Introduction
Operations Management
Hello!
Name: Aleema Shuja
Qualification: MS Management Sciences,
COMSATS University Islamabad (Silver Medallist)
Experience: 7.6 years
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Teaching and Research Profile
Research Contributions:
Courses Taught: • 9 Publications in HEC High recognized category
• Operations Management (BBA 4Y; MBA 3.5 Y) and Scopus Indexed journals
• Operations and Supply Chain Management (MBA • Papers Presented in 4 International Conferences
2Y) (Switzerland, Italy, The Netherlands, Russia and
• Material Handling and Inventory Planning (BBA Germany) and 2 Local Conferences in Lahore.
4Y)
• Retail Supply Chain Management (BBA 4Y) Memberships:
• Distribution Network Designing (BBA 4Y) • Reviewer – Baltic Journal of Management
• Fundamentals of Supply Chain Management • Reviewer – Knowledge Management and E-
(BBA 4Y) Learning: An International Journal, University of
• Total Quality Management (MBA Executive) Hong Kong
• Business Policy and Strategic Management (MBA • Reviewer – IJELCS, Institute of Business and
Executive) Management (IoBM) Karachi
• Consulting Management (MBA 3.5Y) • Reviewer – Organizational Theory and Reivew
• Principles of Quality Management (BS AM) (OTR)
• Reviewer – IFKAD
• Reviewer – EURAM
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Email: [Link]@[Link]
Office: Opposite to Dean FMS’s office, 1ST Floor, EE-1
Building
Consultation Hours:
Monday to Friday 02:00 PM to 4:00 PM
General
Instructions
My Expectations! Ground Rules!
Give respect to others Participation
Obedience Be willing to learn something
Share examples or best practices new
Find a take-a-way and build Agree to disagree
upon it Ask questions
Make it interactive Give your honest feedback
Laugh Be on time
Smile Follow the cut off dates and
meet submission deadlines
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What do YOU expect?
Operations Management
Introduction
Course Instructor: Aleema Shuja
Course Outline
Recommended Books
10
Success and Failure Stories
Successes!
Hard Rock Café
AMUL’s Forecast of Increased Sales during COVID Lockdown
Walt Disney Parks and Resorts
IKEA point of sale transaction data
Zara’s JIT production system – 2 weeks production time
Failures!
The Rise and Fall of Airbus A380
Nike’s Failure to Forecast Demand due to faulty Demand Planning Software
Downfall of TATA NANO
Walmart got out of stock in 2013
Cisco – Caught with piles of product on shelves in 2001
Heathrow’s Poor Demand Forecast
12 Failure Stories
Boeing’s Fatal Flaw – A documentary by Frontline, released on Sept 14,
2021
Flaws in Tesla Model Y
Toyota’s Recall in late 2009
Nokia’s Downfall
Fatality (death of a miner) at Rustenburg Mining Site operated by Anglo
American Plc.
Fall of [Link] (skewed towards selling appliances)
Fall of Reid and Taylor
Chapter- 1
Operations and Productivity
Outline
What is Operations Management?
Why Study OM?
Production vs. Service Organizations.
Operations Management Dimensions.
Recent Developments & Challenges.
What Is Operations Management?
¨ Operations management is the management of systems that
produce goods and deliver services.
¨ Activities related to creation of goods and services
¨ It includes planning, designing and operating systems to achieve
organizational goals.
Also defined as:
The set of activities that create value in the form of goods
and services by transforming inputs into outputs.
Transforming Inputs to Outputs
Inputs Process Outputs
Land,
Labor,
Goods
Capital, Production or Service
System and
Materials,
Services
Equipment,
Management
Transforming Inputs to Outputs- Value Addition
The difference between the cost of inputs
and the value or price of outputs.
Value added
1- Cost
2- Flexibility Inputs
Transformation/ Outputs
3- Innovation Land
4- Quality Conversion Goods
Labor
5- Agility/ process Services
Timeliness Capital
Feedback
Control
Feedback Feedback
Examples
Production Service
Auto factories (assembly ¨ Hospitals
plants)
¨ Airlines
Job shops (printing)
¨ Movie theaters
Fast food restaurants
¨ Grocery stores
Goods-service Continuum
Why Study OM?
OM is one of three major functions of any organization
(Marketing, Finance, and Operations).
To know how goods and services are produced.
OM is such a costly part of an organization.
Jobs!
Organizational Functions
¨ Operations.
¨ Creates product or service.
Marketing.
Generates demand.
¨ Finance/Accounting.
¨ Obtains funds &
tracks money.
Key Differences b/w Goods and Services
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
Characteristics of Goods
¨ Tangible product.
¨ Consistent inputs and
outputs.
¨ Production separate from
consumption.
¨ Can be inventoried.
¨ Low customer interaction.
Characteristics of Service
¨ Intangible product.
¨ Variable inputs and outputs
(people!).
¨ Production and consumption at
same place and time.
¨ No inventories.
¨ High customer interaction.
10 Critical Decisions for OM
Product & service design (Lower limits of cost; upper limits of quality; time-to-market; customer
satisfaction; appearance; ease of production/assembly; ease of maintenance/service; competitive advantage; HR
required; sustainability)
Quality management (Customer’s quality expectations; cont. improvement)
Process capacity design (Process of production; technology, quality and HR; capital investments)
Location strategy (Judgments regarding nearness to customers, supplier and talent while considering
costs, infrastructure, logistics and govt.)
