OPERATIONS AND PRODUCTIVITY MANAGEMENT

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SUMMARY:
 Operation Management

 Why OM is important

 Jobs of OM

 Heritage of Operation Management

 Challenges faced by OM

 Products/Services

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WHAT IS OPERATION MANAGEMENT

Production:
It is the creation of goods and services

Operations Management:
It is the set of activities that creates value in the creation of
goods and services through the transformation of inputs to
outputs.

1-3© 1995 Corel Corp.

THREE ESSENTIAL FUNCTIONS IN AN ORGANI
ZATION

 Producing Goods & Services:

 Marketing – generates demand, promotes product

 Operations/Production –creates the product
 Finance/accounting – tracks organizational performanc
e, pays bills, obtains funds, collect revenues generated

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THREE ESSENTIAL FUNCTIONS IN AN ORGANI
ZATION

 Banks
 Airline
 Manufacturing

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FUNCTIONS- BANK

Commercial Bank

Finance Marketing
Operations Loans
Investments
Teller Scheduling Commercial
Security
Check Clearing Industrial
Real Estate
Transactions Financial
processing Personal
Facilities Accounting
Mortgage
design/layout
Vault operations
Maintenance Auditing
Security Trust Department

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FUNCTIONS - AIRLINE

Airline

Operations Finance & Marketing

Ground support Accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
Facility maintenance General Ledger Tariffs (pricing)
Catering Sales
Finance
Flight Operations Advertising
Crew scheduling Cash control
Flying International
Communications exchange rates
Dispatching
Management science

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FUNCTIONS - MANUFACTURING
Manufacturing

Operations Finance & Marketing

Facilities: Sales
Accounting promotions
Construction: maintenance Disbursements/ Advertising
Production & inventory control credits Sales
Scheduling: materials control Market
Receivables research
Supply-chain management Payables
Manufacturing General ledger
Tooling, fabrication, assembly Funds
Design Management
Product development and design Money market
Detailed product specifications International
Industrial engineering exchange
Efficient use of machines, space, Capital
and personnel
requirements
Process analysis
Stock issue
Development and installation of
production tools and equipment Bond issues and
recall
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WHY STUDYING OPERATION MANAGEMENT IS IMPORTANT

 OM is one of three major functions (marketi

ng, finance, and operations) of any organizat
ion.
 We want (and need) to know how goods and
services are produced.
 We want to understand what operations ma
nagers do.
 OM is such a costly part of an organization.

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 WHAT OPERATIONS MANAGERS DO

Plan - Organize - Staff - Lead - Control

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 TEN CRITICAL DECISIONS OF OM

1. Service/Product design - what to offer, how to design

2. Quality management – define quality, who is responsible
3. Process, capacity design – what process, what capacity, what equipme
nt and what technology is required
4. Location - where to put facility, criteria for location decision
5. Layout design - how to arrange facility, how large should it be
6. Human resources, job design – how to provide a reasonable work envi
ronment, how much to expect from employees to produce
7. Supply-chain management – should we make or buy component, who
are our suppliers and who can integrate
8. Inventory management - how much of each thing is required
9. Scheduling - which jobs to do, should people be kept on payroll
10. Maintenance - who is responsible, what schedule to follow

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OPERATION MANAGER JOBS

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 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

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SIGNIFICANT EVENTS IN OPERATIONS MANAGEMENT

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 THE HERITAGE OF OPERATIONS MANAGEMENT

Division of labor (Adam Smith 1776 and Charles

Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/Sorenson/Avery 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922)
Quality Control (Shewhart 1924, Deming 1950)
Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957)
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THE HERITAGE OF OPERATIONS MANAGEMENT

Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization(1992)
Internet (1995)

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 CONTRIBUTIONS IN OM FROM OTHER DISCIPLINES

 Human factors
 Industrial engineering
 Management science
 Biological science
 Physical sciences
 Information science

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 CHARACTERISTICS OF GOODS

¨ Tangible product
¨ Consistent product
definition
¨ Production usually
separate from
consumption
¨ Can be inventoried
¨ Low customer
interaction
© 1995 Corel Corp.

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CHARACTERISTICS OF SERVICE

¨ Intangible product
¨ Produced & consumed at
same time
¨ Often unique
¨ High customer interaction
¨ Inconsistent product
definition
¨ Often knowledge-based
¨ Frequently dispersed

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 GOODS VERSUS SERVICES

Goods Service
• Reselling unusual
Can be resold
• Difficult to inventory
Can be inventoried
• Quality difficult to measure
Some aspects of quality measura
• Selling is part of service
ble
• Provider, not product is
Selling is distinct from productio
transportable
n • Site of facility important for
Product is transportable customer contact
Site of facility important for cost • Often difficult to automate
• Revenue generated primarily
Often easy to automate
from intangible service.
Revenue generated primarily fro
m tangible product
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GOODS CONTAIN SERVICES / SERVICES CONTAIN GOODS

Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
Percent of Product that is a Good Percent of Product that is a Service
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 NEW CHALLENGES IN OM

From To

 Local or national focus • Global focus

• Just-in-time
 Batch shipments
• Supply chain partnering
 Low bid purchasing
• Rapid product development,
 Lengthy product develop
alliances
ment
• Mass customization
 Standard products
• Empowered employees, teams
 Job specialization

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EXTRA DETAILS ABOUT CO
NTRIBUTORS TO OPERATIO
N MANAGEMENT

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Eli Whitney

¨ Born 1765; died 1825

¨ In 1798, received
government contract to
make 10,000 muskets
¨ Showed that machine
tools could make
standardized parts to
exact specifications
¨ Musket parts could be used in
© 1995 Corel Corp. any musket
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Frank & Lillian Gilbreth

¨ Frank (1868-1924); Lillian (1878-

1972)
¨ Husband-and-wife engineering
team
¨ Further developed work
measurement methods
¨ Applied efficiency methods to
their home & 12 children!

© 1995 Corel Corp.

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Henry Ford

¨ Born 1863; died 1947 ‘Make them all

alike!’
¨ In 1903, created Ford
Motor Company
¨ In 1913, first used
moving assembly line
to make Model T © 1995 Corel
Corp.
¨ Unfinished product
moved by conveyor
past work station
¨ Paid workers very well for 1911 ($5/day!)
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W. Edwards Deming

¨ Born 1900; died 1993

¨ Engineer & physicist
¨ Credited with teaching
Japan quality control
methods in post-WW2
¨ Used statistics to analyze
process
¨ His methods involve
workers in decisions
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THE HARD ROCK CAFE

 First opened in 1971, now – 110 restaurants in over 40 countries, 35

Million Guests world wide every year, creates value in the form of goo
d food and entertainment, 3,500+ custom meals per day

 Product: Meals

Designed, tested, analyzed for cost of ingredients, labor and custome

r satisfaction. Production starts only if the material is available from q
ualified supplier
 Production Process:
 Raw material receiving, cold storage, grilling/baking/frying, etc
 Role of the Operations Manager:

Using the best people they can recruit and train, effective employee s
chedule, design efficient layouts, efficient movement of the people an
d material, design and deliver goods by creating value.

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FEDEX

 Product: Delivery Services

 26 Billion Dollar a year global delivery services, 30 Countries of Asi
a, 123 Countries of Europe, Middle East & Africa and 50 Latin Ame
rican and Caribbean countries, Canada & USA., 5.5 Million packag
e each day, 60% of packages go by plane.

 Value: On time delivery, speed, reliability, technological superiority

in technology for online tracking.

 Role of the Operations Manager:

Low cost operations, dependable delivery, develop processes that

will coordinate the flow of goods, successful completion of job till d
elivery.

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