OPERATIONS

MANAGEMENT
Lecture Notes
 Manufacturing Organization
 Manufacturing can be defined as:
1. The process of converting material into a more
useable form
2. The process of “adding value” to an existing product
3. Products may be discrete or continuous
4. A complex activity involving a wide variety of
resources and activities
 Manufacturing Organization
5. Production quantity – number of units of a given part
that are produced annually:
 Low
 Medium
 High
6. Product Variety – different type of products that are
produced at a facility
 Characteristics of a Manufacturing
System
 It is an organized activity, so every manufacturing
system has an objective
 The system transforms the various inputs into useful

outputs
 It does not operate in isolation from the other

organization system
 There exists a feedback about the activities which is

essential to control and improve system performance

Components of a Manufacturing System
 Production machines, tools, fixtures and other related
hardware
 Material handling system
 Computer systems to coordinate and/or control the

components
 Human Workers
 Service Organization
 An economic activity that typically produce an
intangible product such as:
1. Education
2. Entertainment
3. Lodging
4. Government
5. Financial Services
6. Health Services
 Characteristics of Service
Organization
 It is an organized activity related to identifying the
customer specific to the service being provided
 The effective communication and provision of the

service in terms of its utility and quality

 There exists a feedback about the changes/

improvements which are needed to satisfy the

customers
 Difference Between Goods and
Services
Goods Services
1. Tangible 1. Intangible
2. Produced but may be 2. Produced and consumed
consumed after a while simultaneously
3. Can be resold 3. Reselling a service is
unusual
4. Can be inventoried 4. Many services cannot be
inventoried
5. Aspects of quality are 5. Many aspects of quality are
measurable difficult to measure
6. Selling is distinct from 6. Selling is often a part of the
production service
 Difference Between Goods and
Services
Goods Services
7. Product is transportable 7. Provider not product is
often transferrable
8. Site of facility is 8. Site of facility is important
important for cost for customer contact
9. Often easy to automate 9. Service is often difficult to
automate
10. Product is or good is 10. Service is often unique
generally common
11. Less customer 11. High customer interaction
interaction
 Operations Management is about
Competitive Advantage

“It involves understanding the needs of our

customers, managing the processes that
deliver the services, ensuring our objectives
are met, while also paying attention to the
continual improvements of our services.”
[Johnston & Clark, 2008:3]
Conceptualising Operations Management
…
 Operations management is “the effective and
efficient management of the transformation
process” [Melnyk & Denzler, 1996:5].
 “..operations are processes that take in a set of

input resources which are used to transform

something, or are transformed themselves, into
outputs of products and services.” (Slack,
2010:11).
Definitions of Operations Management
 “The ongoing activities of designing, reviewing and
using the operating system, to achieve service outputs
as determined by the organization for customers”.
 It is the business function that plans, organizes, co-

ordinates, and controls the resources needed to produce

a company’s goods and services.
Definitions of Operations Management
Operations management can be defined as:
 the management of processes, people and resources
in order to deliver products and services that
consumers/clients want in the most cost-effective
way
 “The management of systems or processes that create
goods and/or provide services”

Contd.
 Who practices OM?
 Purchasing managers
 Supply chain and logistics managers
 Customer service managers
 Project managers
 Quality managers
 Restaurant, hotel, retail, & airport managers
 Health centre managers, hospital managers
 Head teachers, etc., etc..

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Operations management is important in all
types of organization

Automobile assembly factory – Operations

management uses machines to efficiently
assemble products that satisfy current
customer demands
Physician (general practitioner) – Operations
management uses knowledge to effectively
diagnose conditions in order to treat real
and perceived patient concerns

Management consultant – Operations

management uses people to effectively
create the services that will address current
and potential client needs
Operations management is important in
all types of organization
Disaster relief charity – Operations
management uses our and our partners’
resources to speedily provide the supplies and
services that relieve community suffering

