970s was the broad use of computers in operations problems. For
manufacturing, the breakthrough was the application of the Materials Requirement Planning
(MRP) to production control. This approach ties together in a computer program all the parts that
go into complicated products. This program then enables production planners to quickly adjust
production schedules & inventory purchase to meet changing demands for final products. Clearly,
the massive data manipulation required for changing schedules of products with thousands of parts
would be impossible without such programs & the computer capacity to run them. The promotion
of this approach, pioneered by Joseph Orlicky of IBM & consultant Oliver Wight by the American
Production and Inventory Control Society (APICS) is termed the MRP Crusade.

JIT, TQC & FACTORY AUTOMATION

The 1980s show a revolution in the management philosophies and the technologies by which
production is carried out. Just-in-time (117) production is the major breakthrough in manufacturing
philosophy. Pioneered by the Japanese, JIT is an integrated set of activities designed to achieve
high-volume production using minimal parts that arrive at the workstation just in time. This

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philosophy coupled with TQC, which aggressively seeks to eliminate causes of production defects,
is now a cornerstone in many of manufacturers production practices.

As profound as JIT's impact has been, factory automation in its various forms promises to have
even greater impact on OM in coming decades. Such terms as Computer Integrated Manufacturing
(CIM) Flexible Manufacturing Systems (FMS) and Factory of the Future (FOF) are already familia
& are becoming everyday concepts to OM practitioners.

Kanban - As a result of IT revolution against waste, the Japanese introduced Kanban. A system of
pulling inventory through the factory in an ideal lot size.

Poka Yoke - Idea is that each process & each employee treat the next step in the process as the
customer ensuring perfect product to the next 'customer' in the assembly line/production process.
Poka Yoke is therefore a foolproof technique that ensures production of units every time through
the use of checklists & controls.

MANUFACTURING STRATEGY PARADIGM

The late 1970s & early 1980s saw the development of the manufacturing strategy paradigm
researchers at the Harvard Business School. This work by professors William Abernathy Skinne
emphasized how manufacturing executives could use their factories' capabilities as strategic
competitive weapons. The paradigm itself identified how the five Ps of OM can be analyzed as
strategic & tactic decision variables. Central to their thinking was the notion of factory focus &
manufacturing trade-off They argued for a strategy of creating a focused factory that does a limited
set of tasks extremely well This raised the need for making trade-offs among such performance
measures as low cost, and high quality. flexibility in designing and managing factories.

SERVICE QUALITY AND PRODUCTIVITY

The great diversity of service industries, ranging from airlines to zoos with about 2000 different
types in between, precludes identifying any single pioneer or developer that has made a major
impact across the board in these areas. However, one service company's McDonald's unique
approach to quality and productivity has been so successful that it stands as a reference point in
thinking about how to deliver high-volume standardized services. McDonald's operating system is

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so successful that the president of Chaparral Steel used it as a model in planning the company's
highly efficient operations

TOTAL QUALITY MANAGEMENT AND QUALITY CERTIFICATION

The unquestioned major development in the field of OM, as well es in management practice in
general is TQM. Though practiced by many companies in the 1980s, TQM became truly pervasive
in the 1990s. all operations executives are aware of the quality put forth by the so called, quality
gurus, W. Edward Deming, Joseph M. Juran & Philip Crosby. Helping the quality movement along
is the Baldrige National Quality Award, which was started in 1986 under the direction the
American Society of Quality Control and the National Institute of Standards of Technology. The
Baldrige Award recognizes up to five companies a year for outstanding quality management
systems. The ISO 9000 certification standards put forth the International Organization for
Standardization now play a major role in setting quality standards for global manufacturers in
particular. Many European companies require that their vendors meet these standards as a
condition for obtaining contracts.

The American Society for Quality Control defines quality as the totality of features and
characteristics of a product or service that bear on its ability to satisfy stated in implied needs.
Quality experts, Edward Deming and others are the ones who reinforced the need for quality in
organizations and this is how the TQM school of thought emerged. TQM stresses a commitment
by management to have a continuing company-wide toward excellence in all aspects of products
and services that are important to the customer.

TQM programs rests on:

• Continuous improvement: TQM requires a never-ending journey of CI. The end goal is perfection
which is always sought. The Japanese call it Kaizen. The Americans call it zero defects or six
sigma.

