OM CH 1

Operations Management
CHAPTER ONE
The Nature of Operations

Management
What is Operations Management?
• Design, operation, and improvement of
productive systems
What is operations
• A function or system that transforms inputs
into outputs of greater value
What is a Transformation Process?
• A series of activities along a value chain
extending from supplier to customer
• Activities add no value are superfluous, should
be eliminated
Three Functions in a Business
• Marketing
• Marketing people are responsible to assess the needs and
wants of customers and communicates these needs to
operations and design people
• Operations
• Operations people can supply information about the
capacity and judge the manufacturing or service lead time
• Finance
• Must cooperate in budgeting, economic analysis of
investment proposals and provisions of funds
The Key functions of a business
• In general marketing, operations and finance
people interface on area like:
– Product and service design
– Forecasting
– Setting realistic schedules
– Decisions of quality, quantity and so on
What is Operations Management?
• OM is composed of two words:
– Operations and management
• Production/operations
– Is an intentional act of producing something in
an organized manner.
– Is the creation of goods and services
– Is the act of transformation i.E. Inputs are
processed and transformed into some outputs.
Cont’d …
• Management
– Is the art and science concerned with planning,
directing and controlling the work of human
beings towards a common aim.
– ….Efficient and effective utilization of
organizational recourses
• Combining these two concepts we can say that
‘the management of the transformation process
of the inputs into outputs is operation or
production management
Cont’d…
• Operations management is about getting the day to
day work done quickly, efficiently , without errors
and at lowest cost.
• The primary objectives of Operations management:
– Make a process work right
– Improve customer service
– Reduce wastage/cost
• In general operations management is all about
effectiveness and efficiency.
Cont’d…
• To produce a certain product on schedule and at
minimum cost
• Effectiveness and efficiency
Cont’d …
In a more comprehensive manner - operations
management is the activity whereby resources in a
defined system, are combined and transformed in a
controlled manner to add value in accordance with
policies communicated by management.
• Key concepts in the above definition:
– Resources
– Systems
– Transformation
– Managerial policy
The first key element is resources
• There are two types of resources
• Transforming resources – like staff and facility
• Transformed resources - which give the operation
system its purpose or goal like
– Physical – manufacturing
– By location – transportation
– By ownership- Retail
– By physiological state – health services
– By psychological state – entertainment
The second Key element is System
• A system:
• Is arrangement of interdependent,
interactive and interrelated components
designed to achieve an objective according
to the plan.
• A set of things working together as parts of a
mechanism or an interconnecting network;
• A complex whole.
The second Key element is System
• Operations management as a system
entails:
• Resources/Inputs
• Components
• Systems design
• Transformation
• Outputs
• Systems of control
The third key element is value addition
• Add value/Transformation
• One of the key essence of operations function is to
add value during the transformation process
Activities in operations management (OM)
 Organizing work  Controlling quality

 Scheduling work
 Selecting processes
 Managing inventory and
 Arranging layouts
 Planning production
 Locating facilities
 Designing jobs
 Measuring performance
Cont’d
Supply chain
Supply chain A sequence of activities and
organizations involved in producing and
delivering a good or service
Simple product supply chain
Cont’d
Value-added
The difference between the cost of inputs and
the value or price of outputs.
Goods and service continnum
Production of Goods versus
Delivery of Services
• Illustration of the transformation process
OM’s Transformation Process
Feedback:
measurements taken
at various points in
the transformation
process
Control = The
comparison of
feedback against
previously established
standards to determine
if corrective action is
needed. 25
Role of Operations Manager
• Operations manager should:
– Understand the overall objectives of the
organization
– Develop the operation plan of the organization
and control the function
– Assume responsibility in the design of
goods/services and jobs
– Explain their own plans to the other functions
– Improve the Operation

Discussion Question
Why study Operations Management?