Advertising agency – Operations

management uses our staff ’s knowledge and
experience to creatively present ideas that
delight clients and address their real needs
1. Operations management is the activity of managing the
resources which produce and deliver products and services. The
operations function is the part of the organization that is
responsible for this activity.
2. Every organization has an operations function because every
organization produces some type of products and/or services.
However, not all types of organization will necessarily call the
operations function by this name. (Note that we also use the
shorter terms ‘the operation’ and ‘operations’ interchangeably
with the ‘operations function’).
3. Operations managers are the people who have particular
responsibility for managing some, or all, of the resources which
compose the operations function. Again, in some organizations
the operations manager could be called by some other name. For
example, he or she might be called the ‘fleet manager’ in a
distribution company, the ‘administrative manager’ in a hospital,
or the ‘store manager’ in a supermarket.
Operations in the organization
 Operations management in the smaller organization
 Operations management is just as important in small
organizations as it is in large ones. Irrespective of their size,
all companies need to produce and deliver their products and
services efficiently and effectively.
 In practice, managing operations in a small or medium-size
organization has its own set of problems. Large companies
may have the resources to dedicate individuals to specialized
tasks but smaller companies often cannot, so people may
have to do different jobs as the need arises.
Such an informal structure can allow the company to
respond quickly as opportunities or problems present
themselves. But decision making can also become
confused as individuals’ roles overlap.
Small companies may have exactly the same
operations management issues as large ones but they
can be more difficult to separate from the mass of
other issues in the organization. However, small
operations can also have significant advantages;
Operations management in not-for-profit organizations

 Terms such as competitive advantage, markets and business

are usually associated with companies in the for-profit sector.
 Yet operations management is also relevant to organizations
whose purpose is not primarily to earn profits. Managing the
operations in an animal welfare charity, hospital, research
organization or government department is essentially the same
as in commercial organizations.
 Operations have to take the same decisions – how to
produce products and services, invest in technology,
contract out some of their activities, devise performance
measures, and improve their operations performance and so
on.
Strategic objectives of not-for-profit
organizations
 More complex and involve a mixture of
 political,
 economic,
 social and
 environmental objectives
 a greater chance of operations decisions being made under
conditions of conflicting objectives. So, for example, it is the
operations staff in a children’s welfare department who have
to face the conflict between the cost of providing extra social
workers and the risk of a child not receiving adequate
protection.
Responsibilities of an Operations Manager
 “As the Operations Manager … you will be a key
member of the management team, supporting the
General Manager to ensure that the centre runs
smoothly and efficiently by improving
profitability
 Specific responsibilities include:
◦ stock management, customer service, financial
performance, health and safety, facilities and HR.
 You will directly manage and develop a small team
which will include general assistants, a stock
controller and a goods inwards assistant.
Responsibilities of an Operations Manager
Main responsibilities:
◦ Delivering efficient stock & product management
& leading and managing staff efficiently whilst
adhering to LEAN Management Principles
◦ Setting and reviewing staff targets, to deliver
continual improvement.
◦ Fleet Management and the organization of the
delivery drivers’ routes in line with the LEAN
Management Principles
◦ Managing couriers efficiently to the benefit of the
Company
 Different Functional Areas of Operations
Management in Business Organizations
 Finance: This area is responsible for securing financial
resources at favorable prices and allocating those resources
throughout the organization.
 Marketing: This area is responsible for assessing consumer

wants and needs, and selling and promoting the

organization’s goods or services.
 Operations: This area is responsible for producing the

goods or providing the services offered by the organization.

In other words the role of operations management is to
transform a company’s inputs into the finished goods or
services.
Different Functional Areas of Business
Organization

ORGANIZATION

Finance Operations Marketing

The transformation Process----
Creation of Goods and Services
It involves:
 Inputs: That is capital, labor, land and

information
 Transformational Processes: That is storing,

transporting, cutting etc.

 Outputs: That is goods and services.
The Transformation Process
The Essence of Operations Function
 The essence of the operations function is to
add value during the transformation process.
 Value Added: It is the term used to describe

the difference between the cost of inputs and

the value or price of outputs.
or
 The net increase created during the
transformation of inputs into final outputs.
The Usage of Value-Added
Firms use the money generated by value-added for
 Research and development,
 Investment in new facilities and equipment,
 Worker salaries, and,
 Profits.
 Operations Processes Have
Different Characteristics
 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.

