2/5/2020
Faculty of Business Administration
BGMT302- Operations Management
Introduction to
Operations Management
Outline
1. What Is Operations Management?
2. The Supply Chain
3. Basic Functions of the Business Organization
4. Why Study OM?
5. What Operations Managers Do
6. Historical Evolution of OM
7. Current Challenges in Operations Management
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What Is Operations Management?
 Operations are the part of a business organization that is responsible
for producing goods or services.
 Operations management (OM) is the design, improvement, and the
management of systems or processes that create value by converting
inputs, such as raw materials, labor, and/or customers into outputs,
such as goods or services.
 OM is the business function responsible for planning, coordinating, and
controlling the resources needed to produce a company’s goods and
services.
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Examples of Operations
Back office operation
in a bank
They are
all
operations
Kitchen unit
manufacturing
operation
Retail operation
Take-out / restaurant
operation
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Concept of Operations Management
 For operations management to be successful, it must add value
during the transformation process.
 The term value added describe the net increase between the
final value of a product and the value of all the inputs. The
greater the value added, the more productive a business is.
 An obvious way to add value is to reduce the cost of activities in
the transformation process.
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Operations Management at IKEA
Design elegant
products which can be
flat-packed efficiently
Design a store layout
which gives smooth
and effective flow
Site stores of an
appropriate size in
the most effective
locations
Maintain cleanliness
and safety of storage
area
Ensure that the jobs of
all staff encourage
their contribution to
business success
Continually examine
and improve
operations practice
Monitor and enhance
quality of service to
customers
Arrange for fast
replenishment of
products
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Good or Service?
 Goods are physical items that include raw materials,
parts, subassemblies, and final products.
 Automobile
 Computer
 Oven
 Shampoo
 Services are activities that provide some combination
of time, location, form or psychological value.
 Air travel
 Education
 Haircut
 Legal counsel
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The Supply Chain
 Supply Chain – network of entities that is involved in
producing and delivering a finished product to the final
customer
 Members of the supply chain collaborate to achieve
high levels of customer satisfaction, efficiency and
competitive advantage.
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Supply Chain for Bread
Suppliers’
suppliers
Direct
suppliers
Producer
Distributor
Final
Customers
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Basic Functions of the Business Organization
Essential functions:
1. Marketing–generates demand
2. Production/operations –creates the product
3. Finance/accounting –tracks how well the organization is doing,
pays bills, collects the money.
Organization
Marketing
Operations
Finance
• It is the operations function, however, that plans and coordinates
all the resources needed to design, produce, and deliver products
and services.
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Organizational Charts
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Organizational Charts
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Information Flow Between Operations and Other Business
Functions
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The Transformation Process
Value-Added
Inputs
•Land
•Labor
•Capital
•Information
Transformation/
Conversion
Process
Outputs
•Goods
•Services
Measurement
and Feedback
Measurement
and Feedback
Control
Measurement
and Feedback
Feedback = measurements taken at various points in the transformation process
Control = The comparison of feedback against previously established
standards to determine if corrective action is needed.
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The Activities of Operations Management
INPUT
TRANSFORMED
RESOURCES
• MATERIALS
• INFORMATION
• CUSTOMERS
INPUT
Transformation
OUTPUT
GOODS AND
SERVICES
•FACILITIES
• STAFF
•
INPUT
TRANSFORMING
RESOURCES
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At Prêt a Manger
Transformed
resources …
Ingredients
Packaging
Customers
Input
resources
Served and
satisfied
customers
Transforming
resources …
Equipment
Fittings
Staff
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Goods-service Continuum
 Products are typically neither purely service- or purely
goods-based.
Goods
Services
Surgery, Teaching
Songwriting, Software Development
Computer Repair, Restaurant Meal
Home Remodeling, Retail Sales
Automobile Assembly, Steelmaking
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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 and
consumed at same time
 Often unique
 High customer
interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
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Manufacturing vs. Service?
Manufacturing and Service Organizations differ chiefly because
manufacturing is goods-oriented and service is act-oriented.
Goods
Tangible
Services
Act-Oriented
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Managing Services is Challenging
1.
2.
3.
4.
5.
6.
7.
Jobs in services are often less structured than in manufacturing
Customer contact is generally much higher in services compared to
manufacturing
In many services, worker skill levels are low compared to those of
manufacturing employees
Services are adding many new workers in low-skill, entry-level positions
Employee turnover is high in services, especially in low-skill jobs
Input variability tends to be higher in many service environments than in
manufacturing
Service performance can be adversely affected by many factors outside of the
manager’s control (e.g., employee and customer attitudes)
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Process Management
Process - one or more actions that transform inputs into outputs
Three Categories of Business Processes:
Upper-management processes
These govern the operation of the entire
organization.
Operational processes
These are core processes that make up the
value stream.
Supporting processes
These support the core processes.
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Supply & Demand
Operations &
Supply Chains
Sales & Marketing
Supply
>
Demand
Supply
<
Demand
Supply
=
Demand
Wasteful
Costly
Opportunity Loss
Customer
Dissatisfaction
Ideal
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Process Variation
Four Sources of Variation:
Variety of goods or services being
offered
The greater the variety of goods and services offered, the
greater the variation in production or service requirements.
Structural variation in demand
These are generally predictable. They are important for
capacity planning.
Random variation
Natural variation that is present in all processes. Generally, it
cannot be influenced by managers.
