Introduction to

Operations Management

Dr Felton Lean

What is Operations
Management?

Dr Felton Lean

3 Basic Functions of Business Organizations

Ensure and allocating financial resources

Produce goods or services

Assess consumer needs, and sell / promote goods or services

Dr Felton Lean

Operations: A Transformation Process

Feedback

Inputs
Workers Managers Performance

Outputs

Goods

Equipment
Facility Materials Land

Operations and processes

Services

Energy
Information

Lead time The time between ordering a good or service and receiving it. Dr Felton Lean

Operations Management

The management of systems or processes that create goods and/or provide services.
Planning Coordinating Executing

Dr Felton Lean

OVERVIEW OF OPERATIONS MANAGEMENT MODEL

Input: resources raw materials machines personnel capital land/buildings utilities information etc. Output Transformation Process Goods or Services

Control
Dr Felton Lean

Operations management is the process of obtaining and utilizing resources to produce useful goods and services so as to meet the goals of the organization.

Dr Felton Lean

Value added
The difference between the cost of inputs and the value or price of outputs.

Value added
Inputs Material Labor Land Capital Transformation/ Conversion process
Feedback

Outputs Goods Services

Control
Feedback

Feedback

Value of the output or price of the output as accepted by the customers, not just enforced Dr Felton Lean by the supplier.

Operations management considers how the input are transformed into goods or services. Control is when something is learned about the goods or services that is used to more effectively transform future goods or services.
Dr Felton Lean

Value added
The difference between the cost of inputs and the value or price of outputs.

Value added
Inputs Material Labor Land Capital Transformation/ Conversion process
Feedback

Outputs Goods Services

Control
Feedback

Feedback

Value of the output or price of the output as accepted by the customers, not just enforced Dr Felton Lean by the supplier.

Feedback and Control

Physical Flow

Information Flow

Measurements taken at various points in the transformation process for control purposes are called feedback.

The process of comparing outputs to previously established standards to determine if corrective action is needed is called controlling

Dr Felton Lean

Operations = Transformation Process Inputs

5 Ms
Management, Methods, Material, Machines, Maintenance

Also: Personnel , information & energy

Transformation/conversion process
Cutting, machining, storing, transporting, investing, analyzing

Output
Goods/services
Value-added The difference between the cost of inputs and the value or price of outputs.
Dr Felton Lean

EXAMPLE OF OPERATIONS MANAGEMENT PROCESS

Automobile factory
Input steel, plastic glass, paint tools Transformation equipment process machines personnel, buildings utilities, etc.
Dr Felton Lean

Output Car

Example: Hospital
Table 1.2

Inputs
Doctors, nurses

Processing
Examination

Outputs
Healthy

Hospital
Medical Supplies Equipment Laboratories

Surgery
Monitoring Medication Therapy

patients

Improvement of patients health condition

Dr Felton Lean

Example: MBA
Table 1.2

Inputs
Knowledge Text Book Lecture Notes Handouts Course CD

Processing
Lecturing Tutoring Assignment Exam

Outputs
Future operations managers

Teaching Evaluation
Dr Felton Lean

Manufacture or Service
Operations?

Dr Felton Lean

Major characteristics of operational systems

Degree of standardization Type of Operation Manufacturing or Service

Dr Felton Lean

Manufacturing or Service?
perceptible by the senses especially the sense of touch
WordNet 2.0, 2003 Princeton University

Tangible

Act

Production of goods

Delivery of services

Dr Felton Lean

Degree of standardization

Standardized , high degree of uniformity Radio, canned food, automatic car washes Customized Eyeglasses, tailoring

Dr Felton Lean

Types of operations

Project Job shop Repetitive production Continuous processing

Dr Felton Lean

Production management is concerned with the manufacturing of goods: Examples of goods: cars books chairs computers houses etc.
Dr Felton Lean

Manufacturing vs. Service

Table 1.3

Characteristic
Output Uniformity of output Uniformity of input

Manufacturing
Tangible High High Low Easy Low

Service
Intangible Low Low High Difficult High Low Difficult Not Usually

Labor content Measurement of productivity Customer contact

Opportunity to correct quality High problems before delivery Evaluation Easy Patentable Usually Dr Felton Lean

Operations management is also concerned with the management of service industries as well as the manufacturing of goods.

Dr Felton Lean

What does Operations

Manger Do?

