OPERATIONS
MANAGEMENT
OPERATIONS AND PRODUCTIVITY
LECTURE 1 (CHAPTER 1)
WHAT IS OPERATIONS MANAGEMENT?
 Production
is the creation of goods and services
 Operations
Management - management of the set
of activities that creates value in the form of
goods and services by transforming inputs into
outputs
 Applies
to both manufacturing and service
organizations
2
ORGANIZATIONAL FUNCTIONS

Marketing

Gets customers
 Operations

creates product or service
 Finance/Accounting


Obtains funds
Tracks money
3
FUNCTIONS - BANK
Commercial Bank
Marketing
Teller
Scheduling
Operations
Check
Clearing
Transactions
Processing
Finance/
Accounting
Security
4
FUNCTIONS - AIRLINES
Airlines
Marketing
Flight
Operations
Operations
Ground
Support
Facility
Maintenance
Finance/
Accounting
Catering
5
FUNCTIONS - MANUFACTURING
Manufacturing
Marketing
Manufacturing
Operations
Production
Control
Quality
Control
Finance/
Accounting
Purchasing
6
WHY STUDY OM?
 OM
is one of three major functions (marketing, finance,
and operations) of any organization
 To
know how goods and services are
produced/delivered
 To
understand what operations managers do
 OM
is a costly part of an organization
 OM
presents interesting career opportunities e.g. SCM,
QA, Process Re-engineering, etc
7
TEN CRITICAL DECISIONS
 Service,
product design …….
 Quality Management ………
 Process, capacity design …...
 Location ….………………....
 Layout design ………..……..
 Human resources, job design..
 Supply-chain management …
 Inventory management ….….
 Scheduling .…………………
 Maintenance .……………….
Ch. 4
Ch. 5, 5S
Ch. 6, 6S
Ch. 7
Ch. 8
Ch. 9, 9S
Ch. 10,10s
Ch. 11, 13, 15
Ch. 12, 14
9
TEN CRITICAL DECISIONS


Service and product design

What product or service should we offer?

How should we design these products and services?
Quality management

How do we define quality?

Who is responsible for quality?
10
TEN CRITICAL DECISIONS - CONTINUED

Process and capacity design
What processes will these products require and in what order?
 What equipment and technology is necessary for these
processes?


Location
Where should we put the facility
 On what criteria should we base this location decision?

11
TEN CRITICAL DECISIONS - CONTINUED

Layout design
How should we arrange the facility?
 How large a facility is required?


Human resources and job design
How do we provide a reasonable work environment?
 How much can we expect our employees to produce?

12
TEN CRITICAL DECISIONS - CONTINUED

Supply chain management
Should we make or buy this item?
 Who are our good suppliers and how many should we have?


Inventory, material requirements planning,
How much inventory of each item should we have?
 When do we re-order?

13
TEN CRITICAL DECISIONS - CONTINUED

Intermediate, short term, and project scheduling
Is subcontracting production a good idea?
 Are we better off keeping people on the payroll during
slowdowns?


Maintenance
Who is responsible for maintenance?
 When do we do maintenance?

14
CHANGING CHALLENGES FOR THE OPERATIONS
MANAGER
Past
Causes
Future
Local or
national
focus
Batch (large)
shipments
Low-bid
purchasing
Lengthy
product
development
Low-cost, reliable worldwide
communication and
transportation networks
Cost of capital puts pressure on
reducing investment in
inventory
Quality emphasis requires that
suppliers be engaged in product
improvement
Shorter life cycles, rapid
international communication,
computer-aided design, and
international collaboration
Global Focus
Just-in-time
shipments
SC partners, ERP
Rapid product
development,
alliances,
collaborative
designs
15
CHANGING CHALLENGES FOR THE OPERATIONS
MANAGER
Past
Standardized
products
Job
specialization
Low cost
focus
Causes
Future
Affluence and worldwide
markets; increasingly flexible
production processes
Changing socio-cultural scene.
Increasingly a knowledge and
information society.
Mass
customization
Environmental issues, ISO
increasing disposal costs
Environmentally
sensitive
production, Green
manufacturing,
Empowered
employees, teams,
16
CHARACTERISTICS OF GOODS

Tangible product

Production usually
separate from
consumption

Consistent product
definition

Low customer interaction

Can be inventoried
17
CHARACTERISTICS OF SERVICE

Intangible product (Intangibility)

Produced & consumed at same
time (simultaneity)

Inconsistent product definition
(Heterogeneity)

High customer interaction

Often unique

Often knowledge-based

Frequently dispersed
18
GOODS CONTAIN SERVICES / SERVICES CONTAIN GOODS
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling
100
75
50
25
0
25
50
75
100
19
Percent of Product that is a Good
Percent of Product that is a Service
SERVICE/PRODUCT BUNDLE
Element
Core Goods Example
Core Service
Example
Business
Custom clothier
Business hotel
Core
Business suits
Accommodation
Peripheral
Goods
Peripheral
Service
Garment bag
Bath robe
Deferred payment
plans
In house restaurant
Variant
Coffee lounge
Airport shuttle
THE SERVICE PACKAGE

Supporting Facility: The physical resources that must be
in place before a service can be sold. Examples are
golf course, hospital, hotel.

Facilitating Goods: The material consumed by the buyer
or items provided by the consumer. Examples are food
items, legal documents, golf clubs, medical history.

Information: Operations data or information to enable
efficient and customized service. Examples are patient
medical records, seats available on a flight, customer
preferences, location of customer to dispatch a taxi.
THE SERVICE PACKAGE (CONT.)

Explicit Services: Benefits readily observable by the
senses. The essential or intrinsic features. Examples are
absence of illness after treatment, smoothly running
vehicle after tune up, on-time departure.

Implicit Services: Psychological benefits or extrinsic
features which the consumer may sense only vaguely.
Examples are privacy of loan office, security of a well
lighted parking lot, staff courtesy.
PRODUCTIVITY
 Measure of process improvement
 Represents ratio of output to input
Productivity
Units produced
= Input used
 Only through productivity increases can our
standard of living improve
23
MULTI-FACTOR PRODUCTIVITY
Productivity
=
Output
Labor + material + capital + energy + Misc
24
MEASUREMENT PROBLEMS

Quality may change while the quantity of inputs and
outputs remains constant

External elements may cause an increase or decrease in
productivity

Precise units of measure may be lacking
25
SERVICE PRODUCTIVITY
Reasons for low productivity in services
 Frequently
 Often
individually processed
an intellectual task performed by professionals
hence often difficult to mechanize
 Growth
of low productivity activities e.g. food
preparation, laundry, house cleaning
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TACO BELL - IMPROVING SERVICE PRODUCTIVITY
 Revision
of menu to include meals that are easy to
prepare
 Substantial
portion of food preparation shifted to
suppliers e.g. pre-cooking, predicing, etc
 Efficient
design of layout and automation of
operations
 Training
and empowerment of management to
increase competence – reduce labor
27