Why Study OM?
• Why you need to study operations management?
– Operations activities are core of all
organizations (technical core)
– Interwoven with all jobs
– Functional units interrelated with operations
management activities.
– An important factor in a country’s well being.
Cont’d …
OM contributions a lot in:
 Improving standard of living
 Offering better quality goods and services
 Enhancing concern for the environment
 Improving working conditions
Evolution of Operations Management
• Systems for production have existed since ancient times:
–The Great Wall of China

–The Egyptian Pyramids and
–The ships of Spanish empire
–The Aksumit Obelisks
–The Rock- Hewn Churches of Lalibela
• Major indicators for the prevalence of well organized production. But
modern production/operations management did not exist during this
time but these all are great eyewitness accounts with regard to the
prevalence of production/operation.
Evolution of Operations
Management
Cont’d
• The evolution of operations management can be
classified into three periods:
– Before 1930’s – Manufacturing management
– From 1930’s-1950/60’s- Production management
– Since 1970’s – Operations management
• The name of the evolution of operations
management and its evolution as a discipline is
parallel
Historical Evolution of OM…
• Production Management becomes the acceptable term from 1930s to
1950s.
– management began discovering that workers have multiple needs,

not just economic needs
– Henry Ford – introduced the concept of Mass production and

Assembly line
– The different types of quality control tools like inspection,

statistical quality control(SQC) and Design of Experiments(DOE)
were introduced
– The school of decision making analysis with different

mathematical tools were emerged during this time.
Historical evolution of OM…
• After 1970s the name production management
was transformed into operations management.
During this era two distinct changes were
occurred:
– The Service Revolution
– An emphasis on synthesis rather than just
analysis management practices.
Era Events/Concepts Dates Originator

Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Scientific Frank and Lillian
Time and motion studies 1911 Gilbreth
Managemen
t Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford

Management
Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operations Operations research
line theory, decision 1950s
Research groups
theory, PERT/CPM
1960s, Joseph Orlicky, IBM

MRP, EDI, EFT
1970s and others
Management

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran
Quality Strategy and Wickham Skinner,

1980s
Revolution operations Robert Hayes
Michael Hammer,
Reengineering 1990s
James Champy
Six Sigma 1990s GE, Motorola

Management

Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain management Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union, 1990s China, India,
Global supply chains, 2000s emerging
Outsourcing, Service economies
Science
Management
Green Global warming, An Today Numerous

Revolution Inconvenient Truth, Kyoto scientists,
statesmen and
governments
• Steam engine
– Human Power vs. Machine Power
– is a heat engine that performs mechanical work
using steam as its working fluid.
– Using boiling water to produce mechanical
motion
– In 1781 James Watt
– Watt's engines were faster, more efficient and
required less fuel.
• Division of labor/Specialization
– is the specialization of cooperating individuals who
perform specific tasks and roles.
– the specialization of the labor force, essentially the
breaking down of large jobs into many tiny components.
– associated with the growth of total output and trade, the
rise of capitalism, and of the complexity of
industrialized processes.
– Adam Smith's The Wealth of Nations
• Division of labor/Specialization
– Charles Babage
• expanded on these ideas in his study of pin
manufacturing
• He noted that specialization not only increases
productivity but also makes it possible for only
the specific skills required.
• Interchangeable parts (Eli Whitney, 1790)
– are parts (components) that are, for practical
purposes, identical.
– They are made to specifications that ensure that they
are so nearly identical that they will fit into any
assembly of the same type.
– One such part can freely replace another, without any
custom fitting (such as filing).
– This interchangeability allows easy assembly of new
devices, and easier repair of existing devices, while
minimizing both the time and skill required of the
person doing the assembly or repair.
• Scientific Management
• Fredrick W. Taylor
– Time study …..one best way of doing things
• using systematic analysis to identify the best methods;
– scientifically selecting, training, and developing workers;
– promoting cooperation between management and labor;
– developing standardized approaches and tools;
– setting specific tasks or goals and then rewarding workers
with financial incentives; and
– giving workers shorter work hours and frequent breaks.
– Divide the work b/n management and labor
• Scientific Management
• Frank and Lillian Gilbreth
– Motion study…….Identified 17 motions
• Therbligs
– “speed work”, and the speed came not from rushing the
workers to work faster but from cutting down unnecessary
motions.
– Adapt and design machines so that handicapped workers
could use them
– Human side of work …. industrial psychology…to improve
office communication, incentive programs, job satisfaction,
and management training.
• Motion study: Breaking each task or job into its
separate motions and then eliminating those that are
unnecessary or repetitive
– Gilbreth
• Time study: Timing how long it takes good workers
to complete each part of their jobs.
– Taylor
• Activity scheduling chart

– Henry Gantt (1861–1919)
• Gantt chart
– Scheduling production
• Pay-for-performance plans and
• The training and development of workers
• Moving assembly line ……Henry Ford

