Introduction to Operations

Management

Prof. Chandana Perera

 The Operations Function
• Operations as a transformation process

• Operations as a basic function

• Operations as a core function

Operations as a Transformation
Process

INPUT Transformation OUTPUT

process

Material Feedback Goods

Machines or
Labor Services
Management
Capital
 All operations are transformation
processes
TRANSFORMED
ENVIRONMENT
RESOURCES

MATERIALS
INFORMATION
CUSTOMERS

TRANSFORMATION GOODS
INPUT OUTPUT AND
PROCESS
SERVICES
FACILITIES
STAFF

TRANSFORMING
RESOURCES
ENVIRONMENT
 Transformation Processes
• Physical (manufacturing)
• Locational (transport/storage)
• Exchange (retail)
• Physiological (healthcare)
• Psychological (entertainment)
• Informational (communications)
Operations as a Basic Function

OPERATIONS

MARKETING FINANCE
 Where does the business get its
competitive advantage?

The
“technological”
specification of its Product/
product/service? Service
Technology

The way it
produces its
goods and
Marketing Operations services?
The way it
positions itself
in its market?
 Operations Management – Basic Principles

Materials Operations
management is
Information concerned with Products and
producing and services
Customers delivering products
and services

All types of enterprise have an operations function, even if

it isn’t called ‘operations.
Most operations produce both products and services.
What is Operations Management?
Operations management (OM) is defined as

the design, operation, and improvement of the

systems that create and deliver the firm’s

primary products and services.

Operation: planning and controlling

 Some operations management activities
at a Department Store
Design a store layout
which gives smooth Ensure that the jobs of
Design elegant
and effective flow all staff encourage their
products which can be
flat-packed efficiently contribution to
business success

Site stores of an
Continually examine
appropriate size in
and improve
the most effective
operations practice
locations

Maintain
Monitor and enhance
cleanliness and
quality of service to
safety of storage
customers
area Arrange for fast
replenishment of
products
Levels of Operations Management

• Strategic (long-term)
– Long term capacity planning, Process
selection…..
• Tactical (medium-term)
– Production plan for 6 month, HR plan for next
quarter
• Operational (short-term)
– Weekly production schedule, Allocation of
workers for machines……
 OM in the Organizational Chart
(Manufacturing)

Plant
Marketing Finance
Manager

Disbursements
Sales
Production Quality Engineering
Selling Promotion Advertising Purchasing Manufacturing Credit
Control Assurance Support
Fund Control
Source of Funds
Capital
Requirements

Training Scheduling Tooling

Operation Materials Assembly
Control Fabrication
 OM in the Organizational Chart
(Service)

Operations Sales (Traffic)

Finance
Manager

Engineering Maintenance Ground Flight Traffic Sales Advertising Financial Accounting

Operations Operations Administration Management

New Equipment Line Station Flying Reservations Passenger Sales Direct Mail Cash Control Revenue
Modification of Maintenance Maintenance Food
Communication Schedules TariffsCargo Newspapers & New Financing Disbursement
Equipment Overhaul and CommissaryDispatching Periodicals Radio Foreign -
Sales General
Communications and TV Exchange
Ledger
Engineering Sales Promotion
 Service or Good?

• “If you drop it on your foot, it won’t hurt

you.” (Good or service?)

• “Services never include goods and goods

never include services.” (True or false?) ....
 What about McDonald’s?

• Service or Production Organization?

• The Company Produces Tangible Products

• Why is McDonald’s a service business?

