Introduction To Operations Management and Productivity: Adzlina/Uitmk/Chapter 1

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CHAPTER 1
INTRODUCTION TO
OPERATIONS
MANAGEMENT AND
PRODUCTIVITY
Adzlina/UiTMK/Chapter 1
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TOPIC :
1) Introduction to Operations Management and
Productivity
2) Overview of Operations Management
3) Organizing to produce goods and services
4) Operations for Goods and Services
5) Productivity Challenge
6) New Challenges in Operations Management
What Is Operations Management?
• Production is the creation of goods and

services
• Operations management (OM) is the set of
activities that creates value in the form of goods
and services by transforming inputs into outputs
Organizing To Produce Goods
And Services
▶ Essential functions:
1. Marketing – generates demand
2. Production/operations – creates
the product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
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FUNCTIONS - BANK
Commercial Bank
Marketing Operations Finance/

Accounting
Teller Check Transactions

Security
Scheduling Clearing Processing
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FUNCTIONS -
MANUFACTURER
Manufacturing
Marketing Operations Finance/

Accounting
Manufacturing Production Quality

Purchasing
Control Control
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TEN STRATEGIC DECISIONS
DECISION CHAPTER(S)
1. Design of goods and services 5, Supplement 5
2. Managing quality 6, Supplement 6
3. Process and capacity design 7, Supplement 7
4. Location strategy 8
5. Layout strategy 9
6. Human resources and job design 10
7. Supply-chain management 11, Supplement 11
8. Inventory management 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17
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THE STRATEGIC DECISIONS

1. Design of goods and services
 Defines what is required of operations
 Product design determines quality, sustainability and human
resources
2. Managing quality
 Determine the customer’s quality expectations
 Establish policies and procedures to identify and achieve that
quality
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3. Process and capacity design
 How is a good or service produced?
 Commits management to specific technology,
quality, resources, and investment.
4. Location strategy
 Nearness to customers, suppliers, and talent.
 Considering costs, infrastructure, logistics, and
government.
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5. Layout strategy
 Integrate capacity needs, personnel levels,
technology, and inventory
 Determine the efficient flow of materials,
people, and information.
6. Human resources and job design
 Recruit, motivate, and retain personnel with the
required talent and skills.
 Integral and expensive part of the total system
design.
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7. Supply-chain management
 Integrate supply chain into the firm’s strategy.
 Determine what is to be purchased, from whom,
and under what conditions.
8. Inventory management
 Inventory ordering and holding decisions.
 Optimize considering customer satisfaction,
supplier capability, and production schedules.
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9. Scheduling
 Determine and implement intermediate- and
short-term schedules.
 Utilize personnel and facilities while meeting
customer demands.
10. Maintenance
 Consider facility capacity, production demands,
and personnel.
 Maintain a reliable and stable process.
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CHARACTERISTICS OF GOODS
 Tangible product
- Can be seen and touched and must be
delivered to customers.
 Production usually separate from consumption
- Goods are produced in advance, sale and
consumption comes later
 Can be inventoried
- Product can be produced in advance and held
as inventories until customer needs them
Adzlina/UiTMK/Chapter 1 13
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CONT…
• Low customer interaction
- Customers are not involved in the production process.
 Long lead times
- It may takes several days or weeks to manufacture goods.
 Consistent product definition
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CHARACTERISTICS OF SERVICE
 Intangible product
- Cannot be seen, touched or displayed (airlines
services, hotel services)
 Produced & consumed at same time
- there is no stored inventory. (beauty salon
produces hair cut, the doctor produces an
operation)
 Often unique
- Mix of financial coverage such as investments and
insurance policies, may be not the same as
anyone else
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CONT…
 High customer interaction
- Services are often difficult to standardize, automate and make as
efficient as we would like because customer interaction demands
uniqueness
 Inconsistent product definition
- Product definition may be rigorous, as in the case of an auto insurance
policy, but inconsistent because policyholders change cars and mature
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CONT…
 Often knowledge-based
- As in the case of educational, medical and legal services and therefore
hard to automate.
 Frequently dispersed
- Dispersion occurs because services are frequently brought to the
client/customer via a local office or a retail outlet
• Short lead times
- services may need to be delivered immediately when customer wants the
service
Differences between Goods & Services
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TABLE 1.3
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon Product can usually be kept in inventory (beauty care
produces a haircut that is consumed as it is produced products)
Unique: Your investments and medical care are unique Similar products produced (iPods)
High customer interaction: Often what the customer is Limited customer involvement in production
paying for (consulting, education)
Inconsistent product definition: Auto Insurance changes Product standardized (iPhone)
with age and type of car
Often knowledge based: Legal, education, and medical Standard tangible product tends to make automation
services are hard to automate feasible
Services dispersed: Service may occur at retail store, Product typically produced at a fixed facility
local office, house call, or via internet.
Quality may be hard to evaluate: Consulting, education, Many aspects of quality for tangible products are easy to
and medical services evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care Product often has some residual value
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OPERATIONS/PRODUCTION
SYSTEM MODEL
Inputs Transformation Outputs
Process/conversion
process
Feedback
FEATURES OF PRODUCTION 20
SYSTEM
• Inputs
- consist of all resources that are necessary for production to
take place, consist of manpower, machine, material,
money, equipment.
• Transformation Process
- during this process, the less valuable input resources are
transformed into valuable form of output through a series
of value added processes. Ex: surgical procedures in a
hospital, assembly parts in a automobile factory
- Factors affecting are capacity, efficiency, effectiveness,
flexibility
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CONT…
• Outputs
- End result of a production either good or services
• Feedback (actual vs expected)
- A control mechanism for operations systems. It includes
measuring the operations system actual performance
against the expected performance
- Feedback loop – enables management to decide whether or
not adjustments in the organizational activities are needed
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Productivity:
The Ratio Of Outputs (G&S) Divided By The Inputs

