Production/Operations Management

Course Code : MGMT 3191

Credit Hrs. 3cr. Hours
Academic Year: 2017E.C.
Course Instructor: Sulaiman Abdela (ASS.Professor)
Department of Management
Mettu University
E-Mail: sulaimanabdela [email protected]
Phone: 0911031157
 Operations Management
Course Assessment Expectation:
• What would you like to get out of this
course?
 I. Course description:
In a dynamic, competitive world, a company’s
effectiveness depends significantly on how well the
firm’s resources are managed. Managing a company’s
critical performance dimensions­_ quality, speed,
flexibility, and cost– requires a thorough
understanding of both the Physical and information
processes that are essential in producing and
delivering goods and/or Services to the customer.
 Cont’d
Operations Management is a field of study
that focuses on the efficient transformation of
resource inputs, such as labor and materials, into
useful outputs, such as products or services.
In the twenty-first century customers increasingly
expect products/services of higher quality at lower
prices and with quicker delivery. For this reason,
the study of operations management is more
important than ever.
 Cont’d

The intent of this course is to provide students

with the fundamental concepts of and the
common tools for operations management.
Hence, this course will focus on business
processes, procedures and strategies used to
transform various inputs into finished goods
and services.
 II. Course Objectives:
The basic purpose of this course is to provide
students with a broad understanding and
knowledge of several operations management
concepts. Such concepts include operations
strategy, process design, forecasting, inventory
management, scheduling, and quality
management. Emphasis will be placed on the
application of these concepts to actual business
situations.
 Cont’d
More specifically, this course has the following
objectives:
 To develop an understanding of production/operations
systems: inputs, conversions systems, and outputs for
both manufacturing and services.
 To develop ability to recognize, formulate, and analyze
decisions of operations managers.
 To develop a basic understanding of the nature of
operations managers’ jobs: the way they approach
problems, the terminology they use, the challenges that
they face, and their perspectives.
 III. Brief scope of the course (Content)

• Chapter I - Nature of Operations Management

• Chapter II - Operations strategy & Competitiveness
• Chapter III - Design of the operation system
• Chapter IV - Operations Planning & Control
• Chapter V – Lean Systems and Just-In-Time
• Chapter VI - Quality Management & Control
 IV. Assessment and Evaluation
The final grade is based on total points
accumulated from the following categories:
[a] Mid-term Exam………………...
………....30
[b] class participation & Attendance…………10
[c] Group assignment.......................................20
[d] Final Exam……………………………….40
Total Points...... 100
 V. Text and References:
Text:
1. Richard B. Chase, F. Robert Jacobs, and Nicholas J.
Aquilano (2006),
Operations Management for Competitive Advantage, 11th
edition, McGraw-Hill/Irwin
2.Fitzsimmons J. & Fitzsimmons M. (2006), Operations,
Strategy and Information
Technology, 5th Edition, McGraw-Hill
 Cont’d…
References:
1.Kamauff (2010), Manager’s Guide to Operations Management,
McGraw-Hil Companies
2.Wild Ray (1995), Production and Operation Management, 5th
Edition, Cassell.
3.Martin S., (1996), Operation Management: A Systems Approach,
Boyd and Fraser
Publishing Company.
4.George P. W (1985), Production and Inventory Control: Principles
and Techniques, 2ed
Edition, Prentice Hall.
5.James E. R (1993), Production/Operations Management: Quality,
 Cont’d…

6.James D. B (1993), Production and Operation

Management Manufacturing and Services.
5th Edition, West Publishing.
7.James D., R (1993), Production and Operation
Management, 8th Edition, International
Thomson Publishing.
8.William D. L (1995),Total Quality - Key Terms
and Concepts, Lofting and Warren International.
 Chapter I –Nature of Operations
Management
1.1. Introduction to OM
1.2. Historical development of OM
1.3. Trend in OM
1.4. Today's OM Environment
 Chapter One

