Unit 1

Introduction to Operations Management:

Operations & Design

Stevenson & Chuong (2014)

1-1
Lecture Outline

• 1.1 Introduction to Operations System Design

• 1.2 Overview important decision in operations
management
• 1.3 Operations strategy and relationship with
operations system design
• 1.4 Content of operations system design

1-2
1-2
Basic Functions of the Business Organization

Organization

Marketing Operations Finance

1-3
 An organisation
• Is an arrangement of people who pool their
resources and work to accomplish a specific
purpose.
• The main features are:
– a purpose, which describes its overall aims
– a process, that works towards achieving the purpose
– resources that are used by the process
– managers who are responsible for running the
organisation

1-4
Fig 1 : relationships between the
features of an organization and its strategy 1-5
An organisational strategy
Shows what the organisation wants to
achieve and how it will achieve it.

This includes:
1. the purpose of the organisation
2. which is expanded into a series of goals
and objectives
3. plans and methods to achieve these goals
and objectives

1-6
Fig 2: Different levels of strategy
1-7
 Strategic decisions
• Mission and vision – giving the overall purpose
and aims
• Corporate strategy – showing how the whole
organisation achieves its mission
• Business strategy – showing how each business
unit contributes to the corporate strategy
• Functional strategies – which show how each
function contributes to the business strategy.

Use with Operations Strategy

by Donald Waters ISBN 1-84480-195-0
© 2006 Cengage 1-8
Management
- ‘Consists of everything that managers do’
• defining purpose • coaching
• setting aims • motivating
• planning
• monitoring
• organising and
designing performance
infrastructure • controlling
• budgeting • informing
• allocating resources
• negotiating
• staffing

1-9
 A traditional view has:

Strategic
Senior decisions
s

managers See Table 1.1

ion

n
ti o
c is

ma
De

Tactical
or

Middle
Inf

managers decisions

Junior Operational
managers decisions
Fig 3: Traditional management hierarchy
1-10
Different levels of decision

1-11
Operations Management
• What is operations?
– The part of a business organization that is responsible
for producing goods or services
• How can we define operations management?
– The management of systems or processes that create
goods and/or provide services

1-12
Systems Approach
• System - a set of interrelated parts that must work together
– The business organization is a system composed of subsystems
• marketing subsystem
• operations subsystem
• finance subsystem
• The systems approach
– Emphasizes interrelationships among subsystems
– Main theme is that the whole is greater than the sum of its parts
– The output and objectives of the organization take precedence over those of
any one subsystem

1-13
The Transformation Process
Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
•Capital
Process
•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.
1-14
Transformation/Conversion Process

 Physical: as in manufacturing operations

 Locational: as in transportation or
warehouse operations
 Exchange: as in retail operations
 Physiological: as in health care
 Psychological: as in entertainment
 Informational: as in communication

1-15
1-15
Process Management
Process - one or more actions that transform inputs into outputs

Three Categories of Business Processes:

Upper-management processes
Operational processes
Supporting processes
These govern the operation of the entire
organization.
These are core processes that make up the
value stream.
These support the core processes.

1-16
Process Variation
Four Sources of Variation:
Variety of goods or services
being offered
Structural variation in demand
Random variation
Assignable variation
The greater the variety of goods and services
offered, the greater the variation in production
or service requirements.
These are generally predictable. They are
important for capacity planning.
Natural variation that is present in all
processes. Generally, it cannot be influenced
by managers.
Variation that has identifiable sources. This
type of variation can be reduced, or
eliminated, by analysis and corrective action.

Variations can be disruptive to operations and supply chain processes.

They may result in additional costs, delays and shortages, poor
quality, and inefficient work systems.

1-17
Goods-service Continuum
Products are typically neither purely service- or purely goods-
based.
Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

1-18
Manufacturing vs. Service?

Manufacturing and Service Organizations differ chiefly because

manufacturing is goods-oriented and service is act-oriented.

Goods Services

Tangible Act-Oriented

1-19
Managing Services is Challenging
1. Jobs in services are often less structured than in manufacturing
2. Customer contact is generally much higher in services compared to
manufacturing
3. In many services, worker skill levels are low compared to those of
manufacturing employees
4. Services are adding many new workers in low-skill, entry-level positions
5. Employee turnover is high in services, especially in low-skill jobs
6. Input variability tends to be higher in many service environments than in
manufacturing
7. Service performance can be adversely affected by many factors outside
of the manager’s control (e.g., employee and customer attitudes)

1-20
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 . . .
1-21
Role of the Operations Manager
The Operations Function consists of all activities directly
related to producing goods or providing services.

A primary function of the operations manager is to guide the

system by decision making.
– System Design Decisions
– System Operation Decisions

1-22
System Operation Decisions

• System Operation
– 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
• They still have a vital stake in system design

1-23
Operation decisions
Operation
Quality
Quality control
Supply chain management
Inventory management
Aggregate planning
Materials requirements
planning
Just-in-time and lean systems
Scheduling
Project management
Basic Issues
How is quality defined? How are quality goods and services achieved
and improved?
Are processes performing adequately? What standards should be used?
Are standards being met?
How to achieve effective flows of information and goods throughout the
chain?
How much to order? When to reorder? Which items should get the most
attention?
How much capacity will be needed over the intermediate range? How
can capacity needs best be met?
What materials, parts, and subassemblies will be needed, and when?
How to achieve a smooth, balanced flow of work using fewer resources?
How can jobs and resources best be scheduled? Who will do which job?
Which activities are the most critical to the success of a project? What
are the goals of a project? What resources will be needed, and when will
they be needed?
1-24
System Design Decisions

• System Design
– Capacity
– Facility location
– Facility layout
– Product and service planning
– Acquisition and placement of equipment
• These are typically strategic decisions that require
• long-term commitment of resources
• Determine parameters of system operation

1-25
Design decisions
Design Basic Issues
Product & service design What do customers want? How can products and services
be improved?
Capacity (long range) How much capacity will be needed? How can the
organization best meet capacity requirements?
Process selection What processes should the organization use?
Layout What is the best arrangement for departments, equipment,
work flow, and storage in terms of cost, productivity?
Design of work systems What is the best way to motivate employees? How can
productivity be improved? How to measure work? How to
improve work methods?
Location What is a satisfactory location for a facility (factory, store,
etc.)?

1-26
 Strategic
Table 2.4
OM Decisions
Decision Area Affects
Product and service design Costs, quality liability and environmental

Capacity Cost structure, flexibility

Process selection and layout Costs, flexibility, skill level, capacity

Work design Quality of work life, employee safety, productivity

Location Costs, visibility

Quality Ability to meet or exceed customer expectations

Inventory Costs, shortages

Maintenance Costs, equipment reliability, productivity

Scheduling Flexibility, efficiency

Supply chains Costs, quality, agility, shortages, vendor relations

Projects Costs, new products, services, or operating systems

1-27
2-27