Operations MANAGEMENT

LECTURE NOTE
CHAPTER ONE

NATURE OF
OPERATIONS
MANAGEMENT
 1.1. INTRODUCTION

• Operation Management: is concerned with the

transformation of a range of inputs into the required
output (services) having the requisite quality level
• Operations Management: is the process of obtaining
and utilizing resources to produce useful goods and
services so as to meet the goals of the organization.
 Int… Cont’d

• Operations management, as is the case with every

functional area within an organization, can be
defined from several perspectives;
 One being with respect to its overall role and
contribution within an organization;
 The other focusing more on operating activities
that fall within its area of responsibility.
 Int… Cont’d
1. Organizational Perspective:

• Management of the direct resources that are required to

produce and deliver an organization’s goods and services.

2. Operational Perspective:

• The day-to-day activities within the operations management

function focus on adding value for the organization through
its transformation process. - Actual conversion of inputs into
outputs
 Int… Cont’d
Production management is concerned with the
manufacturing of goods:
Examples of goods:
Cars
Books
Chairs
Computers
Houses
etc.
 Int… Cont’d

Operations management is also concerned with the

management of service industries as well as the
manufacturing of goods.

Examples of services:

Retailing/food, Banking, Education, Health care,

Utilities, Insurance, Government agencies and etc.
 OVERVIEW OF OPERATIONS
MANAGEMENT MODEL

Operations management considers how the input are

transformed into goods or services.

Control is when something is learned about the goods or

services that is used to more effectively transform future
goods or services.
 OPERATIONS MANAGEMENT
QUESTIONS

1. How many items will be demanded next

month?

2. How many items should be produced next

month?

3. How many workers are needed to satisfy

the proposed production level?
 Cont’d

4. If a plant is built, how should the activities be

scheduled so that the project is completed on
time, within budget, and with acceptable quality?

5. How is the quality of our output measured and

how is it improved?

6. If tires are needed, how many should be ordered?

 DEFINITIONS
There is no one single definition given to the
term production and operations management.
Some of them:
• OM may be defined as the design, operation
and improvement of the production systems that
create the firm’s primary products or services.
• Joseph G .Monks defines Operations
Management as the process whereby resources,
flowing within a defined system, are combined
and transformed by a controlled manner to add
value in accordance with policies communicated
Operations management contains following
the keywords:
 Resources
• Refers about input of production.
Systems
• Systems are the arrangement of components
• It contains subsystem such as personnel,
engineering,
finance and operations.
•Achievement of any system depends on its design
(among input transformation and output) and its
control.
Transformation
•The transformation process applied will be in the
form of technology to the inputs.
 Effectiveness of transformation measured
productivity.
 The Transformation Process within OM

External factors
Inputs Adjust Measure Outputs
Transformation Process
(Materials and/or
(Goods and
customers) Services)
Components

Feedback
 TYPES OF TRANSFORMATION PROCESSES
Transformation Examples
Physical (including Mining, harvesting,
Chemical) manufacturing goods
Exchange Retailing, bartering, trading
products
Locational Transportation, logistics
Storage Warehousing, depots
Informational Communication, internet,
publication
Physiological Health care, physical
fitness
Recreational Entertainment, leisure
(Psychological)
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 Characteristics of Goods & Services
Goods Services
Tangible (real, concrete) Intangible (non-material, abstract)
Goods are manufactured Services are provided or delivered
Tend to be capital (equipment)- Tend to be labour-intensive
intensive
Can be stored (inventoried) Cannot be stored
Low customer contact High customer contact
Minimal participation by the Customer often participates
customer
Delay between production and Production and consumption often
consumption simultaneous
Productivity easily determined Productivity can be difficult to
determine
Often similar and mass produced Can be unique
Often patented Rarely patented
Quality generally easy to measure Quality more difficult to measure
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Who take a responsibility of operation management?
Operations managers
responsibilities are:
 Processing inputs into outputs.
 They bring together production plan
 They combine materials, capacity and knowledge
available in the production facility.
 Run production system under design system
 Design production schedule
 Controlled the process as per predetermined
parameter like cost, inventory level, machinery
capacity, quality and other.
  Controlling
 Planning
– Inventory
 Capacity, – Quality
utilization
– Costs
 Location  Organization
 Choosing products – Degree of standardization
or services
– Subcontracting
 Make or buy – Process selection
 Layout  Staffing
 Projects – Hiring/lay off
 Scheduling – Use of overtime
 Market share – Incentive plans
 Plan for risk
reduction, plan B?
 Forecasting
 1.2. Why study OM ?
• To Study how people organize
themselves for productive enterprise.
• To know how goods and services are
produced.
• To understand what operations managers
do.
• Because it is such a costly part of an
organization.
Operations Management Functions
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 out the following functions:
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.
 1.3 MANUFACTURING OPERATIONS AND
SERVICE OPERATIONS
MANUFACTURING OPERATIONS
 Manufacturing is the transformation of raw materials into
finished goods for sale, or intermediate processes involving the
production or finishing of semi-manufactures.
 Manufacturing implies production of a tangible output and
product-oriented.
product-oriented
1.3.2 SERVICE OPERATIONS
•Service is defined as either as Services are deeds,
processes, and performances.
•Add value to our personal lives
•Act-oriented
 Manufacturing vs. Services
Characteristic Manufacturing Service
1. Output Tangible Intangible
2. Customer contact Low High
3. Uniformity of output High Low
4. Labor content Low High
5. Uniformity of input High Low
6. Measurement of Easy Difficult
productivity
7. Opportunity to Easy Difficult
correct quality
problems
8. Storage Inventoried Cannot
inventorie
d
 1.4 OPERATIONS DECISION
MAKING
• Even minor decisions determine the company’s success
or failure. It ranges from simple judgmental to complex
analysis which can also involve judgment (objective and
subjective data),
• The major areas in which operations managers make
decisions are:
1.Strategic (long term) decision
2.Tactical (intermediate term) decision
3.Operational planning and control (short term) decision
 1.Strategic (long term) decision