Nature of Operations Management

 1.1. Introduction to OM
• Every business is managed through three major
functions: finance, marketing, and operations
management.
• The following figure illustrates this by showing
that the vice presidents of each of these functions
report directly to the president or CEO of the
company.
• Other business functions—such as accounting,
purchasing, human resources, and engineering—
support these three major functions.
Cont’d
 Cont’d
• Operations management (OM) is the business function
that plans, organizes, coordinates, and controls the
resources needed to produce a company’s goods and
services.
• Operations management is a management function
which involves managing people, equipment, technology,
information, and many other resources.
• 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-profit or not-
for-profit.
 Cont’d
• The role of operations management is to
transform a company’s inputs into the
finished goods or services.
• Inputs include human resources (such as
workers and managers), facilities and
processes (such as buildings and
equipment), as well as materials,
technology, and information.
• Outputs are the goods and services a
company produces.
 Cont’d
• Operations management is responsible for
orchestrating all the resources needed to
produce the final product or services.
• 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.
 Cont’d
• For operations management to be successful, it
must add value during the transformation process
and must be efficient.
• We use the term value added to describe the net
increase between the final value of a product and
the value of all the inputs.
• Value-added is the term used to describe the
difference between the costs of inputs and the
value or price of outputs.
• The greater the value added, the more productive a
business is.
• Efficiency means being able to perform activities
 Cont’d
• An important role of operations is to analyze
all activities, eliminate those that do not
add value, and restructure processes and
jobs to achieve greater efficiency.
• Because today’s business environment is
more competitive than ever, the role of
operations management has become the focal
point of efforts to increase competitiveness
by improving value added and efficiency.
 1.2. Historical development of OM
• Business did not always recognize the
importance of operations management.
• In fact, following World War II the
marketing and finance functions were
predominant in American corporations.
• The post-World War II period of the 1950s
and 1960s represented the golden era for
U.S. business because of poor competitions
from European and Asian companies.
 Cont’d
• The primary opportunities were in the areas
of marketing, to develop the large potential
markets for new products, and in finance,
to support the growth.
• Since there were no significant competitors,
the operations function became of
secondary importance, because companies
could sell what they produced.
 Cont’d
• Then in the 1970s and 1980s, things changed. American
companies experienced large declines in productivity
growth, and international competition began to be a
challenge in many markets.
• In some markets such as the auto industry, American
corporations were being pushed out.
• It appeared that U.S. firms had become negligent due to
the lack of competition in the 1950s and 1960s.
• They had forgotten about improving their methods and
processes. In the meantime, foreign firms were rebuilding
their facilities and designing new production methods.
• By the time foreign firms had recovered, many U.S. firms
found themselves unable to compete.
 Cont’d
• To regain/recover/ their competitiveness,
companies turned to operations management, a
function they had overlooked and almost forgotten
about.
• The new focus on operations and competitiveness
has been responsible for the recovery of many
corporations, and U.S. businesses experienced a
renaissance in the 1980s and 1990s.
• Operations became the core function of
organizational competitiveness.
 Cont’d
• Operations management did not emerge/begin/ 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 events helped shape operations management.
We will describe some of the most significant of these
historical milestones/indicators/ and explain their
influence on the development of operations
management.
 Cont’d
Industrial Revolution;
• An industry movement that changed production by
substituting machine power for labor power.
• The Industrial Revolution had a significant impact on the
way goods are produced today.
• Before this time, products were made by hand by skilled
craftspeople in their shops or homes. Each product was
unique, painstakingly made by one person.
• The Industrial Revolution changed all that. It started in the
1770s with the development of a number of inventions
that relied on machine power instead of human power.
 Cont’d
• About the same time, the concept of division of labor
was introduced.
• First described by Adam Smith in 1776 in The Wealth
of Nations, this concept would become one of the
important ideas behind the development of the
assembly line.
• Division of labor means that the production of a good
is broken down into a series of small, elemental tasks,
each of which is performed by a different worker.
• The repetition of the task allows the worker to become
highly specialized in that task.
 Cont’d
Scientific management;
• Scientific management was an approach to
management promoted by Frederick W. Taylor at
the turn of the twentieth century. Taylor was an
engineer with an eye for efficiency.
• Through scientific management he sought to
increase worker productivity and organizational
output. His concept had two key features.
• First, it assumed that workers are motivated only by
money and are limited only by their physical ability.
 Cont’d
• The second feature of this approach was the
separation of the planning and doing
functions in a company, which meant the
separation of management and labor.
• Management is responsible for designing
productive systems and determining
acceptable worker output.
• Workers have no input into this process—
they are permitted only to work.
 Cont’d
Human relations movement;
• The scientific management movement and its
philosophy dominated in the early twentieth century.
However, this changed with the publication of the
results of the Hawthorne studies.
• The purpose of the Hawthorne studies, conducted at a
Western Electric plant in Hawthorne, Illinois, in the
1930s, was to study the effects of environmental
changes, such as changes in lighting and room
temperature, on the productivity of assembly-line
workers.
 Cont’d
• The findings from the study were unexpected:
the productivity of the workers continued to
increase regardless of the environmental
changes made.
• Elton Mayo, a sociologist from Harvard,
concluded that the workers were actually
motivated by the attention they were given.
The idea of workers responding to the attention
they are given came to be known as the
Hawthorne effect.
 Cont’d
