Introduction to Operations Management

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 Introduction


Operations management is the management of an
organization’s productive resources or its production
system.

A production system takes inputs and converts them
into outputs.

The conversion process is the predominant activity of
a production system.

The primary concern of an operations manager is the
activities of the conversion process.

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 Organizational Model

Finance
Sales HRM

OM
QA
Marketing

MIS Accounting
Engineering

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 Entry-Level Jobs in OM


Purchasing planner/buyer

Production (or operations) supervisor

Production (or operations) scheduler/controller

Production (or operations) analyst

Inventory analyst

Quality specialist

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Manufacturing Job Description/Duties Service
Industry: Job Industry: Job
Title Titles
Production Supervises employees as products or services are Department
Supervisor produced. Responsible for cost, quality, and Supervisor
schedule performance

Purchasing Buys products or services to support operations. Purchasing

planner/buyer Responsible for supplier performance Agent

Inventory Oversees all aspects of inventories. Responsible Inventory

analyst for inventory levels, audits, record accuracy, analyst
authorizing orders and expediting
Production Authorizes production of orders, develops Staff scheduler
controller production schedule and plans. Responsible for or shipping
meeting customer due dates and efficient shop scheduler
loading
Production Analyse production problems, develops forecasts, Operations
analyst plan for new products, and carries out other Analyst
special projects.
Quality Oversees acceptance sampling, process control, Quality analyst
Specialist and quality management. Responsible for product
quality from suppliers and from production 5
 Historical Milestones in OM


The Industrial Revolution

Post-Civil War Period

Scientific Management

Human Relations and Behaviorism

Operations Research

The Service Revolution

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 The Industrial Revolution


The industrial revolution developed in England in the
1700s.

The steam engine, invented by James Watt in 1764,
largely replaced human and water power for factories.

Adam Smith’s The Wealth of Nations in 1776 touted
the economic benefits of the specialization of labor.

Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.

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 The Industrial Revolution


The industrial revolution spread from England to
other European countries and to the United Sates.

In 1790 an American, Eli Whitney, developed the
concept of interchangeable parts.

The first great industry in the US was the textile
industry.

In the 1800s the development of the gasoline engine
and electricity further advanced the revolution.

By the mid-1800s, the old cottage system of
production had been replaced by the factory system.

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 Post-Civil War Period


During the post-Civil War period great expansion of
production capacity occurred.

By post-Civil War the following developments set the
stage for the great production explosion of the 20th
century:

increased capital and production capacity

the expanded urban workforce

new Western US markets

an effective national transportation system

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 Scientific Management


Frederick Taylor is known as the father of scientific
management. His shop system employed these steps:

Each worker’s skill, strength, and learning ability
were determined.

Stopwatch studies were conducted to precisely set
standard output per worker on each task.

Material specifications, work methods, and routing
sequences were used to organize the shop.

Supervisors were carefully selected and trained.

Incentive pay systems were initiated.
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 Scientific Management


In the 1920s, Ford Motor Company’s operation
embodied the key elements of scientific management:

standardized product designs

mass production

low manufacturing costs

mechanized assembly lines

specialization of labor

interchangeable parts

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 Human Relations and Behavioralism


In the 1927-1932 period, researchers in the
Hawthorne Studies realized that human factors were
affecting production.

Researchers and managers alike were recognizing
that psychological and sociological factors affected
production.

From the work of behavioralists came a gradual
change in the way managers thought about and
treated workers.

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 Operations Research


During World War II, enormous quantities of
resources (personnel, supplies, equipment, …) had to
be deployed.

Military operations research (OR) teams were formed
to deal with the complexity of the deployment.

After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.

OR helps operations managers make decisions when
problems are complex and wrong decisions are costly.

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 The Service Revolution


The creation of services organizations accelerated
sharply after World War II.

Today, more than two-thirds of the US workforce is
employed in services.

About two-thirds of the US GDP is from services.

There is a huge trade surplus in services.

Investment per office worker now exceeds the
investment per factory worker.

Thus there is a growing need for service operations
management.
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 The Computer Revolution


Explosive growth of computer and communication
technologies

Easy access to information and the availability of
more information

Advances in software applications such as Enterprise
Resource Planning (ERP) software

Widespread use of email

More and more firms becoming involved in E-
Business using the Internet faster, better decisions
over greater distances
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 Studying Operations Management


Operations as a System

Decision Making in OM

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 Operations as a System

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

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 Inputs of an Operations System


External

Legal, Economic, Social, Technological

Market

Competition, Customer Desires, Product Info.

Primary Resources

Materials, Personnel, Capital, Utilities

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 Conversion Subsystem


Physical (Manufacturing)

Locational Services (Transportation)

Exchange Services (Retailing)

Storage Services (Warehousing)

Other Private Services (Insurance)

Government Services (Federal)

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 Outputs of an Operations System


Direct

Products

Services

Indirect

Waste

Pollution

Technological Advances

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 Production as an Organization Function


US companies cannot compete with marketing,
finance, accounting, and engineering alone.

