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Operations
Management

Introduction
Sylabus
Wk1 : Introduction
Wk2: Operation Strategy
Wk3: Basic Knowledge on Product and Process
Design
Wk4: Basic Knowledge on Layout, and Flow
Wk5: The Nature of Planning and Control
Wk6: Capacity Planning and Control (inc. Forecasting)
Wk7: Aggregate Planning
Wk8 : Mid Test
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Sylabus (contd)
Wk9: Scheduling
Wk10: Inventory Planning and Control
Wk11: Supply Chain Planning and Control
Wk12: Material Requirement Planning
Wk13: Project Planning and Control
Wk14: Quality Control
Wk15: Production Improvement
Wk16 : Final Test

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Outline
What is Operations Management?
Why Study OM?
Production vs. Service Organizations.
Operations Management Decisions.
Operations processes have different
characteristics
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What Is Operations Management?
Book definition (not as good): The set of activities
that creates goods and services by transforming
inputs into outputs.
Operations management is about how to
organize the systems that produce goods and
provide services.
It includes planning, designing and operating
systems to achieve goals of the organization.
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Transforming Inputs to Outputs

Production or Service
System

Land,
Labor,
Capital,
Materials,
Equipment,
Management
Products
and
Services
Inputs
Process Outputs
They are all
operations
Retail
operation
Back office
operation
in a bank
Take-out /
restaurant
operation
Kitchen unit
manufacturing
operation
ENVIRONMENT
ENVIRONMENT
INPUT OUTPUT
PRODUCTS
AND
SERVICES
TRANSFORMED
RESOURCES
MATERIALS
INFORMATION
CUSTOMERS
FACILITIES
STAFF
TRANSFORMING
RESOURCES
TRANSFORMATION
PROCESS
Operations Management is About Managing
Processes - transformation processes
Transformed resources resources that are treated,
transformed or converted in the process. They are a mixture
of
Materials
Information
Customers

Transforming resources these are the resources which act
upon the transformed resources. They are two types:
Facilities
Staff

Inputs to the Process
Materials processing transforms materials physical
properties, location, possession or materials are stored.

Information processing transforms information properties,
possession, location or information is stored.

Customer processing transforms customers physical
properties, location, physiological state, psychological state
or store (accommodate) customers.
Within the Process
Outputs from process can be differentiate between products
and service based organization tangibility of products and
intangibility of services

Most operations produce both products and services

Services and products are merging all operations are
service providers who may produce products as a means of
serving customers.
Outputs from the Process
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Characteristics of Products
Tangible product.
Consistent inputs and
outputs.
Production separate from
consumption.
Can be inventoried and
transported
Low customer interaction.
Quality is evidence
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Characteristics of Service
Intangible product.
Variable inputs and outputs
(people!).
Production and consumption
at same place and time.
No inventories.
High customer interaction.
Quality is difficult to judged
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Examples
Auto factories
(assembly plants)
Job shops (printing)
Fast food restaurants
Hospitals
Airlines
Movie theaters
Grocery stores
Production Service
The output from most types of operation is a
mixture of goods and services
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Pure goods
Tangible
Can be stored
Production
precedes
consumption
Low customer
contact
Can be transported
Quality is evident
Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge
Pure services
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Why Study OM?
OM is one of three major functions of any
organization (Marketing, Finance, and
Operations).
We should know how goods and services are
produced.
OM is such a costly part of an organization.
Jobs!
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Organizational Functions
Marketing.
Generates demand.
Operations.
Creates product or service.
Finance/Accounting.
Obtains funds &
tracks money.
Table 1.1 The activities of core functions in some organization
Core functional
activities
Internet service
provider
Fastfood chain Furniture
manufacturer
Marketing and
sales
- Promotes service
to users and get
registration
- Sell advertising
space
- Advertise on TV
- Device
promotional
materials
- Advertise in
magazines
- Determine pricing
policy
-Sell to stores
Product/service
development
- Device new
services and
commission new
information content
- Design
hamburgers, pizzas,
etc.
- Design dcor for
restaurants
- Design new
furniture
- Coordinate with
fashionable colours
Operations
- Maintain hardware,
software and content
- Make burgers,
pizzas, etc.
- Serve customers
- Maintain
equipments
- Make components
- Assemble furniture
- Deliver furniture
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OM Jobs
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Operations Management - Bank
Operations
Finance/
Accounting
Marketing
Check
Clearing
Teller
Scheduling
Transactions
Processing
Security
Commercial Bank
1984-1994
T/Maker Co.
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Operations Management for an
Airline
Operations
Finance/
Accounting
Marketing
Ground
Support
Flight
Operations
Facility
Maintenance
Catering
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Operations Management for a
Manufacturer
Operations
Finance/
Accounting
Marketing
Production
Control
Manufacturing
Quality
Control
Purchasing
Business Information Flow