• The study of these findings by many sociologists and
psychologists led to the human relations movement,
an entirely new philosophy based on the
recognition that factors other than money can
contribute to worker productivity.
• The impact of this new philosophy on the
development of operations management has been
tremendous.
• Its influence can be seen in the implementation of a
number of concepts that motivate workers by making
their jobs more interesting and meaningful.
 Cont’d
Management science;
• While some were focusing on the technical
aspects of job design and others on the human
aspects of operations management, a third
approach, called management science, was
developing that would make its own unique
contribution.
• Management science focused on developing
quantitative techniques for solving operations
problems.
 1.3. Trend in OM
Just-in-time (JIT);
• It is a major operations management philosophy,
developed in Japan in the 1980s, that is designed
to achieve high-volume production using
minimal amounts of inventory.
• This is achieved through coordination of the
flow of materials so that the right parts arrive at
the right place in the right quantity; hence the
term just-in-time.
 Cont’d
• However, JIT is much more than the
coordinated movement of goods. It is an all-
inclusive organizational philosophy that
employs/engages/ teams of workers to
achieve continuous improvement in
processes and organizational efficiency by
eliminating all organizational waste.
• Although JIT was first used in manufacturing,
it has been implemented in the service sector.
 Cont’d
Total quality management (TQM);
• It is a philosophy—promulgated by “quality
gurus” such as W. Edwards Deming—that
aggressively seeks to improve product quality
by eliminating causes of product defects and
making quality an all-encompassing
organizational philosophy.
• With TQM, everyone in the company is
responsible for quality.
• Its importance is demonstrated by the number
of companies achieving ISO certification.
 Cont’d
Business process re-engineering /BPR/;
• Means redesigning/reforming or restructuring/ a
company’s processes to increase efficiency, improve
quality, and reduce costs.
• In many companies things are done in a certain way that has
been passed down over the years. Often managers say,
“Well we’ve always done it this way.”
• Reengineering requires asking why things are done in a
certain way, questioning assumptions, and then redesigning
the processes.
• Operations management is a key player in a company’s
reengineering efforts.
Flexibility
Cont’d
• Traditionally, companies competed by either mass-producing a
standardized product or offering customized products in
small volumes. One of the current competitive challenges for
companies is the need to offer to customers a greater variety of
product choices of a traditionally standardized product.
• This is the challenge of flexibility. For example, Procter and
Gamble offers 13 different product designs in the Pampers line of
diapers. Although diapers are a standardized product, the product
designs are customized to the different needs of customers,
such as the age, sex, and stage of development of the child
using the diaper.
• One example of flexibility is mass customization, which is the
ability of a firm to produce highly customized goods and services
and to do it at the high volumes of mass production.
 Cont’d
Time-Based Competition
• One of the most important trends within companies
today is time-based competition— developing new
products and services faster than the competition,
reaching the market first, and meeting customer
orders most quickly.
• For example, two companies may produce the same
product, but if one is able to deliver it to the customer
in two days and the other in five days, the first
company will make the sale and win over the
customers.
 Cont’d
Supply chain management (SCM);
• Supply chain management (SCM) involves managing the flow of
materials and information from suppliers and buyers of raw
materials all the way to the final customer.
• The network of entities/persons/ that is involved in
producing and delivering a finished product to the final
customer is called a supply chain.
• The objective is to have everyone in the chain work together
to reduce overall cost and improve quality and service
delivery.
• Supply chain management requires a team approach, with
functions such as marketing, purchasing, operations, and
engineering all working together.
 Cont’d
Global Marketplace
• Today businesses must think in terms of a global
marketplace in order to compete effectively.
• This includes the way they view their customers,
competitors, and suppliers.
• Key issues are meeting customer needs and getting the
right product to markets as diverse as the Far East,
Europe, or Africa. Operations management is responsible
for most of these decisions.
• OM decides whether to tailor/fit/ products to different
customer needs, where to locate facilities, how to manage
suppliers, and how to meet local government standards.
 Cont’d
Sustainability and Green Operations
• There is increasing emphasis on the need to reduce
waste, recycle, and reuse products and parts. This
is known as sustainability or green operations.
• Society has placed great pressure on business to
focus on air and water quality, waste disposal,
global warming, and other environmental issues.
• Operations management plays a key role in
redesigning processes and products in order to meet
and exceed environmental quality standards.
 Cont’d
Outsourcing and Flattening of the World
• Outsourcing is obtaining goods or services from an
outside provider.
• This can range from outsourcing of one aspect of the
operation, such as shipping, to outsourcing an entire
part of the manufacturing process.
• Outsourcing has been touted as the enabling factor
that helps companies achieve the needed speed and
flexibility to be competitive.
• Management guru Tom Peters has been quoted as
saying, “Do what you do best and outsource the rest.”
•
Cont’d
The convergence of technologies at the turn of this century has
taken the concept of outsourcing to a new level.
• Massive investments in technology, such as worldwide broadband
connectivity, the increasing availability and lower cost of
computers, and the development of software such as e-mail,
search engines, and other software, allow individuals to work
together in real time from anywhere in the world.
• This has enabled countries like India, China, and many others to
become part of the global supply chain for goods and services
and has created a “flattening” of the world. the playing field for
business orgs becomes leveled.
• Such “flattening,” or leveling of the playing field, has enabled workers
anywhere in the world to compete globally for intellectual work.
People can participate in the global economy
 Group Assignment (15%)
1. Prepare a report on advantages of outsourcing by
considering an international business organization
experience. In addition, what are the pitfalls of
outsourcing and how can they be tackled?

