Introduction to Operations Management


Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

Operations Management 
Operations Management is: The management of systems or processes that create goods and/or provide services


Operations Management concerns itself with the conversion of inputs in to outputs using physical resources so as to provide the desired utility/utilities ± to the customer while meeting the organizational objectives of effectiveness & efficiency


The Organization
Figure 1.1

The Three Basic Functions





ValueValue-Added Process Figure 1.2 The operations function involves the conversion of inputs into outputs Value added Inputs Land Labor Capital Transformation/ Conversion process Feedback Outputs Goods Services Control Feedback Feedback 1-5 .

 Product packages are a combination of goods and services. 1-6 .ValueValue-Added & Product Packages  Value-added is the difference between the cost of inputs and the value or price of outputs.

GoodsGoods-service Continuum Figure 1. fast food Home remodeling. steel making 1-7 .3 Goods Service Surgery. restaurant meal Automobile Repair. retail sales Automobile assembly. software development Computer repair. teaching Song writing.

Food Processor Table 1.2 Inputs Raw Vegetables Metal Sheets Water Energy Labor Building Equipment Processing Cleaning Making cans Cutting Cooking Packing Labeling Outputs Canned vegetables 1-8 .

nurses Hospital Medical Supplies Equipment Laboratories Processing Examination Surgery Monitoring Medication Therapy Outputs Healthy patients 1-9 .Hospital Process Table 1.2 Inputs Doctors.

Manufacturing or Service? Tangible Act 1-10 .

Production of Goods vs. Delivery of Services  Production of goods ± tangible output  Delivery of services ± an act 1-11 .

Measurement of productivity 1-12 . Uniformity of output 5. Labor content of jobs 4. Uniformity of input 3.Key Differences between Goods & Services 1. Degree of Customer contact 2.

Key Differences 6. Production and delivery 7. Ability to patent design 1-13 . Evaluation of work 10. Quality assurance 8. Amount of inventory 9.

Goods vs Service Characteristic Customer contact Uniformity of input Labor content Uniformity of output Output Measurement of productivity Opportunity to correct problems Inventory Evaluation Patentable Goods Low High Low High Tangible Easy High Much Easier Usually Service High Low High Low Intangible Difficult Low Little Difficult Not usual 1-14 .

Scope of Operations Management  Operations Management includes:          Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities Supply chain management And more . . . 1-15 .

The operations function  Consists of all activities directly related to producing goods or providing services  ³Production management deals with decision making related to production processes so that the resulting goods or services are produced according to specifications. in the amount and by the schedule demanded and out of minimum cost.´ 1-16 .

airlines Retailing. renting. banking. leasing. telephone.4 Operations Goods Producing Storage/Transportation Examples Farming. hotels.Types of Operations Table 1. wholesaling. satellites 1-17 Exchange Entertainment Communication . buses. loans Films. mining. power generation Warehousing. concerts. taxis. radio and television. trucking. mail service. radio and television newscasts. library. moving. construction. recording Newspapers. manufacturing.

Responsibilities of Operations Manager Planning ± ± ± ± ± ± ± ± ± ± ± Capacity Location Products & services Make or buy Layout Projects Scheduling Inventory Quality Costs Productivity Organizing ± Degree of centralization ± Process selection Staffing ± Hiring/laying off ± Use of Overtime Directing ± Issuance of work orders ± Job assignments Controlling/Improving .

Decision Areas in OM 1-19 .

1-20 .

 What Key Decisions of Operations Managers What resources/what amounts  When Resource Needed/work scheduled/material ordered  Where Work to be done  How Product/service Designed/ resource allocated  Who To do the work 1-21 .

Operations Management Decision Making Approaches       Models Quantitative approaches Analysis of trade-offs Systems approach Establishing priorities Ethics 1-22 .

Decision Making System Design ± ± ± ± ± capacity location arrangement of departments product and service planning acquisition and placement of equipment 1-23 .

Decision Making System operation ± personnel ± inventory ± scheduling ± project management ± quality assurance 1-24 .

± Physical ± Schematic ± Mathematical Tradeoffs What are the pros and cons of models? 1-25 .Models A model is an abstraction of reality.

airplanes. some degree of visual correspondence (less resemblance to physical reality) eg pictures. graphs. charts etc  Mathematical.look like real-life counterparts eg toy cars. scale-model buildings Adv: visual correspondence to reality  Schematic. symbols etc Adv: Easiest to manipulate 1-26 . don¶t look like their real-life counterparts eg numbers.most abstract .more abstract. formulas. drawings. toy animals.Models  Physical.

