Operation

Management

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 Plan of the course

Operations
Facility location management

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 Chapter One
Operation Function
Mella Tutorials 3
 Learning Objectives
 Introduction to Operation & Operations
Management
 Operations as a production system
 Scope of Operations Management
 Reasons for the study of Operations
Management
 New Operations Themes
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 Efficiency and Effectiveness

 Introduction
• Operations is that part of a business organization that is
responsible for producing goods and/or services.

• Goods are physical items produced by business

organizations.

• Services are activities that provide some combination of

time, location, form, or psychological value. 5
 Functions of business 1. Operation; Creates the
product
organization
2. Marketing; Generates
To create goods and services, all
organizations perform thee very demand
important functions- these functions 3. Finance; Tracks how well
are essential not only for production
the organization is doing,
but also for the survival pays bills, collects the money
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 Operations management; The management of systems or processes
that create goods and/or provide services.

 The creation of goods or services involves transforming or

converting inputs into outputs.
 Various inputs such as capital, labor, and information are used to
create goods or services using one or more transformation
processes (e.g., storing, transporting, repairing).

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 Operations as a Transformation
Process
The transformation process $ $$$
should add value such that
the output has financial
value greater than the sum
of the inputs
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 Transformation processes include
• Changes in the physical characteristics of materials or
customers- physical transformation
• Changes in the location of materials, information or
customers- locational transformation
• Changes in the ownership of materials or information-
exchange transformation
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 Cont’d
• Storage or accommodation of materials, information or
customers- storage transformation
• Changes in the purpose or form of information-
informational transformation
• Changes in the physiological or psychological state of
customers- physiological transformation
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 Examples of inputs, transformation, & outputs
Inputs Process Outputs

Land, Human, Cutting, Drilling, Automobile

Capital, Raw, Transporting, s, Clothing,
Equipment, Facilities, Teaching, Farming, Computer,
Energy & Others Mixing, Coping, Textbook,
(Information, Time, Faxing, Analyzing, Entertainin
Legal Constraints & Researching, g, Banking.
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Government Repairing,
 Example Hospital Process
Inputs
Processing Outputs
Doctors, Examinatio
nurses n Healthy
patients
Hospital Surgery
Medical Monitorin
Supplies g
Equipment
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Medicatio
Production of Goods Vs Providing Services

•Production of goods results in a tangible output, such as an

automobile, eyeglasses, a refrigerator-anything that we can see or
touch. It may take place in a factory, but it can occur elsewhere.

• Delivery of service, on the other hand, generally implies an

act. A physician’s examination, TV and auto repair, lawn care, and the
projection of a film in a theater are examples of services. 16
Characteristics of Goods
 Tangible product
 Consistent product definition
 Production usually separate from
consumption
 Can be inventoried
Low customer interaction

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 Characteristics of
Service
 Intangible product
 Produced & consumed simultaneously
 Often unique
 High customer interaction
 Inconsistent product definition
 Often knowledge-based
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 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
• Manufacturing often provides services
• Services often provides tangible goods

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 Goods and Services
 Automobile
Computer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/

 investment management
Consulting service/

teaching
Counseling

 100% 75 50 25 0 25 50 75 100%
 | | | | | | | | |

Percent of Product that is a Good

 Percent of Product
that is a Service 20
 Why Study O M ?
 OM is one of three major functions (marketing, finance, and
operations) of any organization.

 To know how goods and services are produced.

 To understand what operations managers do.

 OM is such a costly part of an organization. 21

Scope of Operations
Management
• Forecasting • Scheduling
• Capacity planning • Managing inventories
• Locating facilities • Assuring quality
• Facilities and layout • Motivating & training
employees 22
 Operations Management and Decision Making
• Operations management professionals make a number of key decisions
that affect the entire organization. These include the following:
 What: what resources will be needed, and in what amounts?
 When: when will each resource be needed
 Where: where will the work be done?
 How: How will the work be done (methods, equipment)?
 Who: who will do the work?
• An operations manager’s daily concerns are costs (budget), quality, and
schedules (time).
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The Critical Decisions of Operation Manager

 Design of goods and services

 What good or service should we offer?
 How should we design these products and services?
 Managing quality
 How do we define quality?
 Who is responsible for quality? 24
 Process and capacity design
 What process and what capacity will these products
require?

 What equipment and technology is necessary for these

processes?

