Operations Management

Lesson 1 Fundamentals of Operations Management

Prepared by Sudarsan Jayasingh

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Learning Objectives
What you will learn in this unit:  Define Operations Management?  The role and activities of operation management  The input-transformation-output model  Difference between goods and services  What is Operations strategy  Performance objectives of operations strategy  Productivity Measurement

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2001) 3 .” (Slack.What is Operations Management? “ Operation Management is the set of activities that create goods and services through the transformation of inputs into outputs.

Typical Organization Chart Source: Reid and Sanders. 2005. 4 .

5 . services and processes Planning and controlling the operation Improving the performance of the operation.Activities of Operations manager      Understand the operation’s strategic objectives Developing an operation’s strategy for the organization Designing the operation’s products.

Some Activities of Ikea Operations Manager Design elegant products which can be flat packed efficiently Storage Quality Design Store Layout Site Location 6 .

OM’s Transformation Role Source: Reid and Sanders. 2005. 7 .

The input-transformation-output model Transformed resources Materials Information Customers Input Transforming resources Facilities Staff Transformation process Output Goods and services Source: Slack. 2001 .

plant and process technology etc. Facilities and staff are the two types of transforming resources. 9 . maintain.. transformed or converted in some way.Inputs Transformed resources – the resources that are treated. Transforming resources – the resources that act upon the transformed resources. equipment. The transformed resources which operations take in are usually a mixture of materials. plan and manage the operation. Facilities include building. Staff includes all those who operate. information and customers.

2001 .The output from most operations is a mixture of goods and services PURE GOODS CRUDE OIL PRODUCTION ALUMINIUM SMELTING SPECIALIST MACHINE TOOL MANUFACTURER Tangible Can be stored Production precedes consumption Low customer contact Can be transported Quality is evident RESTAURANT COMPUTER SYSTEMS SERVICES PSYCHOTHERAPY CLINIC MANAGEMENT CONSULTANCY Intangible Cannot be stored Production and consumption are simultaneous High customer contact Cannot be transported Quality difficult to judge PURE SERVICES Source: Slack.

and location issues All have customers and suppliers All have scheduling and staffing issues 11 . productivity. & response issues All must forecast demand Each will have capacity. layout.SimilaritiesService/Manufacturers       All use technology Both have quality.

Historical Development of OM               Industrial revolution Late 1700s Scientific management Early 1900’s Human relations movement 1930s to 1960s Management science Mid-1900s Computer age 1970s Just-in-Time Systems (JIT) 1980s Total quality management (TQM) 1980’s Reengineering 1990s Flexibility 1990s Time-Based Competition 1990s Supply chain Management 1990’s Global Competition 1990s Environmental Issues 1990s Electronic Commerce Late 1990s 12 .

Today’s OM Environment    Customers demand better quality. faster deliveries. and lower costs Increased cross-functional decision making Recognized need to better manage information using ERP and CRM systems 13 .

The activities of operations management ENVIRONMENT INPUT TRANSFORMED RESOURCES MATERIALS INFROMATION CUSTOMERS OPERATIONS STRATEGY IMPROVEMENT DESIGN PLANNING AND CONTROL INPUT FACILITIES STAFF INPUT TRASNFORMED RESOURCES GOODS OUTPUT AND SERVICES ENVIRONMENT 14 .

supply chain management. TQM. and environmental changes OM works closely with all other business functions 15 . and service companies are tangibility of product and degree of customer contact Historical milestones range from 1700s Industrial Revolution to the modern Electronic Commerce age OM must understand and implement major process changes like JIT.Highlights       OM is function that manages the resources that add value Its role is to transform inputs into products or services Key differences between mfg.

and support.Operations Strategy  Operations strategy is the total patterns of decisions and actions which set the role. the organisation’s business strategy 16 . objectives and activities of the operation so that they contribute to.

Operations Strategy – Designing the Operations Function 17 .

at competitive prices Operations Structure Operations Strategy – Short cycle times – Low inventory levels – – – – EDI Fast transportation system Focused locations Communication between retail stores 18 .The Wal-Mart Strategy and Operations Structure Corporate Strategy (Gain competitive advantage by) providing customers access to quality goods. when and where needed.

19 . 2005). The capability of a firm in managing their operation can be transform into their competitive advantage if there can identify and tap into their intangible resources.Competitive Advantage Competitive advantage is term as the extra edge that a firm has over their industry peers (Reid and Sanders.

2005.The Edge   Four Important Operations Questions: Will you compete on – Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs? 20 Source: Reid and Sanders. .Competitive Priorities.

Competitive Priorities.The Edge 0r Performance Objectives Quality  Time (Speed and  Dependability) Flexibility  Cost  21 .

Lower prices (or higher profits) Cost Speed Dependability Faster customer response On-time deliveries Quality Error-free products and services Flexibility Wider variety More customisation More innovation Cope with volume fluctuations 22 .

g.g. Coke and Pepsi are good examples Can you offer design flexibility and short delivery? e. Must have excellent quality since everyone expects it Which priorities are “Order Winners”? e.g.Are There Priority Tradeoffs?  Which priorities are “Order Qualifiers”? e. modular housing manufacturers do it    23 . Yes. Yes.g. Dell competes on all four priorities Southwest Airlines competes on cost McDonald’s competes on consistency FedEx competes on speed Custom tailors compete on flexibility Can you have both high quality and low cost? e.

2005.Measuring Productivity  Productivity is a measure of how efficiently inputs are converted to outputs Productivity = output/input  Total Productivity Measure Total Productivity = $sales/inputs $  Partial Productivity Measure Partial Productivity = cars/employee  Multifactor Productivity Measure Multi-factor Productivity = sales/total $costs Source: Reid and Sanders. 24 .

environment.Highlights     Business Strategy is a long range plan. quality. and flexibility Productivity measures how effectively a firm is using resources Productivity is computed as a ratio of outputs divided by inputs 25 . and core competencies Business strategy provides a guide for designing operations strategy Operations strategy must consider which competitive priorities are essential to meet business objectives    Competitive priorities are cost. Functions develop supporting plans Strategy must address mission. time.

26 . (2002) Operations Management. Prentice Hall. Slacks Nigel and Lewis Mike..D. and Sanders N. 2nd Edition. R. (2005) Operations Management. Wiley Publication.References   Reid R..

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