– An assembly line is a manufacturing process in
which parts are added to a product in a sequential
manner to create a finished product much faster
than with handcrafting-type methods.
• Davison of Labor + Standardization of parts
– Central to Ford's ability to produce an affordable car was the
development of the assembly line that increased the efficiency of
manufacture and decreased its cost.
– Prior to the introduction of the assembly line, cars were
individually crafted by teams of skilled workmen - a slow and
expensive procedure.
– The assembly line reversed the process of automobile manufacture.
– Instead of workers going to the car, the car came to the worker who
performed the same task of assembly over and over again.
– With the introduction and perfection of the process, Ford was able
to reduce the assembly time of a Model T from twelve and a half
hours to less than six hours.
From 1930-1950/60
• Human Relations Movement
– Highlighted the central importance of motivation
and human element in work design
• Elton mayo - Hawthorne studies
• Abraham Maslow – hierarchy of needs
• Frederick Herzberg -motivation hygiene theory on
satisfactions
• Douglas Mcgregor – X and Y theory
• Hawthorne Studies: Elton Mayo
– Ways to increase productivity and also to improve worker
satisfaction and working conditions.
– The need for a greater and deeper understanding of the
social and behavioral aspects management
• Motivation theories
– 1940s Abraham Maslow
• hierarchy of needs
– 1950s Frederick Herzberg
• famous for introducing job
enrichment and the Motivator
Hygiene theory
– 1960s Douglas McGregor
• Theory X and Theory Y
• Decision Models
 Guide management decision making
 Present a productive system in mathematical
terms.
 Express - performance measures, constraints, and
decision variables.
 Purpose - to find optimal decision variables
 Improve systems performance with in the
constraints.
• Decision Models
– Economic Order Quantity (EOQ) formula for
inventory management
• E. W. Harris developed it 1915
– Statistical Quality Control
• Shewhart in 1931
• Digital computer
– A computer is a general purpose device that can
be programmed to carry out a set of arithmetic or
logical operations.
– Since a sequence of operations can be readily
changed, the computer can solve more than one
kind of problem.
– The first electronic digital computers were
developed between 1940 and 1945
Operations Research
• Simulation
– is the imitation of the operation of a real-world
process or system over time
• Waiting line theory
– also known as queuing theory, is the
mathematical study of waiting lines.
– This theory can be used to model and predict
waiting times and number of customer arrivals.
Operations Research
• Decision theory
– identify values, uncertainties and other issues
relevant in a given decision, its rationality, and
the resulting optimal decision.
• PERT…. Program/Project Evaluation & Review
Technique
– is a statistical tool, used in project management,
– that is designed to analyze and represent the
tasks involved in completing a given project
Operations Research
• CPM…. Critical path method
– an algorithm for scheduling a set of project activities
• MRP…. Material requirements planning
– production planning and inventory control system
– An MRP system meet three objectives:
• Ensure materials - available for production and products
to delivery to customers.
• Maintain lowest material and product levels in store
• Plan manufacturing activities, delivery schedules and
purchasing activities
Operations Research
• EDI…. Electronic data interchange
– is a document standard which when implemented
acts as common interface between two or more
computer applications in terms of understanding the
document transmitted.
• EFT……..Electronic funds transfer
– is the electronic exchange, transfer of money from
one account to another, either within a single
financial institution or across multiple institutions,
through computer-based systems.
Summary of Evolution of OM & SCM
Factors driving the Continued dev.t OM…
Globalization of the Economy – markets and
companies are becoming global in nature
- Being a global, multinational or transnational company may
largely require efficiency and Effectiveness.
- Due to fierce Competition, importance of manufacturing
for the domestic economy is declining
- The current battle ground for market place dominance is
speed objective
Reason for globalization
THE CHINA FACTOR
China accounts for 20% of the world’s population and is the
world’s largest manufacturer, employing more production
workers than following 7 countries combined
1. Unites States
2. United Kingdom
3. Germany
4. Japan
5. Italy
6. Canada and
7. France
GDP per Capital
Trade in Goods as % of GDP
Shanghai – Manufacturing Hub
INDIA, THE WORLD’S SERVICE
PROVIDER
• we may think of globalization more in the context of
products than services
• We see dramatic rise in the global outsourcing of
services
Example: Back office work such as
 information technology
 Accounting  Engineering,
 Financial analysis
 Computer Medical
 Research and
programming. diagnosis,
development
 Call centers  Architectural
 Brokerage firms design, and
Factors driving the Continued dev.t
OM…
Rapid expansion of advanced technologies
Scarcity of operations resources
Social responsibility issues
Total Quality Management
The necessity for Operations manager to have external
orientation
Requires the involvement of every personnel
Continued growth of the service sector
Empowerment – cost- effective- operation
But requires good Knowledge and skill of operation
workers
Operations Function and its
Environment
• Environment
– Internal:
• Marketing, Finance, Procurement, HR,
Accounting, Engineering, etc.
– External:
• Economic, Natural, Political/legal, Market,
Supply, Labor, etc.
Operations Function and its
Environment
Discussion Question
1. Can there be any difference between public
and business organizations in the application
of operations management?
2. What basic differences and similarities can
exist between the operations system of
goods and services?
Production of goods Vs Delivery of Services
• Manufacturing and service are often different