Dr Felton Lean

Scope of Operations Management Operations Management includes:

Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees

Deciding where to locate facilities

And more . . .
Dr Felton Lean

Example: Airline Company

Forecasting: Weather, landing conditions, seat demands

for flights.
Capacity Planning: How many number of planes in each route? Scheduling: Scheduling of planes for flights and for routine maintenance, scheduling of pilots and flights

attendants.
Quality: Quality of the services, Safety.
Dr Felton Lean

Example: Automobile Factory

Forecasting: Demands for cars. Capacity Planning : Number of shifts, level of workforce.

Inventory: Various component, parts.

Scheduling: Scheduling of various types of cars, Scheduling of workforce. Quality: Quality of products, services.
Dr Felton Lean

Responsibilities of Operations Manager

Table 1.6
Planning Capacity Location Products & services Make or buy Layout Projects Scheduling Controlling/Improving Inventory Quality Costs Productivity Organizing Degree of centralization Process selection Staffing Hiring/laying off Use of Overtime Directing

Incentive plans Issuance of work orders Job assignments

Dr Felton Lean

Why is Operations
Management Important?

Dr Felton Lean

Reasons to Study Operations Management 50% or more of the jobs in industry are operations management-related:
Customer Service Quality Assurance Production Planning Scheduling Inventory Management Logistics

Operations Management activities are at the core of all business organizations. All Other Functional Areas are interrelated with Operations Management
Dr Felton Lean

Operations as Technical Core

Capital Markets, Stockholders Purchasing Finance Personnel Operations Marketing Customers Workers

Suppliers

Dr Felton Lean

IMPORTANCE OF OPERATIONS MANAGEMENT

Improves productivity: * Effective control of the conversion process of inputs into outputs (e.g., fewer defect output, less wastage of material inputs, effective allocation of staff, will lead to more output per unit time). ** Higher productivity leads to higher profits How?

Improves our ability to meet customer needs: * Ensure provision of high quality products and services at reasonable prices (not just cheap output) * Enables us to provide service to our target customers better than our competitors * Meeting customer needs is crucial to long term survival of the firm Why?
Dr Felton Lean

IMPORTANCE OF OPERATIONS MANAGEMENT

Central to the building of a brand name/reputation of the company/firm, as a competitive weapon: * High-quality product/service provider * Low cost/good value producer/service provider (e.g., Woolworths, Sony & Panasonic) * Fast delivery or response/lead time (e.g., Hong Kong for 2 hrs suit tailoring Improves the living standards of citizens and wealth of nations: * Has impact on GDP per capital high output per unit time * High-value added vs. skills needed to manufacture

Dr Felton Lean

The Overlapping of Three Major Functions

Figure 1.5
Competitor Customer preference
Trend of technology Judgment of manufacturability Fulfillment lead time

Budgeting Economic analysis of investment proposals

Operations

Provision of funds Financial indicators

Marketing
Dr Felton Lean

Finance

OPERATIONAL-BASED COMPETITIVE ADVANTAGE

Operational based competitive advantage can be achieved by: * Doing things right the first time - Quality advantage; - defect free output, lower costs, improved competitiveness, can even lead to higher prices (e.g., Sony, Toyota, etc). * Doing things cost effectively - Cost advantage; - cost efficiency leads to price competitiveness and decent profits - Lack of cost competitiveness can lead to large-scale retrenchments

Do things fast: Speed advantage; can lose sales if slow - Reputation for speed is important

Dr Felton Lean

OPERATIONAL-BASED COMPETITIVE ADVANTAGE *

Change things quickly: Adaptability-advantage (ability to change from making Tea, Coffee, etc) - Change operations to meet customer demand for variety - SME Furniture manufacturer (beds, chairs, tables, sofa) Do things right every time: Reliability-advantage - offer error-free products or services to customers EVERY time Do things better: Service-advantage and continuous improvement (e.g., TQM all aspects of business important in delivering quality service to customer).

Dr Felton Lean

Types of Manufacturing Processes

(subset of OM Transformations). Conversion - iron ore to iron, mixtures to steel, crude oil to gas, etc. Fabrication - blue beads to pen tops. Assembly - parts to assemblies. Testing - in-house or on-site testing.

