Lecture 1- Introduction

Dr Matloub Hussain

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 Wall Mart versus Kmart

Both chains started in 1962.

In 1987, Kmart had 2,223 stores to Wal-Mart’s 1,198.

Kmart’s sales were $25.63 billion to Wal-Mart’s $15.96

billion.
By 1991, Wal-Mart’s sales exceeded Kmarts.

Kmart still had more stores.

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 Wall Mart versus Kmart

In year ending January 1996, Wal-Mart’s sales were

$93.6 billion to Kmart’s $34.6 billion.
During this time Kmart emphasized marketing and
merchandising (such as national TV, ad campaigns).
Wal-Mart was investing millions in its operations to
lower cost

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 Wall Mart versus Kmart

 Wal-Mart developed sophisticated distribution system that integrated its

computer system with its distribution system.

 Kmart’s employees lacked skills needed to plan and control inventory.

 Period from 1987 to 1995 Kmart's market share declined from 34.5
percent to 22.7 percent.

 Wal-Mart's increased from 20.1 percent to 41.6 percent.

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 What is Operation ?
Example of process-Fedex

 must receive packages from customers

sort them by destination

move them to destination by suitable transportation

keep track of progress

bill the customer

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 What is Operation ?
 Heart of every organization

 Operations are the tasks that create value

 Activity of managing the resources and processes that

produce and deliver goods and services ( Slack and
Lewis).

 Deals with the processes

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 What is Operation ?

Input Output
System/
Operation
Time Time

What features might it have ?

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 What is Operation ?
 Inputs- facilities, labor, capital, equipment, raw
materials, and supplies. A less obvious input is knowledge
of how to transform the inputs into outputs.
Transformation System
Alter – physical change
Transport - relocate
Store - protect
Inspect – better understanding

Outputs- Product, Services

Environment

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What is Operation ?

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 Operations Activities

 Strategy  Inventory Management

 Output Planning
 Materials Requirements
Planning
 Capacity Planning

 Scheduling
 Facility Location

 Quality Control
 Aggregate Planning

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 Operations in Manufacturing & Services
Until the mid of 20th century focus was on
manufacturing organisations, and thus called
“Industrial Management or Production Management”.
Service Organisations were working at handicraft
levels and were largely ignored.
Now more than 80% of the jobs in modern word in
business are services. Services were 25 % of GDP in
1951 & 45 % in 2002 and will be 55% in 2010 in
developing countries.
Example of UK

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From Services to Product

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 Differences
Manufacturing Service
Organization Organization
Physical, durable product  Intangible

Inventories (output)  No Inventories

Low Customer Contact High Customer Contact

Long Response Time Short Response Time

Local and international Market Local Markets

Large Facilities Small Facilities

Capital Intensive Labor Intensive

Quality Easily Measured Quality not easily measured

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 Similarities
1. Customers expect the best quality and service

2. Service providers must stock the input e.g. hospitals stock

medicines- manufacturing can not stock short life cycle
products (fashion industry, dell,).

3. Restaurants, retail stores and wholesalers are considered by

US department of commerce and labor as service providers.

4. Customer Contact- (baggage handling area, back door

diplomacy- backroom operations of a bank).

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Manufacturers no more offer only products!
Annual sale of industry machinery in U.S dropped
from 5.2 % in 1960’s to 2 % in 19990. Why ???
TESCO and ASDA are not only competing for price
or quality but also for CSL
Manufacturers are adapting different service models
• e.g- Nokia Integrated service model,
• Coca cola and Dell Distribution Control Model
E-Business- Amazon- EBay
Outsourcing the services

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 And Finally !

People
Goods
Transformation
Capital Products
Process
Services

Material

 Clearly, operations Management is relevant to both

manufacturing and service operations-

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 Operations Management
 The design, operation, and improvement of the system that
create and deliver the firms product or services.

 OM is a functional field of business with clear responsibilities.

 OM is confused with operations research(OR) and management

science(MS), and industrial engineering(IE).

 OM is a field of management where as OR & MS are

application of quantitative methods to decision making in all
fields and IE is an engineering discipline
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 Dealer
network

Vehicle
manufacturer
Prime
Distribution distributor
Chain of V.M.

Supplier

Sub-supplier

Stockist
Manufacturing
Chain
Raw materials

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 Types of OM Decisions

1. Strategic Decisions(Long-term)- Operations strategies,

launching of new product, capacity, facility location

2. Tactical Decisions-(Medium-term)- scheduling, labor,

purchasing, stocking

3. Operational decisions( Short-term)- how to cope with

demand? what jobs need to be done this week?

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 Current issues in OM
1. Coordinating the relationships b/w organizations-
Outsourcing has led companies to integrate information
system, product development & design, packaging, testing &
distribution

2. Optimizing global suppliers, production & distribution

networks- Global Supply Chains.

3. Increased co-production of goods and services- Mass-

customization, E-Business.

4. Managing Customer touch points- Customer service level.

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 Reference Books

1. Operations Management for competitive advantage by

Chase, Jacobs & Aquilano. 11th edition.

2. Operations Management by Stevenson. 9th edition.

3. Operations Management by Slack & Chambers. 5th

edition.

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