Introduction to Operations Management

1
 Introduction


Operations management is the management of an
organization’s productive resources or its production
system.

A production system takes inputs and converts them
into outputs.

The conversion process is the predominant activity of
a production system.

The primary concern of an operations manager is the
activities of the conversion process.

2
 Organizational Model

Finance
Sales HRM

OM
QA
Marketing

MIS Accounting
Engineering

3
 Trends in OM


The Industrial Revolution (1700)

Post-Civil War Period (capacity expansion)

Scientific Management

Human Relations and Behaviorism

Operations Research

The Service Revolution

4
 Scientific Management


Frederick Taylor is known as the father of scientific
management. His shop system employed these steps:

Each worker’s skill, strength, and learning ability
were determined.

Stopwatch studies were conducted to precisely set
standard output per worker on each task.

Material specifications, work methods, and
routing sequences were used to organize the shop.

Supervisors were carefully selected and trained.

Incentive pay systems were initiated.
5
 Scientific Management


In the 1920s, Ford Motor Company’s operation
embodied the key elements of scientific management:

standardized product designs

mass production

low manufacturing costs

mechanized assembly lines

specialization of labor

interchangeable parts

6
 Human Relations and Behavioralism


In the 1927-1932 period, researchers in the
Hawthorne Studies realized that human factors were
affecting production.

Researchers and managers alike were recognizing
that psychological and sociological factors affected
production.

From the work of behavioralists came a gradual
change in the way managers thought about and
treated workers.

7
 Operations Research


During World War II, enormous quantities of
resources (personnel, supplies, equipment, …) had to
be deployed.

Military operations research (OR) teams were formed
to deal with the complexity of the deployment.

After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.

OR helps operations managers make decisions when
problems are complex and wrong decisions are costly.

8
 The Service Revolution


The creation of services organizations accelerated
sharply after World War II.

Today, more than two-thirds of the workforce is
employed in services.

About 50-60% of the GDP is from services.

There is a huge trade surplus in services.

Investment per office worker now exceeds the
investment per factory worker.

Thus there is a growing need for service operations
management.
9
 The Computer Revolution


Explosive growth of computer and communication
technologies

Easy access to information and the availability of
more information

Advances in software applications such as Enterprise
Resource Planning (ERP) software

Widespread use of email

More and more firms becoming involved in E-
Business using the Internet

Result: faster, better decisions over greater distances
10
 Today's Factors Affecting OM


Global Competition

Quality, Customer Service, and Cost
Challenges

Rapid Expansion of Advanced
Technologies

Continued Growth of the Service Sector

Scarcity of Operations Resources

Social-Responsibility Issues
11
 Studying Operations Management


Operations as a System

Decision Making in OM

12
 Operations as a System

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

13
 Inputs of an Operations System


External

Legal, Economic, Social, Technological

Market

Competition, Customer Desires, Product Info.

Primary Resources

Materials, Personnel, Capital, Utilities

14
 Conversion Subsystem


Physical

Locational Services

Exchange Services

Storage Services

Other Private Services

Government Services

15
 Conversion Subsystem


Physical (Manufacturing)

Locational Services (Transportation)

Exchange Services (Retailing)

Storage Services (Warehousing)

Other Private Services (Insurance)

Government Services (Federal)

16
 Outputs of an Operations System


Products

Services

????

????

17
 Outputs of an Operations System


Direct

Products

Services

Indirect

Waste

Pollution

Technological Advances

18
 Decision Making in OM


Strategic Decisions

Operating Decisions

Control Decisions

19
 Strategic Decisions


These decisions are of strategic importance
and have long-term significance for the
organization.

Examples include deciding:

the design for a new product’s production
process

where to locate a new factory

whether to launch a new-product
development plan
20
 Operating Decisions


These decisions are necessary if the ongoing
production of goods and services is to satisfy market
demands and provide profits.

Examples include deciding:

how much finished-goods inventory to carry

the amount of overtime to use next week

the details for purchasing raw material next
month

21
 Control Decisions


These decisions concern the day-to-day activities of
workers, quality of products and services, production
and overhead costs, and machine maintenance.

Examples include deciding:

labor cost standards for a new product

frequency of preventive maintenance

new quality control acceptance criteria

22
 What Controls the Operations System?


Information about the outputs, the conversions, and
the inputs is fed back to management.

This information is matched with management’s
expectations

When there is a difference, management must take
corrective action to maintain control of the system

23
Operations Strategies
in a Global Economy

24
 Overview


Introduction

Today’s Global Business Conditions

Operations Strategy

Forming Operations Strategies

Wrap-Up: What World-Class Producers Do

25
 Introduction

Operational effectiveness/efficiency? is the
ability to perform similar operations activities
better than competitors.