in terms of what is done but quite similar in
terms of how it is done?
• Both involve design and operation decisions
– What size factory is needed? For Manufacturing
– What size building is needed? For service
– Location, Scheduling, control operation and
allocate resources
Difference between the operations system of a service and
manufacturing …
– Quality Assurance is more challenging in

services
– Measurement of productivity is more
challenging in service operations
– Service operations are much more slow and
awkward
– Manufacturing systems have more inventory
on hand than service firms
Cont’d
– Higher labor content in services due to on
site consumption and variability of inputs
– Product designs are often easier to patent
than service design
– Service by nature involves higher degree of
customer contact. Performance of a service
typically occurs at the point of consumption
Goods & Services
• Manufacturing • Services
– Tangible product – Intangible product
– Product can be – Product cannot be
inventoried inventoried
– Low customer – High customer
contact contact
– Capital intensive – Labor intensive
78
PRODUCTION Vs PRODUCTIVITY
• Production is an organized activity of

transforming raw materials into finished
products which have higher value.
• Production in an industry can be increased by:
– Employing more labor
– Installing more machinery, and
– Putting in more materials, regardless of the cost of
production.
• Production increase does not necessarily mean
increase in productivity
Cont’d …
 Higher productivity results when we put in a
production system an element of efficiency with which
the resources are employed.
 Productivity refers to the reduction in wastage of
resources such as labor, machines, materials, power,
space, time, capital, etc.
 It implies development of an attitude of mind and a
constant urge to find better, cheaper, easier, quicker,
and safer means of doing a job, manufacturing a
product and providing service

Cont’d …
• Higher productivity leads to:

 A reduction in cost of production
 Reduces the sales price of an item
 Expands markets
 Enables the goods to compete effectively
in the world market
Cont’d …
• An increase in the output of goods or services
for a given resources lead to:
 Decreases the cost of goods per unit, and
 Sell them at lower prices
 Marginal increase workers wages
Cont’d …
Production and productivity determines:
• The strength of a country
• Prosperity of its economy
• Standard of living
• Wealth of the nation
NB. Low Productivity reduce countries
competitiveness
Discussion Question
• Why does some countries achieve the highest
productivity and others not?
Negative Impact on Productivity
 A low propensity to save and high propensity to

consume, which affects capital formation and
attract foreign goods
 An increasing demand for service
 An emphasis for short term objectives
 Need for increasing government regulations which
adds the administrative burden of the countries
 Shortage of Management professional
 Low technology adoptions
Example
• Productivity growth in USA in1970’s and
1980’s lagged behind other leading countries
most notably Japan, Korea, UK and West
Germany. Although US productivity was
among the highest, it was losing the ground
to other nations.
Causes for lagging productivity gain
in USA – 1980s
• Management problems – foreign managers
were in a better position to deal with quality
and productivity improvements
• Difficulty to measure the productivity of
white collar workers
• Weakness in technological practices
• Quality differences
Improving productivity
• Develop productivity measures to all

operations.
• Look at the system as a whole
• Develop methods for achieving productivity
improvements
• Make it clear that management supports and
encourages productivity improvement
• Measure improvements and publicize them
• Do not confuse efficiency with productivity
How do we measure Productivity?
• The ratio between output and one of these

