Operations Management

Chapter 1
Introduction to Operations Management

.What is Operations Management? OM is the set of activities that creates value in the form of goods and services by transforming inputs into output.

pays bills.Why Should we study OM?  What are the three basic functions of a firm?       Marketing – generates demand Production/operations – creates the product Finance/accounting – tracks how well the organization is doing. collects the money Core of all business organizations Many areas interrelated with OM activities Management of operations is critical to create and maintain competitive advantages .

Organization of Businesses  Three  Operations/Production     basic functions Goods oriented (manufacturing and assembly) Service oriented (health care. transportation and retailing) Value-added (the essence of the operations functions) Finance-Accounting    Budgets (plan financial requirements) Economic analysis of investment proposals Provision of funds (the necessary funding of the operations) 5 .

Organization of Businesses (Cont.)  Marketing     Selling Promoting Assessing customer wants and needs Communicating those needs to operations  The need for working closely Operations Marketing 6 Finance .

Value added Inputs Land Labor Transformation/ Outputs Conversion Goods Services process Capital Feedback Control Feedback Feedback .Value-Added The difference between the cost of inputs and the value or price of outputs.

Boiled Placing vegetables 8 Clean vegetables Can food . Water. Cans.Operations example in Manufacturing: Food Processing INPUTS PROCESS OUTPUTS Raw vegetables Cleaning Metal sheets Cutting/Rolling/Welding Cans Energy. Vegetables Cutting Cut vegetables Energy. Vegetables Cooking Boiled vegetables Energy.

Operations example in service: Health care Inputs Doctors. nurses Hospital Medical Supplies Equipment Laboratories 9 Processing Outputs Examination Surgery Monitoring Medication Therapy Healthy patients .

wholesaling. recording Communication Newspapers. buses.Types of Operations Operation Examples Goods producing Farming. telephones. magazines. hotels. journals. renting. leasing. concerts. construction Storage/transportation Warehousing. satellite 10 . TV. TV. mining. movies. taxis. loans Entertainment Radio. location Exchange Trade. trucking. mail. retailing. radio.

Organizing Charts for an Service Organizations and manufacturing Organization .

Organizational Charts Commercial Bank Operations Finance Marketing Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security Investments Security Real estate Loans Commercial Industrial Personal Mortgage Accounting Auditing Trust Department .

Organizational Charts Airline Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising .

and personnel Process analysis Development and installation of production tools and equipment Finance/ accounting Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall Marketing Sales promotion Advertising Sales Market research . assembly Design Product development and design Detailed product specifications Industrial engineering Efficient use of machines. maintenance Production and inventory control Scheduling. materials control Quality assurance and control Supply chain management Manufacturing Tooling. fabrication.Organizational Charts Manufacturing Operations Facilities Construction. space.

It provides a major opportunity for an organization to improve its profitability and enhance its service to society. We want to know how goods and services are produced. 4.Continue : Why Should we study OM? 1. To understand what operations managers do. 2. 3. and operations) of any organization and we study how people organize themselves for productive enterprise. . OM is one of three major functions (marketing. finance.

. 2. Planning (aggregate and short-term): which job do we perform next? 10. 6. Product Design: What good or service should we offer? Quality: How to define quality? Process: What process will these products require? Location: Where should we put the facility? Layout: How should we arrange the facility? Human Resources :How to provide a reasonable work environment? Supply Chain Management: should we make or buy this component? Inventory: How much inventory of each item should we have? 9. Maintenance: who is responsible for maintenance? 1. 5. 3.What are 10 decision areas of operations management? 8. 7. 4.

Responsibilities of Operations Management  Planning           Capacity. plan B? Forecasting 17 . utilization Location Choosing products or services Make or buy Layout Projects Scheduling Market share Plan for risk reduction.

Operations Managers  Controlling     Organization     Inventory Quality Costs Degree of standardization Subcontracting Process selection Staffing     Hiring/lay off Use of overtime Incentive plans Job assignments 18 .

information systems and math.  Try to take courses in accounting.  About 40% of all jobs are in OM. statistics.Where are the OM jobs?  Disciplines in operation part of organizations you need to have the knowledge of accounting. finance and OM. statistics. .


What are the changing challenges for the Operations Managers? .

capital.How OM is related to productivity?  What is the productivity? Productivity is the ratio of outputs (goods and services) divided by one or more inputs (such as labor. . or management) The operations manager’s job is to enhance this ratio of outputs to inputs.

Example If units produced = 1000 and labor-hours used is 250 then: Productivity = units produced / Input Used Productivity = 1000/250 = 4 units labor-hour .

2. . many services are labor intensive. they are individually (personally) processed (the customer is paying for that service – the hair cut). it may be an intellectual task performed by professionals. 3. 4. 5. and often difficult to evaluate for quality.What are five reasons why productivity is difficult to improve in the service sector? 1. it is often difficult to mechanize and automate.

Improving Productivity at Starbucks A team of 10 analysts continually look for ways to save time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot .

Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Change the size of the ice scoop Saved 14 seconds per drink New espresso machines Saved 12 seconds per shot .000 to Stop requiring signatures $940. Some improvements: Operations improvements have helped Starbucks increase yearly revenue per outlet by $200.000 in six years. Saved 8 seconds on credit card purchases per transaction Productivity has improved by 27%.5% under $25 per year. or about 4.

Productivity Productivity = Units produced Input used  Measure of process improvement  Represents output relative to input  Only through productivity increases can our standard of living improve .

Productivity Calculations Labor Productivity Productivity = Units produced Labor-hours used 1.000 = = 4 units/labor-hour 250 One resource input  single-factor productivity .

Multi-Factor Productivity Productivity = Output Labor + Material + Energy + Capital + Miscellaneous  Also known as total factor productivity  Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity .