Introduction to Operations

Management
Module 1
30/9/19
Operations Management definition
• Operations Management is defined as the design, operation and
improvement of the system that create and deliver the firm’s primary
product and service.
• Operations Management deals with planning and control issues in
manufacturing and services.
Topic
1. Introduction on OM
2. Demand forecasting
3. Inventory management
4. Material requirement planning
5. Material management
6. Aggregate planning
7. New product development
8. Facility location planning
9. Facility capacity planning
10. Scheduling Models and applications
 Why do study OM
• To create goods and Finance/
service all Marketing Option
accounting
option OM option
organizations reduce
perform three increase sales Reduce finance production cost
current revenue 50% costs 50% 20%
functions
Sales 100000 150000 100000 100000
Cost of goods -80000 -120000 -80000 -64000
Gross Margin 20000 30000 20000 36000
Finance cost -6000 -6000 -3000 -6000
subtotal 14000 24000 17000 30000
Tax at 25% -3500 -6000 -4250 -7500
contribution 10500 18000 12750 22500
increase in contribution
% 71.42857143 21.4285714 114.2857143
The challenges in Operations Management
• Changing market conditions
• Rate of change is faster Global competition (Globalization)
• Need to be proactive
• Increase customer focus
• Sustainability
• Supply chain partnering
• Mass customization
• Lean operations: overproduction, inventory, motion, defects, over-
processing, waiting, and transport.
The changing customer
• Once satisfied with black car/simple mobile
• Availability
• Price
• Quality
• Variety
• Wants to buy frequently
• Absolutely impatient customer
• Wants more value for money
Requirements of manufacturing
• Make an increasing variety of products, on shorter lead times with
smaller runs and flawless quality.
• Improve ROI by automating and introducing new technology in
process and materials so that price can be reduced to meet local and
foreign competition.
• Rapid product development
• Mechanize-but keep schedules flexible, inventories low, capital costs
minimal and work force contented (Skinner, 1985).
Production and Operations Management
Production & Operations Management is defined as the design, operation,
and improvement of the transformation process, which converts the various
inputs into desired outputs of products and services.
Transformation process
In general transformation process can be categorized as follows
• Physical (as in manufacturing)
• Location (as in transportation)
• Exchange (in retailing)
• Physiological (as in health care )
• Information (as in telecommunications)
The Productivity Challenges
• The ratio of outputs(goods and services) divided by one or more
inputs (such as labor, capital or machine, raw materials).
• Improve productivity means improving efficiency.
Productivity Measurement
𝑜𝑢𝑡𝑝𝑢𝑡
• 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐼𝑛𝑝𝑢𝑡
𝑈𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
• 𝑠𝑖𝑛𝑔𝑙𝑒 − 𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝑖𝑛𝑝𝑢𝑡 𝑢𝑠𝑒𝑑
• 𝑚𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑡𝑜𝑡𝑎𝑙 𝑓𝑎𝑐𝑡𝑜𝑟 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝑂𝑢𝑡𝑝𝑢𝑡
𝑙𝑎𝑏𝑜𝑟 + 𝑚𝑎𝑡𝑒𝑟𝑎𝑖𝑙 + 𝑒𝑛𝑒𝑟𝑔𝑦 + 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑀𝑖𝑠𝑐𝑒𝑙𝑙𝑎𝑛𝑒𝑜𝑢𝑠
Example:
A company has a 5-staffs work for 1-shift (8hrs) hours/day with salary Rs.
500 per day per staff and overhead expenses Rs. 200 per day to stitch
50units of laptop bag. By installing a automated stitching machine the
output per day is 60bags, however overhead increases to Rs. 600 and
staffs paid with same salary and work for same workhours. Find Single
and Multi factor productivity.
Productivity variables
• Productivity variables are: labor, capital, management
Process design
Types of Processes

Continuous Semi-continuous Intermittent Project

Process (Repetitive/Assembly) Process
Process

Batch Process Job Shop

Types of Processes
Automation
Machines
take exactly
State-of-the-art fully the same time Behavioral problems in humans
automated plants increase in repetitive like boredom, frustration, fatigue,
the market value of the firm/ tasks etc. can be avoided by using
improve client base in machines
international markets

Industrial relations problems

More reliable and like strikes, lockouts, etc. can
Advantages be avoided
consistent
performance than that
of humans Automation

Usually more Loss of creativity on the part

expensive than the Disadvantages of workers due to inflexibility
human work force in automation

Less flexible than the

humans; even small Leads to unemployment/
changes in the process are retrenchment of the labor force
expensive
Goal of the organization
Goal of a firm is to make money
• Money is time
• Need to minimize cost and time
• Time increases due to delay
• Knowing that ROL (reorder level) has bee reached
• Delay is placing orders
• Lead time
• Transportation
• Inspection
• Issue of items
Enterprise competitiveness and the operations
function
Cost : effect of
Location
Product design
Equipment use and replacement
Labor productivity
Good inventory management
Employment of process technology
Quality
Dependability as a supplier
Flexibility/service
Methodology –traditional approach
• Line layout – product layout continuous, high volume production
• Process layout - batch production, middle volume middle variety –focus on utilization of resources
• Quality –SQC focus on measurement and conformance to specification

P
Variety Job
shop

Batch
production

Mass Continuous
production production
system
Volume