OPERATIONAL

MANAGEMENT

Chapter one
NATURE OF OPERATIONS
MANAGEMENT
 WHAT IS OPERATIONS MANAGEMENT?
 In every particular organization there are three pillars functions.

CEO/President

Finance
Operations V.P. of
Marketing
V.P. of Finance
V.P. of
Operations Manages:
Marketing
Manages: -  cash flows
Manages:
• People  Current assets
• Customer
• Equipment and
• Demands
• Technology  Capital
• Generates
• materials and investments’
• information
• OM is the set of activities that creates
value in the form of goods and services
by transforming inputs in to outputs
(Heizer and Render, 2011).
DEFINITION OF OM

• OM can be defined as, the management

of the conversion process, which converts
land, labor, capital, and management
inputs into desired outputs of goods and
services (Roy, 2005).
• OM is defined as the design, operations,
and improvement of the systems that
create and deliver the firm’s primary
products and services (Chase et.al, 2005).
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authors in
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• Operations management is the central core
function of every company. This is true
whether the company is large or small,
provides a physical good or a service, is for
DEFINITION OF OM

profit or not for profit.

• Every company has an operations
management function. Actually, all the other
organizational functions are there primarily
to support the operations function. Without
operations, there would be no goods or
services to sell.
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authors in
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WHY STUDY OPERATIONS MANAGEMENT
 Because
 Operations Management creates an understanding of modern
approaches to managing operations.
 Operations Management provides a systematic way of looking
at organizational processes.
 The concepts and tools of Operations Management are widely
used in managing other functions of a business.
 Operations Management presents interesting career
opportunities.
THE ROLE/SCOPE OF OM
 OM is responsible for all aspects of the process of transforming inputs
into outputs (finished goods or services).
 More specifically OM is responsible for orchestrating all the resources
needed to produce the final product. This includes
 Designing the product
 Deciding what resources are needed
 Arranging schedules, equipment, and facilities
 Managing inventory
 Controlling quality
 Designing the jobs to make the product and
 Designing work methods.
HISTORICAL DEVELOPMENT OF OPERATION
MANAGEMENT

 Operations management did not emerge as a formal field of study

until the late 1950s and early 1960s, when scholars began to
recognize that all production systems face a common set of
problems and to stress the systems approach to viewing operations
processes.

 Many historical events helped shape operations management.

 We will describe some of the most significant of these milestones

and explain their influence on the development of operations
management. Later we will look at some current trends in operations
management.
CONT.….
Concept Time Explanation
Industrial Late Brought in innovations that changed production by
Revolution 1700s using machine power instead of human power

Scientific Early Brought the concepts of analysis and measurement of

managemen 1900s the technical aspects of work design, and development
t of moving assembly lines and mass production

Human 1930s Focused on understanding human elements of job

relations to design, such as worker motivation and job satisfaction
movement 1940s

Managemen 1940s Focused on the development of quantitative

t science to techniques to solve operations problems
1960s
CONT.….

Computer age 1960s Enabled processing of large amounts of data and

allowed widespread use of quantitative procedures

Just-in-time 1980s Designed to achieve high-volume production with

systems (JIT) minimal inventories

Total quality 1980s Sought to eliminate causes of production defects

management
(TQM)
Reengineering 1980s Required redesigning a company’s processes in order
to provide greater efficiency and cost reduction

Environmental 1980s Considered waste reduction, the need for recycling,

issues and product reuse
CONT.….

Flexibility 1990s Offered customization on a mass scale.