The strategic issue usually broad,

addressing questions such as:
How will we make the product?
Where do we locate the facility or
facilities?
How much capacity do we need?
When should we add more
capacity?
 2. Tactical (intermediate term)
decision

An issue on which OM concentrates on

this level includes:

How many workers do we need?

When do we need them?
Should we work over time?
When should we have material delivered?
Should we have a finished goods inventory?
 3. Operational planning & control
(short term) decision.

• Management with the respect to operational

planning control is narrow and short term. Issues at
this level include:

What jobs do we work on today or this week?

Whom do we assign to what tasks?
What jobs have priority?
 Framework for Decision-Making
An analytical and scientific framework for
decision implies the following systematic steps:

1.Defining the problem.

2.Establish the decision criteria.
3.Formulation of a model. (R/ship among
variable)
4.Generating alternatives.
5.Evaluation of the alternatives.
•Implementation and monitoring.
 1.5 PRODUCTIVITY
MEASUREMENT

• Productivity is defined in terms of utilization of resources,

like material and labor.
• In simple terms, productivity is the ratio of output to input.
• Productivity is closely linked with quality, technology and
profitability
• The productivity is ratio of values of output to the cost of
inputs.
 RODUCTIVITY MEASUREMENT
cont-d
•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 = Out put
Input
•We can use this equation to measure the productivity of one worker
or many, as well as the productivity of a machine, a department, the
whole firm, or even a nation.
pRODUCTIVITY MEASUREMENT
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 (kilo­ watts of electricity) can be used. An
example of this can be summarized in the following equation:
Productivity = Units produced
Input used
• For example, if units produced=1,000 and labor-hours used is
250, then:
Productivity= units produced = 1000 = 4 units per labor hr.
labor-hours used 250
pRODUCTIVITY MEASUREMENT
cont-d 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).

•Multifactor productivity is also known as total factor

productivity. Multifactor productivity is calculated by
combining the input units as shown below:
Productivity= Out put______________________
Labor+material+Energy+Capital+Miscellaneous
pRODUCTIVITY MEASUREMENT
cont-d
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 productivity: Units of output per machine hour

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
 Cont’d

• Productivity can be improved by

a) Controlling inputs,
b) Improving process so that the same input yields higher
output, and
c) Improvement of technology.
• Productivity can be measured at firm level, at industry level, at
national level and at international level
 Example on Productivity measurement.
1. Collins title wants to evaluate its labor and multifactor productivity with a new
computerized title search system. The company has a staff of four, each working 8
hours per day ( for a payroll cost of ) $ 640/day and over head expenses of $
400/day. Collins processes and closes on 8 titles each day. The new computerized
title- search will allow the processing of 14 titles per day. Although the staff, their
works and pay are the same, the overhead expenses are now $ 800/day.
Required, Compute labor productivity with the old system, labor productivity with
the new system, multifactor productivity with the old system and multifactor
productivity with the new system.
- If the over head goes to $ 960 ( rather than $ 800), what is the multi factor
productivity?

2. Two workers paint tables in a furniture shop. If the workers paint 22 tables in 8
hours, what is their productivity?
 Productivity in the Service Sector

Service productivity is more problematic than manufacturing

productivity. In many situations, it is more difficult to measure,
and thus to manage, because it involves intellectual activities
and a high degree of variability.

Nonetheless, 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.