Note:
Submission of the assignment to your instructor
will be at the final exam day.
 1.4. Today’s OM Environment
• Today’s OM environment is very different from what it was
just a few years ago.
• Customers demand better quality, greater speed, and
lower costs. In order to succeed, companies have to be
masters of the basics of operations management.
• To achieve this ability, many companies are implementing a
concept called lean systems.
• Today’s OM uses lean system
• Lean systems take a total system approach to creating an
efficient operation and pull together best practice
concepts, including just-in-time (JIT), total quality
management (TQM), continuous improvement, resource
planning, and supply chain management (SCM).
 Cont’d
• The need for efficiency has also led many
companies to implement large information
systems called enterprise resource planning
(ERP).
• ERP systems are large, sophisticated
software programs for identifying and
planning the enterprise-wide resources needed
to coordinate all activities involved in
producing and delivering products to
customers.
 Cont’d
• Applying best practices to operations management is not enough to
give a company a competitive advantage.
• The reason is that in today’s information age best practices are
quickly passed to competitors. To gain an advantage over their
competitors, companies are continually looking for ways to better
respond to customers.
• This requires them to have a deep knowledge of their customers and
to be able to anticipate their demands.
• The development of customer relationship management (CRM) has
made it possible for companies to have this detailed knowledge.
• CRM encompasses software solutions that enable the firm to collect
customer-specific data, information that can help the firm identify
profiles of its most loyal customers and provide customer-specific
solutions.
 Cont’d
• Another characteristic of today’s OM environment is the
increased use of cross-functional decision making, which
requires coordinated interaction and decision making among
the different business functions of the organization.
• Until recently, employees of a company made decisions in
isolated departments, called “functional silos.”
• Today many companies bring together experts from different
departments into cross-functional teams to solve company
problems.
• Employees from each function must interact and coordinate their
decisions, which require employees to understand the roles of
other business functions and the goals of the business as a whole,
in addition to their own expertise.
 1.5. Manufacturing and Service
operations
Manufacturing organizations
• Organizations that primarily produce a
tangible product and typically have low
customer contact.
Service organizations
• Organizations that primarily produce an
intangible product, such as ideas,
assistance, or information, and typically have
high customer contact.
 Cont’d
• There are two primary distinctions between these
categories.
• First, manufacturing organizations produce physical,
tangible goods that can be stored in inventory before they
are needed. By contrast, service organizations produce
intangible products that cannot be produced ahead of
time.
• Second, in manufacturing organizations most customers
have no direct contact with the operation. Customer
contact occurs through distributors and retailers.
• For example, a customer buying a car at a car dealership
never comes into contact with the automobile factory.
 Cont’d
• However, in service organizations the
customers are typically present during
the creation of the service.
• Hospitals, colleges, theaters, and barber
shops are examples of service organizations
in which the customer is present during the
creation of the service.
 Cont’d
• The differences between manufacturing and service
organizations are not as clear-cut as they might appear,
and there is much overlap between them.
• Most manufacturers provide services as part of their
business, and many service firms manufacture physical
goods that they deliver to their customers or consume
during service delivery.
• For example, a manufacturer of furniture may also
provide shipment of goods and assembly of furniture
• A barber shop may sell its own line of hair care
products.
 1.5.1 The concept of Service
• Service refers to any activity undertaken to fulfil
customer’s needs. It is any act or performance that
one party can offer to another that is essentially
intangible and does not result in the ownership
of anything.
• Distinctive features of services include
intangibility, inseparability, variability, and
perishability as opposed to goods.
 Cont’d