(Recourses Such As Land, Labor, Capital And
Management)
 Measure of process improvement
 Represents output relative to input
Single factor Units produced/output
Productivity =
Input used
 Only through productivity increases can our

standard of living improve
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CONT…
• The measurement of productivity can be quite direct.
• Labor hours is a common measure of input
• Other measures such as capital, material or energy can be used
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MULTI-FACTOR PRODUCTIVITY
indicates the ratio of many or all resources (inputs)

to the goods and services produced (outputs)
Multi-factor
Productivity = Unit produced/Output
Labor + material + energy +
capital + miscellaneous
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MEASUREMENT PROBLEMS
• Quality may change while the quantity of inputs and outputs
remains constant
• External elements may cause an increase or decrease in
productivity
• Precise units of measure may be lacking
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PRODUCTIVITY VARIABLES
• Labor – improvement in the contribution of labor to
productivity is the result of healthier, better educated
and better nourished labor forced
• Capital – inflation and taxes increases the cost of
capital, making capital investment increasingly
expensive.
• Management – responsible for ensuring that labor and
capital are effectively used to increase productivity
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CURRENT CHALLENGES IN OM
• Globalization
• Supply-chain partnering
• Sustainability
• Rapid product development
• Mass customization
• Lean operations
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ETHICS, SOCIAL
RESPONSIBILITY, AND
SUSTAINABILITY
Challenges facing operations
managers:
 Develop and produce safe, high-quality green
products
 Train, retrain, and motivate employees in a safe
workplace
 Honor stakeholder commitments

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1

• Production is the creation of goods and

Marketing Operations Finance/

Teller Check Transactions

Marketing Operations Finance/

Manufacturing Production Quality

THE STRATEGIC DECISIONS

THE STRATEGIC DECISIONS

THE STRATEGIC DECISIONS

THE STRATEGIC DECISIONS

THE STRATEGIC DECISIONS

The Ratio Of Outputs (G&S) Divided By The Inputs

 Only through productivity increases can our

indicates the ratio of many or all resources (inputs)

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