factors of input is usually known as productivity
of the factor considered.
• Productivity may also be considered as a
measure of performance of the economy as a
whole. Mathematically,
 Productivity = Output Value/Input Value
 Factor Productivity = Output due to the
factor/Input factor employed
Cont’d …
• In order to assure that productivity measurement
captures what the company is trying to do with
respect to customer satisfaction and quality,
some firms redefined productivity as:
– Productivity = Effectiveness or value to
customer/Efficiency or cost to producer
Cont’d …
• Productivity measurement is the ratio of
organizational outputs to organizational
inputs. Thus productivity ratios can be:
—Partial productivity measurement
—Multi-factor productivity measurement
—Total productivity measurement
Cont’d …
1. Partial Productivity Measurement
- is used when the firm is interested in the
productivity of a selected input factor. It is
the ratio of output values to one class of
input.
– PPM = outputs/labor input or
Outputs/Material Input or Outputs/Capital
Cont’d …
2. Multi-factor Productivity
Measurement
– This productivity measurement technique is
used when the firm is interested to know the
productivity of a group of input factors but
not all input factors.
– MFPM =Outputs/Labor + Capital or
Outputs/Labor + Material
Cont’d …
3. Total (Composite) Productivity Measures
– A firm deals about composite productivity
when it is interested to know about the overall
productivity of all input factors.
– This technique will give us the productivity of
an entire organization or even a nation.
– TPM =Outputs/Inputs or Goods and
services provide/All resources Used

Productivity
Measurement
• Example
– Units Produced:…….….100,000
– Labor hours used: ….…10,000
– Machine hours: ………..5,000
– Cost of materials: ….…..Birr 35,000
– Cost of energy: ………...Birr 15,000
– Cost of labor per hour: ..Birr 20
– Cost per machine hour: .Birr 10
– Selling price per unit: ….Birr 100
From the data above, calculate:

A. Single factor or partial productivity of Labor and Machine
B. The multifactor productivity of labor, machine, and materials
C. The total factor productivity
Productivity Measurement (cont.)
• Exercise 1: Delux Wood and Metal Workshop is engaged in the
production of office furniture. The basic inputs used by the workshop
are: Raw materials, labor, supplies and capital (i.e., depreciation).
The total out put in the year 2012 was birr 100,000. The previous
trend shows that out put of the firm has been growing by 20%
annually. The productivity of each input, however, was assumed to
remain constant over the years. Thus, the
• The multi-factor productivity for materials, labor and supplies is
expected to be 2 for the year 2013
• Partial productivities of supplies and raw materials are 10 and 6
for the year 2013 respectively
• Based on the above information compute
 - Total cost of labor, raw materials and supplies for the year 2013
- Productivity of labor for the year 2013
- Total factor productivity for the year 2013 if depreciation for the
2013 is estimated to be Birr 15,000
Productivity Measurement
(cont.)
Solution for Exercise 1
• Given
• Total out put for 2012= Birr 100,000
• Total out put for 2013 improved by 20%
(cont.)
Based on the above information compute
• Total cost of labor, raw materials and supplies for the year
2013 (ans. Birr 60,000)
• Productivity of labor for the year 2013 (ans. 4.29)
• Total factor productivity for the year 2013 if depreciation for
the 2008 is estimated to be birr 15,000 (ans. 1.6)
Exercise 2
(cont.)
 Based on the following data answer the questions that
follow
 Output (selling price) Birr 400,000
 Inputs used for the given output
– Raw materials 8000 units
– Labor hours 2000 hours
– Machine hours 4000 hours
 Hourly cost of labor is Birr 2, which is twice that of machine.
The raw material cost incurred per single labor hour is Birr
20. Calculate
A. Single factor productivity of raw material = ?
B. Multifactor productivity of labor and machine =?
C. Total measure of productivity = ?
Productivity
Measurement
• Labor,
– which contributes about 17% of the annual increase.
• Capital,
– which contributes about 17% of the annual increase.
• Management,
– which contributes about 66 % of the annual increase.
• Labor
– Improvement in the contribution of labor to productivity is the
result of a healthier, better-educated, and better-nourished labor
force.
– Three key variables for improved labor productivity are:
• Basic education appropriate for an effective labor force.
• Diet of the labor force.
• Social overhead that makes labor available, such as transportation and
sanitation.
– Improvements in labor productivity are possible; however, they
can be expected to be increasingly difficult and expensive.
Ways of Making the Productivity
Ratio Bigger
There are 5 ways to make the ratio bigger
1. Make the output larger for the same input
2. Make the input smaller for the same output
3. Increasing the output while decreasing the
input
4. Increasing the output greater than the input
increase
5. Decreasing the output lesser than the input
decrease
OM Decision Making Areas
Operation vs, Marketing