 The volume dimension
 The essence of high-volume burger production is McDonald’s,
which serves millions of burgers around the world every day.
 The first thing you notice is
◦ the repeatability of the tasks people are doing and the
systematization of the work where
◦ standard procedures are set down specifying how each part of the
job should be carried out.
◦ Also, because tasks are systematized and repeated, it is
worthwhile developing specialized fryers and ovens.
◦ All this gives low unit costs.
 The volume dimension
 Now consider a small local cafeteria serving a few ‘short-order’
dishes.
◦ The range of items on the menu may be similar
◦ the volume will be far lower,
◦ so the repetition will also be far lower and
◦ the number of staff will be lower (possibly only one person) and
therefore individual staff are likely to perform a wider range of
tasks.
◦ This may be more rewarding for the staff, but less open to
systematization.
◦ Also it is less feasible to invest in specialized equipment.
◦ So the cost per burger served is likely to be higher (even if the
price is comparable).
The variety dimension
 A taxi company offers a high-variety service. It is prepared to
pick you up from almost anywhere and drop you off almost
anywhere.
◦ To offer this variety it must be relatively flexible.
◦ Drivers must have a good knowledge of the area, and communication
between the base and the taxis must be effective.
◦ However, the cost per kilometre travelled will be higher for a taxi
than for a less customized form of transport such as a bus service.
◦ Although both provide the same basic service (transportation), the
taxi service has a high variety of routes and times to offer its
customers, while the bus service has a few well-defined routes, with
a set schedule. If all goes to schedule, little, if any, flexibility is
required from the operation.
 All is standardized and regular, which results in relatively
low costs compared with using a taxi for the same journey.
The variation dimension
 Consider the demand pattern for a successful summer
holiday resort hotel.
◦ At the height of ‘the season’ the hotel could be full to its capacity.
◦ Off-season demand, however, could be a small fraction of its
capacity. Such a marked variation in demand means that the
operation must change its capacity in some way.
 Compared with a hotel of a similar standard with level
demand.
◦ A hotel which has relatively level demand can plan its activities well
in advance. Staff can be scheduled, food can be bought and rooms
can be cleaned in a routine and predictable manner. This results in a
high utilization of resources and unit costs which are likely to be
lower than those in hotels with a highly variable demand pattern.
 The visibility dimension
 Visibility is a slightly more difficult dimension of operations to envisage.
◦ how much of the operation’s activities its customers experience, or
◦ how much the operation is exposed to its customers.
 Generally, customer-processing operations are more exposed to their customers
than material- or information-processing operations. But even customer processing
operations have some choice as to how visible they wish their operations to be.
 For example, a retailer could operate
◦ high-visibility ‘bricks and mortar’. In the ‘bricks and mortar’, high-visibility
operation, customers will directly experience most of its ‘value-adding’ activities. Customers
will have a relatively short waiting tolerance, and may walk out if not served in a reasonable
time.
◦ Customers’ perceptions, rather than objective criteria, will also be important.
◦ If they perceive that a member of the operation’s staff is discourteous to them, they are likely to
be dissatisfied (even if the staff member meant no discourtesy), so high-visibility operations
require staff with good customer contact skills.
◦ Customers could also request goods which clearly would not be sold in such a shop, but because
the customers are actually in the operation they can ask what they like! This is called high
received variety.
◦ This makes it difficult for high-visibility operations to achieve high productivity of resources,
so they tend to be relatively high-cost operations.
The visibility dimension

