Operations Management

MBA/III, MGPOM 592

Faculty of Management and Law
Nepal Open University

1
Framework of Operations
Unit 1

2
Content
• Concept of Operations Management,
• Transformation process,
• Operations performance,
• Operations as a competitive weapon,
• Productivity,
• Operations Strategy

3
Operations Management

Source: Slack, N., Brandon-Jones, A., & Johnston, R. (2013). Operations management (7th ed.) Harlow, UK: Pearson
4
Operations Management
• Product Design
• Process
Design/Technology
• Supply Network
Design
• Layout Design
• Job Design, people,
and organization

Source: Slack, N., Brandon-Jones, A., & Johnston, R. (2013). Operations management (7th ed.) Harlow, UK: Pearson
5
Operations Management

• Production planning and

controlling
• Quality Management
• Capacity management
• Inventory Management
• Supply Chain Management
• Project Management
• Lean Synchronization

Source: Slack, N., Brandon-Jones, A., & Johnston, R. (2013). Operations management (7th ed.) Harlow, UK: Pearson
6
Operations Management

• Operations
improvement
• Organizing for
improvement
• Risk Management

Source: Slack, N., Brandon-Jones, A., & Johnston, R. (2013). Operations management (7th ed.) Harlow, UK: Pearson
7
Operations Management

• Operations
Management
• Operations
performance
• Operations
Strategy

Source: Slack, N., Brandon-Jones, A., & Johnston, R. (2013). Operations management (7th ed.) Harlow, UK: Pearson
8
Defining operations management
• Operations management is the activity of managing the resources
which are devoted to the creation and delivery of services and
products (Slack, Brandon-Jones, & Johnston, 2013).
• Operations management is set of activities that create value in form
of goods and services by transforming inputs into outputs (Heizer, et.
al., 2017).

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All operations are input–transformation–
output processes

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Transformation process
• All operations can be demonstrated as input–transformation–output
processes. They all have inputs of transforming resources, which are
usually divided into ‘facilities’ and ‘staff ’, and transformed resources,
which are some mixture of materials, information and customers
(Slack, Brandon-Jones, & Johnston, 2013).
• Most operations create and deliver a combination of services and
products, rather than being a ‘pure’ service or ‘product’ operation
(Slack, Brandon-Jones, & Johnston, 2013).
• Types of transformation process
• https://www.youtube.com/watch?v=rVk8BSWbsKY

11
 The Transformation Model

OPERATIONS
STRATEGIC
OBJECTIVES
ENVIRONMENT THE
INPUT OPERATIONS
Operations
TRANSFORMED COMPETITIVE
OPERATIONS strategy
RESOURCES ROLE AND
STRATEGY POSITION
MATERIALS
INFORMATION
CUSTOMERS Operations
management IMPROVEMENT
DESIGN GOODS
INPUT OUTPUT AND
SERVICES
PLANNING AND
FACILITIES CONTROL
STAFF
INPUT
SUPPLIERS
TRANSFORMING
RESOURCES ENVIRONMENT CUSTOMERS

Slack et al (2007) Operations Management

12
12
Operations performance

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Three levels of operations performance

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Operations Performance Objectives and the Polar
Diagram (Doing things cheaply)
Cost
10
(Doing things fast)
Speed (Doing thins on time)
10 Dependability
10

10 10
Quality Flexibility
(Doing things right) (Changing what they do)

Current performance Future

of the operation performance of
the operation
15
Adapted from Slack et al (2007)
Operations Performance Objectives and the Polar
Diagram Cost
5
Speed
5 Dependability
5

5 5
Quality Flexibility

Bus Company Taxi Service

16
Adapted from Slack et al (2007),
17
Operations Strategy

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Operations Strategy
• Action plan to achieve mission
• Strategies exploit opportunities and strengths, neutralize weaknesses
and threats

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Strategies for Competitive Advantage
• Differentiation – better, or at least different
• Uniqueness can go beyond both the physical characteristics and service
attributes to encompass everything that impacts customer’s perception of value
• Cost leadership – cheaper
• Provide the maximum value as perceived by customer. Does not imply low
quality.
• Response – rapid response
• Flexibility is matching market changes in design innovation and volumes
• Reliability is meeting schedules
• Timeliness is quickness in design, production, and delivery

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and
supply chain management (12th ed.). Uttar Pradesh, India: Pearson 20
 OM’s Contribution to Strategy
Operations Specific Competitive
Decisions Examples Strategy Used Advantage

