Chapter 1 : Introduction to Operations Management

Operation Management is the business function responsible for planning, coordinating, and
controlling the resources needed to produce products and services for a company.
● A management function
● An organization’s core function
● In every organization whether Service or Manufacturing, profit or Not for profit
Typical Organization Chart

Role of OM
● OM Transforms inputs to outputs
➔ Inputs are resources such as
➢ People, Material, and Money
➔ Outputs are goods and services
OM’s Transformation Process

OM’s 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 – means performing activities well for least possible cost
Manufacturers vs Service Organizations

Service Manufacturers

● Intangible Product ● Tangible Products

● Product cannot be inventoried ● Product is inventoried

 ● High customer contract ● Low customer contract

● Short response time ● Longer response time

● Labor intensive ● Capital Intensive

Similarities for Service/Manufacturers
● Both use technology
● Both have quality, productivity, & response issues
● Both must forecast demand
● Both can have capacity, layout, and location issues
● Both have customers, suppliers, scheduling and staffing issues
Service vs Manufacturers
● Manufacturing often provides services
● Services often provides tangible goods
● Some organizations are a blend of service/manufacturing/quasi-manufacturing
Quasi-Manufacturing (QM) organizations
● QM characteristics include
➔ Low customer contact & Capital Intensive
Growth of the Service Sector
● Service sector growing to 50-80% of non-farm jobs
● Global competitiveness
● Demands for higher quality
● Huge technology changes
● Time based competition
● Workforce diversity
OM Decisions
● Following decisions focus on specifics - Tactical decision
➔ Tactical decisions: focus on specific day-to-day issues like resource needs, schedules, &
quantities to produce
➔ are frequent
● Strategic decisions less frequent
● Tactical and Strategic decisions must align
OM in Practice
● OM has the most diverse organizational function
● Manages the transformation process
● OM has many faces and names such as;
➔ V. P. operations, Director of supply chains, Manufacturing manager
➔ Plant manager, Quality specialists, etc.
● All business functions need information from OM in order to perform their tasks

Framework for Managing Operations

PLANNING
Activities that establish a course of action and guide future decision-making is planning.
ORGANIZING
Activities that establish a structure of tasks and authority.
CONTROLLING
Activities that assure the actual performance in accordance with planned performance.
BEHAVIOUR
MODELS

Objectives of Operation Management

Customer Service: The primary objective of operations management is to utilize the resources
of the organization, to create such products or services that satisfy the needs of the consumers,
by providing “right thing at the right price, place and time”.
Resource Utilization: To make the best possible use of the organization’s resources to satisfy
the wants of the consumers, is another important objective of the operations management.

Production
defined as “the step-by-step conversion of one form of material into
another form through chemical or mechanical process to create or enhance the utility of
the product to the user.” Thus, production is a value addition process. At each stage of
processing, there will be value addition.

Classification of Production System

1. Job shop production
are characterized by manufacturing of one or few quantities of products designed and produced
as per the specification of customers within prefixed time and cost. The distinguishing feature of
this is low volume and high variety of products.
2. Batch production
“as a form of manufacturing in which the job passes through the functional departments in lots
or batches and each lot may have a different routing.” It is characterized by the manufacture of a
limited number of products produced at regular intervals and stocked awaiting sales.
3. Mass production
Manufacture of discrete parts or assemblies using a continuous process are called mass
production. This production system is justified by a very large volume of production. The
machines are arranged in a line or product layout. Product and process standardization exist,
and all outputs follow the same path.
4.Continuous production
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. The items are made to flow through the sequence of
operations through material handling devices such as conveyors, transfer devices, etc.

Objectives of Production Management

1. Right quality
The quality of the product is established based upon the customers needs. The right quality is
not necessarily the best quality. It is determined by the cost of the product and the technical
characteristics as suited to the specific requirements.
2. Right quantity
The manufacturing organization should produce the products in the right number. If they are
produced in excess of demand the capital will block up in the form of inventory and if the
quantity is produced in short of demand, leads to shortage of products.
3. Right time
Timeliness of delivery is one of the important parameters to judge the effectiveness of the
production department. So, the production department has to make the optimal utilization of
input resources to achieve its objective.
4. Right manufacturing cost
Manufacturing costs are established before the product is manufactured. Hence, all attempts
should be made to produce the products at pre-established cost, to reduce the variation
between actual and the standard (pre-established) cost.
THANK YOU! =^v^=

Chapter 2 : Operation management: Competitiveness, Strategy, and Productivity

Competitiveness - the ability of a business to deliver better value to customers than
competitors.
*How effectively an organization meets the wants and needs of customers relative to others that
offer similar goods or services
*Organizations compete through some combination of their marketing and operations functions

Businesses Compete Using Operations

1. Product and service design 6. Flexibility

2. Cost 7. Inventory management

3. Location 8. Supply chain management

 4. Quality 9. Service

5. Quick response 10. Managers and workers

Strategic Planning & Management

● Mission and Vision
● Business Goals and Objectives
● Organizational Strategies
● Functional Strategies
● Strategy Formulation (roadmap)
Developing Operations Strategy

Corporate Mission - A corporate mission is a set of long-range goals and including statements
about:
*the kind of business the company wants to be in
*who its customers are
*its basic beliefs about business
*its goals of survival, growth, and profitability
Business Strategy - is a long-range game plan of an organization and provides a road map of
how to achieve the corporate mission.
Inputs to the business strategy are
Assessment of global business conditions - social, economic, political, technological,competitive
Distinctive competencies or weaknesses - workers, sales force, R&D, technology, management
SWOT ANALYSIS - Strengths, Weaknesses, Opportunities, Threats

Core Competencies - The special attributes or abilities that give an organization a competitive
edge. To be effective, core competencies and strategies need to be aligned
Strategy Formulation
Effective strategy formulation requires taking into account(SWOT analysis):
● Core competencies
● Environmental scanning
Successful strategy formulation also requires taking into account:
● Order qualifiers (minimum requirements for a potential purchase)
● Order winners (characteristics that win over the customer)
Operations Strategy - The approach, consistent with organization strategy, that is used to
guide the operations function.

