Basic Concepts on Production and Operations Management

1. Why study production and operations management?

2. What is production and operations management?

• Operations as a competitive weapon is important to…

1. Accounting, which prepares financial and cost accounting information that aids operations managers
in designing and operating production systems.

The production system consists of inputs, processes, outputs, and information flows that connect with
customers and the external environment. It uses operation resources to transform inputs into desired
outputs. It is considered as the heart of Operations Management.

Inputs – includes human resources ( workers, managers ), capital (equipment, facilities), purchased
materials and services, land, and energy

- It may also be raw materials, a customer, or a finished product from another system

Process – any activity or group of activities that takes one or more inputs, transforms and adds value to
them, and provides output for a customer

2. Finance, which manages the cash flows and capital investment requirements that are created by the
operations function.

3. Human Resources, which hires and trains employees to match process needs, location decisions, and
planned production levels.

4. Management Information Systems, which develops information systems and decision support
systems for operations managers.

5. Marketing, which helps create the demand that operations must satisfy, link customer demand with
staffing and production plans, and keep the operations function focused on satisfying customer’s needs.

6. Operations, which designs and operates production systems to give the firm a sustainable competitive
advantage.

Note : In the past, the term production was considered to connote only the manufacture of tangible
items. Later, the term operations was added to include references to non-manufacturing operations

Examples of Non-Manufacturing Operations

• Health care, retail sales, food service, recreation, transportation, banking, hotel management

Production – creation of goods and/or services

Management - Denotes both FUNCTION and PEOPLE who discharge the functions

- A distinct process of planning, organizing, staffing, directing (actuating)and controlling for the
achievement of stated objectives efficiently and effectively by the use of human beings and other
business resources

Note: This broadened scope has given the field the name production/operations management or more
simply operations management

• What is Production/Operations Management?

- Set of activities that creates goods and services by transforming inputs into outputs involving
planning, coordinating, and executing of all activities

- The management of systems or processes that creates goods and/or services

- The design, operation and movement of the production systems that create the firm’s primary
product or service

• Operations resources consist of what we term Five P’s of OM

• People – direct and indirect workforce

• Plants – factories or service branches where production is carried out

• Parts – include the materials that go through the system

• Processes – equipment and steps by which production is accomplished

• Planning and Control system – procedure and information management used to operate the
system

Within the operations function, management decisions can be divided into three broad areas

a. Strategic (long term) decisions – Operations management decision at this level impacts the
company’s long-range effectiveness in terms of how it can address its customer’s needs. Thus,
for the firm to succeed, these decisions must be in alignment with the corporate strategy

b. Tactical (intermediate term ) decisions – primarily addresses how to efficiently schedule

materials and labor within the constraints of previously made strategy decisions

c. Operational planning and control (short term) decisions – issues at this level include:

- What jobs do we work on today or this week?

- Who do we assign to what tasks?

- What jobs are priorities?

Functions within Business Organizations

Note: Organizations are formed to pursue goals that are achieved more efficiently by the concerted
efforts of a group of people rather than by individuals working alone. They may be profit or non-profit
oriented.

1. Operations – consists of all activities directly related to producing goods or providing services

- Usually responsible for the actual transformation of inputs into finished

products/services

• Types of Operations

a. Goods Producing ( e.g. farming, mining, manufacturing)

b. Storage/Transportation ( e.g. warehousing, trucking, mail service, buses, hotel, airlines)

c. Exchange (e.g. retailing, wholesaling, banking, leasing, library, loans)

d. Entertainment (e.g. films, radio, TV, plays, concerts, recording)

e. Communication (e.g. newspapers, radio, TV, telephone, satellites)

2. Finance – secures and invests the company’s capital assets

Finance and operations management personnel cooperate by exchanging information and

expertise in activities such as:

A. Budgeting – budget must be periodically prepared to plan financial requirements

B. Economic analysis of investment proposal – evaluation of alternative investments in

plant and equipment requires inputs from both operations and finance people

C. Provision of funds – the necessary funding of operations and the amount and timing of
funding can be important and even critical when funds are tight

3. Marketing – consist of selling and/or promoting the g/s of an organization; generates demand for the
company’s output

- Responsible for assessing customer wants and needs for communicating to operations people

Note: The three major functions within a business are interdependent

• Having the financial resources and the ability to produce a product are of little value if there is
no market for the product

• Having the finance and a market for a product are of little value when one cannot provide the
product
 • The ability to produce a product and a market for the product are not sufficient if one does not
have the necessary capital to employ personnel, buy raw materials and put the other
capabilities into action.

Scope of Operations Management

The scope of OM ranges across organizations. OM people are involved in:

- Product and service design

- Process selection

- Selection and management of technology

- Design of work systems

- Location planning

- Facilities planning

- Quality improvement of products and services

The operations function includes many interrelated activities such as:

- Forecasting - scheduling

- Capacity planning

- Managing inventories

- Assuring quality

- Motivating employees

- Locating facilities

OM and Decision Making

Key decisions include:

1. What resources will be needed?

2. When will each resource be needed? When should the work be scheduled? When should
materials and other supplies be ordered? When is corrective action needed?

3. Where will the work be done?

4. How will the product or service be designed? How will the work be done? How will resources be
allocated?
5. Who will do the work?

General Approaches to Decision Making:

1. Models

2. Quantitative Approaches

3. Performance metrics

4. Analysis of Trade-Offs

5. Degree of Customization

6. Systems Approach

7. Establishing priorities

Models – an abstraction of reality, a simplified representation of something

Classifications:

1. Physical models-look like the real-life counterparts ( miniature cars,toy animals, scale-model
bldg.,etc.)

2. Schematic models – are more abstract that their physical counterparts (e.g. graphs, charts, blueprints,
etc.)

3. Mathematical models – are the most abstract (e.g. numbers, formulas, symbols)

Quantitative Approaches to decision making in operations management have been accepted because of
calculators and computers capable of handling the required calculations.

Performance metrics are used to manage and control operations (e.g. metrics related to profits, costs,
quality, etc.)

Analysis of Trade-Offs

- Decision makers compare the pros and cons of a course of action to better understand the
consequences of the decisions they make

Degree of Customization

- Highly customized products and services generally is more time consuming, requires highly
skilled people, and involves more flexible equipment than standardized ones.

Systems Approach
- Emphasizes interrelationships among subsystems but its main theme is the whole is greater than the
sum of its individual parts.

Establishing priorities

- Managers recognizing the importance of a certain issue than others enable them to direct their efforts
to where they will do the most good.