Kibret Dessalegn, LCML, MBA program

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 Kibret Dessalegn, LCML MBA program

Managers are involved in planning, organizing

and controlling; and Operation Manager has direct
responsibility of “getting the job done”
Operation Manager’s job is to manage the
process of converting inputs into desired outputs
Operations managers make decisions regarding
the operations function and its connection with
other functions.
Operations is responsible for supplying the
product or service of the organization.

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 Kibret Dessalegn, LCML MBA program

Operations managers plan, organize and control the

production process and its interfaces within the
organization and with the external environment.
Operation management is about getting the day-to-day
work done quickly, efficiently, with out error, and at low
cost. OM creates dramatic improvements in customers
services and reduction in cost
OM defined as the design, operation and improvement
of the systems that create and deliver the firm’s
primary products and services
OM Is concerned with the management of entire system
(from input to output) that produces goods or
deliver products. (deals with effective and efficient
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 Kibret Dessalegn, LCML MBA program

 Operation Management is the field of study that tries to

understand, explain, predict and change organizational
and strategic effects of the transformation process. Hence,
OM deals with the effective and efficient management of
the transformation process
 Decisions : the operations manager must make Decisions
(process, quality, capacity, and inventory)
 Functions : Operation is the main Functions in the
organization. (manufacturing, Production dept)
 Process: Plan and control Process for producing goods and
services

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 Kibret Dessalegn, LCML MBA program

 Process
 How to produce & deliver
 Quality
 Criteria, measurement & process for achieving
 Capacity
 Physical facilities & labor
 Inventory
 What, when & how much?

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 Kibret Dessalegn, LCML MBA program

 Operations as the primary function: OM is a

functional field of business with clear line
management responsibilities
 Uses decision making tools
 Considers facility automation
 Other primary functions:
 Marketing
 Finance
 Other supporting functions may exist
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 Kibret Dessalegn, LCML MBA program

Input Transformation Output

(Conversion)
Process

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 Kibret Dessalegn, LCML MBA program

Input Transformation Transformation Output

Fabrication Assembly

Fabrication: making the parts

Assembly: putting the parts together

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 Kibret Dessalegn, LCML MBA program

Energy
Materials
Labor Transformation
Goods or
(Conversion)
Capital Services
Process
Information

Feedback information for

control of process inputs
and process technology

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 Kibret Dessalegn, LCML MBA program

SOCIETY
External
Human Environment
Engineering Marketing
Resources

Suppliers Operations transformation system CUSTOMERS

Accounting Finance MIS

COMPETITORS
GOVERNMENT

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 Kibret Dessalegn, LCML MBA program

•Planning: defines the objectives for the

operations subsystem (polices, programs and
procedure)
•Organizing: establish a structure of role and flow
of information within the operation subsystem
•Controlling: ensure the plan of subsystem
accomplished
•Behavioral: how their effort to plan, organize and
control affect human behavior
•Models: simplify difficulties by using models

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 Kibret Dessalegn, LCML MBA program

• JIT and TQC: integrated set of activities to achieve high

volume production with minimum inventory/ aggressively seek
to eliminate cause of production defect
•Manufacturing Strategy paradigm: manufacturing as
competitive weapon/ creating focused factory/
•Service quality and productivity: unique approach to quality
how to deliver high volume standardized services
•Total quality management and quality certification (ISO 900
certification)
•Business Process Reengineering: eliminating non value adding
steps/ focus on end to end process based analysis/
•Supply chain management: flow of information, material, and
services
•E-commerce
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 Kibret Dessalegn, LCML MBA program

 Tangible/intangible nature of output

Can be inventoried/ can not be inventoried
 Consumption of outputs (consume over time,
consumes immediately Simultaneous consumption and production)
Nature of the work (less labor and more equipment,
high labor and less equipment)
Degree of customer contact
little consumer contact, Extensive consumer contact
Customer participation in conversion
distinguish between output (generated service,
medical service) and throughput(going through the
processes )
Measurement of performance/quality easy to assess/ difficulty to assess
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 Kibret Dessalegn, LCML MBA program

 Product selection and design

 Process selection and planning
 Facilities (plant) location, Facilities layout and
material handling
 Capacity planning
 Production planning and control (PPC)
 Inventory control
 Quality assurance and control
 Cost reduction and cost control
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Kibret Dessalegn, LCML MBA program

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 Kibret Dessalegn, LCML MBA program

 Organizational Strategy
 The general thrust of the process could be guided by
competition and market conditions in the industry
 Where is the industry now/What are the existing and potential
market/ what market gab exists/Where will it be in the future
 Situational analysis and market gab analysis

 After assessing, considering the following four priorities

organizational strategy must be developed
 Quality (product performance)

 Cost efficiency(low product cost)

 Dependency(Reliable, timely delivery)

 Flexibility( responsiveness in product and volume change)

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 Kibret Dessalegn, LCML MBA program
Corporate strategy

Business strategy

Operations Strategy
Internal
Mission Functional strategies in
analysis
marketing, finance,
Distinctive engineering, human
Competence resources, and
information systems
External Objectives
analysis (cost, quality, flexibility, delivery)
Policies
(process, quality systems, capacity,
and inventory)

Consistent pattern of decisions

Results
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 Kibret Dessalegn, LCML MBA program

“Something an organization does better

than any competing organization that adds

value for the customer.”

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 Kibret Dessalegn, LCML MBA program

To be sustainable, a distinctive competence must

not only be unique, it must be difficult to imitate
or copy.

