Well come

TO
Operations management

COURS NUMBER:MGMT3191
Presenter: Mr. Samuel G
 CHAPTER ONE
NATURE OF OPERATIONS MANAGEMENT
• Every business is managed through three major functions: finance,
marketing, and operations management.
• Other business functions such as accounting, purchasing, human
resources, and engineering support these three major functions.
• Finance is the function responsible for managing cash flow, current
assets, and capital investments.
• Marketing is responsible for sales, generating customer demand, and
understanding customer wants and needs.
 Cont’d
• Operations management ( OM) is defined by many authors in deferent ways;
 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).
 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).
In other way, OM is the business function that plans, organizes, coordinates,
and controls the resources needed to produce a company’s goods and services.
 Cont’d
 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, and is for 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.
 Operations Management Functions and Model

 The role of operations management is to transform a company’s inputs

into the finished goods or services.
In order to produce goods and service operations management carries the
following functions on the required inputs:
1. Deciding what resources are needed
2. Arranging schedules, equipment, and facilities
3. Managing inventory
4. Controlling quality
5. Designing the jobs to make the product and
6. Designing work methods.
 Customer feedback

Inputs Outputs
-Human resource Transformation Goods
-Facilities and process process Services
-Technologies
-Materials

Performance information

Figure1. OM model
 Table 1.1 Examples of productive systems their inputs, transformation process and outputs
System Primary Inputs Resources Transformation Functions Typical Output
Hospital Patients MDS, Nurses, Medical Examination, surgery, monitoring ,
supplies, Equipment medication and Healthy
Therapy individual
Restaurant Hungry Customers Food, chef, wait-staff, Well prepared well served food
environment agreeable environment (physical and Satisfied
exchange customers
Automobile Sheet steel, engine parts Tools, equipment, workers Fabrication and assembly of cars High quality
factory physical) automobile

College or High school graduates Teachers book, classrooms Imparting knowledge and skills via Educated
university lecture (informational) individuals

Department Shoppers Displays, stocks of goods, Attract customers promote products Sales to satisfied
store sales clerks fill orders (exchange) customers

Airline Travelers Airplanes, crews , Move to destination On-time, safe

scheduling/ ticketing delivery to
systems destination
 Cont’d
In general, transformation processes can be categorized as follows:
• Physical (as in manufacturing)
• Location (as in transportation)
• Exchange (as in retailing)
• Storage (as in warehousing)
• Physiological (as in health care)
• Informational (as in telecommunications)
4.Historical Development of Operation Management

Think of any great organizational effort, such as organizing the first

Olympic Games, building the Great Wall of China, or erecting the Egyptian
pyramids, and you will see operations management at work.
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.
 Table 1.3 the historical milestones and current trends of operation management

Concept Time Explanation

Industrial Revolution Late 1700s Brought in innovations that changed production
by using machine power instead of human power

Scientific management Early 1900s Brought the concepts of analysis and

measurement of the technical aspects of work
design, and development of moving assembly
lines and mass production

Human relations 1930s to 1940s Focused on understanding human elements of

movement job design, such as worker motivation and job
satisfaction
Management science 1940s to 1960s Focused on the development of
quantitative techniques to solve
operations problems
Global competition 1990s Designed operations to compete in the
global market
Electronic commerce 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
systems (JIT) production with minimal inventories
Total quality 1980s Sought to eliminate causes of production
management defects
(TQM)
Supply chain 1990s Focused on reducing the overall cost of the
management system that manages the flow of materials
and information from suppliers to final
customers
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
issues recycling, and product reuse
Flexibility 1990s Offered customization on a mass
scale.
Time-based 1990s Based on time, such as speed of delivery
competition
Manufacturing and Service Operations

 Organizations can be divided into two broad categories:

manufacturing organizations and service organizations.
1. Manufacturing implies production of a tangible output (i.e.
something that can be seen or touched) such as a car, tire, bread, knife,
etc.
2. Service on the other hand, generally implies an act. Examples here
include a doctor’s examination, TV and auto repair, law care and
lodging in a hotel.
Cont’d
 The majority of service jobs fall into the following categories:
 Education (schools, colleges, universities, etc.)
Business services (data processing, delivery, employment agencies,
etc.)
Personal services (laundry, dry cleaning, hair/ beauty, gardening etc.)
Health care (doctors, dentists, hospital care, etc.)
Financial services (banking, stock brokerages, insurance, etc.)
Wholesale / retail (clothing, food, stationeries, toys, etc.)
Government (federal, state, local.)
 The difference between Manufacturing and service operation