It is very difficult for a company to compete
successfully in the long run based just on
operational effectiveness.

A firm must also determine how operational
effectiveness can be used to achieve a
sustainable competitive advantage.

An effective competitive strategy is critical.
26
1.Efficiency means doing the things right whereas
Effectiveness is about doing the right things.

2.Efficiency focuses on the process or ‘means’ whereas

Effectiveness focuses on the end.

3.Efficiency is restricted to the present state whereas

effectiveness involves thinking long term.

4.Organizations have to be both effective and efficient in

order to be successful. 27
 Factors Affecting Today’s
Global Business Conditions

Reality of global competition (changing businesses,
MNC, alliances, variations in financial markets)


Quality (adequate to perfect by empowerment, culture,
Kaizen), customer service (quick, flat org structure,
multifunctional teams), and cost (direct and overhead
costs, move to poor countries) challenges


Rapid expansion of advanced technologies

28
 Factors Affecting Today’s
Global Business Conditions

Continued growth of the service sector


Scarcity of operations resources (titanium, nickel, coal,
natural gas, water, and petroleum products, skilled people)


Social responsibility issues (environment, product safety,
employee impact)

29
 Developing Operations Strategy

Corporate Mission
Assessment Distinctive
of Global Competencies
Business Business Strategy or
Conditions Weaknesses
Product/Service Plans

Competitive Priorities

Operations Strategy

30
 Corporate
Corporate Mission
Mission

A corporate mission is a set of long-range goals and
including statements about:

the kind of business the company wants to be in

who its customers are

its basic beliefs about business

its goals of survival, growth, and profitability

31
 Business Strategy


Business strategy is a long-range game plan of an
organization and provides a road map of how to
achieve the corporate mission.


Inputs to the business strategy are

Assessment of global business conditions (BE) -
social, economic, political, technological,
competitive

Distinctive competencies or weaknesses - workers,
sales force, R&D, technology, management
32
Competitive Priorities ????

33
 Competitive Priorities
Low Production Costs

Redesign of product/service

New technology

Increase in production rates

Reduction of scrap/waste

Reduction of inventory

Delivery Performance

larger finished-goods inventory

faster production rates

quicker shipping methods

more-realistic promises

better control of production of orders

better information systems
34
 Competitive Priorities

High-Quality Products/Services

Appearance

Performance and function

Wear, endurance ability

After-sales service


Customer Service and Flexibility

Change in type of processes used

Use of advanced technologies

Reduction in WIP through lean manufacturing

Increase in capacity 35
 Operations Strategy

Operations strategy is a long-range game plan

for the production of a company’s
products/services, and provides a road map
for the production function in helping to
achieve the business strategy.

36
 Elements of Operations Strategy


Positioning the production system

Product/service plans

Outsourcing plans

Process and technology plans

Strategic allocation of resources

Facility plans: capacity, location, and layout

37
 Positioning the Production System


Select the type of product design


Select the type of production processing system


Select the type of finished-goods inventory policy

38
 Positioning the Production System


Select the type of product design

Standard

Custom

Select the type of production processing system

Product focused

Process focused

Select the type of finished-goods inventory policy

Produce-to-stock

Produce-to-order

39
 Product/Service Plans

As a product is designed, all the detailed

characteristics of the product are established.

Each product characteristic directly

affects how the product can be made.

How the product is made determines

the design of the production system.

40
 Stages in a Product’s Life Cycle


Introduction- Sales begin, production and marketing
are developing, profits are negative.

Growth - sales grow dramatically, marketing efforts
intensify, capacity is expanded, profits begin.

Maturity - production focuses on high-volume,
efficiency, low costs; marketing focuses on
competitive sales promotion; profits are at peak.

Decline - declining sales and profit; product might be
dropped or replaced.

41
 Stages of a Product’s Life Cycle

Automobile
Dot-Matrix
Fax Machine
Printer
Cell Phone
Video Recorder
Internet Radio Color Copier CD Player B&W TV

Introduction Growth Maturity Decline

42
 Outsourcing (When??)Plans


Outsourcing refers to hiring out or subcontracting some
of the work that a company needs to do.

This strategy is being used more and more as companies
strive to operate more efficiently.

Outsourcing has many advantages and disadvantages.

Companies try to determine the best level of out-sourcing
to achieve their operations & business goals.

More outsourcing requires a company to have less
equipment, fewer employees, and a smaller facility.

43
 Outsourcing Plans


A company might outsource any of the following
manufacturing related functions:

Designing the product

Purchasing the basic raw materials

Processing the subcomponents, subassemblies,
major assemblies, and finished product

Distributing the product

What else????