Dr Felton Lean

Process Flow Structures

Flow of Product or Service
Job shop/ Batch/ Assembly Line/ Unit Production Process Departments Product Departments

Continuous Flow/ Process Industries

Dr Felton Lean

Introduction Process selection

Deciding on the way production of goods or services will be organized

Major implications
Capacity planning Layout of facilities Equipment Design of work systems

Dr Felton Lean

Process Selection and System Design

Figure 6.1 Facilities and Equipment

Forecasting

Capacity Planning

Product and Service Design

Process Selection

Layout

Technological Change

Work Design

Dr Felton Lean

Process Selection Batch Job Shop Repetitive

Variety
How much

Flexibility
What degree

Volume
Expected output

Continuous

Dr Felton Lean

Process Types

Job shop
Small scale

Batch
Moderate volume

Repetitive/assembly line
High volumes of standardized goods or services

Continuous
Very high volumes of non-discrete goods

Dr Felton Lean

Product Process Matrix

Figure 6.2

Process Type

Job Shop

Appliance repair Emergency room Commercial bakery Classroom Lecture

Not feasible

Batch

Repetitive

Automotive assembly Automatic carwash

Continuous (flow)

Not feasible

Oil refinery Water purification

Dr Felton Lean

Product Process Matrix

Figure 6.2 (contd)
Dimension Job variety Process flexibility Unit cost Volume of output Very High Very High Moderate Moderate Low Low Very low Very low

Very High Very High

Moderate Low

Low High

Very low Very low

Dr Felton Lean

Automation Automation: Machinery that has sensing and control devices that enables it to operate
Fixed automation Programmable automation

Dr Felton Lean

Automation

Computer-aided design and manufacturing systems (CAD/CAM) Numerically controlled (NC) machines Robot Manufacturing cell Flexible manufacturing systems(FMS) Computer-integrated manufacturing (CIM)

Dr Felton Lean

PROCESS FLOW CONTD

SHOP One of a Kind, Custom Tools, Buildings, Software, Research Projects, Exclusive Restaurants BATCH Furniture, Clothes, Most Plastic Parts, Many Photo Shops MASS Autos, BIC pens, Consumer Electronics, One-Hour Photos, Fast Food Restaurants CONTINUOUS PROCESS Chemicals, Primary Materials, Petroleum, Lumber
UNIT/JOB
Dr Felton Lean

INTERMITTENT & CONTINUOUS

INTERMITTENT PROCESSES

UNIT
BATCH CONTINUOUSE

PROCESSES MASS ASSEMBLY LINE CONTINUOUS PROCESS

Dr Felton Lean

Exhibit 5.9

Low Volume One of a Kind I. Job Shop II. Batch III. Assembly Line IV. Continuous Flow

Few High Multiple Major Volume, Products, Products, High Low Higher StandardVolume Volume ization
Flexibility (High) Unit Cost (High)

Commercial Printer French Restaurant Heavy Equipment Coffee Shop Automobile Assembly Burger King Sugar Refinery

Flexibility (Low) Unit Cost (Low)

13

Source: Modified from Robert Hayes and Steven Wheelwright,Dr FeltonOur Competitive Edge: Competing through Manufacturing (New Restoring Lean York: John Wiley & Sons, 1984). p. 209.

ABOVE THE DIAGONAL

Flexibility/Variety is Higher Costs are Higher OK with low volume markets OK when high customization is necessary Threats: A competitor can undercut you Risky when high volume can be stimulated through price competition
Dr Felton Lean

BELOW THE DIAGONAL

Costs are lower Automation is higher Greater investment Threats: Greater market risk what do you do with an automated highly specialized plant when demand decreases? Competition may match costs with greater product variety.
Dr Felton Lean

Service Operations
Types of Service Operations
Service

Capital Intensive
Automatic Monitored by Unskilled Operators Movie theaters, taxis, dry cleaners Operated by Skilled Operators Airlines, medical testing, excavating Unskilled Labor

Labor Intensive

Skilled Labor

Professionals

Vending machines, automated car washes

Lawn care, janitorial, guards

Dr Felton Lean

Appliance repair, banks, catering

Doctors, lawyers, consultants

Service Operations Defining Services - Types of Processes

Type Project Mfg. Example Construction, Shipbuilding Service Example Consulting, Software Devel.

Job Shop

Sign-making
Tailoring

Auto Repair
Restaurant Fast Food Rest.

Flow Shop

Automobiles

Appliance Shop
Continuous Process Oil Refinery Cereal Plant
Dr Felton Lean

Car Wash
ATMs Police / Fire Svc

Service Operations The Transformation Process - Services

Service System
College . Hospital . Restaurant . Video Store .

Primary Input
Students Patient Customers Customers

Conversion Process
Knowledge Transmission Health Care Food Preparation Fill Requests

Desired Output
Educated People Healthy People Satisfied Customers Satisfied Customers

Dr Felton Lean

Production Cycle

Dr Felton Lean

New Product Development

Dr Felton Lean