Introduction to Operations Management
Operations
Operations Management
Management
Instructor:
Instructor: Dr.
Dr. Rizwan
Rizwan Ahmed
Ahmed
Lecture outline
What is Operations Management
Operations in Organization
Manufacturing and Service
Operations
Operations and Productivity
Conclusion
Operations Management is:
The business function responsible for
efficiently planning, coordinating, and
controlling the resources needed to
produce products and services for a
company
Wiley 2010
Operations Management is:
A management function
An organizations core function
In every organization whether Service or
Manufacturing, profit or Not for profit
Wiley 2010
Role of OM: A Transformation
Process
OM Transforms inputs to outputs
So Operation Management is a set of
activities that creates value in the form of
goods and services by transforming
inputs into outputs; A transformation
process
OMs Transformation
Process
a series of activities along a value chain extending from supplier to
customer
activities that do not add value are superfluous and should be eliminated
TRANSFORMATION
PROCESS: SANDWICH
MAKING
TRANSFORMATION
PROCESS: BUS SERVICE
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 means performing activities well for least possible
cost
Some Types of
Transformation Process
Physical: as in manufacturing operations
Locational: as in transportation
operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication
Inputs to Operations
Inputs: All physical and nonphysical
resources coming into the system
Primary Resources
Materials, Personnel, Skills, Capital, Utilities,
Machines, Equipment, Facilities
Secondary Resources (External)
Market
Competition, Customer Desires, Product Info.
PEST
Political, Legal, Economic, Social, Technological
Outputs from Operations
Outputs can be classified as:
Direct/Primary
Goods
Services
Indirect/Secondary
Waste
Pollution
Technological Advances
Classroom activity
Time to consider an example.
Can you tell me how the operations system
works for lets say a farm?
Organize your thoughts and Focus on the
inputs, transformation process, and outputs,
one by one.
Write down inputs, transformation process,
and outputs
Why Study Operations
Management?
OM is one of three major functions (marketing,
finance, and operations) of any organization
We want (and need) to know how goods and
services are produced
We want to understand what operations
managers do
Operations accounts for 60-80% of the direct
expenses that burden a firms profit
Operations in organization
Organization
Production/
operations
Marketing
Finance
Production/
operations
Marketing
Figure
: The three basic functions of business organizations
Finance
Organizational Charts
Commercial Bank
Operations
Finance
Marketing
Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Investments
Security
Real estate
Loans
Commercial
Industrial
Financial
Personal
Mortgage
2008 Prentice Hall, Inc.
Accounting
Auditing
Trust Department
Figure 1.1(A)
1 16
Organizational Charts
Manufacturing
Operations
Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply chain management
Manufacturing
Tooling; fabrication; assembly
Design
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space,
and personnel
Process analysis
Development and installation of
production tools and equipment
2008 Prentice Hall, Inc.
Finance/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall
Marketing
Sales
promotion
Advertising
Sales
Market
research
Figure 1.1(C)
1 17
OM in Practice
OM has the most diverse organizational
function
Manages the transformation process
All business functions need information from
OM in order to perform their tasks
The major functional areas must interact to
achieve the organization goals
Wiley 2010
18
Operations
Function
Operations
function interacts
with
Sales & Marketing
Finance and
accounting
Human resources
Outside suppliers
Role of Operations
Manager
The job of an operations manager?
Develop & Implement the operations
strategy
Improve
Productivity/efficiency
Cost
Quality
Gain competitive advantage
Manufacturing vs. Service
Operations
Differences
Output
Output consumption
Output Inventoried
Customer contact
Labor Intensity
Quality
Automation
Services
Intangible
Immediate
No
Extensive
High
Subjective
Difficult
Goods
Tangible
Long term
Yes
Little
Low
Objective
Easy
Manufacturing vs. Service
Operations
Both use technology
Both have quality, productivity, & response issues
Both must forecast demand
Both will have capacity, layout, and location issues
Both have customers, suppliers, scheduling and
staffing issues
Manufacturing often provides services
Services often provides tangible goods
Wiley 2010
22
Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100%
|
75
|
50
|
25
|
0
|
25
|
50
|
75
|
100%
|
Percent of Product that is a Good Percent of Product that is a Service
Figure 1.4
2008 Prentice Hall, Inc.
1 23
Manufacturing vs. Service
Operations
In the new world of business, a factory is a
service operation and service is a factory
operation. Intense competition is forcing firms
to provide a better total product (a mix of
goods and services).
What is Productivity?
Defined
Productivity is a common measure on
how well resources are being used. In
the broadest sense, it can be defined
as the following ratio:
Outputs
Inputs
One of the main objectives of operations
management is to improve productivity!
How to Improve Productivity?
One of the main objectives of operations
management is to improve productivity!
Operations in every organization consist of
a large number of micro activities or
micro operations.
Slight improvements in these micro
operations may increase productivity to a
large extent.
Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways to
shave time. Some
improvements:
Operations improvements have helped
Stop requiring signatures
Saved
seconds
Starbucks increase
yearly8 revenue
per
on credit card purchases
pertotransaction
outlet by $200,000
$940,000 in six
under $25
years.
Productivity
improved
27%, or
Change the size of
the ice has Saved
14by
seconds
about 4.5%
year.
scoop
per per
drink
New espresso machines
Saved 12 seconds
per shot
Partial Measure Productivity
Partial measures of productivity =
Output or Output or Output or Output
Labor
Capital
Materials
Energy
Productivity measures may be different in different
industries and organizations
Retail???
Productivity Calculations
Labor Productivity
Productivity =
Units produced
Labor-hours used
1,000
=
250
= 4 units/labor-hour
One resource input single-factor productivity
Multi-Factor Productivity
Productivity =
Output
Labor + Material + Energy +
Capital + Miscellaneous
Also known as total factor productivity
Multiple resource inputs multi-factor productivity
Example of Productivity
Measurement
You have just determined that your service employees
have used a total of 2400 hours of labor this week to
process 560 insurance forms. Last week the same
crew used only 2000 hours of labor to process 480
forms.
Is productivity increasing or decreasing?
Answer: Last weeks productivity =
480/2000 = 0.24, and this weeks
productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.
Example of Productivity
Measurement
John makes wooden boxes in which to ship
motorcycles. John and three other employees invest a
total of 10 hours each per day making 120 boxes
What is their productivity?
120boxes
1.1 (a)
=3.0boxes/hour
40hours
After redesigning the process they are producing 125
boxes with same labor. What is productivity now?
125boxes
(b)
=3.125boxes/hour
40hours
Change in Productivity? = 0.125 boxes/hour
Percent change in productivity?
percentagechange=
0.125boxes
= 4.166%
3.0
Example of Productivity
Measurement
Kleen
Carpets cleaned 65 rugs in October consuming
following resources
Labor
520 hrs at $13 per hr
Solvent
100 gallons at $5 per gallon
Machine rental
20 days at $50 per day
(a) What is the Labor productivity per dollar
65
65
=
(52013)
$6,760
=.0096rugsperlabor$
(a)Laborproductivity=
(b) What is multifactor productivity
Multifactor
65
(b)
65
=
= .00787rugsper$
productivity(520 $13) + (100 $5) + (20 $50)
$8,260
Assignment
Search a case study on productivity in any sector e.g.
retail, banking, manufacturing, mining, education etc.
Describe the measures/metrics of productivity used
and how productivity was increased.
