product or service.
Marketing includes advertising,
LESSON 1 – OPERATIONS AND
PRODUCTIVITY
OVERVIEW
Effective operations management helps with
employee engagement and defines the roles and
responsibilities within an organization. No matter
what challenges that an organization faces, a
strategic operations management plan in place
will ensure that employees’ workflow and company
production remain unaffected.
INTRODUCTION TO OPERATIONS
MANAGEMENT
What is operations?
The part of a business organization that is
responsible for producing goods or services.
How can we define operations management?
The management of systems or processes that
create goods and/or provide services.
Scope of Operations Management
The scope of operations management ranges
across the organization. The operations function
includes many interrelated activities such as:
(FACSMMD)
 Forecasting
 Capacity planning
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 And more
Basic Functions of the Business Organization
Organization
Marketing Operations Finance
MARKETING refers to activities a company
undertakes to promote the buying or selling of a
selling, and delivering products to consumers or
other businesses. Some marketing is done by
affiliates on behalf of a company. (Source:
Investopedia.com)
FINANCIAL MANAGEMENT means planning,
organizing, directing and controlling the
financial activities such as procurement and
utilization of funds of the enterprise. It means
applying general management principles to financial
resources of the enterprise. (Source:
Managementstudyguide.com)
HISTORICAL DEVELOPMENT
INDUSTRIAL REVOLUTION
Pre-Industrial Revolution
Craft production - System in which highly skilled
workers use simple, flexible tools to produce small
quantities of customized goods
• Some key elements of the industrial
revolution
o Began in England in the 1770s
o Division of labor - Adam Smith, 1776
o Application of the “rotative” steam engine,
1780s (converts the energy of pressurized
steam into mechanical rotary motion.)
o Cotton Gin and Interchangeable parts - Eli
Whitney, 1792 (process of separating cotton
fibers from their seeds, a task that was
previously labor-intensive and time-
consuming.)
• Management theory and practice did NOT
advance appreciably during this period
SCIENTIFIC MANAGEMENT
• Movement was led by efficiency engineer,
Frederick Winslow Taylor
o Believed in a “science of management”
based on observation, measurement,
analysis and improvement of work
methods, and economic incentives.
o MANAGEMENT is responsible for
planning, carefully selecting and training
workers, finding the best way to perform
each job, achieving cooperate between
 management and workers, and separating
management activities from work
activities.
o Emphasis was on maximizing output.
• Scientific Management – contributors
o Frank Gilbreth - father of motion studies
o Henry Gantt - developed the Gantt chart
scheduling system and recognized the
value of non-monetary rewards for
motivating employees. (Gantt Chart
Scheduling System - plan, schedule, and track
tasks, activities, and resources over time)
o Harrington Emerson - applied Taylor’s
ideas to organization structure
o Henry Ford - employed scientific
management techniques to his factories.
– Moving assembly line
– Mass production
HUMAN RELATIONS MOVEMENT
• The human relations movement emphasized
the importance of the human element in job
design.
o Lillian Gilbreth
o Elton Mayo – Hawthorne studies on worker
motivation, 1930
o Abraham Maslow – motivation theory,
1940s; hierarchy of needs, 1954
o Frederick Hertzberg – Two Factor Theory,
1959 (organizations should focus on improving
INFLUENCE OF JAPANESE MANUFACTURERS
Refined and developed management practices that increased productivity
o Credited with fueling the “quality revolution
o Just-in-Time production
Exhibit 1.1 Historical summary of operations management
DATE CONTRIBUTION
1776 Specialization of Labour in manufacturing
1799 Interchangeable parts, cost accounting
1832 Division of labour by skill; assignment of jobs by skill; basics of time study
1900 Scientific management time study and work study developed; dividing
planning and doing of work
1900 Motion of study of jobs
1901 Scheduling techniques for employees, machines jobs in manufacturing
1915 Economic lot sizes for inventory control
1927 Human relations; Hawthorne Studies
1931 Statistical interference applied to product quality; quality control charts
motivators rather than simply addressing hygiene
factors or maintenance factors.)
o Douglas McGregor – Theory X and Theory
Y, 1960s ("The Human Side of Enterprise" -
different assumptions about human nature and
behavior in the workplace, and the influence of
managers approach on leadership and employee
management.)
o William Ouchi – Theory Z, 1981 ("Theory Z:
How American Business Can Meet the Japanese
Challenge - draws on both Eastern and Western
management practices developed in response to
the post World War II)
DECISION MODELS & MANAGEMENT SCIENCE
• F.W. Harris – mathematical model for inventory
management, 1915 (minimizing inventory costs
while meeting demand.)
• Dodge, Romig, and Shewart – statistical
procedures for sampling and quality control,
1930s
• Tippett – statistical sampling theory, 1935
(using a subset to analyze and make conclusion
about the entire population.)
• Operations Research (OR) Groups – OR
applications in warfare
• George Dantzig – linear programming, 1947
(Linear programming is a mathematical technique
used to optimize resource allocation in situations
where there are linear relationships between
variables and constraints.)
CONTRIBUTOR
Adam Smith
Eli Whitney & others
Charles Babbage
Frederick W. Taylor
Frank B. Gilbreth
Henry L. Gantt
F.W. Harris
Elton Mayo
W.A. Shewart
 1935 Statistical sampling applied to control; inspection sampling plans H.F. Dodge & H.G. Roming
1940 Operations research applications in World War II P.M. Blacker & others
1946 Digital computer Johny Mauchlly and J.P. Eckert
1947 Linear Programming G.B. Dantzig, Williams &
others
1950 Mathematical programming, on-linear and stochastic processes A.Charnes, W.W. Cooper &
others.
1951 Commercial digital computer: large-scale computations available Sperry Univac
1960 Organizational behaviour: continued study of people at work L. Cummings, L. Porter
1970 Integrating operations into overall strategy and policy, computer W. Skinner J. Orlicky & G.
applications to manufacturing, scheduling, and control, Material Wright
Requirement Planning (MRP)
1980 Quality and productivity applications from Japan: Robotics, CAD-CAM W.E. Deming & J. Juran

