Dr. Rameez Khalid, PMP, CQSSBB Faculty, Department of Management

Institute of Business Administration, Karachi

Operations Management

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

• Operations Management affects:

– Companies’ ability to compete – Nation’s ability to compete internationally

Unit-1: Intro. to TOM rameezkhalid@iba.edu.pk 2

The Organization Three Basic Functions

Organization

Finance Operations Marketing

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Value-Added Process The operations function involves the conversion of

inputs into outputs

Inputs Land Labor Capital

Transformation/ Conversion

process

Outputs Goods Services

Control

Feedback

Feedback Feedback

Value added

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Value-Added & Product Packages

• Value-added is the difference between the cost of inputs and the value or price of outputs.

• Product packages are a combination of goods and services.

– Product packages can make a company more competitive.

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Automobile assembly, steel making

Home remodeling, retail sales

Automobile Repair, fast food

Goods-service Continuum

Computer repair, restaurant meal

Song writing, software development

Goods Service

Surgery, teaching

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Hospital Process

Inputs Processing Outputs Doctors, nurses Examination Healthy

patients Hospital Surgery Medical Supplies Monitoring Equipment Medication Laboratories Therapy

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Manufacturing or Service?

Tangible Act

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Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction

Characteristics of Goods

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Intangible product Produced and consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based

Characteristics of Service

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

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• Operations Management includes: – Forecasting – Capacity planning – Scheduling – Managing inventories – Assuring quality – Motivating employees – Deciding where to locate facilities – Supply chain management – And more . . .

Scope of Operations Management

Example: Airline

Company

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Year Mfg. Service45 79 2150 72 2855 72 2860 68 3265 64 3670 64 3675 58 4280 44 4685 43 5790 35 6595 25 7500 30 70

02 25 75

U.S. Manufacturing vs. Service Employment

0102030405060708090

45 50 55 60 65 70 75 80 85 90 95 00 02 05

Year

Perc

ent

Mfg.Service

Manufacturing Vs. Service Jobs

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Decline in Manufacturing Jobs

• Productivity – Increasing productivity allows companies to

maintain or increase their output using fewer workers

• Outsourcing – Some manufacturing work has been outsourced

to more productive companies

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Operations Management Decision Making

• Models • Quantitative approaches • Analysis of trade-offs • Systems approach • Establishing priorities • Ethics

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1. Design of goods and services 2. Managing quality 3. Process and capacity design 4. Location strategy 5. Layout strategy 6. Human resources and job design 7. Supply chain management 8. Inventory management 9. Scheduling 10.Maintenance

Ten Critical Decisions

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Models

A model is an abstraction of reality.

– Physical – Schematic – Mathematical

What are the pros and cons of models?

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Models Are Beneficial

• Easy to use, less expensive

• Require users to organize

• Increase understanding of the problem

• Enable “what if” questions

• Consistent tool for evaluation and standardized format

• Power of mathematics

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Limitations of Models

• Quantitative information may be emphasized over qualitative

• Models may be incorrectly applied and results misinterpreted

• Nonqualified users may not comprehend the rules on how to use the model

• Use of models does not guarantee good decisions

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Quantitative Approaches

• Linear programming

• Queuing Techniques

• Inventory models

• Project models

• Statistical models

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Analysis of Trade-Offs

• Decision on the amount of inventory to stock – Increased cost of holding inventory

Vs. – Level of customer service

• While purchasing an equipment, evaluate the merits of extra features relative to their cost

Tradeoffs Unit-1: Intro. to TOM 23

Systems Approach

System: “Set of interrelated parts that must work together” • System consists of subsystems

• Impact of changes must be evaluated for all parts of the system

Synergy: “Whole is greater than the sum of the parts.”

Big Picture Unit-1: Intro. to TOM 24

Pareto Phenomenon

• A few factors account for a high percentage of the occurrence of some event(s).

• 80/20 Rule - 80% of problems are caused by 20% of the activities.

How do we identify the vital few?

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Ethical Issues

• Financial statements • Worker safety • Product safety • Quality • Environment • Community • Hiring/firing workers • Closing facilities • Worker’s rights

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Operations Interfaces

Public Relations

Accounting

Industrial Engineering

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal

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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, 1960-70’s) • Influence of Japanese manufacturers

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Management of Technology

• Technology: The application of scientific discoveries to the development and improvement of goods and services

– Product and service technology

– Process technology

– Information technology

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REFERENCES

•Operations Management William J. Stevenson

•Operations Management Barry Render & Jay Heizer

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