Quantitative Approaches ‡ Linear programming For optimum allocation of scarce resources ‡ Queuing Techniques For analyzing situations in which waiting lines form ‡ Inventory models To control inventories ‡ Project models eg PERT (program evaluation and review technique) . CPM (critical path method) for planning. coordinating & controlling large scale projects. ‡ Statistical models used in decision making 1-27 .

Analysis of Trade-Offs Trade Decision on the amount of inventory to stock  Increased cost of holding inventory Vs.  Level of customer service 1-28 .

Systems Approach ³The whole is greater than the sum of the parts.´ Suboptimization 1-29 .

redesigned or improved.Systems Approach  Emphasizes interrelationships among subsystems  When something is designed. it is important to take into account the impact on all parts of the system 1-30 .

80% of problems are caused by 20% of the activities. How do we identify the vital few? 1-31 . ‡ 80/20 Rule .Establishing Priorities: Pareto Phenomenon ‡ A few factors account for a high percentage of the occurrence of some event(s).

 A manager should search for the few factors that will have the greatest impact & give them the highest priority.Establishing Priorities  All things are not equal. some (a few) will be very important for achieving an objective or solving a problem and others will not. 1-32 .

hidden defects 5. Environment: not doing things that harm the environment 6. Worker¶s rights: deal with workers problem fairly 1-33 . Worker safety: training. risk of injury to users 4. working environment 3. Product safety: min damage to environment. Hiring/firing workers 8. Quality: warranties. Closing facilities: impact on society 9. Community 7. Financial statements: accurately represent financial condition 2.Ethical Issues 1.

Why study operations management?  OM is central to the functioning of all business organizations  Collaboration among the various functional areas  Exchange of information  Cooperative decision making 1-34 .

5 Operations Marketing Finance 1-35 .Business Operations Overlap Figure 1.

Assessing customer wants & needs or preferences & communicating to operations people iii.Business Operations Overlap  Finance & Operations i. Economic analysis of investment proposals iii. Provision of funds  Marketing & Operations i. Selling & promoting the product ii. Budgeting ii. Service lead time 1-36 .

Operations Interfaces Industrial Engineering Distribution Maintenance Purchasing Operations Public Relations Legal Personnel Accounting MIS 1-37 .

 Career Opportunities Job Titles  Operations Manager  Inventory manager  Production manager  Industrial engineer  Production Analyst  Purchasing manager  Schedule co-ordinator  Distribution manager  Supply chain manager  Quality analysts  Quality manager 1-38 .

1960-70¶s)  Influence of Japanese manufacturers 1-39 .Historical Evolution of Operations Management  Industrial revolution (1770¶s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement (1920-60)  Decision models (1915.

flexible tools to produce small quantities of customized goods  Scientific management (1911)  Mass production System in which low skilled workers use specialized machinery to produce high volumes of standardized goods  Interchangeable parts Parts of product that don¶t have to be custom fitted  Division of labor The breaking up of a production process into small tasks so that each worker performs a small portion of the overall job 1-40 .Historical Evolution of Operations Management  Industrial revolution (1770¶s) Craft production: system in which highly skilled workers use simple.

forecasting. project management etc.  Influence of Japanese manufacturers  Kaizen : Continuous improvement  JIT (just-in-time) Production 1-41 . 1960-70¶s)  Mathematical model for inventory management.Historical Evolution of Operations Management  Human relations movement (1920-60)  Emphasized the importance human element in job design  Decision models (1915.

Historical Evolution of Operations Management .

Trends in Business  Major trends        The Internet. e-commerce. e-business Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior 1-43 .

Management Technology  Technology: The application of scientific discoveries to the development and improvement of goods and services  Product and service technology  Process technology  Information technology 1-44 .

7 Suppliers¶ Suppliers Direct Suppliers Producer Distributor Final Consumer Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service 1-45 .Simple Product Supply Chain Figure 1.

46 $1.15 $0.00 $1.08 $0.A Supply Chain for Bread Stage of Production Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added Value Added $0.29 1-46 .23 $0.08 $0.08 $0.54 $0.29 Value of Product $0.21 $1.15 $0.15 $0.38 $0.08 $1.

Other Important Trends        Ethical behavior Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production 1-47 .