Assignable variation
Variation that has identifiable sources (defective inputs,
incorrect work methods, out-of-adjustment equipment). This
type of variation can be reduced, or eliminated, by analysis
and corrective action.
Variations can be disruptive to operations and supply chain processes. They
may result in additional costs, delays and shortages, poor quality, and
inefficient work systems.
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Scope of Operations Management
The scope of operations management ranges across
the organization.
The operations function includes many interrelated activities such as:
 Forecasting (e.g., seat demand for flights and growth in air travel)
 Capacity planning (e.g., Too few or too many planes, or even the right number of
planes but in the wrong places, will hurt profits)
 Locating facilities (e.g., which cities to provide service for, where to locate
maintenance facilities, and where to locate major and minor hubs)
 Scheduling (e.g., planes for flights and for routine maintenance; and scheduling of
ground crews, counter staff, and baggage handlers)
 Managing inventories (e.g., foods and beverages, first-aid equipment, inflight
magazines, pillows and blankets, and life preservers)
 Assuring quality (e.g., in flying and maintenance operations, where the emphasis is
on safety, and in dealing with customers at ticket counters, check-in, where the
emphasis is on efficiency and courtesy).
 Motivating employees
 And more . . .
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Role of the Operations Manager
 The Operations Function consists of all activities directly
related to producing goods or providing services.
 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.
 A primary function of the operations manager is to guide the
system by decision making.
 System Design Decisions (strategic decisions)
 System Operation Decisions (tactical and operational decisions)
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System Design Decisions
 These are typically strategic decisions that
 usually require long-term commitment of resources
 Set the direction for the entire company
 Decisions about:
 What to make (product development)?
 How to make it (process and layout decisions) or should we buy it?
 Where to make it (site location)?
 How much capacity is needed (high level capacity decisions)?
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System Operation Decisions
 System Operation
 These are generally tactical and operational decisions
 Operations managers spend more time on system operation
decision than any other decision area
 They still have a vital stake in system design because system design essentially
determines many of the parameters of system operation. For example, costs,
space, capacities, and quality are directly affected by design decisions.
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Tactical Decisions
Tactical (Intermediate Term) Level
 Addresses the material and labor resources within the
constraints, for example:
 How many workers are needed and when (labour planning)?
 What level of stock is required and when should it be delivered (inventory and
replenishment planning)?
 How many shifts needed for work? Whether overtime or subcontractors are
required (detailed capacity planning).
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Operational Decisions
Operational (Short Term (daily/weekly/monthly) Level)
 Planning, execution and control decisions, such as, for
example:
 What to process and when (scheduling)?
 What is the order to process requirements (sequencing)?
 How does the work utilize the resources (loading)?
 Who does the work (assignments)?
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Decision Making
 Most operations decisions involve many alternatives that can
have quite different impacts on costs or profits
 Typical operations decisions include:
 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?
 Where: Where will the work be done?
 How: How will he product or service be designed? How will
the work be done? How will resources be allocated?
 Who: Who will do the work?
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Strategic Decisions
 Product Design: What good or service should we offer and how
should we design these products and services?
 Managing quality: How to define quality and who is responsible
for quality?
 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?
 Layout strategy: How should we arrange the facility? How large
must the facility be to meet our plan?
 Human Resources and job design: How to provide a reasonable
work environment? How much can we expect our employees to
produce?
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Strategic Decisions
 Supply Chain Management: should we make or buy this
component? Who are our suppliers and who can integrate into our
e-commerce program?
 Inventory management: How much inventory of each item should
we have? When do we re-order?
 Planning (aggregate and short-term): Are we better off keeping
people on the payroll during slowdowns? which job do we perform
next?
 Maintenance: who is responsible for maintenance? When do we
do maintenance?
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Degree of Customization
 Relative to other standardized products and services customized
products:
 Tend to be more labor intensive
 Tend to be more time consuming
 Tend to require more highly-skilled people
 Tend to require more flexible equipment
 Have much lower volume of output
 Have higher price tags
 Degree of customization has a significant influence on the entire
organization
 Process selection
 Job design
 Affects marketing, sales, accounting, finance, and information systems
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Systems Approach
 System - a set of interrelated parts that must work together
 The business organization is a system composed of subsystems
 marketing subsystem
 operations subsystem
 finance subsystem
 The systems approach
 Emphasizes interrelationships among subsystems, but
 Its main theme is that the whole is greater than the sum of its parts
 The output and objectives of the organization take precedence over those of
any one subsystem
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Systems Approach-Example
 If the upcoming model of an automobile will add antilock brakes, a
designer must take into account how customers will view the change,
instructions for using the brakes, chances for misuse, the cost of
producing the new brakes, installation procedures, recycling worn-out
brakes, and repair procedures.
 In addition, workers will need training to make and/or assemble the
brakes, production scheduling may change, inventory procedures may
have to change, quality standards will have to be established,
advertising must be informed of the new features, and parts suppliers
must be selected.
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Key Trends and Issues in Business
•
•
•
•
•
•
•
E-Business & E-Commerce
Management of Technology
Globalization
Management of Supply Chains
Outsourcing
Sustainability and Green Operations
Agility (the ability of an organization to respond quickly to demands
or opportunities)
• Lean system (system that uses minimal amounts of resources to
produce a high volume of high-quality goods with some variety)
• Ethical Behavior
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