The term Production is used mainly for organizations that are involved in manufacturing of goods, such as automobiles, electronics, garments or foot wear etc.

Also called manufacturing process. The term Operations is used for

organizations that provide service to others e.g. FedEx delivers 5.5 million packages each day with sales of $26 billion each year.

Also called service process.

Operation Management deals with processes.

What is a Process?What is a Process?

Any activity or group of activities that takes one or more inputs, transforms them and provides one or more outputs for its customers.

Fundamental activities that organizations use to produce goods and to provide services and achieve goals.

E.g. FedEx must receive packages from customers, sort them by destiny, move them to the required destination by air or ground transportation, keep track of their progress and bill the customer for the service.

External environment

Internal and external

customers

Figure 1.1

Processes and

operations

1

2

3

4

5

Inputs• Workers• Managers• Equipment• Facilities• Materials• Land• Energy

Outputs• Goods• Services

Process is much broader then the boundaries of departments within an organization.

A single process may involve work flow that spread across many departments. E.g. at Serena hotels various departments and activities coordinate to serve their guests such as, reservation, Reception, baggage collection, room services, food & beverages, House keeping, laundry, restaurants and billing & accounts department etc.

Effectiveness of any organizations is actually due to the effectiveness of its processes.

Planning and controlling for processes of any service or manufacturing firm is very complicated, as a single process may consist of many different activities or actions performed by various department or person.

A single process may be broken down into sub processes which can be broken down into further.

The concept of a process within a process is called NESTED PROCESS.

Manufacturing process

Service process

•Physical, durable output•Output can be inventoried•Low customer contact•Long response time•Capital intensive•Quality easily measured

•Intangible, perishable output•Output cannot be inventoried•High customer contact•Short response time•Labor intensive•Quality not easily measured

Figure 1.2

Material & Service Inputs

Sales Revenu

e

Product & Service Outputs

FinanceAcquires financial

resources and capital for inputs

MarketingGenerates

sales of outputs

OperationsTranslates materials

and service into outputs

Support Functions

• Accounting• Information Systems• Human Resources• Engineering

Figure 1.3

The systematic design, direction, and control of processes that transform inputs into useful services & products for internal, as well as external customers.

Activities that relate to the creation of goods and services through the transformation of inputs into outputs.

The field of OM is multidimensional constantly changing.

Planning for operations

Product & Service Design

Quality Inventory Cost Facility Location Facility Layout Materials Production Planning

Forecasting Material Planning Scheduling Supply Chain

Management Technology Planning for

Manpower

Processes can be linked together to form a value chain – interrelated processes within a firms and across different departments that produce a service or product to the satisfaction of the customers.

Support Processes

Exte

rnal su

pp

liers

Exte

rnal c

usto

mers

Inbound Logistics

operations

Outbound logistics

Marketing,Sales and Services

Figure 1.4

Core Processes

Core processes are sets of activities that deliver value to external customers

1. Inbound Logistics2. Operations3. Outbound Logistics4. Marketing/Sales & Services

Support processes provide vital resources and support to the core processes

TABLE 1.1 | EXAMPLES OF SUPPORT PROCESSES

Capital acquisition The provision of financial resources for the organization to do its work and to execute its strategy

Budgeting The process of deciding how funds will be allocated over a period of time

Recruitment and hiring The acquisition of people to do the work of the organization

Evaluation and compensation The assessment and payment of people for the work and value they provide to the company

Human resource support and development The preparation of people for their current jobs and future skills and knowledge needs

Regulatory compliance The processes that ensure that the company is meeting all laws and legal obligations

Information systems The movement and processing of data and information to expedite business operations and decisions

Corporate and functional management The systems and activities that provide strategic direction and ensure effective execution of the work of the business

Nokia Value Chain

Internal Supplier› The employees or processes that

supply important information or materials to a firm’s processes.

External Supplier› The businesses or individuals who

provide the resources, services, products and materials for the firm’s needs.

Internal customer› One or more employees that rely

on inputs from other employees in order to perform their work

External customer› A customer who is either an end

user or a business user, buying the firm’s products and services.

The modern OM has gone through a long evolution process over more than a century and has taken the shape of how we know it today.

Here are some important milestones and developments in the field of OM over the years.

Early 1900s – 1940s:The era of industrial revolution and inventions. Focus was on identifying ways to produce on a large scale at minimum cost. Focus on Quality control and mass inspection was an important development in 1930s. Most important concepts of this era are:• Scientific Management by Fredrick Taylor• Time and Motion study• Activity scheduling chart (GANTT Chart)• Quality Control by using inspection

statistical product control• Hawthorne studies of worker motivation

Late 1950s – early 1960s:The specific concept of operations management was introduced. Scholars identified the commonalities of all production systems and emphasized the important of viewing production operations as a system. Most important concepts of this era are:

PERT Chart Decision Theory Critical path method (CPM) Mathematical Programming models

1970s:Introduction of computer technology in business operations. Proves to be a new revolution in OM. Most important concepts of this era are:

Forecasting Scheduling techniques Inventory Control Project Management Service Quality & productivity

1980s:This era marks the development of manufacturing strategy paradigm by the researcher of Harvard Business School. Use of sophisticated computer technology for manufacturing and operations. Just in Time philosophy Factory Automation Robots (CIM) CAD/CAM

1990s:Major development of this era is TQM. Development of industry standards for quality ISO 9000 certification standards created by International Organization for Standardization. TQM Process Re-engineering Supply Chain Management Electronic enterprise (Internet) SAP/Oracle software

2000s: Enterprise Resource Planning (ERP) E-commerce