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Introduction to Production and OperationsManagement
Lesson 1
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Learning Objectives1. Define the term operations management.
2. Identify the three major functional areas oforganizations and describe how they interrelate.
3. Identify similarities and differences between production
and service operations.4. Describe the operations function and the nature of the
operations manager’s job.
5. Explain the key aspects of operations managementdecision making.
6. Briefly describe the historical evolution of operationsmanagement.
7. Characterize current trends in business that impactoperations management.
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Operations Management• Production – is the creation of goods and services
• Operations – a function in the business organization
that is responsible for creating value by producinggoods and/or services
• Operations management, therefore, is the
management of the set of activities, systems, orprocesses that create value in the form of goodsand services by transforming inputs into outputs
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Supply chain is the sequence of organizations—their facilities, functions, and activities—that areinvolved in producing and delivering a product or service
Fig.1 - Supply chain at Simple Green
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Organizing to ProduceGoods and Services
Organization
Marketing Operations Finance
Tracks thefinancial
health of thecompany
Involves theconversion of
inputs intooutputs
Responsiblefor generating
demand
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Production of Goods andServices
Goods - Physical items produced by business organizations.
Services - Activities that provide some combination of time,location, form, and psychological value.
Value-added - the difference between the cost of inputs and the value or price of outputs.
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• VALUE-ADDED ACTIVITIESo Changes the form, fit, or function of a product or service
o Things for which the customer is willing to pay
E.g. ordering raw materials, designing, preparing engineering drawings
• NON-VALUE ADDED ACTIVITIESo Activities that do not add value to the process
o Things that do not help create conformance to the customer’sexpectations
o Things for which the customer would be unwilling to pay
E.g. storage, inspection, transportation, rework, approval
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Characteristics of Goods Tangible product
Consistent productdefinition
Production usuallyseparate fromconsumption
Can be inventoried
Low customerinteraction
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Characteristics of Services Intangible product
Produced andconsumed at same time
Often unique
High customerinteraction
Inconsistent productdefinition
Often knowledge-based
Frequently dispersed
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Goods Versus Services
Can be resold
Can be inventoried
Some aspects of qualitymeasurable
Selling is distinct fromproduction
Product is transportable
Site of facility important for cost
Often easy to automate
Revenue generated primarily
from tangible product
Attributes of Goods(Tangible Product)
Attributes of Services(Intangible Product)
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Provider, not product, is
often transportableSite of facility important forcustomer contact
Often difficult to automate
Revenue generated primarily
from the intangible service
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Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%| | | | | | | | |
AutomobileComputer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/investment management
Consulting service/teaching
Counseling
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Why study OM?• OM is one of three major functions (marketing,
finance, and operations) of any organization
•
We want (and need) to know how goods andservices are produced
• We want to understand what operations managers
do
• OM is such a costly part of an organization
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Functions of anOperations Manager
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Key Aspects inOperations Management Design of goods and services
What good or service should we offer? How should we design these products and services?
Managing quality How do we define quality? Who is responsible for quality?
Process and capacity design What process and what capacity will these products require?
What equipment and technology is necessary for these
processes?
Location strategy Where should we put the facility?
On what criteria should we base the location decision?
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Key Aspects inOperations Management Layout strategy
How should we arrange the facility?
How large must the facility be to meet our plan?
Human resources and job design
How do we provide a reasonable work environment? How much can we expect our employees to produce?
Supply chain management Should we make or buy this component?
Who are our suppliers and who can integrate into our e-commerce
program?
Inventory, material requirements planning, and JIT How much inventory of each item should we have?
When do we re-order?
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Key Aspects inOperations Management
Intermediate and short – term scheduling Are we better off keeping people on the payroll during slowdowns?
Which jobs do we perform next?
Maintenance Who is responsible for maintenance?
When do we do maintenance?
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New Trends in OMPAST CAUSES FUTURE
Local or national focus Reliable worldwidecommunication andtransportation networks
Global focus, movingproduction offshore
Batch (large) shipment Short product life cycles and
cost of capital put pressure onreducing inventory
Just-in-time (JIT) performance
Low-bid purchasing Supply chain competitionrequires that suppliers beengaged in a focus on the endcustomer
Supply chain partners,collaboration, alliances,outsourcing
Lengthy product development Shorter life cycles, Internet,rapid internationalcommunication, computer-aided design, and internationalcollaboration
Rapid product development,alliances, collaborative designs
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New Trends in OMPAST CAUSES FUTURE
Standardized products Affluence and worldwidemarkets; increasingly flexibleproduction processes
Mass customization with addedemphasis on quality
Job specialization Changing socio-culture milieu;
increasingly a knowledge andinformation society
Empowered employees, teams,
and lean production
Low-cost focus Environmental issues, ISO14000, increasing disposal costs
Environmentally sensitiveproduction, greenmanufacturing, recycledmaterials, remanufacturing
Ethics not at forefront Businesses operate moreopenly; public and globalreview of ethics; opposition tochild labor, bribery, pollution
High ethical standards andsocial responsibility expected
