Operations

Management
 CHAPTER ONE
NATURE OF OPERATIONS
MANAGEMENT

2
 1.1. Introduction
•Today companies are competing in a very different
environment than they were only a few years ago.

•Production and operations management has seen

many innovations in recent years, becoming a topic of
critical importance in business today.
•Demands for business reengineering,
quality,

•time-based competition,
•value-adding processes, and
•a global view have demonstrated that
superior management of the operations
function is vital to the survival of the firm.
 1.2 What is Operations Management?

The best way to understand the nature of

operations’ is to look around you.
Everything you can see around you has been
processed by an operation.
Every service you consumed today
(health care service, bus service,
hotel service ,lecture, etc.) has also been
produced by an operation.
 1.2 What is Operations
Management?
Every business is managed through three major functions:
finance, marketing, and operations management.

•Other business functions such as accounting,

purchasing, human resources, and engineering support
these three major functions.
 Cont’d…
•Finance is the function responsible for
managing cash flow, current assets, and
capital investments.

• Marketing is responsible for sales, generating

customer demand, and understanding customer
wants and needs.
 President

Operations
Marketing V.P. of Operations
V.P. of Marketing Manages: - people Finance
Manages: -equipment V.P. of Finance
-customer demands - technology Manages:
Generates: - materials -cash flows
-sales for goods and -current assets and
and services -information -capital investments
To produce: goods
and/or services

Figure 1.1 Organizational chart showing the three major business functions
 Cont’
OM is defined as the design, operations, and improvement of
d…the
systems that create and deliver the firm’s primary products

a• nd services (Chase et.al, 2005).

•In other way, OM is the business function that plans,

organizes, coordinates, and controls the resources needed to
produce a company’s goods and services.

•Like marketing and finance, OM is a functional field of business

with clear line management responsibilities.
 Cont’d
…
•It is a management function it involves managing people,
equipment, technology, information, and many other
resources.

•Operations management is the central core function

of every company.

•This is true whether the company is large or small,

provides a physical good or a service, is for profit or
not for profit.
 Cont’d…

•Every company has an operations management

function.
•Actually, all the other organizational functions are
there primarily to support the operations function.
•Without operations, there would be no goods or
services to sell.

•In general OM focuses on the process or transformation

of goods and service.
1.4 The Role of Operations Management

The role of operations management is to transform a

company’s inputs into the finished goods or services.

•Inputs include human resources (such as workers and

managers),
•facilities and processes (such as buildings and
equipment), as well as materials, technology, and
information.
•Outputs are the goods and services a company
produces.
 Cont’d
…
•Operations management is responsible for orchestrating all the
resources needed to produce the final product. This includes
•designing the product
•deciding what resources are needed
•arranging schedules, equipment, and facilities
•managing inventory
•controlling quality
•designing the jobs to make the product and
•designing work methods.
 Figure 1.2 The transformation Process

Customer feedback

Inputs
-Human resource Outputs
The • Goods
-Facilities and process Transformatio • Services
-Technologies n process

-Materials

Performance information
Table 1.1 Examples of productive systems their inputs, transformation process and outputs.

System Primary Inputs Transformation Typical Output

Functions

Hospital Patients MDS, Examination, Healthy individual

Nurses, Medical surgery, monitoring
supplies, , medication and
Equipment Therapy

Restaurant Hungry Customers Well prepared well Satisfied customers

Food, chef, wait- served food
staff, environment agreeable
environment
(physical and
exchange
 Cont’d….
Automobile factory Sheet steel, engine Fabrication and High quality
parts
Tools,
assembly of cars
physical)
.automobile

equipment,
workers
University BA graduates Imparting knowledge Educated individuals
Teachers book, and skills via lecture
classrooms, LCD (informational)

Department store Shoppers, Displays, Attract customers Sales to satisfied

stocks of goods, sales promote products fill customers
person, clerks orders (exchange)

Airline Travelers, Airplanes, Move to destination On-time, safe

crews , scheduling/ delivery to
ticketing systems
luggage destination
 Cont’d
…
•In general, transformation processes
can be categorized as follows:
• Physical (as in manufacturing)
• Location (as in transportation)
• Exchange (as in retailing)
• Storage (as in warehousing)
• Physiological (as in health care)
• Informational (as in telecommunications)
Manufacturing and Service Operations

Organizations can be divided into two broad

categories:

Manufacturing Service
Manufacturing and Service Operations

•Manufacturing implies production of a

tangible output (i.e. something that can
be seen or touched)
•Service on the other hand, generally
implies an act.
•Examples here include a doctor’s
examination, TV and auto repair, lawn
care and accommodation in a hotel.
 Manufacturing vs. Service?
Manufacturing and Service Organizations
differ chiefly because manufacturing is goods-
oriented and service is act-oriented.