 Location strategy
 Where should we put the facility?
 On what criteria should we base the location decision? 25
 Layout strategy

 How should we arrange the facility?

 How large must the facility be to meet our plan?

 Human resources and job design

 How do we provide a reasonable work environment?

 How much can we expect our employees to

produce?
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 Supply chain management

 Should we make or buy this component?

 Who are our suppliers and how can we integrate

them into our strategy?

 Inventory, material requirements planning, and JIT

 How much inventory of each item should we have?

 When do we re-order?
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 Intermediate and short–term scheduling
 Are we better off keeping people on the payroll during
slowdowns?

 Which jobs do we perform next?

 Maintenance
 How do we build reliability into our process?
 Who is responsible for maintenance and When do we
do maintenance? 28
Significant Events in O M

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 Today’s O M Environment
•OM managers operate in a dynamic environment due to
globalization of trade and the transfer of idea, products, and money
at an electronic speed.
•Customers demand better quality, greater speed, and lower costs.
•Companies implementing lean system concepts – a total
systems approach to efficient operations
•Increased cross-functional decision making
 Past Causes Current & Future

Local or Reliable worldwide Global focus,

national communication and moving
focus transportation networks production
offshore

Batch (large) Short product life cycles Just-in-time

shipments and cost of capital put performance
pressure on reducing
inventory 31
Past Causes Current & Future
Lengthy product Shorter life cycles, Internet, Rapid product
computer-aided design, and development,
development international collaboration collaborative
designs

Standardized Affluence and worldwide Mass

products markets; increasingly flexible customization with
production processes added emphasis on
quality

Job Changing socioculture milieu; Empowered

specialization increasingly a knowledge and employees, teams,
information society and lean production

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Past Causes Current & Future
Low-cost Environmental issues, ISO Environmentally
focus 14000, increasing disposal sensitive
costs. production, green
manufacturing,
recycled
materials.
Ethics not at Businesses operate more High ethical
forefront openly; public and global standards &
review of ethics; opposition social
to child labour. responsibility
expected33
 Challenges facing operations
managers:
o Developing safe quality products

o Maintaining a clean environment

o Providing a safe workplace

o Honouring community commitments

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 Efficiency: Vs. Effectiveness:
Getting the most output from the least Completing activities so that
amount of inputs organizational goals are attained
“Doing things right” “Doing the right things”
Concerned with means Concerned with ends
 Achieving the objectives  Achieving the objectives
in time and with lowest on time
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possible cost
Thank You

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 Chapter Two
Operation Strategy,
Competitiveness &
Productivity 37
Learning Objectives
• Strategy Formulation
• Order Winner and Qualifier
• Competitiveness
• Operation Strategy
• Competitive Priorities
• Productivity 38
 Mission and Strategies
• Mission; The reason for the existence of an
organization, or the purpose of an organization.

• Strategies; Plans for achieving organizational goals.

Linguistically the word derives from the Greek word
‘strategos’ meaning ‘leading an army’.
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• Both military and business strategy can be described in
similar ways, and include some of the following.

• Setting broad objectives that direct an enterprise

towards its overall goal. Planning the path (in general
terms) that will achieve these goals

• Stressing long-term rather than short-term objectives.

Dealing with the total picture rather than individual
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 Strategy Formulation
• Strategy formulation is almost always critical to the success of
a strategy.

• To formulate an effective strategy, senior managers must take

into account the core competencies of the organizations, and
they must scan the environment.

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• Environmental scanning; the monitoring of events and

trends that present threats or opportunities for a company.

• They must determine what competitors are doing, or

planning to do, and take that into account.

They need to make SWOT analysis (strengths,

weaknesses, opportunities, and threats). 42

• An alternative to SWOT analysis is Michael Porter’s five
forces model, which takes into account the threat of new
competition, the threat of substitute products or
services, the bargaining power of customers, the
bargaining power of suppliers, and the intensity of
competition.

