INSTITUTE OF ACCOUNTANCY ARUSHA
Module Name: Operations Management
(OM)
MODULE CODE : BAG 09102,PSG 09102,ITG 09101,ISG 09205,BAG 09104
PROGRAMME
: MBA-CM,MBA-PSM,MBA,MBA-ITM& MIS
Mr.Sumuni C and Mr. Chole G - IAA
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ASSESSMENT and EVALUATION:
A. Continuous Assessments is
50% which
will comprise:
Assignment 1
Term Paper Assignment
Group Assignment
Total
B. Semester Exam
TOTAL( A+B)
15%
20%
15%
50%
50%
100%
Mr.Sumuni C and Mr. Chole G - IAA
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Major Topics:
This Module will cover the following Topics
 Introduction to Operations Management
 Designing of Business Operations
 Operations Management(OM) and Control
 Operations Quality Management
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Topic One
Introduction to Production and Operations
Management
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Introduction:
An Organization as an economic entity
produces goods and services for its
existence.
 It is the output which justifies the existence
of the organization.
 Production is creation of goods and
services (through conversion).
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Cont..
The Input- Process -Output Model of an
organization can be used to
 Describe an organization and define what
is Operations Management and build the
essence of value addition.
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The Input- Process- Output Model
(Value-Added Process)
The operations function involves the conversion of inputs
into outputs
Value added
Inputs:
Land
Labor
Capital
Transformation/
Conversion
process
Outputs:
 Goods
 Services
Feedback
Control
Feedback
10
Feedback
Mr.Sumuni C and Mr. Chole G - IAA
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Traditionally:
In manufacturing , the transformation is
tangible(E.g:Automobile/pharmaceutical),usually
referred as Production.
 Where as in Service sector (Eg: Teaching /
Counseling), the transformation is usually
intangible and referred as Operation.
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Cont...
However, regardless of whether the end
product is a good or service, the production
activities that go in the organizations are
often viewed as a set of operations and
thus, referred to as Operations.
 Managing
the Operations in line with the
stated/implied organizational objectives forms the
basis for Operations Management(OM).
Hence:
 Operations Management refers to the generation of
goods and services, Mr.Sumuni
the set
of value-added activities that
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transform inputs into outputs.
Cont.…
The
nature
of
Operations
Management(OM)is the management of
processes or systems that create good and/or
provide services.
 The
organization need to manage all the
conversional activities which represent the
process.
 The heart of POM is the management of
production systems where the firm need to make
number of decisions with regards to the product.
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Cont....
 A Production / Operations System as defined
above, is a system which uses operations
resources to transform inputs into desired output.
Product’s attributes which are subject to company’s decisions include:
 Product Quality, Product features, Product style/ design, Brand decisions
,Packaging & New product decisions
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OPERATIONS MANAGEMENT (OM)
Operations Management (OM) is the set of
activities that creates value in the form of goods
and services by transforming inputs into outputs.
Technically, OM can also be defined as:
The function responsible for planning, coordinating, and
controlling the resources needed to produce a company’s
products and/or services.
 The transformation includes Physical (manufacturing) ,
Locational(transport/storage),Exchange(retail),Physiologic
al (healthcare) ,Psychological (entertainment) and
Informational (communications
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 Significant Events in Operations Management
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New Trends in OM
Past
Causes
Future
Local or
national
focus
Low-cost, reliable
worldwide communication
and transportation
networks
Global focus
Batch (large)
shipments
Short product life cycles
and cost of capital put
pressure on reducing
inventory
Just-in-time
shipments
Low-bid
purchasing
Quality emphasis requires
that suppliers be engaged
in product improvement
Supplychain
partners,
Enterprise
Resource
Planning,
e-commerce
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New Trends in OM
Past
Lengthy
product
development
Standardized
products
Job
specialization
Causes
Shorter life cycles,
Internet, rapid international
communication, computeraided design, and
international collaboration
Affluence and worldwide
markets; increasingly
flexible production
processes
Changing socioculture
milieu; increasingly a
knowledge and information
society
Mr.Sumuni C and Mr. Chole G - IAA
Future
Rapid product
development,
alliances,
collaborative
designs
Mass
customization
with added
emphasis on
quality
Empowered
employees,
teams, and
lean
production
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New Trends in OM
Past
Low-cost
focus
Causes
Environmental issues, ISO
14000, increasing disposal
costs
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Future
Environmentally
sensitive
production,
green
manufacturing,
recycled
materials,
remanufacturing
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TODAY’S POM ENVIRONMENT
 Customers
demand
better
quality,
greater speed, and lower costs
 Companies implementing lean systems
concepts – a total systems approach to
efficient operations
 Recognized need to better manage
information using ERP and CRM systems
 Increased
cross-functional
decision
making
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POM IN GOODS AND SERVICES
Based on the nature, the products can be classified
into goods and services.
 It is important to understand the relative goodsservice mix in the output,
 Depending on the conceptualization of the market
offering.
