Introduction to
Operations Management
Operations Management
Session 1
1
Objectives
The student will be able to:
– Define Operations Management
– Describe the nature and role of the operations
function
– Construct and use transformation models
– Appreciate that operations produce both products and
services
– Understand the difference between micro and macro
operations
– Understand the importance of internal suppliercustomer chains
– Build a Typology of Operations based on the Four V’s
– Appreciate how operations fit in with Operations
Strategy
2
Topics
• What is Operations?
• What do Operations Managers do?
• Operations Management in Goods and
Services
• Transformation Model
• Business Process Analysis
• Typology of Operations
• Missions and Strategies
3
Definition
• Operations Management (OM)
management of activities that lead to the
creation of goods and services through the
transformation of inputs to outputs
4
Functions - Airline
Marketing
Operations
Flight
Ground
Facility
Operations
Support
Maintenance
Finance/
Accounting
Catering
5
OM - Critical Decisions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Managing quality
Design of goods and services
Process and capacity design
Layout design
Human resources
Location strategies
Supply-chain management
Inventory management
Scheduling
Maintenance
6
The Critical Decisions - 1
• Quality management
–
Who is responsible for quality?
– How do we define quality?
• Goods and services design
–
What product or service should we offer?
– How should we design these products and
services?
7
The Critical Decisions - 2
• Process and Capacity design
–
What processes will these products require
and in what order?
– What equipment and technology is
necessary for these processes?
8
The Critical Decisions - 3
• 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?
9
The Critical Decisions - 4
• Supply chain management and JIT
“Just-in-time” Inventory, Material
Requirements Planning
–
Should we make or buy this item?
– Who are our good suppliers and how many
should we have?
– How much inventory of each item should
we have?
– When do we re-order?
10
The Critical Decisions - 5
• Immediate, 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?
• Location
–
–
Where should we put the facility
On what criteria should we base this location
decision?
11
Output of most Operations a Mixture of
Goods and Services
PSYCHOTHERAPY CLINIC
MANAGEMENT
CONSULTANCY
COMPUTER SYSTEMS
SERVICES
Tangible
Can be stored
Production precedes
consumption
Low customer
contact
Can be transported
Quality is evident
RESTAURANT
SPECIALIST MACHINE TOOL
MANUFACTURER
ALUMINIUM SMELTING
CRUDE OIL PRODUCTION
PURE GOODS
Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge
PURE SERVICES
12
Goods Versus Services - 1
Good
 Can be resold
 Can be inventoried
 Some aspects of
quality measurable
 Selling is distinct
from production
Service
 Reselling unusual
 Difficult to inventory
 Quality difficult to
measure
 Selling is part of
service
13
Goods Versus Services - 2
Good
• Product is transportable
• Site of facility important
for cost
• Often easy to automate
• Revenue generated
primarily from tangible
product
Service
• Provider, not product is
transportable
• Site of facility important
for customer contact
• Often difficult to
automate
• Revenue generated
primarily from intangible
service.
14
The Transformation Model
Input Resources
Output Services
+ Products
Input Transformed
Resources
Materials
Information
Customers
Transformation
Process
Customers
Input Transforming
Resources
Facilities
Staff
15
Economic System Transforms
Inputs to Outputs
Inputs
Land, Labour,
Capital,
Management
Process
Economic system
transforms inputs to
outputs at about an
annual 1% increase in
productivity:
- capital 1/6 of 1%
- labour 1/6 of 1%
- management 2/3 of 1%
Outputs
Goods and
Services
Feedback Loop
16
Macro and Micro Operations
• Micro
– An operation or process that can not be split
up into smaller operations and processes
• Macro
– An operation or process that can be split up
into smaller operations and processes
• All Macro operations are made up of many
Micro operations
17
Internal Customer Concept
• To treat internal suppliers and customers
as if they were independent external
organisations
• Each micro-operation should identify its
internal customers and internal suppliers
• Discuss with them what they need and
what they can offer
• Related to Business Process
Re-engineering (BPR)
18
The Four V’s
• Volume of demand
– How many the organisation makes
– Service vs. Mass Production
• Variety in operations
– The ability to adapt the transformation process to meet needs of
the customer
– Taxi vs. Train
• Variation in demand
– Adapting to changing demand
• Visibility of transformation
– How much of the operations functions are visible to the customer
– Some operations have mixed high/low visibility
eg Restaurant Front and Kitchen
Often they are in conflict
19
A Typology of Operations
Electricity generator
factory
Gourmet restaurant
Pioneering surgery
Taxi service
Bespoke tailor
University tutorials
Corporate tax advice
Department store
Electricity utility
Financial audits
Emergency service
London underground
Health care
"Cook at your
table" restaurant
Dentist
Music teacher
Low
High
High
High
Volume
Variety
Variation
in Demand
Visibility
High
Low
Low
Low
Television plant
Fast food restaurant
Routine surgery
Mass rapid transport
Off-the-peg suit plant
University lectures
Financial audits
Jeans shop
Bread bakery
Consultancy advice
Shopping mall security
Trucking operation
Most manufacturing
Prepackaged sandwich
maker
Dental technicians
Distance learning
20
The Most Important Conflict
Volume vs Variety
Project
Job
Unique
aspect to
each
product
Batch
Mass
Continuous
Made to
order
Made
to stock
Commodity
Product
Unique
Volume
Very low
Very low
to low
Low to
med
High
Very high
Variety
Infinite
Very high
to high
Medium
to high
Low
Very low
21
Project
Job
Batch
Variety
High
Process Types - Products
Mass
Low
Continuous
Low
Volume
High
22
High
Process Types - Services
Professional
Variety
Service (e.g shops)
Low
Mass Services
Low
Volume
High
23
Organisation Mission Statement
• Mission –
the purpose or rationale for an
organisation’s existence
• Example Mission Statement –
“To manufacture and service a growing
and profitable worldwide microwave
communications business that exceeds
our customers’ expectations”
24
Operations Management Mission
Statement
• General –
To produce products consistent with the
company’s mission as the worldwide low-cost
manufacturer
• Specific –
To attain the exceptional value that is consistent
with our company mission and marketing
objectives by close attention to design,
procurement, production and field service
opportunities
25
Strategies
• Strategy –
How an organisation expects to achieve its
missions and goals
• Generic Strategies –
– Competing on price
– Competing on differentiation
– Competing on response
26