GOODS-SERVICE CONTINUUM Manufacturing and

• Products are typically NEITHER purely Service Organizations
service- or purely goods-based. differ chiefly because
manufacturing is goods
oriented and service is
act-oriented.

The following characteristics can be

considered for distinguishing
Manufacturing Operations with Service
Operations:
Exhibit 1.2 Examples of Goods and Services
1. Tangible/Intangible nature of output
MANUFACTURING VS. SERVICE
2. Production and consumption
MANUFACTURING is characterized by
3. Nature of work (job)
tangible outputs (products). Consumption of
4. Degree of customer contact
outputs at overtime. Jobs useless labor and
5. Customer participation in
more equipment, little customer contact, no
conversion
customer participation in the conversion
6. Measurement of performance
process (in production). Sophisticated
7. Quality of output
methods for measuring production activities
8. Inventory accumulated.
and resource consumption as product are
made.
MANAGING SERVICES IS CHALLENGING
SERVICE is characterized by intangible
outputs. In addition, it possesses a potential 1. Jobs in services are often less structured
for high variability in quality of output. than in manufacturing
Production and consumption occur 2. Customer contact is generally much higher in
simultaneously. Jobs use more labor and less services compared to manufacturing
equipment, direct consumer contact, frequent 3. In many services, worker skill levels are low
customer participation in the conversion compared to those of manufacturing employees
process. Elementary methods for measuring 4. Services are adding many new workers in
conversion activities and resource low-skill, entry-level positions
consumption are used. 5. Employee turnover is high in services,
especially in low-skill jobs (employees leave an
organization and need to be replaced with new hires.)
 6. Input variability tends to be higher in many THE NEED FOR MANAGING THE SUPPLY CHAIN
service environments than in manufacturing
In the past, organizations did little to manage the
7. Service performance can be adversely
supply chain beyond their own operations and
affected by many factors outside of the manager’s
immediate suppliers which led to numerous
control (e.g., employee and customer attitudes)
problems:
SUPPLY CHAIN o Oscillating inventory levels (This means that
inventory levels rise and fall repeatedly rather
Supply Chain – a sequence of activities and
than remaining stable.)
organizations involved in producing and delivering a o Inventory stockouts (runs out of a particular
good or service. product and is unable to meet customer
demand.)
o Late deliveries
o Quality problems

