MANAGEMEN

T
OPERATIONS & SERVICE
MANAGEMENT

Rabindra Silwal
Why Study Operations Management?

• Cross-functional nature of decisions

• Operations is a major function in every organisation
• Principles of process thinking can be applied across the
organisation
• Operations Management is an interesting and challenging
field of study
• OM is a costly part of an organization
• OM presents interesting career opportunities e.g. SCM, QA,
Process Re-engineering, etc
Professional Certifications within OSM

• APICS, the Association for Operations

Management ( www.apics.org )
• American Society for Quality (ASQ)
( www.asq.org )
• Institute for Supply Management (ISM)
( www.ism.ws )
• Project Management Institute (PMI)
( www.pmi.org )
• Council of Supply Chain Management
Professionals ( www.cscmp.org )
Organisational Functions

• Marketing
– Gets customers
• Operations
• Creates product or service

• Finance/Accounting
• Obtains funds
• Tracks money
What Is Operations Management?
○ Production is the creation of goods and services

Operations (Production) Management

systematic direction and control of the
activities that transform resources into
finished products that create value for and
provide benefits to customers
Operations (Production) Managers
Operations managers make decisions to
manage the transformation process that
converts inputs into desired finished goods or
Operations Transformation Process
Key Points in OM Definition
Decisions:
The operations manager must decide:
Process, quality, capacity, inventory

Function:
Major functional areas in organisations:
Operations, marketing, finance

Process:
Planning and controlling the transformation process and
its interfaces (internal/external)
Definition of Supply Chain
• Network of manufacturing and service operations
that supply one another
• From raw materials through production to the end
consumer
• Flows of materials, money, and information
• Links operations across organisation
• Also called value chains
Operations Management -Heritage
Cost Focus:

Early Concepts: (1776-1880)

•Labor Specialization (Smith, Baggage)

•Standardized Parts (Whitney)

Scientific Management Era (1880-1910)

•Gantt Charts (Gantt)

•Motion & Time Studies (Gilbreth)
•Process Analysis (Taylor)
•Queuing Theory (Erlang)
Operations Management -Heritage
Cost Focus:
Mass Production Era (1910-1980)

• Moving Assembly Line (Ford/Sorensen)

• Statistical Sampling (Shewhart)
• Economic Order Quantity (Harris)
• Linear Programming PERT/CPM (DuPont)
• Material Requirements Planning (MRP)
Operations Management -Heritage
Quality Focus:
Lean Production Era (1980–1995)

• Just-in-Time (JIT)
• Computer-Aided Design (CAD)
• Electronic Data Interchange (EDI)
• Total Quality Management (TQM)
• Baldrige Award
• Employee Empowerment
• Kanbans
Operations Management -Heritage
Customization Focus:
Mass Customization Era (1995–2005)

• Internet/E-Commerce
• Enterprise Resource Planning
• International Quality Standards (ISO)
• Finite Scheduling
• Supply Chain Management
• Mass Customization
• Build-to-Order
• Radio Frequency Identification (RFID)
Operations Management -Heritage
Globalization Focus:
Globalization Era (2005–2020)

• Global Supply Chains

• Growth of Transnational Organizations
• Instant Communications
• Sustainability
• Ethics in a Global Workforce
• Logistics
Goods and Services
• Goods are physical items that includes raw
materials, parts, subassemblies and final
products

• Services are activities that provide some

combination of time, location, form or
physiological values.

• Most organisation provide a mix of goods and

services.
Differences between Service and Goods Manufacturing Operations

1. Interacting with customers

Ten Critical Decisions
• Service, product design …….
• Quality Management ………
• Process, capacity design …...
• Location ….………………....
• Layout design ………..……..
• Human resources, job design..
• Supply-chain management …
• Inventory management ….….
• Scheduling .…………………
• Maintenance .……………….
Process Management
Three categories of business process:

•Upper Management Process

•Operational Process

•Supporting Process
Strategy Process
Company
Mission

Business
Strategy

Functional Area
1. Functional Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

17
Mission
Mission - where are you going?
◆ Organisation’s purpose for being

◆ Provides boundaries & focus

◆ Answers ‘What do we provide society?

Mission and Strategy
• Mission - where you are going

• Strategy - how you are going to get there; an

action plan
Strategy
• Action plan to achieve mission

• Company has a business strategy

• Functional areas have strategies to exploit opportunities

and strengths, neutralize threats and avoid weaknesses
Strategy Process
Company
Mission

Business
Strategy

Functional Area
1. Functional Area
Strategies

Marketing Operations Fin./Acct.

Decisions Decisions Decisions

17
Business Strategies
• Ability of the firm to outperform its industry
i.e. to earn a high rate of profit than the
industry norm
• To achieve a competitive advantage, a firm
must create more value than its competitors
– Differentiation
– Cost leadership
– Response
Competing on Differentiation
• Create unique bundles of products/services that will
be highly valued by customers
• Can encompass everything related to product or
service that influences value
– Broad Product Line
– Product features
– Product Service
– Experience differentiation
Competing on Cost

• Maximize value as defined by customers

• Does not mean low value or low quality
• Establishing a low cost position relative to
competitors through
– Optimum utilization of resources
– Economies of scale
Competing on Response
• Flexibility - ability to match changes
• Reliability - scheduling
• Timeliness - design, production, delivery

Requires institutionalization within the firm of

the ability to respond
 Linking Operations to Business Strategies

Business strategy alternatives

Product Imitator
Order Winner = price (low cost)
Order Qualifiers = flexibility, quality,
delivery
Product Innovator
Order Winner = flexibility (rapid
introduction of new products)
Order Qualifiers = cost, delivery,
quality
Global Scope of Operations and Supply Chains

“Traditional” (multi-country, multi-

strategy) versus “Global” (single-
strategy) firm.
Characteristics of the “Global
Corporation” differ from the
traditional company.
Rethink the supply chain (product
design, process design, location,
workforce policies).
 Characteristics of “Global Corporations”

• Facilities & plants located worldwide, not country

by country.
• Products & services can be shifted among countries.
• Sourcing on a global basis.
• Supply chain is global in nature.
• Product design & process technology are global.
• Products/service fit global tastes.
• Demand is considered on worldwide basis.
• Logistics & inventory control is on worldwide basis.
• Divisions have world-wide responsibility.
Environment & Sustainable Operations

Sustainability:Minimising or eliminating
environmental impact of operations.
The ‘greening’ of operations:
• Product development
• Sourcing
• Manufacturing
• Packaging
• Distribution
• Transportation
• Services
• End-of-life management (e.g. recycling)
 Productivity
• Measure of process improvement
• Represents ratio of output to input

Productivity = Units produced

Input used
• Only through productivity increases can our
standard of living improve
Multi-Factor Productivity

Productivity
= Output
Labor + material + capital + energy + Misc
 Quantitative Question - Productivity

A company offers online lost and found services using

leads obtained from a database. Two employees work
40 hours a week on the leads, at a pay rate of $30 per
hour per employee. Each employee identifies an
average of 2000 potential leads a week from a list of
4,000. An average of 3 percent actually sign up for the
service, paying a one-time fee of $100. Material costs
are $2,000 per week, and overhead costs are $6,000
per week. Calculate the multifactor productivity for this
operation in fees generated per dollar of input.