....
 The output from most types of operation is a
mixture of goods and services
Pure goods
Crude oil production

Tangible
Can be stored
Aluminium smelting

Specialist machine tool Production precedes

consumption
Low customer
manufacturer

contact
Can be transported
Quality is evident
Restaurant

Computer systems
services

Intangible
Management

Psychotherapy clinic
consultancy
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to
judge
Pure services
Product & Service Classification
• Make-to-stock
–make in anticipation of demand
• Make-to-order
–make to customer specifications after order
received
• Assemble-to-order
–assemble make-to-stock components according
to customer specification
 Dimensions of Operations
IMPLICATIONS IMPLICATIONS
Low repetition High repeatability
Each staff member Low Volume High Specialization
performs more of job Systemization
Less systemization Capital intensive
High unit costs Low unit cost

Well defined
Flexible
Routine
Complex High Variety Low Standardized
Match customer needs
Regular
High unit cost
Low unit costs

Changing capacity Stable

Anticipation Routine
Flexibility High Variation in demand Low Predictable
In touch with demand High utilization
High unit cost Low unit costs

Time lag between

Short waiting tolerance production and
Satisfaction governed by consumption
customer perception Standardized
Customer contact skills Low contact skills
needed High Visibility Low
High staff utilization
Received variety is high
Centralization
High unit cost
Low unit costs
Low Volume High

High Variety Low

High Variation Low

High Visibility Low

Island
Resort Budget
Hotel Hotel
Significant Events in OM

Beyond 2010?

Industry 4.0
 Competitive Priorities
(Performance Objectives)
• Price ->Cost
• Quality
– high performance design; conformance to specs
• Delivery
– Speed; Dependability (Reliability)
• Flexibility
– Volume, Mix, New Product Intro
• Service
Relative importance of performance
objectives
The influence of the The influence of the
Organization’s Organization's
customers competitors

The relative
importance of each
performance objective
to the operation

The stage of the organization’s products and

services in their life cycle
Order Qualifiers and Winners
•Order qualifiers?
•They are the basic criteria that permit the
firms products to be considered as candidates
for purchase by customers.

•Order winners?
•They are the criteria that differentiates the
products and services of one firm from
another.
 Life Cycles of Products or Services

Maturity
Demand

Decline

Growth

Introduction
Time
 Dealing with Trade-offs
Cost
Traditional
Approach
Flexibility Delivery

Quality

World Class Manufacturing

FOCUS FOCUS

Advanced Approaches
FOCUS FOCUS
Trade-offs
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World-Class Manufacturing

World-class manufacturers no longer view

cost, quality, speed of delivery, and even
flexibility as tradeoffs.
They have become order qualifiers.

What are the order winners in today’s market?

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 Service Breakthroughs

• Service can be an Travel

Planning
“order winner” Warranty

Leases

Roadside Loaner
Assistance Vehicles
 Business Strategy

Customer Needs Product/Service Plans Competitors’ Actions

Competitive Priorities

Operations Strategy
 Developing an Operations
Strategy
Operations Strategy: a plan for the design and
management of operations functions
– is developed after the business strategy
– focuses on specific capabilities which give it a
competitive edge – competitive priorities

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Operations Strategy – Designing the
Operations Function

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 Competitive Priorities- The Edge
• Key Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
Service?
• All of the above? Some? Tradeoffs?

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 The Need for Trade-offs
• Decisions must emphasize priorities that support
business strategy
• Decisions often required trade offs
• Decisions must focus on order qualifiers and order
winners
– Which priorities are “Order Qualifiers”?
Must have excellent quality since everyone expects it

– Which priorities are “Order Winners”?

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
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 Translating to Operations Requirements
• Specific Operation requirements include two
general categories
– Structure – decisions related to the production
process, such as characteristics of facilities
used, selection of appropriate technology, and
the flow of goods and services
– Infrastructure – decisions related to planning
and control systems of operations

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 Translating to Operations Requirements

• Dell Computer example – structure & infrastructure

– They focus on customer service, cost, and speed
– ERP system developed to allow customers to order
directly from Dell
– Product design and assembly line allow “make to
order” strategy – lowers costs, increases turns
– Suppliers ship components to a warehouse within 15
minutes of the assembly plant - VMI
– Dell set up a shipping arrangement with UPS

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 Strategic Role of Technology
• Technology should support competitive priorities
• Three Applications: product technology, process
technology, and information technology
– Products - Teflon, CD’s, fiber optic cable
– Processes – flexible automation, CAD
– Information Technology – POS, EDI, ERP, B2B

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