SUPPLY AND DEMAND

Exhibit 1.3 Supply Chain Process

ELEMENTS OF SUPPLY CHAIN MANAGEMENT

(CCILLPPSFD)
1. Customers – what products/services do
customers want
2. Forecasting – predicting timing and volume
of customer demand
3. Design – incorporating customer wants,
manufacturability, and time to market
CONCEPT OF PRODUCTION
4. Capacity planning – matching supply and
PRODUCTION FUNCTION is ‘the part of an
demand
organization, which is concerned with the
5. Processing – controlling quality, scheduling transformation of a range of inputs into the
work required outputs (products) having the requisite
quality level’.
6. Inventory – meeting demand requirements
while managing costs PRODUCTION is defined as ‘the step-by-step
conversion of one form of material into another form
7. Purchasing – evaluating potential suppliers, through chemical or mechanical process to create or
supporting the needs of operations on purchased enhance the utility of the product to the user’. Thus,
goods and services PRODUCTION IS A VALUE ADDITION PROCESS.
8. Suppliers – monitoring supplier quality, on- At each stage of processing, there will be value
time delivery, and flexibility; maintaining supplier addition.
relations EDWOOD BUFFA defines production as ‘a process
9. Location – determining the location of by which goods and services are created’. Some
facilities examples of production are: manufacturing custom-
made products like, boilers with a specific capacity,
10. Logistics – deciding how to best move constructing flats, some structural fabrication works
information and materials for selected customers, etc., and manufacturing
standardized products like, car, bus, motor cycle,
radio, television, etc.
 Production System
The production system is ‘that part of an organization, which produces products of an organization. It is
that activity whereby resources, flowing within a defined system, are combined and transformed in a
controlled manner to add value in accordance with the policies communicated by management’.
A simplified production system is shown below:

Exhibit 1.4 Schematic Production System

• Feedback - measurements taken at various points in the transformation process

• Control - the comparison of feedback against previously established standards to determine if
corrective action is needed.
The production system has the following characteristics:
1. Production is an organized activity, so every production system has an objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and improve system
performance.
TRANSFORMATION AND VALUE ADDING ACTIVITIES
The objective of combining resources under controlled conditions is to transform them into
goods and services having a higher value than the original inputs. The transformation process applied
will be in the form of technology to the inputs. The effectiveness of the production factors in the
transformation process is known as PRODUCTIVITY. The productivity refers to the ratio between
values of output per work hour to the cost of inputs. The firm’s overall ratio must be greater than 1,
then we can say value is added to the product. Operations manager should concentrate improving the
transformation efficiency and to increase the ratio.