Employee Empowerment: Involves employees at every step in the process is key. Techniques for
building employee empowerment networks include:

Building communication networks that include employees

Open, supportive supervisors

Moving responsibility from management to production employees

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Building high morale organizations

Formal techniques such as team building and quality circles;

• Benchmarking: Involves selecting a demonstrated standard of performance that represents

the very best performance for processes or activities very similar to yours. The steps for
developing benchmarks are:

Determine what to benchmark

▪ Form a benchmark team

▪ Identify benchmark partners
▪ Collect and analyze benchmarking information
▪ Take action to match or exceed the benchmark

• Just in time: Reduces the amount of inventory a firm has on hand by establishing quality
and purchasing control that bring inventory to the firm just in time for use. The JIT is
related to quality in 3 ways:

o It cuts the cost of quality

o It improves quality

o Better quality means less inventory

• Knowledge of TQM Tools:

Quality function deployment

Taguchi Technique

Pareto Charts

Process Charts

Cause and Effect Diagram - Ishikawa o Statistical Process Control Charts

The leaders in the fight for quality are:

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W. Edward Deming - After World War II, Dr. Deming went to Japan to each quality. In his quality
crusade, Deming insisted that management accept responsibility for building good systems. The
employee, he believed, cannot produce products that on the building average exceed the quality of
what the process is capable of producing. Deming's 14 points of implementing quality
improvement:

o Create consistency of purpose

o Lead to promote change

Build quality into the product, stop depending on inspections to catch problems

o Build long term relationships based on performance instead of awarding business on the basis of
price o Continuously improve product, quality, and service

o Start training

• Emphasize leadership

O Drive out fear

0 Break down barriers between departments

o Stop haranguing workers

o Support help and improve

o Remove barriers to pride in work

o Institute a vigorous program of education and self improvement

o Put everybody in the company to work on the transformation

J. M. Juran he believed in strong top management commitment, support and involvement in the
quality effort. He is also a believer in teams that continually seek to raise quality standards. Juran
varies from Deming somewhat in focusing on the customer and defining quality as fitness for use,
not necessarily the written specifications.

Philip B. Crosby-quality is free was Crosby's attention getting book published in 1979. His
traditional view has been "with management and employee commitment great strides can be made

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in improving quality. He insists that the cost of poor quality should include all of the things that
are involved in not doing the job right the first time.

Other issues in quality management include the development of international quality standards.
The Japanese established the Industrial Standard z8101-1981. The Europe's ISO 9000 Standard
was developed by EU and is now gaining worldwide acceptance. The American Quality Control
Society has developed specifications equivalent to those of the EU-Q90-Q94. In 1988, the USA
established the Malcolm Baldrige National Quality Award for quality achievement. The award is
named after former Secretary Commerce Malcolm Baldridge. Some of the previous winners
include Motorola, Xerox, IBM, Federal Express and AT&T.

BUSINESS PROCESS REENGINEERING

The need to become lean to remain competitive in the global economic recession in the 1990s
pushed organizations to seek major innovations in the processes by which they ran their operations.
The flavor of business process reengineering (BPR) is conveyed in the title of Michael Hammer's
influential article "Reengineering at Work: Don't Automate, Obliterate". The approach seeks to
make revolutionary changes as opposed to evolutionary changes, commonly advocated in TQM.
It does this by taking a fresh look at what the organization is trying to do in all its business
processes, and then eliminating non-value-added steps and computerizing the remaining ones to
achieve the desires outcome.

Together with Information Technology other factors that played a significant role in the new
management thinking are:

o Globalization with the formation of common markets and regional grouping meant that national
boundaries collapsed. Companies became exposed to regional or international competition
previously not here. Internationalization of the media also meant that a localized problem of a
company can be internationalized by the media. A good example of this phenomenon was the
recent case of contamination of Coca-Cola products in Belgium (a localized problem) became a
hot issue internationally forcing various Coca-Cola branches worldwide to issue statements
assuring customers of quality.

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o Liberalization before the fall of Communism, Governments around the world heaving protected
their markets using tariffs and import bans. There was also a lot of subsidy element in their
economies, thereby distorting the operations of various industries. When communism collapsed in
the early 1990s, it set the stage removal of protectionist policies and subsidies. Under the World
Trade Organization (WTO) (earlier referred to as GATT-General Agreement on Trade and Tariffs)
t seeks to harmonize world trade operations although it has become very challenging to agree on
the rules (the Seattle riots of 1999 attests to these controversies). With the removal of government
protection means companies have to stand on their feet and survive the regional or international
competition. o These rapid and far-reaching changes led to the emergence of BPR. This
management paradigm is defined as the fundamental rethinking and radical redesign of business
process to bring about dramatic improvement in performance. Some of the results were remarkable
for instance: American Express has reported reducing its annual costs by over $1 billion through
reengineering, AT&T's Global Business Communication Systems Unit turned a nine-figure loss
into a nine-figure profit by reengineering, Reengineering has enabled the semiconductor group of
Texas Instruments to reduce the cycle time of its order fulfillment process for integrated circuits
by more than half.