Time-based 1990s Based on time, such as speed of delivery

competition

Supply chain 1990s Focused on reducing the overall cost of the system that
management manages the flow of materials and information from
suppliers to final customers

Global 1990s Designed operations to compete in the global market

competition

Electronic Late Used the Internet for conducting business activity

commerce 1990s2
1st c
 MANUFACTURING AND SERVICE
OPERATIONS
Difference of them

Characteristics Manufacturing operation Service operation

Product Tangible, durable product Intangible, perishable

product

Inventory Output can be inventoried Output cannot be

inventoried

Customer contact Low High

CONT.…

Uniformity of input High Low

Intensity Capital intensive Labour intensive

Measurement of Easy Difficult

productivity

Quality Quality easily measured Quality not easily

measurement measured
CONT.…

Similarities between manufacturing and service operations

 They are similar in terms of what is done but different in terms of
how it is done.
 Both have processes that must be designed and managed
effectively.
 some type of technology be it manual or computerized, must be
used in each process.
 Both of them are usually concerned about quality, productivity
and the timely response to customers.
 They must make choices about capacity, location, and layout of
their facilities.
 Both deal with suppliers of outside services and materials, as well
as scheduling problems.
 Finally, matching staffing levels and capacities with forecasted
demand is a universal problem.
OPERATIONS DECISION MAKING
 OM functions has 12 major decisions areas
No Decisions areas Issues
1 Operations strategy What are the unique features of the business that
will make it competitive?
2 Product design What are the unique features of the product?

3 Process selection What are the unique features of the process that
give the product its unique characteristics?

4 Supply chain What sources of supply should we use to ensure

managements regular and timely receipt of the exact materials we
need? How do we manage these sources of supply?
CONT.…
5 Quality management How will managers ensure the quality of the
product, measure quality, and identify quality
problems?

6 Forecasting What is the expected demand for the product?

7 Location analysis Where will the facility be located?

8 Capacity planning How large should the facility be?

How should the facility be laid out? Where

9 Facility layout should the kitchen and ovens be located? Should
there be seating for customers?
CONT.….

10 Job design and What jobs will be needed in the facility,

work who should do what task, and how will
measurement their performance be measured?

11 Inventory How will the inventory of raw materials

management be monitored? When will orders be
placed and how much will be kept in
stock?

12 Scheduling Who will work on what schedule?

PRODUCTIVITY MEASUREMENT
 Productivity is measure of how efficiently inputs are being
converted into outputs.
 It is computed as a ratio of outputs (goods and services) to inputs
(e.g., labor and materials).
 The more efficiently a company uses its resources, the more
productive it is:

Productivity =
CONT.…
 There different measurement possibilities are shown as
follows.
 Partial productivity measurement
 Multi-factor productivity measurement
 Total productivity measurement
PARTIAL PRODUCTIVITY MEASUREMENT
 Partial productivity measurement is used when the firm is
interested in the productivity of a selected input factor.
 It is the ratio of output values to one class of input.

PPM = or or
SOME EXAMPLES OF PARTIAL PRODUCTIVITY
MEASURES ARE AS FOLLOWS
Units of output per labor hour
Labor productivity Units of output per shift
Value- added per labor hour
Dollar value of output per labor hour
Machine Units of output per machine hour
productivity

Dollar value of output per dollar input

Capital productivity Units of output per dollar input
Dollar value of output per dollar input
Energy productivity Units of output per kilowatt-hour

Dollar value of output per kilowatt-hour

Example:
 Two workers paint tables in a furniture shop. If the workers paint
22 tables in 8 hours, what is their productivity?
 MULTI-FACTOR PRODUCTIVITY
MEASUREMENT
 This productivity measurement technique is used when the firm is
interested to know the productivity of a group of input factors but
not all input factors.

MFPM = or
Example:
 Let’s say that output is worth of 382 birr and labor and materials
costs are 168 and 98 birr, respectively. A multifactor productivity
measure of our use of labor and materials would be:
Total (Composite) Productivity Measures
 A firm deal about composite productivity when it is interested to
know about the overall productivity of all input factors. This
technique will give us the productivity of an entire organization or
even a nation.

TPM = or
Example:
 Suppose the weekly dollar value of a company X output, such as
finished goods and work in progress, is $10,200 and that the value
of its inputs, such as labor, materials, and capital, is $8600. The
company’s total weekly productivity would be computed as
follows:
THANKS
THE END