44
 Outsourcing Plans


Many companies even outsource some service
functions such as:

Payroll

Billing

Order processing

Developing/maintaining a website

Employee recruitment

Facility maintenance

45
 Process and Technology Plans


An essential part of operations strategy is the
determination of how products/services will be
produced.

The range of technologies available to produce
products/services is great and is continually changing.


Make or buy technology???

46
 Strategic Allocation of Resources (Rules for
allocation??)

For most companies, the vast majority of the firm’s
resources are used in production/operations.


Some or all of these resources are limited.


The resources must be allocated to products, services,
projects, or profit opportunities in ways that
maximize the achievement of the operations
objectives.

47
 Facility Plans


How to provide the long-range capacity to produce
the firm’s products/services is a critical strategic
decision.

The location of a new facility may need to be
decided.

The internal arrangement (layout) of workers,
equipment, and functional areas within a facility
affects the ability to provide the desired volume,
quality, and cost of products/services.

48
 Characteristics of Services
and Manufactured Products
Services Products
Output Intangible Tangible
Output Inventoried Yes No
Customer Contact Extensive Little
Lead Time Short Long
Intensity Labor Capital
Quality Subjective Objective

Is it so?
49
 Competitive Priorities for Services


The competitive priorities listed earlier for
manufacturers apply to service firms as well

Low production costs

Fast and on-time delivery

High-quality products/services

Customer service and flexibility

Providing all the priorities simultaneously to
customers is seldom possible (Why?).

50
 Positioning Strategies for Services


Type of Service Design

Standard or custom products

Amount of customer contact

Mix of physical goods and intangible services

Type of Production Process

Quasi manufacturing

Customer-as-participant

Customer-as-product

51
 Positioning Strategies for Services


Example: McDonald’s

Highly standardized service design

Low amount of customer contact

Physical goods dominating intangible services

Quasi-manufacturing approach to back-room
production process

52
 Forming
Forming Operations
Operations Strategies
Strategies

Support the product plans and competitive priorities
defined in the business strategy.

Adjust to the evolving positioning strategies.

Link to the marketing strategies.

Look at alternative operations strategies.

53
 Evolution of Positioning Strategies


The characteristics of production systems tend to
evolve as products move through their product life
cycles.

Operations strategies must include plan for modifying
production systems to a changing set of competitive
priorities as products mature.

The capital and production technology required to
support these changes must be provided.

54
 Evolution of Positioning Strategies

Life Early Late

Intro. Maturity
Stage Growth Growth
Slightly Highly
Product Custom Standard
Standard Standard
Very Very
Volume Low High
Low High
Focus Process Process Product Product
Fin.Gds. To-Order To-Order To-Stock To-Stock
Batch Very Very
Small Large
Size Small Large
55
Linking Operations and Marketing Strategies


Operations Strategy

Product-focused

Make-to-stock

Standardized products

High volume

Marketing Strategy

Low production cost

Fast delivery of products

Quality

Example: TV sets

56
Linking Operations and Marketing Strategies


Operations Strategy

Product-focused

Make-to-order

Standardized products

Low volume

Marketing Strategy

Low production cost

Keeping delivery promises

Quality

Example: School buses

57
Linking Operations and Marketing Strategies


Operations Strategy

Process-focused

Make-to-stock

Custom products

High volume

Marketing Strategy

Flexibility

Quality

Fast delivery of products

Example: Medical instruments

58
Linking Operations and Marketing Strategies


Operations Strategy

Process-focused

Make-to-order

Custom products

Low volume

Marketing Strategy

Keeping delivery promises

Quality

Flexibility

Example: Large supercomputers

59
 No Single Best Strategy


Start-up and Small Manufacturers
Usually prefer positioning strategies with:

Custom products

Process-focused production

Produce-to-order policies
These systems are more flexible and require less
capital.

60
 No Single Best Strategy


Start-up and Small Services
Successfully compete with large corporations by:

Carving out a specialty niche

Emphasizing close, personal customer service

Developing a loyal customer base

61
 No Single Best Strategy


Technology-Intensive Business

Production systems must be capable of producing
new products and services in high volume soon
after introduction

Such companies must have two key strengths:

Highly capable technical people

Sufficient capital

62
 Wrap-Up: World-Class Practice


Put customers first

Get new products/services to market faster

Are high quality producers

Have high labor productivity & low production costs

Carry little excess inventory

. . . more

63
 Wrap-Up: World-Class Practice


Think more globally in purchasing and selling

Quickly adopt and develop new technologies

Trim organizations to be lean and flexible

Are less resistant to strategic alliances/joint ventures

Consider relevant social issues when setting strategies

64