•The feature of intangibility shows that pure services cannot be

defined in terms of the physical dimensions; or the customer
cannot see or feel them before purchase. The concept of
inseparability, on the other hand, refers that production and
consumption of services are inseparable; the 'sale' occurs just
before both.
•There are also features of variability and perishability associated in
service. Services are highly variable, because they depend on who
provides them, and when and where they are provided.
 Cont’d
•In addition to this, services are produced and
consumed at the same point, and are totally
perishable/consumable/ right after use. Service cannot
be reproduced as a concert object and it can vary from
one moment to the next. Based on this concept, service
is characterized as; situational, difficult to measure,
subjective and influenced by the service provider.
 Cont’d
•Service is situational in the sense that what is good for one
customer one day may be perceived differently by the same
customer another day. There is also difficulty associated in
measurement of service.
•Service is also subjective in the sense that an acceptable
service for one customer may not be equally or totally
acceptable by another customer. Finally, service is influenced
by the service provider. If the service provider sets
expectations effectively, the customer will probably be satisfied.
 Differences
• Manufacturing • Services
• Tangible product • Intangible product
• Product can be inventoried • Product cannot be
inventoried
• Low customer contact
• High customer
• Longer lead time contact
• Capital intensive • Short lead time
• High uniformity of out put • Labor intensive
• Low uniformity of
out put
 On the other hand
• Both use technology
• Both have quality, productivity, & response
issues
• Both must forecast demand
• Both will have capacity, layout, and location
issues
• Both have customers, suppliers, scheduling
and staffing issues
 1.6. OM Decisions
• Operations managers’ decisions can be of
two types which are strategic and tactical
decisions.
• Strategic decisions are decisions that set
the direction for the entire company, broad
in scope and long-term in nature.
• Tactical decisions are decisions that are
specific, short-term in nature and are
bound by strategic decisions.
 Cont’d
General decisions to be made OM term
What are the unique feature of the Operations strategy (CH 2)
business that will make it competitive?
What are the unique features of the Product design (CH 3)
product?
What jobs will be needed in the facility, Job design and work measurement (CH
who should what task, and how will 3)
their performance be measured?
How to ensure the quality of the Quality management(CH 5)
product
Who will work on what schedule? Operations scheduling (CH 4)
Where will the facility be located? Location analysis (Ch 3)
How large should the facility be? Capacity planning (CH 3)