• The marketing department constantly influences the management
of production by delivering information concerning the following:
–Sales forecasts of future levels of demand ….to plan how much to produce.
–Data on sales orders which helps to determine what to produce.
–Customer quality requirement that helps to determine which machines,
workers , tools, processes can fit this quality.
–New products and processes.
• New product and process ideas can radically change the production system.
–Customer feedback of products.
Operation vs. Accounting

• The function of Accounting Department is collecting,
summarizing and interpreting financial information for
management decisions.
• Thus, accountants need to understand the basics of
– inventory management,
– capacity utilizations and
– labor time standards
to develop accurate cost data , performs audits, and prepare financial
reports.
Operation vs. Finance

• Finance involves the provision of and management of money and other
assets.
• Information to the Production Department from Finance can be
conceived as follows :
– Budgetary information
– Analysis of investment:
• …..investments in equipment and inventories, rate of returns, depreciation, sinking
funds, payback periods, compound interest, etc.
– Provision of money for improvements: ……funds available
– Provision of information on the general condition of the firm
Operation vs, Procurement & Purchasing

• The procurement function deals with the acquisition of proper
materials, equipment, service and supplies of the right qualities, in the
right quantities, for the right price s, at the right time, and from the
right place.
• The information to exchange between the procurement and production
functions is:
• Determination of items to be purchased
• Determination of delivery schedules
• The discovery of new products, materials , and processes:
• Inventory control
Operation vs. Engineering

• Engineering develops product-service designs and
develop production methods.
• The Engineering functional unit supports
Operations Managers in the following areas:
–Method analysis
–Work measurement information
–Plant layout and material handling information
–Plant maintenance information
• Operations management professionals make a number of key
decisions that affect the entire organization.
• Where:
•–What:
These include the following: • Where will the work be done?
• What resources will be needed, and in
• How:
what amounts?
• How will the product or
–When:
service be designed?
• When will each resource be needed? • How will the work be done
• When should the work be scheduled? (organization, methods,
• When should materials and other equipment)?
supplies be ordered? • How will resources be
• When is corrective action needed? allocated?
• Who:
• Who will do the work?
• What Operations Managers Do?

– Three Categories of OM Decisions
• Strategic
• Operating
• Controlling
POM Decision Making Areas
• What Operations
Managers Do?
–Basic Management
Functions
• Planning
• Organizing
–Staffing
• Leading
• Controlling
• Mission
–The reason for the existence of an organization.
–States the purpose of an organization.
• Goals
–Provide detail and scope of the mission.
• Strategies
–Plans for achieving organizational goals.
• Tactics
– The methods and actions taken to accomplish strategies.
• Mission:
–Live a good life.
• Goal:
–Successful career, good income.
• Strategy:
–Obtain a college education.
• Tactics:
–Select a college and a major; decide how to finance college.
• Operations:
–Register, buy books, take courses, study.
• Strategic
–Long term and strategic in nature
–Includes decisions related to:
• New product design and development
• Process design and selections
• Facility locations
• Facility layout
• Long range capacity planning
• Operating Decisions
– Include decisions relating to planning and implementing
production to meet an estimated demand for intermediate period
– Example:
• Production planning
• Manufacturing resource planning (MRP II)
• Materials requirement planning (MRP I)
• Shop-floor planning
• Scheduling-service and production
• Inventory planning
POM Decision Making Areas
• Controlling Decisions
–Concerned about the day-to-day activities
of operations which includes:
• Quality management and control (TQM)
• Productivity measurement
• Project management
• Maintenance
Steps in Decision Making
• Decision making
– the process of selecting the best course of
action among given alternatives.
–is complex as the systems with which
manager deal are complex and involves
multiple goals & criteria
1. Defining the problems and its parameters (relevant variables)

– Identification of the relevant cause instead of symptoms
2. Establishing decision criteria/objectives
– It reflects the goals/purposes of work efforts
– It could be
• maximizing profit,
• minimizing cost,
• achieving high productivity,
• stability,
• increasing market share,
• growth
3. Formulation of decision model

