Introduction to

Operations Management

DR. ERLITA C. GUERRA, MBA, MPA

What is POM?

 Production is the creation of goods and

services
 Production and/or Operations
Management are the activities that
transform resources into goods and
services
Production & Operation Mgt.

 Production/operations management is
the process, which combines and
transforms various resources used in the
production/operations subsystem of the
organization into value added
product/services in a controlled manner
as per the policies of the organization.
 Therefore, it is that part of an
organization, which is concerned with the
transformation of a range of inputs into
the required (products/services) having
the requisite quality level.
 The set of interrelated management
activities, which are involved in
manufacturing certain products, is called
as production management. If the same
concept is extended to services
management, then the corresponding set
of management activities is called as
operations management.
 Production Management

E.S. Buffa defines production management

as, “Production management deals with
decision making related to production
processes so that the resulting goods or
services are produced according to
specifications, in the amount and by the
schedule demanded and out of minimum
cost.”
 Objectives of Production Management

 The objective of the production

management is „to produce goods
services of right quality and quantity at
the right time and right manufacturing
cost‟.
1. Right Quality
2. Right Quantity
3. Right Time
4. Right Manufacturing Cost
Why Study POM?
 It is one of the 3 critical parts of any
organization:
 Marketing – generates demand
 Operations – creates the product
 Finance/accounting – tracks organizational
performance, pays bills, collects money
 It shows us how goods and services are
produced
 It shows us what POM managers do
 It is the most costly part of any organization
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?
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?
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?
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,
 How much inventory of each item should
we have?
 When do we re-order?
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?
 When do we do maintenance?
New Challenges in OM
From To
 Global focus
 Local or national focus  Just-in-time
 Batch shipments  Supply chain
 Low bid purchasing
partnering
 Lengthy product  Rapid product
development cycles development
 Standardized products  Strategic alliances
 Job specialization  Mass customization
 Empowered
employees
 Teams
Goods vs. Services
Characteristics of Goods

 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction © 1995 Corel Corp.
Characteristics of Services
 Intangible product
 Produced & consumed at
same time
 Often unique
 High customer interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
© 1995 Corel Corp.
Goods vs. Services
Goods Service
 Can be resold  Reselling unusual
 Can be  Difficult to
inventoried inventory
 Some aspects of  Quality difficult to
quality measure
measurable
 Selling is distinct  Selling is part of
from production service
Goods vs. Services - Continued
Goods Service
 Product is  Provider, not product
transportable is transportable
 Site of facility  Site of facility
important for cost important for
customer contact
 Often easy to  Often difficult to
automate automate
 Revenue generated  Revenue generated
primarily from primarily from
tangible product intangible 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
New Challenges in Operations
Management
Changing Challenges for the
Operations Manager
Past Causes Future
Local or Low-cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just-in-time
shipments reducing investment in shipments
inventory
Low-bid Quality emphasis requires that Supply-chain
purchasing suppliers be engaged in product partners
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
Changing Challenges for the
Operations Manager
Past Causes Future
Standardized Affluence and worldwide markets; Mass
products increasingly flexible production customization
processes
Job Changing sociocultural milieu. Empowered
specialization Increasingly a knowledge and employees,
information society. teams, and lean
production
Low cost Environmental issues, ISO 14000, Environmentally
focus increasing disposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing
The Productivity Challenge
The Economic System
Transforms Inputs to Outputs
Inputs Process Outputs
Land, Labor, The economic system Goods and
Capital, transforms inputs to outputs Services
Management at about an annual 2.5%
increase in productivity
(capital 38% of 2.5%), labor
(10% of 2.5%), management
(52% of 2.5%)

Feedback loop
Measurement Problems

 Quality may change while the quantity of

inputs and outputs remains constant
 External elements may cause an
increase or decrease in productivity
 Precise units of measure may be lacking
Productivity Increase

 Labor - contributes about 10% of the

annual increase
 Capital - contributes about 32% of the
annual increase
 Management - contributes about 52% of
the annual increase
Key Variables for Improved
Labor Productivity
 Basic education appropriate for the labor
force
 Diet of the labor force
 Social overhead that makes labor
available
 Maintaining and enhancing skills in the
midst of rapidly changing technology and
knowledge
Service Productivity

 Typically labor intensive

 Frequently individually processed
 Often an intellectual task performed by
professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
Current Trends

 U.S. is becoming more of a knowledge

intensive service economy
 Globalization
 Total Quality Control
 Need for flexibility and innovation