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 Key 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/accounting
• Must cooperate in budgeting, economic analysis
of investment proposals and provisions of funds

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 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.

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 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

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 The Key functions of a business
• In general marketing, operations and finance
people interface on areas like:
– Product and service design
– Forecasting
– Setting realistic schedules
– Decisions of quality, quantity and so on

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 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.

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 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
resources – blending the 5M’s
• Combining these two concepts we can say that -the
management of the transformation process of the inputs into
outputs is operation or production management –blending
the 5P’s (i.e. people, plant, parts, process and planning and
controlling the system.)

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 Cont’d…
• Operations management is about getting the day
to day work done quickly, efficiently, without
errors and at lowest cost.
• Thus, the primary objectives of Operations
management are to:
– Make a process work right
– Improve customer service
– Reduce wastage/cost
• In general operations management is all about
effectiveness and efficiency.
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 Cont’d …
In a more comprehensive manner, OM 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
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 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

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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.

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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

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 OM’s Transformation Process
Feedback: measures
taken at various
points in the
transformation
process

Control = The
comparison of
feedback against
previously established
standards to determine
if corrective action is
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 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

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 Discussion Question

Why study Operations Management?

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 Why Study OM?
• Why you need to study operations management?
– Operations management activities are at the core of
all business organizations (technical core)
– More of all jobs are in operations management
related areas.
– Activities in all of the other areas of business
organizations are all interrelated with operations
management activities.
– Operations management has been recognized as an
important factor in a country’s well being.

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 Cont’d …
 OM plays an important role in the society in which
we live. Some of these are:

 Improving standard of living

 Offering better quality goods and services
 Enhancing concern for the environment
 Improving working conditions

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 Evolution of Operations Management

• Systems for production have existed since ancient times:

– The Great Wall of China

– The Egyptian Pyramids
– 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.

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 Evolution of Operations
Management

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 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

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 Historical Evolution of OM…
• Production Management becomes the acceptable term
from 1930s to 1950s.
– At this time, however, management also 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, SQC and DOE were introduced
– The school of decision making analysis with different
mathematical tools were emerged during this time.

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 Historical Evolution of OM…
• After 1970s the name production management
was transformed into operations management.
• During this era different changes were
occurred:
– The Service Revolution
– An emphasis on synthesis rather than just
analysis management practices.

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 Evolution of Operations Management

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
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management
Activity scheduling chart 1912 Henry Gantt

Moving assembly line 1913 Henry Ford

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 Evolution of Operations Management

Era Events/Concepts Dates Originator

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, CIM
1970s and others

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 Evolution of Operations
Management

Era Events/Concepts Dates Originator

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

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 Evolution of Operations
Management

Era Events/Concepts Dates Originator

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

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 Evolution of Operations
Management

Era Events/Concepts Dates Originator

Green Global warming, An Today Numerous

Revolution Inconvenient Truth, Kyoto scientists,
statesmen and
governments

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 Evolution of Operations Management
• 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.

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 Evolution of Operations Management
• 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

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 Evolution of Operations Management
• 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.

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 Evolution of Operations Management
• 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.
– 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.

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 Evolution of Operations Management
• 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

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 Evolution of Operations Management
• 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.

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 Evolution of Operations Management
• 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

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 Evolution of Operations Management

• Activity scheduling chart

– Henry Gantt (1861–1919)
• Gantt chart
– Scheduling Production
• pay-for-performance plans and the
training and development of workers

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 Evolution of Operations Management

• 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.

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 Evolution of Operations Management

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 Evolution of Operations Management
• 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 manufacturing 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.

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 Evolution of Operations Management
From 1930-1950/60
• Human Relations Movement
– highlighted the central importance of motivation
and human element in work design
• Elton Mayo
• Abraham Maslow
• Frederick Herzberg
• Douglas McGregor

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 Evolution of Operations Management
• 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 of management

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 Evolution of Operations 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

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 Evolution of Operations Management
• Decision Models
– used to present a productive system in
mathematical terms.
– is expressed in terms of performance measures,
constraints, and decision variables.
– The purpose of such a model is to find optimal
or satisfactory values of decision variables
which improve systems performance with in
the applicable constraints.
– These models can then help guide management
decision making.

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 Evolution of Operations Management
• Decision Models
– Economic Order Quantity (EOQ) formula for
inventory management
• One of the first uses of this approach occurred
in E. W. Harris developed it 1915
– Statistical Quality Control work
• Shewhart in 1931,

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 Evolution of Operations Management
• 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

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 Evolution of Operations Management

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.

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 Evolution of Operations Management
Operations Research
•Decision theory
– concerned with identifying the 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

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 Evolution of Operations Management

Operations Research
• CPM…. Critical path method
– an algorithm for scheduling a set of project activities
• MRP…. Material requirements planning
– is a production planning and inventory control system used to manage
manufacturing processes.
– An MRP system is intended to simultaneously meet three objectives:
• Ensure materials are available for production and products are
available for delivery to customers.
• Maintain the lowest possible material and product levels in store
• Plan manufacturing activities, delivery schedules and purchasing
activities

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 Evolution of Operations Management

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.

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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 changing
Empowerment – cost- effective- operation
But requires good Knowledge and skill of operation workers

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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

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 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?

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 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

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 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
• 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

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 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

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 The characteristics of operation
process (System)
• Another important criterion is the type of
environment within which the operation
functions. The key environmental variables for
operations managers are:
– V=The Volume of their output
– V= The Variety of their output
– V= The Variation in demand
– V=The Degree of Visibility which customers have of
the product or service
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 The characteristics of operation
process (System)

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 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.
• But increase of production does not necessarily mean
increase in productivity

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 Cont’d …
 Higher productivity results when we put in a
production system an element of efficiency with
which the resources are employed.
Productivity 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
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 Cont’d …
• Higher productivity leads to:
– a reduction in cost of production
– reduces the sales price of an item
– expands markets and
– enables the goods to compete effectively in the
world market.

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 Cont’d …

• In general by enabling an increase in the

output of goods or services for existing
resources:
– productivity decreases the cost of goods per unit,
and
– makes it possible to sell them at lower prices, thus
benefiting the consumers
– while at the same time leaving a margin for
increase in the wages of the workers.

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 Cont’d …
• The strength of a country
• Prosperity of its economy
• Standard of living of the people and
• The wealth of the nation are very largely determined
by the extent and measure of its production and
productivity.
• Thus, due to their poor productivity some
countries lose their market position.

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 Discussion question
• Why does some countries achieve
the highest productivity and
others not?

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 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
• Management Practice – failure to look the
organization as a complex whole.
• Technology Practice -

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 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.

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 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

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 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

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 Technology in Operations
Management
• Categories of E-Services
– Internet - world-wide web presence with open access to all.
– Intranet - Internal network providing limited access by
individuals within an organization.
– Extranet - a resource-limited network open only to
specified internal and external users
– Electronic Data Interchange (EDI) -a network designed to
support the exchange of data between the organization and
its vendors and suppliers.

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