BAM 199 NOTES
Operations - responsible for producing
goods and/or providing services.
THREE BASIC FUNCTIONAL AREAS IN AN
ORGANIZATION
1. FINANCE -securing financial resources
2. OPERATIONS -producing goods/providing
services
3. MARKETING -selling and promoting
Operations Management
Customer
contact
Labor content
Uniformity of
input
Measurement
of
productivity
Opportunity
to
correct
problems
before
delivery
Inventory
Wages
Patentable
- management of systems or processes that
are part of the operations that will create
goods and/or provide services
- involves operating decisions related to
product and service design, capacity
planning,
process
selection,
work
management, inventory and supply
management, production planning, quality
assurance,
scheduling,
and
project
management.
Low
High
Low
High
High
Low
Easy
Difficult
High
Low
Much
Narrow
range
Usually
Little
Wide range
Not Usually
SIMILARITIES:
a. Forecasting and capacity planning to match
supply and demand.
b. Process Management
c. Managing variations
d. Monitoring and controlling costs and
productivity
e. Managing the supply chain
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
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Production of goods results in
tangible output
Delivery of service generally implies
an act.
goods are produced and services are
performed.
f. Location planning, inventory management,
quality control and scheduling
process - consists of one or more actions
that transform inputs into outputs
DIFFERENCES
Characteristic
Output
Goods
Services
Tangible
Intangible
Process management - is a discipline in
operations management in which people
use various methods to discover, model,
analyze, measure, improve, optimize, and
automate business processes.
3. Random variation
- natural variability present to some extent in
all processes
Three Categories of Business Processes:
1. Upper-management processes
4. Assignable variations
- govern the operation of the entire organization
- caused by defective input, incorrect work
methods, out of-adjustment equipment, and
so on.
2. Operational processes
- core processes that make up the value stream
3. Supporting processes
Operations Function requires both the
strategic and day-to-day production of
goods.
- support the core processes
Role of the Operations Manager:
Two Major Aspects of Process Management
- guide the system by decision making
1. Managing a Process to meet Demand
- key figure in the system



Supply > Demand = Wasteful, Costly
Supply < Demand = Opportunity loss,
Customer dissatisfaction
Supply = Demand = Ideal
- responsibility for the creation of goods and
provision of services
- responsible for managing all the activities that
are part of the production of goods and services.
2. Process Variation
There are four basic sources of variation:
1. The variety of goods or services being offered
- greater the variety of goods and services, the
greater the variation in production or service
requirements
System design – strategic decisions that
usually require long-term commitment of
resources
System operation – tactical and operational
decisions
2. Structural variation in demand
- includes trends and seasonal variations
which are generally predictable
supply chain is the sequence of
organizations, including their facilities,
functions, and activities, that are involved in
producing and delivering a product or
service.
3. Performance Metrics - to manage and
Typical operations decisions include:
4. Analysis of Trade-offs - analyzing the
advantages and disadvantages
What: What resources are needed, and in
what amounts?
When: When will each resource be needed?
When should the work be scheduled? When
should materials and other supplies be
ordered?
control operations
5. Degree of Customization - higher degrees
of customization involve more complexity in
terms of production, layout, worker skills
and productivity.
Where: Where will the work be done?
How: How will the product or service be
designed? How will the work be done? How
will resources be allocated?
6. Systems Approach – emphasizes
interrelationships among subsystems
Who: Who will do the work?
7. Establishing Priorities - certain issues or
items are more important than others
General Approaches to Decision Making
1. Model - an abstraction of reality; a
simplified representation of something
Classified as:



Physical models look like their reallife counterparts
Schematic models are more abstract
than their physical counterparts such
as graphs and charts, blueprints,
pictures, and drawings.
Mathematical models are the most
abstract such as numbers, formulas,
and symbols.
2. Quantitative Approaches - frequently
seeks to obtain a mathematically optimal
solution to certain managerial problems
Pareto Phenomenon
­
­
one of the most important and
pervasive concepts in operations
management.
states that 20% of the things done in
the right manner produce 80% of the
desired results. It works on the
concept of first segregating the “vital
few” from the “trivial many” and
then working on those “vital few” to
achieve the best results.
Key Issues for Today’s Business Operations