Product FLEXIBILITY:
Sony’s constant innovation
Quality of new products………………………………....Design
HP’s ability to lead
Process the printer market………………………………Volume

Location Southwest Airlines No-frills service……..…..LOW COST

DELIVERY:
Layout Pizza Hut’s 5-minute guarantee Differentiation
at lunchtime…………………..…..………………….Speed (Better)
Human Federal Express’s “absolutely,
resource positively on time”………………………..….Dependability

QUALITY: Response
Supply chain (Faster)
Motorola’s HDTV converters….……........Conformance
Motorola’s pagers………………………..….Performance Cost
Inventory leadership
Caterpillar’s after-sale service (Cheaper)
Scheduling on heavy equipment……………....AFTER-SALE SERVICE

Maintenance Fidelity Security’s broad

line of mutual funds………….BROAD PRODUCT LINE

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 21
management (12th ed.). Uttar Pradesh, India: Pearson
The four-stage model of operations
contribution

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Operations strategy: From implementing to
support to driving strategy
• Implementing business strategy The most basic role of operations is to
implement strategy. Without effective implementation even the most
original and brilliant strategy will be rendered totally ineffective.
• Supporting business strategy Support strategy goes beyond simply
implementing strategy. It means developing the capabilities which allow
the organization to improve and refine its strategic goals.
• Driving business strategy The third, and most difficult, role of operations
is to drive strategy by giving it a unique and long-term advantage. In fact
the whole company’s success is based largely on these unique operations
capabilities. The operation drives the company’s strategy.

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The four perspectives on operations strategy

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Productivity

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 Productivity Challenge
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources such as
labor and capital)

The objective is to improve productivity!

Important Note!
Production is a measure of output
only and not a measure of efficiency

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 26
management (12th ed.). Uttar Pradesh, India: Pearson
 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways to
shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 27
management (12 ed.). Uttar Pradesh, India: Pearson
th
 Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways to
shave time. Some
improvements:
Operations improvements have helped Starbucks
increase yearly revenue per outlet by $200,000 to
Stop requiring signatures
$940,000 in six years. Saved 8 seconds
on credit card purchases per transaction
Productivity has improved by 27%, or about 4.5% per
under $25 year.

Change the size of the ice Saved 14 seconds

scoop per drink
New espresso machines Saved 12 seconds
per shot
Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 28
management (12 ed.). Uttar Pradesh, India: Pearson
th
 Productivity

Units produced
Productivity =
Input used

 Measure of process improvement

 Represents output relative to input
 Only through productivity increases
can our standard of living improve

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 29
management (12th ed.). Uttar Pradesh, India: Pearson
 Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 30
management (12th ed.). Uttar Pradesh, India: Pearson
 Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars

Multiple resource inputs  multi-factor productivity

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 31
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity =
32 labor-hrs

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 32
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 33
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day
New System:

14 titles/day Overhead = $800/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

productivity = 32 labor-hrs

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 34
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day
New System:

14 titles/day Overhead = $800/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

productivity = 32 labor-hrs = .4375 titles/labor-hr

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 35
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day
New System:

14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 36
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day
New System:

14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400 = .0077 titles/dollar

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 37
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day
New System:

14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400 = .0077 titles/dollar

New multifactor 14 titles/day

productivity = $640 + 800

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 38
management (12th ed.). Uttar Pradesh, India: Pearson
 Collins Title Productivity
Old System:

Staff of 4 works 8 hrs/day 8 titles/day

Payroll cost = $640/day Overhead = $400/day
New System:

14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400 = .0077 titles/dollar

New multifactor 14 titles/day

productivity = $640 + 800 = .0097 titles/dollar

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 39
management (12th ed.). Uttar Pradesh, India: Pearson
 Measurement Problems

 Quality may change while the quantity

of inputs and outputs remains
constant
 External elements may cause an
increase or decrease in productivity
 Precise units of measure may be
lacking

Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 40
management (12th ed.). Uttar Pradesh, India: Pearson
 Productivity Variables
 Labor - contributes
about 10% of the annual
increase
 Capital - contributes
about 38% of the annual
increase
 Management -
contributes about 52%
of the annual increase
Source: Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations management: Sustainability and supply chain 41
management (12th ed.). Uttar Pradesh, India: Pearson
References
Heizer, J., Render, B. Munson, C., & Sachan, A. (2017). Operations
management: Sustainability and supply chain management (12th ed.).
Uttar Pradesh, India: Pearson
Slack, N., Brandon-Jones, A., & Johnston, R. (2013). Operations
management (7th ed.) Harlow, UK: Pearson

42