SCHEMATIC MODEL FOR OPERATIONS/PRODUCTION

 OPERATIONS MANAGEMENT OBJECTIVES RESOURCE UTILIZATION. Another major objective
Objectives of Operations Management can be of operating systems is to utilize resources for the
categorized into Customer Service and satisfaction of customer wants effectively. Customer
Resource Utilization. service must be provided with the achievement of
effective operations through efficient use of
CUSTOMER SERVICE. The first objective of resources. Inefficient use of resources or
operating systems is to utilize resources for the inadequate customer service leads to commercial
satisfaction of customer wants. Therefore, failure of an operating system.
customer service is a key objective of operations
management. The operating system must provide Operations management is concerned
something to a SPECIFICATION, which can satisfy essentially with the utilization of resources, i.e.
the customer in terms of cost and timing. Thus, obtaining maximum effect from resources or
providing the ‘right thing at a right price at the right minimizing their loss, underutilization or waste. The
time’ can satisfy primary objective. extent of the utilization of the resources’
potential might be expressed in terms of the
These aspects of customer service – specification, proportion of available time used or occupied, space
cost and timing – are described for four functions in utilization, levels of activity, etc. Each measure
Exhibit 1.7. They are the principal sources of indicates the extent to which the potential or capacity
customer satisfaction and must therefore be the of such resources is utilized. This is referred as the
principal dimension of the customer service objective of resource utilization.
objective for operations managers.
Operations management is concerned with the
Generally, an organization will aim reliably and achievement of both satisfactory customer service
consistently to achieve certain standards and and resource utilization. An improvement in one
operations manager will be influential in attempting will often give rise to deterioration in the other.
to achieve these standards. Hence, this objective will Often both cannot be maximized, and hence a
influence the operations manager’s decisions to satisfactory performance must be achieved on both
achieve the required customer service. objectives. All the activities of operations
management must be tackled with these two
PRINCIPAL PRINCIPAL CUSTOMER WANTS objectives in mind, and because of this conflict,
FUNCTION Primary Other Considerations
Considerations
operations managers will face many of the problems.
Manufacture Goods of a Cost i.e. purchase price or Hence, operations managers must attempt to
given, cost of obtaining goods. balance these basic objectives.
requested or Timing i.e. delivery delay
acceptable from order or request to
specification receipt of goods The Exhibit 1.8 summarizes the twin objectives of
Transport Management Cost i.e cost of movements. operations management. The type of balance
of a given, Timing i.e. established both between and within these basic
requested or 1. Duration or time to
acceptable move. objectives will be influenced by market
specification 2. Wait or delay from considerations, competitions, the strengths and
requesting to its weaknesses of the organization, etc. Hence, the
commencement
Supply Goods of a Cost i.e. purchase price or operations managers should make a contribution
given, cost of obtaining goods. when these objectives are set.
requested or Timing i.e. delivery delay
acceptable from order or request to
specification receipt of goods CUSTOMER SERVICE RESOURCE
Service Treatment of a Cost i.e cost of movements. OBJECTIVE UTILIZATION
given, Timing i.e.
OBJECTIVE
requested or 1. Duration or time to
acceptable move. To provide To achieve adequate
specification 2. Wait or delay from agreed/adequate levels levels of resource
requesting to its of customer service utilization (or
commencement (and hence customer productivity) e.g. to
Exhibit 1.7 Aspects of customer service satisfaction) by
providing goods or achieve materials,
services with the right machines, and labour. A STATISTICAL ARTIFACT
specification, at the Manufacturers are increasingly using contract
right cost and at the and temporary labor which no longer show up in
right time. the statistics as manufacturing employment
Exhibit 1.8 The twin objectives of operations
management DECISION MAKING
Most operations decisions involve many
ROLE OF THE OPERATIONS MANAGER alternatives that can have quite different
The Operations Function consists of all impacts on costs or profits
activities directly related to producing goods
or providing services. Typical operations decisions include:
❖ What: What resources are needed, and
A primary function of the operations manager in what amounts?
is to guide the system by decision making. ❖ When: When will each resource be
• System Design Decisions needed? When should the work be
• System Operation Decisions scheduled? When should materials and
other supplies be ordered?
SYSTEM DESIGN DECISIONS ❖ Where: Where will the work be done?
• System Design ❖ How: How will he product or service be
– Capacity designed? How will the work be done? How
– Facility location will resources be allocated?
– Facility layout ❖ Who: Who will do the work?
– Product and service planning
– Acquisition and placement of equipment GENERAL APPROACH TO DECISION MAKING
• Modeling is a key tool used by all
These are typically strategic decisions that decision makers
require • Model - an abstraction of reality; a
o long-term commitment of resources simplification of something.
o Determine parameters of system
operation COMMON FEATURES OF MODELS:
• They are simplifications of real-life
KEY TRENDS AND ISSUES IN BUSINESS phenomena
• E-Business & E-Commerce • They omit unimportant details of the real-
• Management of Technology life systems they mimic so that attention
can be focused on the most important
• Globalization
aspects of the real-life system
• Management of Supply Chains
• Outsourcing
TYPES OF MODELS:
• Agility • Physical Models Look like their real-life
• Ethical Behavior counterparts
• Schematic Models Look less like their
THE DECLINE IN MANUFACTURING real-life counterparts than physical
EMPLOYMENT: models
PRODUCTIVITY • Mathematical Models Do not look at all
Increasing productivity allows companies to like their real-life counterparts
maintain or increase their output using fewer
workers UNDERSTANDING MODELS
Keys to successfully using a model in decision
OUTSOURCING making
Some manufacturing work has been outsourced
to more productive companies • What is its purpose?
• How is it used to generate results? ANALYSIS OF TRADE-OFFS
• How are the results interpreted and
used? A TRADE-OFF is giving up one thing in return for
• What are the model’s assumptions and something else
limitations? • Carrying more inventory (an expense)
in order to achieve a greater level of customer
BENEFITS OF MODELS service
▪ Models are generally easier to use and less
expensive than dealing with the real system DEGREE OF CUSTOMIZATION
▪ Require users to organize and sometimes Relative to other standardized products and
quantify information services customized products:
▪ Increase understanding of the problem • Tend to be more labor intensive
▪ Enable managers to analyze “What if?” • Tend to be more time consuming
questions • Tend to require more highly-skilled
▪ Serve as a consistent tool for evaluation people
and provide a standardized format for • Tend to require more flexible equipment
analyzing a problem • Have much lower volume of output
▪ Enable users to bring the power of • Have higher price tags
mathematics to bear on a problem.
Degree of customization has a significant
MODEL LIMITATIONS influence on the entire organization
• Quantitative information may be emphasized • Process selection
at the expense of qualitative information • Job design
• Models may be incorrectly applied and the • Affects marketing, sales, accounting,
results misinterpreted finance, and information systems
- This is a real risk with the widespread
availability of sophisticated, ESTABLISHING PRIORITIES
computerized models are placed in the 1. In nearly all cases, certain issues or items
hands of uninformed users. are more important than others
• The use of models does not guarantee good
decisions. 2. Recognizing this allows managers to
focus their attention to those efforts that
QUANTITATIVE METHODS will do the most good
A decision-making approach that frequently
seeks to obtain a mathematically optimal Pareto Phenomenon - a few factors account for
solution a high percentage of occurrence of some
• Linear programming event(s)
• Queuing techniques i. The critical few factors should receive the
• Inventory models highest priority
• Project models ii. This is a concept that is
• Forecasting techniques appropriately applied to all areas and levels
of management
• Statistical models
SYSTEMS APPROACH
METRICS AND TRADE-OFFS SYSTEM - a set of interrelated parts that must
Performance Metrics work together
All managers use metrics to manage and
control operations The business organization is a system
• Profits composed of subsystems
• Costs o marketing subsystem
• Productivity o operations subsystem
• Forecast accuracy o finance subsystem
 THE SYSTEMS APPROACH
o Emphasizes interrelationships among
subsystems
o Main theme is that the whole is greater
than the sum of its parts
o The output and objectives of the
organization take precedence over those of
any one subsystem