Economic conditions – recession,
slow recovery in various sectors
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
Innovating – finding new or
improved products or services
Quality problems – due to
operations failures
Risk Management – financial crises,
product recalls, accidents, natural
and
manmad
disasters,
and
economic ups and downs
Cyber-security – need to guard
against intrusions from hackers
Competing in a global economy –
outsourcing,
reducing
costs
internally, changing designs, and
working to improve productivity.
The following areas require more in-depth
discussions:


Environmental Concerns - Stricter
environmental regulations are being
imposed. Business organizations are
under increasing pressure to
generally
operate
sustainable
processes. Sometimes referred to as
“green initiatives”.
Ethical Conduct –
Ethics – a standard of
behavior that guides how one
should act in various
situations.
Many organizations have developed codes
of ethics to guide employees’ or members’
conduct. The Markula Center for Applied
Ethics at Santa Clara University identifies five
principles for thinking ethically:
1. The Utilitarian Principle – the good
done by an action or inaction should
outweigh any harm it causes or might
cause.
2. The Rights Principle – actions should
respect and protect the moral rights
of others
3. The Fairness Principle – equals
should be held to, or evaluated, by
the same standards
4. The Common Good Principle –
actions should contribute to the
common good of the community
5. The Virtue Principle – actions should
be consistent with certain ideal
virtues
E-business (electronic business) involves the
use of the internet to transact business. It is
changing the way business organizations
interact with their customers and their
suppliers.
Lean Systems are systems that use minimal
amounts of resources to produce a high
volume of high-quality goods with some
variety. Lean systems use a highly skilled
workforce and flexible equipment. The
famous Toyota, Nike and Intel were just few
of the successful companies that currently
use lean processes.
Production is defined as ‘the step-by-step
conversion of one form of material into
another form through chemical or
mechanical process to create or enhance the
utility of the product to the user’
production system - the step-by-step
conversion of one form of material into
another form through chemical or
mechanical process to create or enhance the
utility of the product to the user
Examples of a Production System


