Unit 1: Introduction to Operations

Management

This unit covers:

• Operations and Productivity (Chapter 1)

• Operations Strategy in a Global
Environment (Chapter 1)

By the end of this unit you should be able to:

• Explain the concept of Operations Management

• Explain the difference between a good and a service
• Calculate various measures of productivity

Respond to the discussion questions by Friday and respond to other participants

by Sunday. Answer unit assignment/ practice questions/ group assignment by
the following Thursday unless otherwise stated.

1. Operations Management

What is operations management?

• Production = Creation of goods and services

• Operations Management = Set of activities that create goods and services
by transforming inputs into outputs
• Manufacturing – Transformations is obvious whereas for services it is less
obvious

Historical Perspective

• Eli Whitney (1800) – Interchangeable, standard parts – govt contract for

10,000 muskets

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 • Frederick W Taylor (1881) – Father of scientific management – personnel
selection, planning and controlling, motion study and ergonomics
• Henry Ford and Charles Sorensen – Standardised parts/quasi assembly
lines
• Walter Shewart (1924) – Quality control, statistics, statistical sampling in
quality control

Operations Management Role?

• Management Process – Planning, Organising, Staffing, Leading,

Controlling
• Quality Management – Quality definition, responsibility for quality
• Service/Product Design – Product offerings, should products/services be
designed?
• Process and Capacity Design – Process order/necessary equipment
technology
• Location – Where to locate? How do evaluate the decision?
• Layout design – How should the facility be arranged? How large should
the facility be?

Operations Management Role?

• Human Resource and Job Design – Good work environment/ employee

expectations?
• Supply chain management – make or buy decisions, establishment of
critical few suppliers
• Inventory/MRP/JIT – How much inventory should we have? When should

• we order?
• Scheduling – Production subcontracting? Layoffs during production
downturns?
• Project Management – How do we plan to get things done

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Common Functions in any company

• Operations – Creation of product/service

• Marketing – Generation of demand/receives the order
• Finance/accounting – collects the money/pays the bills

New trends in Operations Management

• Global focus – Decrease communication and transport costs

• JIT Performance – Cutting inventories, increase deliveries
• Supply-Chain partnering – Increased supplier involvement
• Rapid product development – Faster more effective design management
• Mass customization – Increased manufacturing/ Service flexibility
• Empowered Employees – More competent workforce

Operations in the Service Sector

• Inconsistent definition = Inconsistent Data

• Manufacturing companies become more service oriented
• Services = Food/Lodging, transport, insurance, real estate

Difference between goods and services

• Services = Intangible
• Services are produced and consumed simultaneously, no inventory
• Services often unique
• Services = High customer interaction
• Services = Knowledge based

Productivity

• Productivity – Ratio of output to inputs = Output/Inputs

• Operations Management Role – Increased Productivity
• Productivity Improvement

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 • Reduction in inputs
• Increase in outputs
• Increased productivity – Increased standard of living

Productivity Measurement

• Direct – labour hrs/ton or lbs of sugar/KWh

Productivity Measurement problems

• Quality changes despite variable consistency

• External factors
• Precise units of measure lacking
• Generally difficult to measure in the service sector

Productivity Variables

• Labour
• Capital
• Management

Productivity variables – Labour

• Key factors
• Basic education
• Labour force diet
• Social overhead
• Maintaining and enhancing labour skills

Productivity variables – Capital

• Capital investment provides tools for job completion

• Inflation and taxes increased capital costs

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 • Use of labour as opposed to capital is short term fix only

Productivity and the service sector

• Difficulties
• Labour intensive
• Individual processing
• Professional intellectual tasks
• Difficult to mechanise and automate
• Difficult to evaluate for quality

2. Operations Strategy in a Global Environment

Operations management and its business fit

• Mission – Operations management must have a clear mission

• Strategy – Must have a strategy to achieve the mission

Operations management mission

• Mission – Defines organization’s purpose

• Rationale for organisation’s existence
• Makes development of a good strategy easier
• Organisational mission supported by functional mission
• Differentiation/Cost leadership/Quick response

Operations Management Strategy

• Strategy should follow mission development

• Strategy – Organization’s action plan to achieve the mission
• Operations Managers translate strategic concepts into tangible tasks

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 • Aim is to create competitive advantage

Key Strategy elements in successful enterprise

• High product quality

• High capacity utilization
• High operating effectiveness
• Low investment intensity
• Low direct cost per unit

Preconditions for strategy implementation

• Competitor strength and weaknesses

• Environmental, technical and legal issues
• Product life cycle
• Resource available in firm
• Integration of OM strategy with company strategy

Strategy and the Product life cycle

• Product life cycle impact business/OM Strategy