Operation Management Overview

What is Operations Management?
The business function responsible for planning, coordinating, and controlling the resources needed to produce a company¶s products and services

Operation Management Scope
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Operations strategy Production/Service process Production/Service Technology Quality management Project Management Supply Chain Management Inventory Management Lean Production


nurses Hospital Medical Supplies Equipment Laboratories Processes Examination Surgery Monitoring Medication Therapy Outputs Healthy patients Question: What are Inputs.Where is OM? What is Operation? The busi ss functi n t t r i s s tr sf r i i ts fr & s r ic s s li rs i t t ts f r c st rs.   ¡ ¢ £ ¤ ¦ § ¨ © ¦ ¦ ¨ ¥  © § ©  ¤  ¦     ¦    ¥   ©  ¦ ¦  ¦  ¦  © ¥ ¥ ¥  © ¤ ¦  ¤ £ © ¦ © ¦   ¥ Operations in services: Health care Inputs Doctors. Processes and Outputs in education? 2 . r ti s is t t c r f any busi ss.

journals. recording Newspapers. Transportation. Books. TV. Refrigerators. buses. radio. mining. satellite Marketing-OM-Finance should work together Operations Industrial Engineering Maintenance Marketing Finance Distribution Operations Public Relations Purchasing Accounting Personnel Manufacturing vs. Aircrafts. mail. construction Warehousing. FAA. House appraisal ‡ Security services: Police force. Sport activities ‡ Exchange services: Wholesale/retail ‡ Appraisal services: Valuation. Regulation ‡ Regulatory bodies: Government. TV. concerts. taxis. FDA ‡ Entertainment services: Theaters. renting. leasing. Coats. movies. Judicial system. Improvements.Operations are everywhere ! Operations Goods producing Storage/ transportation Exchange Entertainment Communication Examples Farming. hotels Trade. Sodas ‡ Services ± Repairs. wholesaling. trucking. Army ‡ Financial services: Banks ‡ Education: Universities. Service Operations ‡ Production of goods ± Tangible products ‡ Automobiles. K-12 schools 3 . retailing. loans Radio. telephones.

and wound onto reels. Project Construction of the aircraft carrier USS Nimitz was a huge project that took almost 10 years to complete. 11 Service Factory Electricity is a commodity available continuously to customers. Mass Service A retail store provides a standard array of products from which customers may choose. pressed. Professional Service A doctor provides personal service to each patient based on extensive training in medicine. Mass Production Here in a clean room a worker performs quality checks on a computer assembly line. Service Shop Although a lecture may be prepared in advance. Services Characteristic Output Customer contact Uniformity of output Labor content Uniformity of input Measurement of productivity Opportunity to correct quality problems Manufacturing Service Tangible Low High Low High Easy Easy Intangible High Low High Low Difficult Difficult Steel production Home remodeling Automobile fabrication Retail sales Auto Repair Appliance repair Maid Service Teaching Manual car wash Lawn mowing High percentage goods Low percentage goods Continuous Production A paper manufacturer produces a continuous sheet paper from wood pulp slurry. dried. which is mixed. 12 4 .Manufacturing vs. Batch Production At Martin Guitars bindings on the guitar frame are installed by hand and are wrapped with a cloth webbing until glue is dried. its delivery is affected by students in each class.

Assembly Line IV. Major Products. Job Shop II. 1984). p. High Low Higher StandardVolume Volume ization Flexibility (High) Unit Cost (High) Commercial Printer Tailor and Boutique Heavy Equipment Coffee Shop Automobile Assembly Burger King Sugar Refinery Flexibility (Low) Unit Cost (Low) 13 Source: Modified from Robert Hayes and Steven Wheelwright. Batch III. 209. Four Steps for Strategy Formulation ‡ Defining a primary task ± What is the firm in the business of doing? ‡ Assessing core competencies ± What does the firm do better than anyone else? ‡ Determining order winners and order qualifiers ± What wins the order? ± What qualifies an item to be considered for purchase? ‡ Positioning the firm ± How will the firm compete? 14 Competitive Priorities ‡ ‡ ‡ ‡ ‡ ‡ Cost Quality Flexibility Speed Service Technology 15 5 .Low Volume One of a Kind I. Products. Restoring Our Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons. Continuous Flow High Few Multiple Volume.

Quality Assurance. and Quality Control ‡ Clearly Defined Quality Performance Standards ‡ How those Quality and Performance Standards are measured and satisfied ‡ How Testing and Quality Assurance Processes will ensure standards are satisfied ‡ Continuous ongoing quality control Operations Strategy: Quality ‡ What types of systems will be set up to ensure quality? ‡ How will quality awareness be maintained? ‡ How will quality efforts be evaluated? ‡ How will customer perceptions of quality be determined? ‡ How will decisions in other functional areas affect quality? 17 Strategic Decisions in Operations Services Products Process and Technology Capacity Human Resources Quality Facilities Sourcing Operating Systems 18 6 .Quality Management ‡ Quality Management is the processes that insure the project will meet the needs via: ± Quality Planning.

