1-1 Introduction to Operations Management

Chapter One
 Contents of Chapter One
1-2 Introduction to Operations Management

(Nature of Operations Management)

Contents of Chapter One
1.1: Introduction to Operations Management(OM)
1.2: Manufacturing Operations and Service
Operations
1.2.1 : Manufacturing Operations
1.2.2: Service Operations
1.3 : Operations Decision Making
1.4 : Productivity Measurement
1-3 Introduction to Operations Management
1.1: Introduction to Operations
Management(OM)

The best way to start understanding the nature of

‘operations’ is to look around you
Everything you can see around you has been processed by
an operation

Every service you consumed today (radio station, bus

service, lecture, etc.) has also been produced by an
operation
Operations Managers create everything you buy, sit on,
wear, eat, and throw away
1-4 Introduction to Operations Management

OM: refers to the activities, decisions and responsibilities

of managing the resources dedicated to the production and
delivery of goods and services.
In a more comprehensive manner - It is the activity
whereby resources in a defined system, are combined and
transformed in a controlled manner to add value in
accordance with policies communicated by management.
1-5 Introduction to Operations Management

Cont’d …

Key concepts in the above definition

 Resources
 Systems
 Transformation
 Value adding
 Managerial policy
1-6 Introduction to Operations Management

Cont’d …

The management of systems or processes that create

goods and/or provide services

Organization

Finance Operations Marketing

1-7 Introduction to Operations Management

Value-Added

The difference between the cost of inputs

and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
1-8 Introduction to Operations Management

Discussion Question
 Some managers view operations function as a “black
box” which takes raw materials and transform into goods
and services without considering the need to consider
the external environment. Do you agree ?

 Likewise, do you think human brain is a ‘black box’,

too?
1-9 Introduction to Operations Management

Role of Operations Manager

 Operations manager should:
 Understand the overall objectives of the organization
 Develop the operations plan of the organization and
control the function
 Assume responsibility in the design of goods, services
and jobs
 Explain the plans of the department to the other
functions
 Improve the Operation
1-10 Introduction to Operations Management

Why Study OM?

 You may be wondering why you need to study
operations management. There are a number of very
good reasons: Some are:
 Operations management activities are at the core of all
business organizations.
 More of works in the organization are operations related
 Activities in all of the rest functions are interrelated
with operations activities.
 Operations bear greater percentage of working cost
 It is an important factor in a country’s well being.
1-11 Introduction to Operations Management

Cont’d …
It plays a crucial role in the society:
 Higher standard of living,
 Better quality goods and services,
 Concern for the environment,
 Improved working conditions,
 Cost leadership,
 goods/services differentiation,
 Implementation of business strategy,
1-12 Introduction to Operations Management

Scope of Operations Management

 Operations Management includes:
 Forecasting
 Capacity planning

 Scheduling

 Managing inventories

 Assuring quality

 Motivating employees

 Deciding where to locate facilities

 And more . . .
1-13 Introduction to Operations Management

Key Decisions of Operations Managers

 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed
 Who
To do the work
1-14 Introduction to Operations Management

Business Operations Overlap

Systems Approach

Operations

Marketing Finance

“The whole is greater than

the sum of the parts.”
1-15 Introduction to Operations Management

Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
1-16 Introduction to Operations Management

Recent Trends in Business

 Major trends
 The Internet: e-commerce/e-business
 Management of technology

 Globalization

 Management of supply chains

 Agile/lean production

 Outsourcing

 Business Ethics

 Corporate social responsibility (CSR)

1-17 Introduction to Operations Management

New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass customization
 Empowered
 Job specialization employees, teams
1-18 Introduction to Operations Management

1.2 Historical Development of OM

Cottage System <1700 TIME

 Industrial Revolution 1700 - 1800
 Civil War 1850s

 Scientific Management 1890s

 Moving Assembly Line 1910s

 Hawthorne Studies 1930s
 Operations Research 1940s

 Global Competition 1970s

 Service Revolution 1980s
 Mass Customization 1990s
1-19 Introduction to Operations Management

Cont’d …
 The evolution of operations management can be
classified into three periods:
 Before 1930’s – manufacturing management
The work of Adam Smith
 From 1930’s-1950’s- production management

F.W. Tailor & Elton Mayo got better

recognition
 Since 1970’s – operation management

Service revolution
1-20 Introduction to Operations Management
Development of OM as a Field – The Names
and Emphasis Change, but the Elements
Remain Basically the Same

Scientific Manufacturing TQM &

Management-F.Taylor Strategy Six Sigma

Moving Assembly JIT/Lean Business Process

Line-Ford’s innovation Manufacturing Reengineering

Hawthorne Studies Manufacturing Electronic

Hawthorne Studies-Elton Mayo Resources Planning Enterprise

Operations Service Quality Global Supply

Research-Optimal solution and Productivity Chain Mgt.
-mathematical

Historical OM’s Emergence

Underpinnings as a Field
1-21 Introduction to Operations Management

Significant Events In OM
i. Early Concepts (1776 – 1880)
 Labor specialization

 Standardized parts

ii. Scientific Management era (1880 – 1910)

 Motion & time study

 Queuing theory

iii. Mass Production Era (1910 – 1980) Cost focus

 Moving assembly line

 Statistical Sampling

 Economic order quantity

 Linear programming

 Materials requirements planning (MRP)

1-22 Introduction to Operations Management

Cont’d …
iv. Lean Production Era (1980 – 1995)
 Just- in- time

 Computer - aided design

Quality focus
 Electronic data interchange

 Total quality management

 Empowerment
1-23 Introduction to Operations Management

Cont’d …
v. Mass Customization Era (1995 – till date)
 Globalization

 Internet/E commerce

 Enterprise resource planning

Customization
 Learning organization
focus
 International quality standards (ISO)