ETHICAL ISSUES IN OPERATIONS

Ethical issues arise in many aspects of

operations management:
 Financial statements (issues like fraudulent
accounting practices, misrepresentation of
financial data, and lack of transparency in
reporting earnings and expenses.)
 Worker safety (concerns may arise when
organizations neglect safety measures, fail to
provide adequate training and protective
equipment, or prioritize profit over worker well-
being.)
 Product safety (products are knowingly
released with defects or hazards that could harm
consumers.)
 Quality (organizations cut corners in quality
control, leading to substandard products.)
 The environment (Promote environmental
sustainability. ethical dilemmas when their
operations harm the environment, deplete
natural resources, or contribute to pollution and
climate change.)
 The community (excessive noise, pollution,
or land use practices.)
 Hiring and firing workers (Discrimination,
bias, or unjust treatment)
 Closing facilities (fair severance packages,
retraining opportunities, and supporting affected
workers.)
 Workers’ rights (Violations of labor laws,
exploitation, poor working conditions, and
unequal pay)

To address these ethical concerns, organizations can

adopt ethical codes of conduct, establish clear
corporate social responsibility (CSR) policies,
promote transparency, and encourage a culture of
ethical decision-making throughout the organization.
Additionally, industry-specific regulations and
standards often guide ethical practices in operations
management. Ethical behavior not only aligns with
societal expectations but can also enhance a
company's reputation, customer trust, and long-term
sustainability.