 It lies at the heart of decision making process
 Models are abstractions of the reality
 i.e. describing the essence of the problem or relationship by
abstracting relevant variables
 a simplified representation of something
 They develop relationship which is expressed in
testable form and studied in isolation
Types of Models
– Verbal models:
– Physical models:
– Schematic models:
Types of Models
–Verbal models:
• express relationship among variables in words
–Physical models: …. look like their real-life counterparts
• scaled down version of things
• their visual correspondence with reality
• Examples include
–miniature cars, trucks, airplanes, toy animals and trains, and
scale-model buildings.
Types of Models
–Schematic models:
• show pictorial relationship among variables
• are more abstract than their physical counterparts
• they have less resemblance to the physical reality
• they are often relatively simple to construct and change
• they have some degree of visual correspondence
• e.g., graphs and charts, blueprints, pictures, and drawings
Types of Models
• Probabilistic models:
– statement of relationship among variables and
constant in which statistical probabilities are
associated with one or more of the variables
– Applied when risk exists
– Involves the use of empirical probabilities (based on
observed data) or subjective probabilities (based on
personal experience or judgment).
Types of Models
• Mathematical model:
– A statement expressed as equation of relationship among the
variables and constants associated with a problem It may
incorporate factors that cannot readily be visualizes
– Symbols such as x, y, a, b, … are used
Types of Models
1. Formulation of decision model

2. Generate alternatives by varying the values of the parameters
- Evaluation of alternatives & select the best one
3. Implementation & monitoring .
 It is not strictly part of the decision process, but they are essential
for completing the management activities
 Greater cautions must be taken during implementation
OM for Competitiveness
• Competitiveness
–How effectively an organization meets the wants
and needs of customers relative to others that
offer similar goods or services.
–Core competencies
• those special attributes or abilities possessed by
an organization that give it a competitive edge
OM for Competitiveness
• Operations has a major influence on competitiveness

through
– product and service design,
– Cost of an organization’s output is a key,
– Location……in terms of cost and convenience for customers,
– quality,
– response time……Quick response,
– Flexibility….. the ability to respond to changes,
Cont’d
– Inventory management ….effectively matching supplies of
goods with demand
– Supply chain management ….. coordinating internal and
external operations.
– Service might …. after-sale activities customers perceive as
value-added, …extra attention
– Managers and workers ….. competent and motivated
Competitive Dimensions of OM
• How operations functions contribute to the company’s

competitive position?
– Cost: Make it Cheap
• Lean production
– providing low costs through disciplined operations
• Examination of cost structure
– Waste elimination
» relentlessly pursuing the removal of all waste
– looking at the entire cost structure duction potential
• How operations functions contribute to the company’s

competitive position?
– Speed: Make it fast
• fast moves, fast adaptations
• Delivery speed
• New product introduction speed
– Quality: Make it good
• Provide the maximum value as perceived by customer.
• Minimizing defect rates or conforming to design specifications;
please the customer
• How operations functions contribute to the

company’s competitive position?
– Flexibility
• Ability to provide variety
• ability to adjust to changes in product mix, production
volume, or design
– Reliability
• Quality reliability-deliver product as promised
• Delivery reliability-deliver product when promised
• How operations functions contribute to the

company’s competitive position?
– Service: customer Support
• After sale service
THANK YOU !

OM CH 1

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OM CH 1

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Operations Management

The Nature of Operations

 Organizing work  Controlling quality

Why study Operations Management?

• Systems for production have existed since ancient times:

–The Great Wall of China

– management began discovering that workers have multiple needs,

– Henry Ford – introduced the concept of Mass production and

– The different types of quality control tools like inspection,

– The school of decision making analysis with different

Era Events/Concepts Dates Originator

Moving assembly line 1913 Henry Ford

1960s, Joseph Orlicky, IBM

Era Events/Concepts Dates Originator

Quality Strategy and Wickham Skinner,

Six Sigma 1990s GE, Motorola

Era Events/Concepts Dates Originator

Era Events/Concepts Dates Originator

Green Global warming, An Today Numerous

• Activity scheduling chart

• Moving assembly line ……Henry Ford

• Manufacturing and service are often different

– Quality Assurance is more challenging in

• Production is an organized activity of

• Higher productivity leads to:

 A low propensity to save and high propensity to

• Develop productivity measures to all

• The ratio between output and one of these

From the data above, calculate:

Operation vs, Marketing

Operation vs. Accounting

Operation vs. Finance

Operation vs, Procurement & Purchasing

Operation vs. Engineering

• What Operations Managers Do?

1. Defining the problems and its parameters (relevant variables)

3. Formulation of decision model

1. Formulation of decision model

• Operations has a major influence on competitiveness

• How operations functions contribute to the company’s

• How operations functions contribute to the company’s

• How operations functions contribute to the

• How operations functions contribute to the

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