Production Strategy: Processes and technology ‡ Project ± one-at-a-time production of a product to customer order ‡ Batch Production ± systems process many different jobs at the same time in groups (or batches) ‡ Mass Production ± large volumes of a standard product for a mass market ‡ Continuous Production ± used for very high volume commodity products 19 Operations Strategy: Human Resources ‡ What are the skill levels and degree of autonomy required to operate production system? ‡ What are the training requirements and selection criteria? ‡ What are the policies on performance evaluations. compensation. paid an hourly rate. or paid a piece rate? ‡ Will profit sharing be allowed. and if so. on what criteria? 20 Simple Product Supply Chain Supply Ch i : A sequence of activities And organizations involved in producing And delivering a good or service  7 . and incentives? ‡ Will workers be salaried.

ValueValue-Added The difference between the cost of inputs and the value or price of outputs. plan B? ± Forecasting ‡ Controlling ± Inventory ± Quality ± Costs ‡ Organization ± Degree of standardization ± Subcontracting ± Process selection ‡ Staffing ± Hiring/lay off ± Use of overtime ± Incentive plans In a nutshell. SCM and Value added Responsibilities of Operations Management ‡ Planning ± Capacity. the challenge is ³Matching the Supply with Demand´ SUPPLY SIDE DEMAND SIDE 8 . utilization ± Location ± Choosing products or services ± Make or buy ± Layout ± Projects ± Scheduling ± Market share ± Plan for risk reduction.

Supply Does Not Naturally Match Demand ‡ Inventory results from a mismatch between supply and demand ‡ Mismatch can take one of the following two forms ± Supply waits for Demand ‡ Inventory = Finished goods and resources ± Demand waits for Supply ‡ Inventory is negative or said to be backordered in manufacturing ‡ Inventory = Waiting customers in services ‡ Mismatch happens because ± the demand varies ± the capacity is rigid and finite. Key Performance Indicators Source: Robert Kaplan and David Norton. Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business School Press. products (or services) can be provided at an infinite rate and instantaneously as the demand happens. 67 26 Balanced Scorecard Dashboard Radar Chart 27 9 . 2004). Then there is no mismatch. ‡ If the capacity is infinite. p. Figure 3-2.

Global Sourcing.g. and materials) labor Virtual Factory Defined A virtual factory can be defined as a manufacturing operation where activities are carried out not in one central plant.Measuring Productivity ‡ Productivity is a measure of how efficiently inputs are converted to outputs Productivity = output/input ‡ Total Productivity Measure Productivity relative to all inputs ‡ Partial Productivity Measure Productivity relative to a single input (e.. Issues and Trends in Operations ‡ Global Markets.. labor hours) ‡ Multifactor Productivity Measure Productivity relative to a subgroup of inputs (e.g. and Global Operations ‡ Virtual Companies ‡ Greater Choice. but in multiple locations by suppliers and partner firms as part of a strategic alliance. More Individualism ‡ Emphasis on Service ‡ Speed and Flexibility 30 10 .

Issues and Trends in Operations (cont. 32 Business Information Flow 11 .´ Business Week (August 28. Inc. p. 87 by special permission. copyright 2000 by The McGraw-Hill Companies. 2000). ³Management by Web.) ‡ ‡ ‡ ‡ ‡ Supply Chains Collaborative Commerce Technological Advances Knowledge and Ability to Learn Environmental and Social Responsibilities 31 Changing Corporation Characteristic ‡ Operations ‡ Products ‡ Reach ‡ Financials ‡ Inventories ‡ Strategy 20th-Century Corporation 21st-Century Corporation ‡ Vertical integration ‡ Virtual integration ‡ Mass customization ‡ Mass production ‡ Global ‡ Domestic ‡ Quarterly ‡ Months ‡ Top-down ‡ Real-time ‡ Hours ‡ Bottom-up Source: Reprinted from John Byrne.

g. $/call) Example: ‡ What will happen if we develop / purchase technology X? ‡ Better technologies are always (?) nice to have. but will they pay for themselves? OM provides tools to evaluate system designs before implementation Overcome Inefficiencies Responsiveness High Current frontier In the industry Competitor A Eliminate inefficiencies Competitor C Low Low labor productivity Competitor B High labor productivity Labor Productivity (e.g.Evaluate Redesigns/New Technologies Responsiveness High Redesign process New frontier Current frontier In the industry Low Low labor productivity High labor productivity Labor Productivity (e. $/call) Example: ‡ Benchmarking shows the pattern above ‡ Do not just manage the current system« Change it! OM Provides tools to identify and eliminate inefficiencies Trends in OM ‡ Service sector growing to 80% of non-farm jobsSee Figure 1-4 ‡ Global competitiveness ‡ Demands for higher quality ‡ Huge technology changes ‡ Time based competition ‡ Work force diversity 12 .

parts arrive at the next workstation ³just in time´) Thank you 13 .Lean Production ‡ Lean Production can be defined as an integrated set of activities designed to achieve high-volume production using minimal inventories (raw materials.. work in process. and finished goods) ‡ Lean Production also involves the elimination of waste in production effort ‡ Lean Production also involves the timing of production resources (i.e.

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