Tangible goods
Intangible goods
Differentiate the different classification of
production system
Job-shop production
­
­
characterized by manufacturing one
or few quantity of products designed
and produced as per the specification
of customers within prefixed time
and cost.
low volume and high variety of
products.
Characteristics:
a. High variety of products and low
volume.
b. Use of general purpose machines and
facilities.
Advantages:
 Variety of products can be produced;
 Learning opportunities to workers
resulting to becoming more skilled and
competent;
 Full potential of operators can be
utilized;
 Opportunity exists for creativity and
innovation.
Disadvantages:
 Higher cost due to frequent set-up
changes;
 Higher level of inventory at all levels
and hence higher inventory cost;
 Production planning is complicated.
 Larger space requirements.
Batch Production
­
c. Highly skilled operators who can take
up each job as a challenge because of
uniqueness.
d. Large inventory of materials, tools,
parts.
e. Detailed planning is essential for
sequencing the requirements of each
product, capacities for each work center
and order priorities.
­
­
­
types of production most commonly
used in consumer durables, FMCG or
other such industries where there
are large variety of products with
variable demands
takes place in batches
manufacturer already knows the
number of units he needs to a
manufacturer
and
they
are
manufactured in one batch.
Examples of batch production
include Biscuits, confectionaries,
packaged food items etc.
Characteristics:
a. Shorter production runs.
b. Plant and machinery are flexible.
c. Plant and machinery set up is used
for the production of item in a batch
and change of set up is required for
processing the next batch
d. Manufacturing lead-time and cost
are lower as compared to job order
production.
Advantages
 Better utilization of plant and
machinery
 Promotes functional specialization.
 Cost per unit is lower as compared
to job order production.
 Lower investment in plant and
machinery.
 Flexibility to accommodate and
process number of products.
 Job satisfaction exists for operators.
Disadvantages:
 Material handling is complex
because of irregular and longer
flows.
 Production planning and control is
complex.
 Work in process inventory is higher
compared to continuous production.
 Higher set up costs due to frequent
changes in set up.
Mass Production
­
­
­
­
Manufacture of discrete parts or
assemblies using a continuous
process
justified by very large volume of
production
machines are arranged in a line or
product layout
Product and process standardization
exists and all outputs follow the same
path.
Characteristics:
a. Standardization of product and
process sequence.
b. Dedicated special purpose
machines having higher production
capacities and output rates.
c. Large volume of products.
d. Shorter cycle time of production.
e. Lower in process inventory.
f. Perfectly balanced production
lines.
g. Flow of materials, components and
parts is continuous and without any
back tracking.
h. Production planning and control is
easy.
i. Material handling can be
completely automatic.
Advantages
 Higher rate of production with
reduced cycle time;
 Higher capacity utilization due to
line balancing;
 Less skilled operators are required;
 Low process inventory;
 Manufacturing cost per unit is low.
Disadvantages:
 Breakdown of one machine will
stop an entire production line.
 Line layout needs major change
with the changes in the product
design.
 High investment in production
facilities.
 The cycle time is determined by the
slowest operation.
Continuous Production
­
­
Production facilities are arranged as
per the sequence of production
operations from the first operations
to the finished product
items are made to flow through the
sequence of operations through
material handling devices such as
conveyors, transfer devices, etc
Characteristics:
a. Dedicated plant and equipment
with zero flexibility.
b. Material handling is fully
automated.
c. Process follows a predetermined
sequence of operations.
d. Component materials cannot be
readily identified with final product.
e. Planning and scheduling is a
routine action.
Advantages
 Standardization of product and
process sequence;
 Higher rate of production with
reduced cycle time;
 Higher capacity utilization due to
line balancing;
 Manpower is not required for
material handling as it is completely
automatic.
 Person with limited skills can be
used on the production line.
 Unit cost is lower due to high
volume of production.
Disadvantages:
 Flexibility to accommodate and
process number of products does not
exist.
 Very high investment for setting
flow lines.
 Product differentiation is limited.
Strategic planning is the process of thinking
through the current mission of the
organization and the current environmental
conditions facing it, then setting forth a
guide for tomorrow’s decisions and results.
Strategic planning is built on fundamental
concepts: that current decisions are based
on future conditions and result.
Know
different
strategic
planning
approaches and forced-choice model.
Henry Mintzberg suggests three contrasting
modes of strategic planning: the
entrepreneurial, the adaptive, and the
planning modes.
1. Entrepreneurial Model
­ approach in which strategy is
formulated mainly by a strong
visionary chief executive who
actively searches for new
opportunities, is heavily
oriented toward growth, and
is willing to make bold
strategies rapidly
­ entrepreneurial searches for
new mode are most likely to
be found in organizations that
are young or small, have a
strong leader, or are in such
serious trouble that bold are
their only hope.
2. Adaptive Mode
­ used by managers in
established
organizations
that face a rapidly changing
environment and yet have
several coalitions, or power
blocks, that make it difficult
to obtain agreement on clear
strategic goals and associated
long-term plans.
­ degree of innovation fostered
by the strategic management
process is likely to depend on
the ability of managers to
agree on at least some major
goals and basic strategies that
set essential directions.
3. Planning Mode
­ approach
to
strategy
formulation that involves
systematic, comprehensive
­
­
analysis,
along
with
integration
of
various
decisions and strategies
utilize planning specialists to
help with the strategic
management process. The
ultimate aim of the planning
mode is to understand the
environment well enough to
influence it.
innovation is most likely to
occur
when
strategies
explicitly articulate needs for
product
and
service
innovation and when toplevel managers help integrate
efforts in the direction of
encouraging innovation.
Forced-Choice Model
­
­
­
considered to be the simplest
process.
usually used by new businesses or
organizations with less experience in
strategic planning and development
Six to twelve members of upper
management are involved in this
process. The first step is to perform
organization assessment which
includes financial goals, Strengths
and weakness analysis, short term
operations plans and future goals.
Then an environmental analysis is
performed in step two which include
economy, regulations, competitors
etc. Based on these assessments,
strategies are developed.