◦ Lower-visibility web-based operation

◦ Conversely, a web-based retailer, while not a pure low-contact
operation, has far lower visibility.
◦ Time lag between the order being placed and the items ordered by
the customer being retrieved and dispatched does not have to be
minutes as in the shop, but can be hours or even days.
◦ This allows the tasks of finding the items, packing and dispatching
them to be standardized by staff who need few customer contact
skills. Also, there can be relatively high staff utilization.
 The activities of operations
management
 ● Understanding the operation’s strategic performance objectives.
The first responsibility of any operations management team is to understand
what it is trying to achieve. This means understanding how to judge the
performance of the operation at different levels, from broad and strategic to more
operational performance objectives.
 ● Developing an operations strategy for the organization.
Operations management involves hundreds of minute-by-minute decisions, so it
is vital that there is a set of general principles which can guide decision-making
towards the organization’s longer-term goals. This is an operations strategy.
 ● Designing the operation’s products, services and processes.
Design is the activity of determining the physical form, shape and composition
of products, services and processes. It is a crucial part of operations managers’
activities.
 The activities of operations
management
 ● Planning and controlling the operation.
Planning and control is the activity of deciding what the operations resources
should be doing, then making sure that they really are doing it.
 ● Improving the performance of the operation.
The continuing responsibility of all operations managers is to improve the
performance of their operation.
 ● The social responsibilities of operations management.
It is increasingly recognized by many businesses that operations managers have
a set of broad societal responsibilities and concerns beyond their direct activities.
The general term for these aspects of business responsibility is ‘corporate social
responsibility’ or CSR. It should be of particular interest to operations managers,
because their activities can have a direct and significant effect on society.
 TYPE OF OPERATIONS
Type of Operations Examples
 Goods Producing  Farming, mining, construction,
manufacturing, power generating.
 Warehousing, Trucking, mail service,
 Storage/
moving, taxis, buses, hotels, airlines
Transportation  Retailing,
 Exchange
Wholesaling, financial
advising, renting, leasing, library
loans, stock exchanges.
 Films, radios, television plays,
 Entertainment concerts
 Newspapers, TV newscasts

 Communication telephone, satellites, the internet

 The Operations Function
 The operations function include all the
activities directly related to producing goods
or providing services
 Goods-Oriented: It exists both in
manufacturing and assembly operations.
 Service-Oriented: Include areas such as
health care, transportation, food handling,
and retailing
 System Design
System design involves decisions that relate to:
 System capacity
 The geographic location of facilities
 Arrangement of departments
 Placement of equipment within physical structure
 Product and service planning
 Acquisition of equipment
The Basic Issues Involved in Design and Operating
Decisions -----Design

Decision Area Basic Issues

 Product and service design  Customer demands,
improvement of products

 Capacity  Capacity needed and how the

organization best meet
capacity requirements.

 Process Selection
 What process should the
organization use?
 What is the best arrangement
 Process Layout
for departments, equipment?
The Basic Issues Involved in Design and Operating
Decisions -----Design

Decision Area Basic Issues

 Design of work  What is the best way to
systems motivate employees? How can
productivity be improved?

 Location  What is the satisfactory

location of the facility/store,
etc.?
The Primary Function of An Operations
Manager
 Tactical/Operational Decisions: Such
decisions are specific and short-term in
nature and are bound by strategic decisions.
 Such decisions typically pertain to the system

operation.
 System Operations
System operations involve decisions that relate to:
 Management of personnel
 Inventory planning and control
 Scheduling
 Project management
 Quality assurance
The Basic Issues Involved in Design and Operating
Decisions ----- Operations

Decision Area Basic Issues

 Quality  How is quality defined? How are
quality goods achieved and
improved?
 Quality Control
 Are processes performing
adequately? What standards should
be used?
 How to achieve effective flows of
 Supply Chain Management
information and goods throughout
the chain?
 How much to order? When to reorder?
 Inventory Management Which items should get the most
attention?
 How much capacity will be needed
 Aggregate Planning over the intermediate range?
 The Relationship Between Strategic and
Tactical Decisions