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 Kibret Dessalegn, LCML MBA program

 Skills of employees
 Proprietary equipment or processes
 Rapid continuous improvement
 Well developed partnerships
 Location
 Organizational knowledge
 Proprietary information or control systems

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 Kibret Dessalegn, LCML MBA program

 Effectiveness objective (right kind product that satisfy customers)

 Efficiency objective (Maximize output with minimum resource
input)
 Quality objective (conform to preset quality specifications)
 lead time objective (minimizing throughput time, the time elapse
in conversion process, reduce delay, waiting and idle time)
 Capacity utilization objective (Maximizing utilization of
manpower, machine etc)
 Cost objective (minimizing cost of producing goods and services)
 Flexibility objective—schedule or product change
 Reliability objective

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 Kibret Dessalegn, LCML MBA program

 The major strategic objectives are:

 Quality
 Flexibility—schedule or product change
 Delivery
 Time
 Reliability
 Cost efficiency
How does a firm use them to gain a competitive
advantage, and how do they trade-off?

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 Kibret Dessalegn, LCML MBA program

 Business strategy alternatives

 Product imitator (operational excellence) business strategy

 Typical of mature, price sensitive market with standardized product

(operations mission would emphasize cost as dominant objective
and operations should strive to reduce costs)
 Operations must focus on keeping costs low.

 Order winner price for the customer; this implies the need for low
cost in operations, marketing and finance
 Product innovation (new-product introduction, product leadership)

 Emerging and possibly growing market by bringing out superior

quality product. Price would not be the dominant form of
competition
 Operations must maintain flexibility in processes, work force with
flexible skill and purchase of some of the material/services from out
outside (suppliers) to retain flexibility.

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 Kibret Dessalegn, LCML MBA program

Operations Competitive Dimensions

 Cost- “ Make it Cheap”-Be low cost producer
 Product Quality and Reliability-”Make it good”
This involves :process and product quality
 Delivery Speed ”Make it fast”
 Delivery Reliability “Deliver it when promised”
 Coping with Changes in Demand “ Change its volume
“
 Flexibility and New Product Introduction Speed
“Change it
 Provide other support services

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 Kibret Dessalegn, LCML MBA program

ORDER WINNERS AND QUALIFIERS :

The Marketing –Operations Link
 Good understanding can be created between Marketing
and operations using concepts : Order winner and order
qualifier
 Order winners- are the criteria that differentiates the
product or service of one firm from another
 The criterion may be one of the operations competitive
dimensions such cost , quality etc
 Order Qualifiers-They are the basic criteria that permit
the firms products to be considered as candidates for
purchase by customers.

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 Kibret Dessalegn, LCML MBA program

Service Breakthroughs
 A brand name car can
be an “order qualifier”
 Others like reliability,
design features, gas
mileage

Repair services can be “order winners”

Examples: Warranty, roadside
Assistance, Leases, etc.

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 Kibret Dessalegn, LCML MBA program

Operations Capabilities
 Process-based
 Capacities that transforms material or information and provide advantages
on dimensions of cost and quality.

 Systems-based
 Capacities that are broad-based involving the entire operating system and
provide advantages of short lead times and customize on demand, fast new
products , a broad range of products or services .

 Organization-based
 Capacities that are difficult to replicate and provide abilities to master new
technologies.

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 Kibret Dessalegn, LCML MBA program

Cont…
 For example the ability to master new
technologies , design and introduce new
producers and bring new plants online faster than
competitors

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 Kibret Dessalegn, LCML MBA program

1. Technology Strategy
2. Capacity strategy
3. Facility location strategy
4. Process strategy
5. Quality strategy

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 Kibret Dessalegn, LCML MBA program

Technology Strategy

 Technology refers to the equipment, people , and

procedures used to produce its products .

 Therefore there should be strategy with regard to

the technological capabilities and expertise
required
 Applying technology throughout the organization
is essential in this regard.

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 Kibret Dessalegn, LCML MBA program

Capacity Strategy
 This involves developing strategies on ;
 Facilities sizing

 Facility Location

 Human resources strategy (skill requirement, employment

status –par-time , over time , layoff, regular employment

 System capacity ( Add capacity before it is needed ; let

capacity lag behind demand ;try to match capacity to
demand over time ;add capacity on regular basis .

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 Kibret Dessalegn, LCML MBA program

Process Strategy
 There are two important dimensions of a
production system:
 Its flexibility-in terms of variety and volume of
products it produces
 Its efficiency in terms of cost

 Based on this the strategic choice can be of: Project,

line or intermittent operations

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 Kibret Dessalegn, LCML MBA program

Quality Strategy
 Requires defining the quality orientation of the
organization:
Quality management through the quality
department or
Total Quality Concept

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 Kibret Dessalegn, LCML MBA program

Introduction  Product design & development critical;

many process changes
 High production costs
Growth  Forecasting critical
 Improve product; increase capacity &
distribution
Maturity
 Standardize product
 Long production runs
 Reduce product line, lower costs
Decline
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 Kibret Dessalegn, LCML MBA program

 Total measure Productivity = Outputs

Inputs

or

 = Goods and services produced

All resources used

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 Kibret Dessalegn, LCML MBA program

 Partial measures of productivity =

 Output or Output or Output or Output

Labor Capital Materials Energy

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 Kibret Dessalegn, LCML MBA program

 Multifactor measures of productivity =

 Output .
Labor + Capital + Energy

or

 Output .
Labor + Capital + Materials

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 Kibret Dessalegn, LCML MBA program

 You have just determined that your service employees

have used a total of 2400 hours of labor this week to
process 560 insurance forms. Last week the same crew
used only 2000 hours of labor to process 480 forms.
 Which productivity measure should be used?
 Answer: Could be classified as a Total Measure or
Partial Measure.
 Is productivity increasing or decreasing?
 Answer: Last week’s productivity = 480/2000 = 0.24,
and this week’s productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.
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