Goods Services

Tangible Act-Oriented
 Cont’d
•The majority of service jobs fall into the …
following categories:
•Education (schools, colleges, universities, etc.)
•Business services (data processing, delivery,
employment agencies, etc.)
•Personal services (laundry, dry cleaning, hair/
beauty, gardening etc)
•Health care (doctors, dentists, hospital care, etc)
•Financial services (banking, stock brokerages,
insurance, etc)
•Wholesale / retail (clothing, food, appliances,
stationeries, toys, etc)
•Government (federal, state, local)

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The difference between Manufacturing
& service operation
•First, manufacturing organizations produce
physical, tangible goods that can be stored in
inventory before they are needed.

•By contrast, service organizations produce

intangible products that cannot be produced ahead
of time.

•Second, in manufacturing organizations most

customers have no direct contact with the operation.
 Cont’d…
•Customer contact is made through
distributors and retailers.
• However, in service organizations the
customers are typically present (inputs)
during the creation of the service.
•Hospitals, colleges, theaters, and barbershops
are examples of service organizations in
which the customer is present during the
creation of the service.
•Third, service operations are subject to greater
variability of input than typical manufacturing
operations.

•Manufacturing operations often have the ability to

carefully control the amount of variability of inputs
and thus achieve low variability in outputs.

•Consequently, job requirements for manufacturing are

generally more uniform than those for services.
•Fourth, because of the on-site consumption of
service and the high degree of variation of
inputs, service require a higher labour content
•whereas manufacturing, with exceptions,
can be more capital intensive (i.e.,
mechanized).
•Fifth, measurement of productivity is more
straightforward in manufacturing due to the
high degree of uniformity of most
manufactured items.

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•In service operations, variations in demand
intensity and in requirements from job to job
make productivity measurement considerably
more difficult.
 Cont’d
…
•The final distinction between manufacturing
and service operations relates to the
measurement of quality.
•Since manufacturing systems tend to have
tangible products and less customer contact,
quality is relatively easy to measure.
•However,the quality of service
systems, which generally produce
intangibles, is often very difficult to
measure.

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 Distinctions between manufacturing and service
Characteristics Manufacturing operation Service operation
Product Tangible, durable product Intangible,
perishable product
Inventory Output can be inventoried Output cannot
be inventoried
Customer contact Low High
Uniformity of input High Low
Intensity Capital intensive Labour intensive
Measurement of Easy Difficult
productivity
Quality Quality easily measured Quality not
measuremen easily measured
t
1.7 Operations Decision Making
•All good managers perform basic functions of the
the
management process.
of planning, organizing,
•The management process

consists staffing, leading, and

•Operations managers apply this management process to
controlling.
the

decisions they make in the OM functions.

•The 12 major decisions of OM are shown
in
Table 1.2.

•Successfully addressing each of these decisions

requires planning, organizing, staffing, leading
and controlling.

•Typical issues relevant to these decisions are also

presented.
 Cont’d
N Decisions areas Issues …
o.
1 Operations strategy What are the unique features of the business that will make
it competitive?
2 Product design What are the unique features of the product?
3 Process selection What are the unique features of the process that give the
product its unique characteristics?
4 Supply chain managements What sources of supply should we use to ensure regular and
timely receipt of the exact materials we need? How do we
manage these sources of supply?
5 Quality management How will managers ensure the quality of the
product, measure quality, and identify quality problems?
6 Forecasting What is the expected demand for the product?
7 Location analysis Where will the facility be located?
8 Capacity planning How large should the facility be?
9 Facility layout How should the facility be laid out? Where should the kitchen and
ovens be located? Should there be seating for customers?
10 Job design and What jobs will be needed in the facility, who should do what
work measurement task, and how will their performance be measured?
11 Inventory management How will the inventory of raw materials be monitored? When will
orders be placed and how much will be kept in stock?
12 Scheduling Who will work on what schedule?
 Production vs productivity
•The level of productivity, in the production,
determines the profitability, efficiency and
performance of the enterprise,
•i.e. the higher the productivity of the firm the
greater will be the earning capacity.
 Cont’d…
..
•It aims at determining the relationship between the input
and output, in a particular production process.

•In short, it is nothing but attaining the highest possible

outcome, while consuming minimum factors of
production.
 Productivity

•Productivity is often misconstrued with production,

but there exists a difference, in the sense that

•production indicates the volume of output,

•whereas productivity is the output generated from the
resources employed by the company.
The following table attempts to shed light on the
differences between production and
productivity.
In short, the efficiency
in production is
the firm’s
productivity.
 Measuring Productivity
•Productivity measures how well resources are used.

•It is computed as a ratio of outputs (goods and services)

to inputs (e.g., labor and materials).

•The more efficiently a company uses its resources, the

Productivity= Outp
more productive it is:

ut
Inpu
t
Productivity Measures
Some examples of partial productivity measures are as follows

Labor productivity Units of output per labor hour

Units of output per shift

Value- added per labor hour

Dollar value of output per labor hour

Machine productivity Units of output per machine hour

Dollar value of output per dollar input
Capital productivity Units of output per dollar input
Dollar value of output per dollar input
Energy productivity Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Have a nice
day!!!