Strategic Decisions Tactical/Operational Decisions

• Broad in scope • Narrow in scope

• Long-term in nature • Short-term in nature
• All-encompassing • Concerning a small group of
issues
e.g., What are the unique features
of our product that make us e.g., Who will work the 2nd Shift
competitive? tomorrow?
 In what kind of decisions the operations
manager is involved?
 The operations manager is more involved in day-to-day
operating decisions than with decisions relating to system
design.
 However, the operations manager has a vital stake in
system design because system design essentially
determines many of the parameters of system operation.
 Other Areas That Are Part Of The
Operations Function
1. Purchasing: It has the responsibility for procurement of
materials, supplies, and equipment.
 Close contact with operations is necessary to ensure
correct quantities and timing of purchases.
 The purchasing department is often called on to evaluate
vendors for quality, reliability, service, price, and ability
to adjust to changing demand.
 Purchasing is also involved in receiving and inspecting
the purchased goods.
 Contd.
 Other Areas That Are Part Of The
Operations Function
2. Industrial Engineering: It is often concerned with
scheduling, performance standards, work methods, quality
control, and material handling.
3. Distribution: It involves the shipping of goods to
warehouses, retail outlets, or final customers.
4. Maintenance: It is responsible for general upkeep and
repair of equipment, buildings and grounds, heating and
air-conditioning, removing toxic wastes, parking and
perhaps security.
 The Importance of Operations
Management Organization and Society
Organization:
 Operations is the core function of an organization.
 Provide primarily services or create goods.
 Responsible for creating those goods or providing services.
 Major portion of the assets in most business organizations.
The Importance of Operations
Management Society
 Society:
 More than half of all employed people in most

countries have jobs in operations.

 Providing services and, the consumption of these goods

and services is an integral part of our society.

The Scope of
Operations Management
The Interrelated Activities:
o Forecasting
o Capacity planning
o Scheduling
o Managing inventories
o Assuring quality
o Motivating and training employees
Example of a Service Industry--
Airline Company
Forecasting
 Weather and landing conditions
 Seat demand for flights
 Growth in air travel
Example of a Service Industry---
Airline Company
Capacity Planning
 Ensuring the maintenance of cash flow and

generating reasonable profit.

 The adjustment of flight timings and

destinations that could maximize profits.

Example of a Service Industry--
Airline Company
Scheduling
 Maintenance of flight schedule
 Schedules of on duty pilots and flight
attendants
 Scheduling of ground crews, counter staff,

and baggage handlers.

Example of a Service Industry---
Airline Company
Managing Inventories
 Managing inventories such as:

Foods and beverages

First-aid equipment
In-flight magazines
Pillows and blankets
Life preservers
Example of a Service Industry--
Airline Company
Assuring Quality
 Quality Assurance: It is essential in flying and

maintenance operations.
 Emphasis

◦ safety
◦ dealing with customers at ticket counters,
◦ check-in,
◦ telephone,
◦ electronic reservations and
◦ taxi service where the emphasis is on efficiency and
courtesy.
Example of a Service Industry---
Airline Company
Motivating and Training Employees
 Employee motivation and training in all

phases of operations.
Example of a Service Industry--
Airline Company
Locating Facilities
Locating facilities according to manager’s
decisions on which cities to provide service
for, where to locate major and minor hubs.
Activities Involved in Operations
Function
• The operations function consists of all
activities directly related to producing goods
or providing services. Such activities include:
1. Development of idea for a product or service
2. Product verification and funding
3. Product Development
4. Product Production
5. Product Distribution
Contd.
Summary
Operations Management involves:
 Product and Service design
 Process selection
 Selection and management of technology
 Design of work systems
 Location planning
 Facilities planning
 Quality improvement of the organization’s

products and services

So…. What is the Aim of the Course?

 to develop your knowledge and understanding key

principles, concepts & processes associated with
◦ operational planning, control and improvement of
‘efficiency’ of business operations.
 to deepen your understanding of the strategic
importance of operations management for
competitive success in a global economy.
 Recommended Journals: Do you know
how to access them??
 Journal of Operations Management
 International Journal of Operations & Production Mgt
 International Journal of Quality and Reliability Mgt
 International Journal of Productivity & Performance Mgt
 Managing Service Quality
 Total Quality Management
 Total Quality Management and Business Excellence
 The Service Industries Journal
 The TQM Magazine

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IKEA CASE STUDY Questions
1. What major issues were faced by management during
operation of business?
2. What major changes been introduced to solve these
operations problems?