Competitive Edges and Priorities

1. Cost
2. Quality
3. Response Time
4. Customer Service

Competitive Priorities
➢ Low Production Cost - Unit cost (labor, material, and overhead) of each
product/service
Some Ways of Creating
● Redesign of product/service
● New technology
● Increase in production rates
● Reduction of scrap/waste
● Reduction of inventory
➢ Delivery Performance - a) Fast delivery b) On-time delivery
Some ways of creating
● larger finished-goods inventory
● faster production rates
● quicker shipping methods
● more-realistic promises
● better control of production of orders
● better information systems
➢ High Quality Product/Services - Customers’ perception of degree of excellence
exhibited by products/services
Some Ways of Creating
● Improve product/service’s
● Appearance
● Performance and function
● Wear, endurance ability
 ● After-sales service
➢ Customer Service and Flexibility - Ability to quickly change production to other
products/services. Customer responsiveness.
Some ways of creating
● Change in type of processes used
● Use of advanced technologies
● Reduction in WIP through lean manufacturing
● Increase in capacity
Operations Strategy - is a long-range game plan for the production of a company’s
products/services, and provides a road map for the production function in helping to achieve the
business strategy.
Elements:
● Positioning the production system
Select the type of product design
➢ Standard
➢ Custom
Select the type of production processing system
➢ Product focused
➢ Process focused
Select the type of finished-goods inventory policy
➢ Produce-to-stock
➢ Produce-to-order
● Product/service plans
1. As a product is designed, all the detailed characteristics of the product are established.
2. Each product characteristic directly affects how the product can be made.
3. How the product is made determines the design of the production system.
Stages in a Product’s Life Cycle
Introduction- Sales begin, production and marketing are developing, profits are negative.
Growth - sales grow dramatically, marketing efforts intensify, capacity is expanded, profits
begin.
Maturity - production focuses on high-volume, efficiency, low costs; marketing focuses on
competitive sales promotion; profits are at peak.
Decline - declining sales and profit; product might be dropped or replaced.
● Outsourcing plans - refers to hiring out or subcontracting some of the work that a
company needs to do. More outsourcing requires a company to have less equipment,
fewer employees, and a smaller facility.
A company might outsource any of the following manufacturing related functions:
➢ Designing the product
➢ Purchasing the basic raw materials
➢ Processing the subcomponents, subassemblies, major assemblies, and finished product
➢ Distributing the product
Many companies even outsource some service functions such as:
➢ Payroll
➢ Billing
 ➢ Order processing
➢ Developing/maintaining a website
➢ Employee recruitment
➢ Facility maintenance
● Process and technology plans - An essential part of operations strategy is the
determination of how products/services will be produced. The range of technologies
available to produce products/services is great and is continually changing.
● Strategic allocation of resources - For most companies, the vast majority of the firm’s
resources are used in production/operations. Some or all of these resources are limited.
The resources must be allocated to products, services, projects, or profit opportunities in
ways that maximize the achievement of the operations objectives.
● Facility plans: capacity, location, and layout
➢ How to provide the long-range capacity to produce the firm’s products/services is a
critical strategic decision.
➢ The location of a new facility may need to be decided.
➢ The internal arrangement (layout) of workers, equipment, and functional areas within a
facility affects the ability to provide the desired volume, quality, and cost of
products/services.
Characteristics of Services and Manufactured Products

Competitive Priorities for Services

The competitive priorities listed earlier for manufacturers apply to service firms as well
➢ Low production costs
➢ Fast and on-time delivery
➢ High-quality products/services
➢ Customer service and flexibility
Providing all the priorities simultaneously to customers is seldom possible.
Positioning Strategies for Services
Type of Service Design
➢ Standard or custom products
➢ Amount of customer contact
➢ Mix of physical goods and intangible services
Type of Production Process
➢ Quasi manufacturing
➢ Customer-as-participant
➢ Customer-as-product
Evolution of Positioning Strategies - The characteristics of production systems tend to evolve
as products move through their product life cycles.
No Single Best Strategy
Start-up and Small Manufacturers
Usually prefer positioning strategies with:
➢ Custom products
➢ Process-focused production
➢ Produce-to-order policies
These systems are more flexible and require less capital.
Successfully compete with large corporations by:
➢ Carving out a specialty niche
➢ Emphasizing close, personal customer service
➢ Developing a loyal customer base
TechnologyInt-ensive Business
Production systems must be capable of producing new products and services in high volume
soon after introduction
Such companies must have two key strengths:
➢ Highly capable technical people
➢ Sufficient capital
Productivity - A measure of the effective use of resources, usually expressed as the ratio of
output to input.
Productivity measures are useful for
➢ Tracking an operating unit’s performance over time
➢ Judging the performance of an entire industry or country
Factors Affecting Productivity

Process & Methods Product Design

Capital Quality

Technology Management
Improving Productivity (TQM and BPR)
1. Develop productivity measures for all operations
2. Determine critical (bottleneck) operations
3. Develop methods for productivity improvements
4. Establish reasonable goals
5. Make it clear that management supports and encourages productivity improvement
6. Measure and publicize improvements

THANK YOU! =^v^=