 It becomes practically difficult to offer ‘pure good’
or ‘pure service’.
 More realistic is to classify the different products
on a continuum.
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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
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BY-PRODUCTS
A by-product is a secondary or incidental product
deriving from a manufacturing process, and is not
the primary product or service being produced.
 A by-product can be useful and marketable, or it
can have negative ecological impact.
 Feathers
- from poultry processing
 Whey - from cheese manufacturing
 Acidulated soap stock - from the refining of
vegetable oil
 Glycerol - from the production of biodiesel
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POM AS PART OF MANAGEMENT FUNCTIONS
It is a management function
 It’s directly linked to the organization’s strategy
 It involves managerial decisions for different
planning-horizons
 Long-term,
medium-term, short-term
 It is organization’s core function
 Like
marketing, finance, HRM, etc.
 Every organization, irrespective of nature, has
OM function
 Service
or Manufacturing
 For profit or Not for profit, etc.
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POM ACROSS THE ORGANIZATION
Most businesses are supported by the functions of
operations, marketing, finance and HRM
 The major functional areas must interact with
each other to achieve the organization goals;
 Marketing is not fully capable of meeting
customer needs if they do not understand what
operations can produce
 Finance cannot judge the need for capital
investments if they do not understand operations
concepts and needs.
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Roles of Operations Managers(OM Decisions)
All good managers perform the basic functions of
the management process. The management
process consists of planning, organizing, staffing,
leading, and controlling.
 Operations
managers
apply
this
management process to the decisions they
make in the OM function.
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Cont.....
 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?
 Process and capacity design


What process and what capacity will these products
require?
What equipment and technology is necessary for
these processes?
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OM Decisions................
 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 do we provide a reasonable work environment?
How much can we expect our employees to
produce?
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Cont.….
Reliability Management:
 This is the procedure for keeping the operating facility
(equipment, machinery and buildings) in optimal
operating condition in order to achieve their optimal
economic lives.
Inventory Management:
 Optimal levels of input materials, work in progress and
finished goods has to be maintained in order to achieve
smooth flow of operations to minimize overall operating
costs.
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Why Operations Management
OM is one of the three major functions of
any organisations, and it is integrally
related to all the other business functions.
 All organisations market (sell), finance (account), and produce
(operate), and it is important to know how the OM segment
functions.
i.
 Therefore, we study OM in order to know how
people organise themselves for productive
enterprise.
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Cont.….
ii.
iii.
We study OM because we want to
know how goods and services are
produced. The production function is
the segment of our society that creates
the products we use.
We study OM to understand what
production/operations managers do
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Cont..
iv. We study OM/POM because it is such a
costly part of an organisation. A large
percentage of the revenue of most firms is
spent in the POM function.
v. OM decisions are strategic decisions and
once made it is not possible to revise
them without incurring major costs
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Cont.….
vi. Many worker we supervise and make
decisions about them are employees in
OM function.
 E.g. Over 18 million workers
in US are in
manufacturing jobs and accounts for over 70% of
value of U.S. exports.
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INTERELATION OF OM AND OTHER FUNCTIONS IN
ORGANIZATION
 Information systems enables the information flow
throughout the organization
 Human resources must understand job
requirements and worker skills
 Accounting needs to consider inventory
management, capacity information, and labor
standards
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Productivity
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources such as
labor and capital)
The objective is to improve this measure
of efficiency
Important Note!
Production is a measure of output only and not a measure of efficiency
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Productivity
Productivity =
Units produced
Input used
 Measure of process improvement
 Represents output relative to input
 Only through productivity increases
can our standard of living improve
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Single Resource Productivity
Labor Productivity
Units produced
Productivity =
Labor-hours used
=
1,000
250
= 4 units/labor-hour
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Multi-Factor Productivity
Productivity =
Output
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars
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Example 1:
a. What is Productivity as used in OM?
b. A wrapping paper company produced 2,000
rolls of paper one day.Labour cost
was$160,material cost was $50 and overhead
was$320.
Required:
Determine the multifactor productivity
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Soln:
Quantity Produced@SP
Productivity =
Labor cost+ Material + Overhead
=
2,000
$160+$50+$320
=
3.77rolls per $
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Example 2:
A firm cleans chemical tank cars in the Bay St. Louis
area. With standard equipment, the firm typically
cleaned 70 chemical tank cars per month. They
utilized 10 gallons of solvent, and two employees
worked 20 days per month, 8 hours a day. The
company decided to switch to a larger cleaning
machine. Last April, they cleaned 60 tank cars in
only 15 days. They utilized 12 gallons of solvent, and
the two employees worked 6 hours a day.

1. What was their productivity with the
standard equipment?
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Example…………..
2.What is their productivity
machine?
with
the
larger
3. What is the change in productivity?
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THE END
End
of
Session
Thank You for Your
Perseverance
Mr.Sumuni C and Mr. Chole G - IAA
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