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OM Across the Organization
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
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

OMs Transformation Role
To add value
Increase product value at each stage
Value added is the net increase between output product value
and input material value
Provide an efficient transformation
Efficiency perform activities well at lowest possible cost
Manufacturing Cycle
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Cost + Profit = Selling Price
there is no need for improvement
there is no competing procedure
consumer may have no choice
Profit = Selling Price Cost
the price is determined by the market
profit is what remains after subtracting
cost from price
maximizing profit means that cost is to
be minimized
Cost = Price Profit
setting a target cost
the price is determined by the
market
profit required is determined by
the company
The Cost Substraction Formula
Operations management can
Reduce costs of producing products and service by being
efficient.
Increase revenue by increasing customer satisfaction
through good quality and service.
Reduce need for investment by increasing the effective
capacity of the operation and by being innovative in how it
uses its physical resources
Enhance innovation by building a solid base of operations
skills and knowledge within the business.
Operations Management is
Important
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Skills and Knowledge Needed
Knowledge of production and service processes.

Knowledge of basic OM principles.

Analytical Tools:
Forecasting
Decision-Making
Linear Programming
Break-even analysis
Inventory control
Waiting lines (queueing)
Changing in Business Management are
prompting operations responses

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New Challenges in OM
Local or national focus
Batch shipments
Low bid purchasing

Lengthy product
development

Standard products
Job specialization
Global focus
Just-in-time
Supply chain
partnering
Rapid product
development,
alliances
Mass customization
Empowered
employees, teams
From To
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Changing Challenges for the
Operations Manager
Past Causes Future
Local or
national
focus
Low-cost, reliable worldwide
communication and
transportation networks
Global Focus
Batch (large)
shipments
Cost of capital puts pressure on
reducing investment in
inventory
Just-in-time
shipments
Low-bid
purchasing
Quality emphasis requires that
suppliers be engaged in product
improvement
Supply-chain
partners
Lengthy
product
development
Shorter life cycles, rapid
international communication,
computer-aided design, and
international collaboration
Rapid product
development,
alliances,
collaborative
designs

Changing Challenges for the
Operations Manager
Past Causes Future
Standardized
products
Affluence and worldwide markets;
increasingly flexible production
processes
Mass
customization
Job
specialization
Changing sociocultural milieu.
Increasingly a knowledge and
information society.
Empowered
employees,
teams, and lean
production
Low cost
focus
Environmental issues, ISO 14000,
increasing disposal costs
Environmentally
sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing

The Volume of their output
The Variety of their output
The Variation in the demand for their
output
The degree of Visibility which customers
have of the production of their output

Operations Processes
Characteristic
The volume dimension
High volume means high repeatability people can
specialize
High volume leads to systemization of work SOP
High volume gives lower unit costs

The variety dimension
High variety of products and services offered
High variety increases cost of goods and services
High variety operations must be flexible
Standardization minimizes cost

Operations Processes
Characteristic

The variation dimension
Demand for goods and services can change depending on
the external environment seasonal factor
Creates change in resources needed
Activities must be planned effectively forecasting
Variation in demand can increase cost

The visibility dimension
Visibility means process exposure
Customers in a high visibility operation may judge the
operation by their perceptions customer contact skill is
important


Operations Processes
Characteristic
A Typology of Operations
IMPLICATIONS IMPLICATIONS



High Low Visibility
High
Low
Variation in demand
High Low Variety
Low High Volume
Time lag between
production and
consumption
Standardized
Low contact skills
High staff utilization
Centralization
Low unit costs

Short waiting tolerance
Satisfaction governed by
customer perception
Customer contact skills
needed
Received variety is high
High unit cost
Changing capacity
Anticipation
Flexibility
In touch with demand
High unit cost
Flexible
Complex
Match customer
needs
High unit cost
Low repetition
Each staff member
performs more of job
Less systemization
High unit costs
Stable
Routine
Predictable
High utilization
Low unit costs
Well defined
Routine
Standardized
Regular
Low unit costs
High repeatability
Specialization
Systemization
Capital intensive
Low unit cost
Any Questions
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