Operations
Management
Introduction
1-1
Changing Competitive Priorities
1-2
Equations Have Changed
The Old One..
PRICE = COST + PROFIT
The New One..
PROFIT = PRICE - COST
What Is Operations Management?
Production is the creation of goods and services
Operations function is the set of activities that
creates goods and services by transforming
inputs into outputs
Operations Management is the management of
systems or processes that create goods and/or
provide services
1-4
Operation Management
Operations Management is the design; operation; improvement
of system that create & deliver the firm’s primary products &
services
Energy
Materials
Labor Transformation
Goods or
(Conversion)
Capital Services
Process
Information
Feedback information for control of Operations as a
process inputs & process technology System
The Economic System Transforms
Inputs to Outputs
Inputs Monitor
Conversion Process Adjustments
Outputs
Output Needed
Land The economic system Goods
Manpower transforms inputs to outputs at Services
Material about an annual 1.7%
Machine increase in productivity (capital
Money 38% of 1.7%), labor (10% of
MIS Motivation 1.7%), management (52% of
1.7%)
Comparison
Actual v/s Planned
1-6
Value-Added
The difference between the cost of inputs
and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback
1-9
Business Operations Overlap
Operations
Marketing Finance
Ten Critical Decisions
Service, product design……………………………...
Quality management………………………………….
Process, capacity planning & design……………...
Location …………….………………………………….
Layout & Material Handling planning & design….
Human resources, job design………………………
Supply-chain management………………………….
Inventory management………………………………
Scheduling …………………………………………….
Maintenance …………………...................................
1-12
Ten Critical Decisions
Forecasting ……………..……………………..
Employee Motivation………………………....
1-13
The Critical Decisions
Quality management
Who is responsible for quality?
How do we define quality?
Service and product design
What product or service should we offer?
How should we design these products and services?
1-14
The 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?
1-15
The 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?
1-16
The 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, JIT
“just-in-time” inventory,
How much inventory of each item should we have?
When do we re-order?
1-17
The 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?
1-18
Three Levels of Operations
Three Levels of Operations
Strategic
TOP
ns
i sio
dec
Tactical
n&
MIDDLE
a ti o
rm
In fo
LOWER Operational
Three Levels of Operations
Decision Strategy Tactical Operational
Level of Mgr Senior Middle Junior
Importance High Medium low
Resources used Many Some Few
Time scale Long Medium Short
Risk High Medium Low
Amount of details Very general Moderate Detailed
Data Uncertain Some Certain
Structure Unstructured some Structured
Focus Whole org Part Individual unit
Strategic level decisions
Business • What business we are in?
Product • What products are supplied?
Process • How product is made?
Location • Where products are made?
Capacity • How large facility should be?
Decision to build new factory in next 5 years
Tactical level decisions
Layouts • Operations
Planning • When product be introduced
QA • How well ?
Distribution • What transportation?
Preventive maint • Frequency? timing
Introduce new product
Operational level decisions
Scheduling • Order of preference
Inventory • How much to stock
Reliability • Frequency of breakdown
QC • Are product reaching designed quality
Maint • Time schedule
No. of units to be produced in next week
Functions - Bank
Commercial Bank
© 1984-1994
T/Maker Co.
Marketing Operations Finance/
Accounting
Teller Check Transactions
Security
Scheduling Clearing Processing
1-25
Functions - Airline
Airline
© 1984-1994 T/Maker Co.
Marketing Operations Finance/
Accounting
Flight Ground Facility
Catering
Operations Support Maintenance
1-26
Functions - Manufacturer
Manufacturing
Marketing Operations Finance/
Accounting
Manufacturing Production Quality
Purchasing
Control Control
1-27
Organizational Charts
Commercial Bank
Operations Finance Marketing
Teller Scheduling Investments Loans
Check Clearing Security Commercial
Transactions Real Estate Industrial
processing
Financial
Facilities Accounting
design/layout Personal
Vault operations Mortgage
Maintenance Auditing
Security Trust Department
1-28
Organizational Charts
Airline
Operations Finance & Marketing
Ground support Traffic administration
equipment Accounting
Reservations
Maintenance Accounting
Payables Schedules
Ground Operations Tariffs (pricing)
Receivables
Facility maintenance Sales
Catering General Ledger
Finance Advertising
Flight Operations
Crew scheduling Cash control
Flying International exchange
Communications
Dispatching
Management science
1-29
Organizational Charts
Manufacturing
Operations Finance & Accounting Marketing
Facilities: Disbursements/credits Sales
Construction:maintenance promotions
Receivables Advertising
Production & inventory control
Payables
Scheduling: materials control Sales
General ledger
Supply-chain management Market
Funds Management research
Manufacturing Money market
Tooling, fabrication,assembly International exchange
Design Capital requirements
Product development and design
Detailed product specifications
Stock issue
Industrial engineering Bond issues and recall
Efficient use of machines, space, and personnel
Process analysis
Development and installation of production tools and
equipment
1-30
Goods-service Continuum
Steel production Home remodeling Auto Repair Maid Service Teaching
Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing
High percentage goods Low percentage goods
Low percentage service High percentage service
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
Percent of Product that is a Good Percent of Product that is a Service
1-32
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
1-33
Food Processor
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
Characteristics of Service
Intangible product
Produced & consumed at
same time
Often unique
High customer interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
1-35
Hospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy
Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
Goods Versus Services
Goods Service
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Quality difficult to
Some aspects of measure
quality measurable Selling is part of
Selling is distinct service
from production
1-37
Goods Versus Services - Continued
Goods Service
Product is transportable Provider, not product is
Site of facility important transportable
for cost Site of facility important
for customer contact
Often easy to automate Often difficult to
automate
Revenue generated
primarily from tangible Revenue generated
product primarily from intangible
service.
1-38