ELECTRONIC ENTERPRISE

The recent quick adoption of the Internet and the World Wide Web during the late 1990s is
amazing. Electronic Enterprise refers to the use of the Internet as an essential element of business
activity. The internet is an outgrowth of a government network called ARPANET, which was
created in 1969 by the Defence Department of the United States Government. The use of web
pages, forms, and interactive search engines is changing the way people collect information, shop
and communicate. Even today. connections to the internet are relatively inexpensive, and
Microsoft and Netscape have led the way by making the "Web browsing" software virtually free.

1.1 Principles of Operations Management

To conclude this lecture, it will be important to highlight the principles of operations management
which form the backbone of this course. As the era of globalization & liberalization dawned on
organizations, leading companies began to adopt surprisingly similar new practices in OMM.New

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practices were aimed at serving the customers better to achieve a competitive hedge in the global
front. Schonberger advanced the following principles of operations management

• Get to know the customer & the competition

• Cut: work in process (waiting lines), throughput times, flow distances & space
• Cut set up & changeover times
• Produce & deliver at the customer's usage rate
• Cut the number of suppliers to a few good ones
• Cut the number of components in a product or service
• Make it easy to make or provide goods or services without error the first time
• Arrange the workplace to eliminate search time
• Cross-train for mastery of multiple skills
• Record & retain output volume, quality & problem data at the workplace
• Ensure that line people first crack at problem-solving before experts
• Maintain & improve present equipment & human work before thinking about new
equipment Look for simple, cheap & movable equipment
• Automate incrementally when process variability cannot otherwise be reduced
• Seek to have plural rather than singular workstations, machines, cells & flow lines for each
product, service, or customer
• Become dedicated to continual rapid improvement

ENVISIONING THE FUTURE

Businesses have to keep with an alarming rate of change and therefore Operations management
has become a dynamic subject. Evolution of ideas or the procedures and tools that accompany
them sometimes occurs rather suddenly and at times gradually. The information explosion, rapid
technology innovation, reduced product life cycles, global competition, changes in the
composition of the work force, and new organizational structures contribute to this turbulent
environment.

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The rapid change is accompanied by ensuing unpredictability, which dictates that companies must
adopt new perspectives when planning for the future. Future oriented organization can be
described as

organization designed for adaptability and change, resists pressures for short-term results, and
values preventive rather than curative action. "Future orientation therefore implies aligning the
organization to face a future environment that has not yet been defined". This requires the ability
of leadership to develop a vision shared by a culture that is comfortable with change, and produces
innovation.

THE CONCEPT OF VALUE ADDITION

We have gone through the definition of operations management. Here you will be able to
appreciate the special role played by operating systems by adding value to inputs through the use
of people, plants, parts, processes and planning and control, popularly known the SPs of OM. The
simple chart below represents the OM transformation model;

Value

• Perception of the benefits associated with a good, service, or bundle of goods and services
in relation to what a buyer pays

– Goods or services are perceived favourably by customers if the ratio of perceived

benefits to price to the customer is high

Figure 2.1 The OM transformation Process

Transformation process
1) People
Input Output (Higher value
2) Plants
than the input)
3) Parts
e.g. Raw materials 4) Process
5) Planning & control Finished products

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Let us look at two examples, one for a service organization and another for a manufacturing
concern so as to be able to fully understand the above transformation process;

Teaching transformation process

As a student, once you are admitted by the University for a Degree Programme, you (student)
become the input in the transformation process. The student goes through the SPs of OM and at
the end of the degree program, the system produces an output of higher value, a graduate or
postgraduate. The SPs of OM in this example are as explained below;

1. People

What kind of people add value to a student in a teaching process? Think of the various staff you
daily interact with on campus. Below is an example of the groups of staff who work to make sure
you learn;

- Lecturers share knowledge and guide students on what to read. Participate in curriculum
development to focus student to skills requirement by the job market

- Support staff - ensure lecture halls, libraries, hostels and compounds are clean and well-arranged
so as to provide a conducive learning environment.

- Security personnel charged with responsibility of ensuring the learning facilities and equipment
provided by the university are secure. They also ensure security of students' belongings as stay on
campus.

2. Plants:

Plants generally refer to infrastructure which is capital intensive and is used for value addition. In
a university, this comprises the lecture halls, libraries, laboratories and the mobile plant (vehicles).
Lecture halls and labs provide a serene environment to follow lecture proceedings, perform
laboratory experiments and do exams away from the destructive external environment of lots of
sunshine, rain and dust.