• The differences between manufacturing and service operations fall into the
six categories.
 Manufacturing organizations produce physical, tangible goods that can be
stored in inventory before they are needed. And, service organizations
produce intangible products that cannot be produced ahead of time.
 Manufacturing organizations most customers have no direct contact with the
operation. Customer contact is made through distributors and retailers. For
example, a customer buying a car at a car dealership never encounters the
automobile factory. However, in service organizations the customers are
typically present (inputs) during the creation of the service. Hospitals,
colleges, theaters, and barbershops are examples of service organizations in
which the customer is present during the creation of the service.
Cont’d
Third, service operations are subject to greater variability of input
than typical manufacturing operations. For example, each patient, each
lawn and each auto repair presents specific problems that often must
be diagnosed before it can be improved. Manufacturing operations
often have the ability to carefully control the amount of variability of
inputs and thus achieve low variability in outputs. Consequently, job
requirements for manufacturing are generally more uniform than those
for services.
 Fourth, because of the on-site consumption of service and the high degree of
variation of inputs, service require a higher labor content whereas
manufacturing, with exceptions, can be more capital intensive (i.e.,
mechanized).
Fifth, measurement of productivity is more straightforward in
manufacturing due to the high degree of uniformity of most manufactured
items. In service operations, variations in demand intensity and in
requirements from job to job make productivity measurement considerably
more difficult.
For example, compare the productivity of two doctors. One may have a
large number of routine cases while the others do not, so their productivity
appears to differ unless a very useful analysis is made.
 Cont’d
The final distinction between manufacturing and service operations
relates to the measurement of quality. Since manufacturing systems tend
to have tangible products and less customer contact, quality is relatively
easy to measure.
 However, the quality of service systems, which generally produce
intangibles, is often very difficult to measure. Coupled with this, the
subjective nature of individual preferences further makes the
measurement of services difficult (objective measurement of quality is
sometimes impossible).
 The distinctions between manufacturing and service operations are as follows
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

Uniformity of input High Low

Intensity Capital intensive Labor intensive

Measurement of productivity Easy Difficult

Quality measurement Quality easily measured Quality not easily measured

Similarities between manufacturing and service operations

 Since manufacturing and service operations are often similar in terms of

what is done but different in terms of how it is done. For instance both
involve the following characteristics.
 Firstly, both have processes that must be designed and managed effectively.
 Secondly, some type of technology be it manual or computerized, must be
used in each process.
Thirdly, both of them are usually concerned about quality, productivity and
the timely response to customers.
 Fourthly they must make choices about capacity, location, and layout of their
facilities.
 Fifthly, both deal with suppliers of outside services and materials, as well as
scheduling problems..
Operations Decision Making

 All good managers perform the basic functions of the management

process.
The management process consists of planning, organizing, staffing,
leading, and controlling.
 Operations managers apply this management process to the decisions
they make in the OM functions.
12 major decisions of OM are shown in Table 1.2 while successfully
addressing each of these decisions requires planning, organizing,
staffing, leading and controlling.
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 managements What sources of supply should we use to ensure regular and timely
receipt of the exact materials we need? How do we manage these
sources of supply?
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?
9. Facility layout How should the facility be laid out? Where should the kitchen and
ovens be located? Should there be seating for customers?
10. Job design and work What jobs will be needed in the facility, who should do what task, and
measurement how will their performance be measured?
11. Inventory management How will the inventory of raw materials 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
o Productivity is measure of how efficiently inputs are being converted
into outputs.
o It is computed as a ratio of outputs (goods and services) to inputs
(e.g., labor and materials).
o The more efficiently a company uses its resources, the more
productive it is:
• Productivity =
Cont’d
• The measurement of productivity can be quite direct. Such is the case
when productivity is measured by labor-hours per ton of a specific
type of steel.
• Although labor-hours is a common measure of input, other measures
such as capital (dollars invested), and materials (tons of ore), or energy
(kilo­watts of electricity) can be used.

Productivity =
Cont’d
For example, if unit produced 1,000 and labor-hours used is 250, then

Productivity = = = 4 units per labor-hour

 The use of just one resource input to measure productivity, is known as

single-factor productivity.
 However, a broader view of productivity is multifactor productivity,
which includes all inputs (e.g., capital, labor, material, energy).
Productivity =

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

Productivity = 1.436
Productivity in the Service Sector

 Service productivity is more difficult than manufacturing

productivity.
It is more difficult to measure, and thus to manage, because it
involves intellectual activities and a high degree of variability.
• Because service is becoming an increasingly large portion of our
economy, the issues related to service productivity will have to be
dealt with.
• A useful measure closely related to productivity is process yield.
Cont’d
 Where products are involved, process yield is defined as the ratio of
output of good product to the quantity of raw material input.

Where services are involved, process yield measurement is often

dependent on the particular process.
 For example, in a car rental agency, a measure of yield is the ratio of
cars rented to cars available for a given day.
In education, a measure for college and university admission yield is
the ratio of student acceptances to the total number of students
approved for admission
Cont’d
 NB. Not all services provide themselves to a simple yield
measurement.
 For example, services such as automotive (motorized), employment,
and computer repair don’t readily provide themselves to such
measures.