Introduction to

Operations Management

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Operations Management:
The business function responsible for planning,
coordinating, and controlling the resources needed to
produce products and services for a company
 A management function
 An organization’s core function
 In every organization whether Service or Manufacturing, profit
or Not for profit

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 Operations: A systems view in
manufacturing
Finance Financial
Financial
Inputs Outputs

Feedback Sales and

Purchasing
Marketing

Production
Physical Inbound Outbound Physical
and
Inputs Logistics Logistics Outputs
Operations

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Cruise ship line: Production per day
 12,000 meals
 20,000 pounds of vegetables
 3,000 pounds of meats and seafood
 4,000 dinner rolls
 3,000 eggs
 3,500 packages of sugar
 50 gallons of ice cream

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“High complexity” examples
 McDonald's supplying ~30,000 restaurants in 121
countries
 Aramark serving 100,000 meals/day for athletes,
staff and media at Beijing Games
 Bank of America operating 16,000 ATMs and 5,700
branch banks in the United States
 Federal Express operating over one million drop-off
mailboxes in 215 countries
 Building a new subway for Athens, Greece ($2.6
billion)

POM - J. Galván 5
Operations management defined

Operations management is the activity

of managing the resources which are
devoted to the production and delivery
of products and services.
Typical Organization Chart

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OM’s Transformation Process

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OM’s Transformation Role
 To add value
 Increase product value at each stage
 Value added is the net increase between output product
value and input material value

 Provide an efficient transformation

 Efficiency – means performing activities well for least
possible cost

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OM Decisions

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Today’s OM Environment
 Customers demand better quality, greater
speed, and lower costs
 Companies implementing lean system
concepts – a total systems approach to
efficient operations
 Recognized need to better manage
information using ERP and CRM systems
 Increased cross-functional decision making

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OM in Practice
 OM has the most diverse organizational
function
 Manages the transformation process
 OM has many faces and names such as;
 V. P. operations, Director of supply chains,
Manufacturing manager
 Plant manger, Quality specialists, etc.
 All business functions need information from
OM in order to perform their tasks

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Business Information Flow

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OM Across the Organization
 Most businesses are supported by the
functions of operations, marketing, and
finance
 The major functional areas must
interact to achieve the organization
goals

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OM Across the
Organization – con’t
 Marketing is not fully able to meet customer needs if
they do not understand what operations can produce
 Finance cannot judge the need for capital investments
if they do not understand operations concepts and
needs
 Information systems enables the information flow
throughout the organization
 Human resources must understand job requirements
and worker skills
 Accounting needs to consider inventory management,
capacity information, and labor standards

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 SUPPLY & DEMAND
Operations &
Supply Chains Sales & Marketing

Wasteful
Supply
> Demand Costly

Opportunity Loss

<
Supply Demand Customer
Dissatisfaction

Supply
= Demand Ideal
THE TRANSFORMATION PROCESS
Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Materials •Services
•Labor
Process
•Management

•Capital
•Information

Feedback

Feedback Feedback
Control

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.
 TRANSFORMATION PROCESS OF A
CANNED FOOD PROCESSOR

Inputs Processing Outputs

Metal sheets • Cleaning Canned
Raw vegetables • Making cans vegetables
Water • Cutting
• Cooking
Energy
• Packing
Labor
• Labeling
Building
Equipment
TRANSFORMATION PROCESS OF A
HOSPITAL

Inputs Processing Outputs

Doctors, nurses Examination Healthy
Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
EXAMPLES OF VARIOUS OPERATIONS

Operations Examples
Goods Producing Farming, mining, construction ,
manufacturing, power generation
Storage/ Warehousing, trucking, mail
Transportation service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
TYPES OF TRANSFORMATION
PROCESSES
 Physical- manufacturing
 Locational- transportation
 Exchange- retailing
 Storage- warehousing
 Physiological- health care
 Informational- telecommunications
 Psychological- entertainment
 OPERATIONS AS A BASIC FUNCTION

 Marketing
 Generates demand
gets customers
 Operations
 creates product or service
 Finance/Accounting
 Obtains funds
 Tracks organizational performance
 BASIC FUNCTIONS OF THE
BUSINESS ORGANIZATION

Organization

Marketing Operations Finance

 SUPPLY CHAIN

Supply Chain – a sequence of activities and

organizations involved in producing and
delivering a good or service

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers Customers
 IMPORTANCE OF OM
(WHY STUDY OM?) (1 of 2)
 Operations is one of the three major functions of
an organization
 Offers a major opportunity for an organization

to improve its productivity and profitability

 OM affects 1) the companies’ ability to

compete and 2) the nation’s ability to

compete internationally
 Nearly half of the employed people over

the world have jobs in operations

 IMPORTANCE OF OM
(WHY STUDY OM?) (2 of 2)
 The OM function is responsible for a major
portion of the assets of most organizations
 OM is a costly part of an organization

 The concepts, tools and techniques of

OM are widely used in managing other

functions.
 Presents career opportunities
SCOPE OF OPERATIONS
MANAGEMENT
The scope of operations management ranges across
the organization.
The operations function includes many interrelated activities
such as:
 Forecasting

 Capacity planning

 Scheduling

 Managing inventories

 Assuring quality

 Motivating employees

 Deciding where to locate facilities

 And more . . .

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SystemSYSTEM DESIGN DECISIONS
Design Decisions
–
Capacity
–
Facility location
–
Facility layout
–
Product and service planning
–
Process planning
–
Technology planning
–
Acquisition and placement of equipment

These are typically strategic decisions that require

• long-term commitment of resources

• Determine parameters of system operation

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 SYSTEM OPERATION
DECISIONS
System Operation Decisions
–
Management of personnel
–
Inventory management and control
–
Scheduling
–
Project management
–
Quality assurance

Operations managers spend more time on system

operation decision than any other decision area but they
still have a vital stake in system design

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OPERATIONS MANAGEMENT AND
DECISION MAKING
Most operations decisions involve many alternatives that
can have quite different impacts on costs or profits
Typical operations decisions include:
What: What resources are needed, and in what amounts?

When: When will each resource be needed? When should the

work be scheduled? When should materials and other supplies be
ordered?

Where: Where will the work be done?

How: How will he product or service be designed? How will the

work be done? How will resources be allocated?

Who: Who will do the work?

 NEW TRENDS AND ISSUES IN OM
 Mass Customization
 Supply Chain Management
 Outsourcing
 Lean manufacturing
 Agility
 E-Business and E-Commerce
 Management of Technology
 Globalization
 Ethical Behavior