• In formulating a successful strategy, organizations must take

into account both order qualifiers and order winners.
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 Order Qualifiers Order Winners
Are the basic criteria that permit the •A characteristics of a firm that
firm’s products to be considered as distinguish it from its competitors so
candidates for purchase by customers. that it is selected as the source of
purchase.
Are the minimum characteristics of
products to be considered as •Are the criteria that differentiate the
a source of purchase. products of one firm from
another. 44
 • Marketing influences competitiveness
Competitiveness in several ways, including identifying
consumer wants and needs, pricing,
and advertising and promotion.
Competitiveness; How effectively
• Operations has a major influence on
an organization meets the wants competitiveness through product and
service design, cost, location,
and needs of customers relative to
quality, response time, flexibility,
others that offer similar goods or inventory and supply chain
services. management, and service quality.
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 Operations Strategy
• Operations Strategy is a plan for the design and
management of operations functions

• Operations strategy relates to products, processes,

methods, operating resources, quality, costs, lead
times, and scheduling.
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Operations Strategy focuses on specific capabilities which
give it a competitive edge – competitive priorities

Competitive Priorities- The Edge

• Four Important Operations Questions: Will you compete on –

Cost?
Quality?
Time?
Flexibility?
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 Competing on Cost?
• Competing based on cost means offering a product at a low price
relative to the prices of competing products. in this
• Typically high volume products
• Often limit product range & offer little customization
• May invest in automation to reduce unit costs & use lower skill labor
• Low cost does not mean low quality

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 Competing on Quality?
• Quality is a major influence on customer satisfaction or dissatisfaction
• Quality is consistent conformance to customers’ expectations. Two
major quality dimensions include
• High performance design: Superior features, high durability, &
excellent customer service
• Product & service consistency: Meets design specifications, Close
tolerances, & Error free delivery

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 Competing on Time?
• Time/speed means the elapsed time between customers
requesting products or services and their receipt of it
• First that can deliver often wins the race and Speed increases value for
some customers. Time related issues involve
• Rapid delivery: Focused on shorter time between order placement
and delivery
• On-time delivery: Deliver product exactly when needed every time
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 Four types of requirement:
Competing on Product flexibility – the operation’s ability
to introduce new or modified products.
Flexibility? Mix flexibility – the operation’s ability to
produce a wide range or mix of products.
A competitive priority
Volume flexibility – the operation’s ability
focusing on offering a wide to change its level of output or activity to
variety of goods or services produce different volumes of products to
much market demand;
or being able to change the
Delivery flexibility – the operation’s
operation in some way to ability to change the timing of the
satisfy customer. delivery of its products. 51
 Productivity
• Productivity; A measure of the effective use of resources,
usually expressed as the ratio of output to input.
• Used to measure of process improvement. In addition
productivity ratios are used for
• Planning workforce requirements
• Scheduling equipment
• Financial analysis
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 Productivity
Amount of output relative to input.

Output produced
Productivity =
Inputs used
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 Measuring Productivity
• Total Productivity Measure
Total Productivity = Output $/Inputs $

• Partial/single Productivity Measure

Partial Productivity = Outputs/Labor

• Multifactor Productivity Measure

Multi-factor Productivity = Output/Labor + Materials + Overhead
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Numerical Example 1. Three employees process 600 insurance
policies in a week. They work 8 hrs. per day, 5 days a week. Required
calculate labor productivity?
Solutions

• Labor productivity=output/inputs.
•Where, output is number of insurance policies processed
and input is hours worked.

• Labor
600
polices
(3 employees) X (40
productivity =
= 5 polices/hours
hrs/employees) 55
Numerical Example 2: ABC Furniture Company produced 10,000
chairs, with annual labor and equipment cost of $50,000 and $25000
respectively.
Total productivity can be calculated
as:
Productivity: chairs/dollar input = 10000 chairs 0.133 chairs /dollar
input
$50000 + $ 25000

Labor productivity, however, is measured for this example

as:

10,000/50,000 = 0.20 𝑐ℎ𝑎𝑖𝑟𝑠/𝑑𝑜𝑙𝑙𝑎𝑟

𝑖𝑛𝑝𝑢𝑡𝑠 − 𝑙𝑎𝑏𝑜𝑟.
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 Factors that affect Productivity
• Numerous factors affect productivity. Generally, they are
“Methods, Capital, Quality, Technology, and Management.”

• Other factors that affect productivity include the following:

“Standardizing, Quality differences, Use of the Internet, Computer
viruses, Scrap rates, New workers, Safety, A shortage of technology,
Layoffs, Design of the workspace, Incentive plans that reward
productivity increases.” 57
 Improving Productivity
• Reducing inputs while keeping output constant

• Increasing output while keeping inputs constant

• Reducing inputs by a larger amount than the reduction in

output

• Increasing output by more amount than the increase in

input.
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Thank You

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