We focus on OM as we think of global
competitiveness, because that is where the vast
majority of a firm’s workers, capital assets, and
expenses reside.

To succeed, a firm must have a strong operations
function teaming with the other organization
functions.

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 Decision Making in OM


Strategic Decisions

Operating Decisions

Control Decisions

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 Strategic Decisions


These decisions are of strategic importance and have
long-term significance for the organization.

Examples include deciding:

the design for a new product’s production process

where to locate a new factory

whether to launch a new-product development plan

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 Operating Decisions


These decisions are necessary if the ongoing
production of goods and services is to satisfy market
demands and provide profits.

Examples include deciding:

how much finished-goods inventory to carry

the amount of overtime to use next week

the details for purchasing raw material next month

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 Control Decisions


These decisions concern the day-to-day activities of
workers, quality of products and services, production
and overhead costs, and machine maintenance.

Examples include deciding:

labor cost standards for a new product

frequency of preventive maintenance

new quality control acceptance criteria

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 What Controls the Operations System?


Information about the outputs, the conversions, and
the inputs is fed back to management.

This information is matched with management’s
expectations

When there is a difference, management must take
corrective action to maintain control of the system

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The Product/Process Continuum

Automobile
Photocopier retailers Banks Consultancies
Automobile manufacturers &
manufacturers service providers Restaurants Airlines Undertakers

Product Process
orientation orientation

Organizations on a
Product/Process Continuum
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The Transformation Process
Quality of inputs Quality of outputs
monitored monitored

Random disturbances

INPUTS Transformation OUTPUTS

Process

Feedback Mechanisms

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 The Transformation Process
For a Service Organization (An MBA Institute)
Random disturbances
• Strikes of students,
Quality of
Quality of teachers or staff outputs
inputs • Undue interference of
Raw minds monitored
monitored the government in the
(students) working of institutions
Teachers
Class rooms Enlightened students with:
Transformation • Good communication
Computer lab Process skills
Library • Pleasant personalities
• Leadership qualities
Projectors
• Good analytical ability
(OHP,
• Team spirit
LCD etc)
Administrative
Feedback Mechanisms • Decision making abilities
staff • Success at placement interviews • Computer skills
• Grades obtained in examinations OUTPUTS
INPUTS • Rising career graph of alumni in the industry
• Number of applications for admission
in the institute
• Ratings of surveys 29
 The Transformation Process For a Hybrid
Service & Manufacturing Organization
(A Restaurant)
Random disturbances
• High turnover of chefs,
Quality of
Customers Quality of waiters, etc. outputs
Building inputs • Inflation
monitored
Chef monitored • Government’s taxation
Vegetables policy
Furniture
Customers satisfied with:
Mutton, Transformation • Good preparation of the
chicken, Process food
pork, • Pleasant behavior and
Cooking
etc. oil, personality of the waiter
Spices, etc. • Genuine prices charged
Waiters
Manager
Feedback Mechanisms
• Rising Revenues
INPUTS OUTPUTS
• Repeat Customers
• Appreciation of customers

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 The Transformation Process For a Purely
Manufacturing Organization (A Refrigerator
Manufacturer)
Random disturbances
• High turnover of workers
Quality of
Machines & Quality of and managers outputs
Equipments inputs • Recession
monitored
Building monitored • Government’s taxation
Components, policy
parts, sub- • Strikes instigated by
trade Customers satisfied with:
assemblies, etc. • Good cooling performanc
Transformation
unions
Workers • Less consumption with
Process
Office electricity
infrastructure • Good after-sales service
(computers, • New advanced features
furniture, etc.)
Packaging
material Feedback Mechanisms
Capital • Rising sales volume
Managers • Lesser customer complaints
• Positive response of customers
INPUTS in OUTPUTS
the feedback forms 31
• Productivity
 Production & Operations
Management (POM) Defined

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.

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 Operations Steps in the
Strategy
production/operations
New Product
Development process from the point of
Business Process Outsourcing
view of an entrepreneur
and Off-shoring

Facility Facility Facility

Location Layout Capacity
Planning Planning Planning

Project
Management

Inventory Materials Total

Management Requirement Productive
for Planning (MRP)/ Maintenance
Independent Just-In-Time (JIT) (TPM)
Demand System/ Supply
Items Chain Mgt. (SCM)
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 Steps in the production/operations process
from the point of view of an entrepreneur

Aggregate Production/
Operations Planning

Work Design Operations Quality

Scheduling Management

Demand
Forecasting

Service
Operations
Management
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 Process Design

Types of Processes

Continuous Semi-continuous Intermittent Project

Process (Repetitive/Assembly) Process
Process

Batch Process Job Shop

Types of Processes
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