 Finite scheduling

 Supply chain management

 Mass customization

 Make/build to order
1-24 Introduction to Operations Management

Factors driving the Continued dev’t

of OM…
Globalization of the Economy- efficiency and
effective
 Fierce Competition, importance of manufacturing
for the domestic economy is declining
 The current battle ground for market place

dominance is speed objective

Empowerment – cost- effective- operation
 But requires good Knowledge and skill of
operation workers
1-25 Introduction to Operations Management

Cont’d …
 Total Quality Management
 The necessity for Operations manager to have
external orientation
 Requires the involvement of every personnel
 Information technology
 Improving public services
1-26 Introduction to Operations Management

Discussion Question
 1. Can there be any difference between public and
business organizations in the application of
operations management practices?
1-27 Introduction to Operations Management
1.2 Operations Management in the Manufacturing and
Service Sectors

 What basic differences and similarities exist

between the operations system of goods and
services?
 Production of goods Vs Delivery of Services
1-28 Introduction to Operations Management

Goods & Services characters

 Manufacturing  Services
 Tangible product  Intangible product
 Product can be  Product cannot be
inventoried inventoried
 Low customer contact  High customer
 Capital intensive contact/production &
 Consistent product consumption takes place
definition simultaneously
 Labor intensive

 Often knowledge based

1-29 Introduction to Operations Management

Goods – Services Continuum

1-30 Introduction to Operations Management

Cont’d …
 Physical output (tangible) of process  Good
If you drop it on your foot, it may hurt you
 Intangible process  Service
If you drop it on your foot, it won’t hurt you

 Is McDonald’s in Service or Manufacturing sector?

 Every organization is in the service business. T or F?

1-31 Introduction to Operations Management

Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
1-32 Introduction to Operations Management

Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
1-33 Introduction to Operations Management

University

Inputs Processing Outputs

 High school grads Transferring kdg Educated
 Teachers & skills Individuals
 Books registration
 Class rooms lectures
examination
1-34 Introduction to Operations Management

Operations Decision Making

 Thousand of business decisions are made everyday.
 Decisions determine the company’s success or failure
 It ranges from simple judgmental to complex analysis which can

also involve judgment (past experience & common sense).

 They involve a way of blending objective and subjective data to

arrive at a choice.
 The use of quantitative methods of analysis adds to the
objectivity of such decisions.
1-35 Introduction to Operations Management

 The major areas in which operations managers make

decisions are:
1.Strategic decision
◦ Product and service plan/design/conversion of ideas into reality.
◦ Competitive priorities (TQM, statistical process,
◦ Location/where our main operations should be based?’
◦ Capacity and layout decision/physical arrangement of facilities.

2.Design decisions
 Deals with actual production system

 Process design/overall process route for converting the

raw material into finished goods.

 Job design
1-36 Introduction to Operations Management

3. Operating Decision deals with operating the

factory the system once it is in place.
It includes:
forecasting,

materials management,

 inventory management,

aggregate planning,

scheduling.
1-37 Introduction to Operations Management

 Quantitative approaches help to problem solving to obtain mathematically

optimum solutions for managerial problems.
 The functions are commonly used quantitative approaches like:

 Linear programming,

 Queue techniques, examines every component of waiting in line to be

served, including the arrival process, service process, number of servers,

number of system places and the number of "customers" (which might be
people, data packets, cars, etc.).
 Inventory models, Mathematical equation or formula that helps a firm in

determining the economic order quantity, and the frequency of ordering,

to keep goods or services flowing to the customer without interruption or
delay.
Forecasting techniques,
 Statistical models.
1-38 Introduction to Operations Management
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1.4: Productivity Measures

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

Units produced
Productivity =
Input used
Measure of process improvement
Represents output relative to input
Only through productivity increases can our
standard of living improve
1-43 Introduction to Operations Management

Cont’d …
 Productivity ratios can be:
—Partial productivity measurement
—Multi-factor productivity measurement
—Total productivity measurement
 Productivity Variables
 Labor
Important Note!

 Capital  Production is a measure of
 Management output only and not a measure
 Machine of efficiency
1-44 Introduction to Operations Management

Efficiency Vs Effectiveness

i. Efficiency – resource focused

ii. Effectiveness – objective focused
Input – process – output – outcome

 In order to assure that productivity measurement captures

what the company is trying to do with respect to customer
satisfaction and quality, some firms redefined productivity
as:
 Productivity = Effectiveness or value to

customer/Efficiency or cost to producer

1-45 Introduction to Operations Management

Simple Exercise
4 employees produced 1600 cameras in two days. The
company works 8 hours a day, 5 days a week, 52 weeks
a year Workers get paid $14 an hour, and salary
overheads are 200% Equipment yearly depreciation cost
is $312,000, Material cost is $18 per camera.

This company charges dealers $30 per camera

What is the Productivity?

1-46 Introduction to Operations Management

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
1-47 Introduction to Operations Management
Improving productivity

 Develop productivity measures to all operations.

 Look at the system as a whole
 Develop methods for achieving productivity
improvements
 Make it clear that management supports and encourages
productivity improvement
 Measure improvements and publicize them
 Do not confuse efficiency with productivity
1-48 Introduction to Operations Management

Cont’d …
 Higher productivity leads to:
 a reduction in cost of production

 reduces the sales price of an item

 expands markets and

 enables the goods to compete effectively in the world

market.
1-49 Introduction to Operations Management

Cont’d …
 Productivity: The reduction in wastage of
resources such as labor, machines, materials,
power, space, time, capital, etc.

 It implies development of an attitude of mind

and a constant urge to find better, cheaper,
easier, quicker, and safer means of doing a job,
manufacturing a product and providing service
1-50 Introduction to Operations Management