Layout of facilities (Integrating capacity needs, personnel levels, technology, inventory requirements for
efficient flow of material, people and information)
10 Critical Decisions for OM
Human resources & Job design (Recruitment, development, motivation and retention of people; Work
arrangement, ways decision-makers choose to organize work responsibilities, duties, activities, and tasks)
Supply-chain management (Decisions about what to purchase, from whom, under what conditions)
Inventory management (Inventory ordering and holding decisions; optimization for customer
satisfaction, supplier capability)
Scheduling (Determining inter-mediate and short-term schedules for efficiently and effectively utilizing
resources; allocating and prioritizing demand to available facilities)
Maintenance (Decisions about facility capacity; production demands and personnel to maintain reliable
process)
Significant Events in OM
Recent Developments for OM
¨Information technology (computers, bar codes, EDI, RFID, internet,
wireless, etc.)
¨ Just-In-Time systems.
¨ Quality emphasis.
¨ Service economy.
¨ Globalization.
¨Sustainability
¨Environmental concerns.
¨ Security.
Productivity
Productivity
A measure of the effective use of resources, usually expressed as the
ratio of output to input
Productivity ratios are used for
Planning workforce requirements
Scheduling equipment
Financial analysis
Productivity Measures
Partial measures
output/(single input)
Multi-factor measures
output/(multiple inputs)
Total measure
output/(total inputs)
Outputs
Productivity =
Inputs
Productivity Growth
Productivity Growth =
Current Period Productivity – Previous Period Productivity
Previous Period Productivity
Measures of Productivity
Partial Output Output Output Output
measures Labor Machine Capital Energy
Multifactor Output Output
measures Labor + Machine Labor + Capital + Energy
Total Goods or Services Produced
measure All inputs used to produce them
Example
7040 Units Produced
Sold for $1.10/unit
Cost of labor of $1,000 What is the
multifactor
Cost of materials: $520 productivity?
Cost of overhead: $2000 Ans. 2.20
Example Solution
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)*($1.10)
$1000 + $520 + $2000
MFP = 2.20
Factors Affecting Productivity
Capital Quality
Technology Management
Other Factors Affecting Productivity
Standardization
Quality
Use of Internet
Computer viruses
Searching for lost or misplaced items
Scrap rates
New workers
Other Factors Affecting Productivity
Safety
Shortage of IT workers
Layoffs
Labor turnover
Design of the workspace
Incentive plans that reward productivity
Improving Productivity
Develop productivity measures
Determine critical (bottleneck) operations
Develop methods for productivity improvements
Establish reasonable goals
Get management support
Measure and publicize improvements
Don’t confuse productivity with efficiency
Numerical Problem
COMPUTING SINGLE-FACTOR AND MULTIFACTOR GAINS IN PRODUCTIVITY
Collins Title Insurance Ltd. wants to evaluate its labor and multifactor productivity with a new computerized title-
search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $640) and
overhead expenses of $400. Collins processes and closes on 8 titles each day. The new computerized title-search
system will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the
overhead expenses are now $800.
SOLUTION:
1- Compute Labor Productivity
Labor productivity with the old system: 8 titles per day 32 labor-hours = .25 titles per labor-hour
Labor productivity with the new system: 14 titles per day 32 labor-hours = .4375 titles per labor-hour
2- Compute Multifactor Productivity
Multifactor productivity with the old system: 8 titles per day $640 + 400 = .0077 titles per dollar
Multifactor productivity with the new system: 14 titles per day $640 + 800 = .0097 titles per dollar
Labor productivity has increased from .25 to .4375. The change is (.4375 - .25)>.25 = 0.75, or a 75% increase in
labor productivity.
Multifactor productivity has increased from .0077 to .0097. This change is (.0097 - .0077)>.0077 = 0.26, or a 26%
increase in multifactor productivity.
Example
Product = Hand Knitted Hats
In Cambodia, six laborers, each
making the equivalent of $3 per
day, can produce 40 units per
day. In China, ten laborers, each
making the equivalent of $2 per
day, can produce 45 units. In
Billings, Montana, two laborers,
each making $60 per day, can
make 100 units. Based on labor
productivity only, which
location would be ideal to go
for production ?
Example
A wrapping paper company produced 2,000 rolls of paper
one day. Standard price is $1 /roll. Labor cost was $ 160,
material cost was $50, and overhead was $320. Determine
the multifactor productivity.
Numerical Problem
A catering company prepared and served 300 meals at an
anniversary celebration last week using eight workers. The
week before, six workers prepared and served 240 meals at
a wedding reception.
For which event was the labor productivity higher? Explain.
What are some possible reasons for the productivity
differences?
Numerical Problem
The manager of a crew that installs carpeting has tracked the crew’s output
over the past several weeks, obtaining these figures:
Week Crew Size Yards
Installed
1 4 96
2 3 72
3 4 92
4 2 50
5 3 69
6 2 52
Compute the labor productivity for each of the weeks. On the basis of your
calculations, what can you conclude about crew size and productivity?
Numerical Problem
Compute the multifactor productivity measure for each of the
weeks shown for production of chocolate bars. What do the
productivity figures suggest? Assume 40-hour weeks and an hourly
wage of $12. Overhead is 1.5 times weekly labor cost. Material cost
is $6 per pound.
Week Output Workers Materials lbs
1 30,000 6 450
2 33,600 7 470
3 32,200 7 460
4 35,400 8 480