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3. Parts:

Parts constitute consumables used in service delivery process e.g. food, stationary, books, marker
pens, dusters etc. Without them it's not easy to communicate with students or give them study
assignments.

4. Processes:

Can also be referred to as the methods of adding value to a student. You lecturers have used
lectures, group discussions, CATS, individual assignments and industrial visits as processes of

value addition.

5. Planning and Control: This entails plans on how to offer the services the teaching service and
control to put in place to ensure quality of the services or waste is limited. Universities decide
when to start semesters or academic years, when to give tests and who is allowed to sit for an
exam. Controls also include the necessary student identification documents which are mandatory
for you to be allowed into an examination venue.

Example of a manufacturing firm-A Soda Ash Manufacturing Firm

Input Transformation Process output

The 5ps of OM: Soda Ash
1.People (NaCO2)
2.Plants
3.Parts
4.Processing
5.planning and Control

5. PLANNING & CONTROL

When should a shift start?

How many shifts should we run?

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 TRANSFORMATIONS

Physical manufacturing

Location - transportation

Exchange in retailing

Storage - warehousing

Physiological/psychological/transformation - health care

Information transformation-telecommunication

OPERATION MANAGEMENT AND COMPETITIVENESS

The degree to which a firm can produce goods and services that meet the test of international
markets while simultaneously maintaining or expanding the wealth of its shareholders.

1. COMPETING ON COST

Eliminate all waste; in labour, maximize on capacity utilization

Invest in;

Updated facilities & equipment by utilizing capacity utilization

> Steam lining operations

> Training & development (have skills)

2. COMPITING ON QUALITY

Please the customer by understanding their attitude and expectations of quality i.e. know what the
customer is looking for

3. COMPETING ON FLEXIBILITY

> Produce wide variety of products

> Introduce new products

Modify existing products quickly

> Respond to customer's needs

4. COMPETING ON SPEED > Fast

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> Fast adaptations > Tight linkage

TYPES OF PROCESSES

Batch process

1. Mostly consistent but some processes are disconnected

2. Flexibility-reasonable but quite restricted

3. Products-a moderate range of products can be produced

4. Capital investment is often required in machines for the main process 3. Labour requirements-
some skilled flabour is required

6. Volume-large batches produced but overall produce is not high

Assembly line process

I. Flow-fixed process of connected process

2. Flexibility-low as the line is designed to work at certain speed

3. Products- very few depending on the set up of the line

4. Capital investment - lots of machinery and capital required

5. Variable cost-low due to the specialist process

6. Labour requirement-mostly unskilled and few workers needed due to machinery 7. Voluine-
able to work at very high volume and efficiency

Continuous flow processes

1. Flow-a continuous flow of a continuous product

2. Flexibility-almost none as the process is set to run at one speed

3. Products-only one

4. Labour requirements-workers are generally unskilled and low in no. but supervisors often need
to be skilled and experienced

5. Capital investment-vast amounts required for special machinery

6. Volume-high due to continuous production

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 OBJECTIVES OF THE OPERATION SYSTEM

1. ON-TIME DELIVERY; customers want their goods delivered on time eg. The evening before
for faster running

2. VOLUME OF OUTPUT

3. COST (materials delivery, scrap...) should be mined at all times to reduce the production cost

4. UTILIZATION of labor and equipment

5. RETURN ON INVESTMENTS: the aim of investing is to get a profit

6. FLEXIBILITY of production change; if the no./vol. of work increases you're able to handle all
of them

7. QUALITY & PRODUCT RELIABILITY

ORDER QUALIFIERS AND WINNERS

World-class manufacturers no longer view cost, quality, speed of delivery, and even flexibility, as
tradeoffs. They are order qualifiers and winners

Order Qualifiers - a screening criterion that permits a firm's products to be considered as possible
candidates for sale

Order winners-a criterion that differentiates the products or services of one firm from another

PROCESS SELECTION IN OPERATIONS

Process analysis terms

Process; is any part of an organization that inputs transforming them into output

Cycle time; average successive time between completions of successive units

Utilization; is the ratio of time a resource is actually activated related to the time that is available
for use Process flowcharting

It's the use of a diagram to present the major elements of a process

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The basic elements can include tasks or operations, the flow of materials or customers, decision
points, and storage areas or queues

It's an important methodology by which to begin analyzing a process

Other process terminology

Blocking

Occurs when the activities in a stage must stop because there is no place to deposit the items just
completed

If there is no room where the employee can place a unit or work down, they will hold on to it not
being able to continue working on another

Starving

When a Bottleneck Occurs when the limited capacity of a process causes work to pile up or become
unevenly distributed in the flow of a process

Current Challenges in Operations Management

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