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1
Operations ManagementLesson 1
Fundamentals of Operations Management
Prepared by Sudarsan Jayasingh
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Learning Objectives
What you will learn in this unit: Define Operations Management? The role and activities of operation
management The input-transformation-output model Difference between goods and services What is Operations strategy Performance objectives of operations strategy Productivity Measurement
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What is Operations Management?
“ Operation Management is the set of activities that create goods and services through the transformation of inputs into outputs.”
(Slack, 2001)
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Typical Organization Chart
Source: Reid and Sanders, 2005.
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Activities of Operations manager
Understand the operation’s strategic objectives
Developing an operation’s strategy for the organization
Designing the operation’s products, services and processes
Planning and controlling the operation Improving the performance of the operation.
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Design elegant products which can be flat packed efficiently
Design Store LayoutSite Location
Storage
Quality
Some Activities of Ikea Operations Manager
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OM’s Transformation Role
Source: Reid and Sanders, 2005.
The input-transformation-output model
TransformationprocessInput Output
Goods and services
Transformed resources
MaterialsInformationCustomers
Transforming resources
FacilitiesStaff
Source: Slack, 2001
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Inputs
Transformed resources – the resources that are treated, transformed or converted in some way. The transformed resources which operations take in are usually a mixture of materials, information and customers.
Transforming resources – the resources that act upon the transformed resources. Facilities and staff are the two types of transforming resources. Facilities include building, equipment, plant and process technology etc., Staff includes all those who operate, maintain, plan and manage the operation.
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The output from most operations is a mixture of goods and services
PURE GOODSTangible
Can be storedProduction precedes
consumptionLow customer
contactCan be transported
Quality is evident
PURE SERVICESQuality difficult to judgeCannot be transported
High customer contact
Production and consumption are simultaneous
Cannot be storedIntangible
Source: Slack, 2001
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Similarities-Service/Manufacturers
All use technology Both have quality, productivity, &
response issues All must forecast demand Each will have capacity, layout, and
location issues All have customers and suppliers All have scheduling and staffing issues
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Historical Development of OM
Industrial revolution Late 1700s Scientific management Early 1900’s Human relations movement 1930s to 1960s Management science Mid-1900s Computer age 1970s Just-in-Time Systems (JIT) 1980s Total quality management (TQM) 1980’s Reengineering 1990s Flexibility 1990s Time-Based Competition 1990s Supply chain Management 1990’s Global Competition 1990s Environmental Issues 1990s Electronic Commerce Late 1990s
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Today’s OM Environment
Customers demand better quality, faster deliveries, and lower costs
Increased cross-functional decision making
Recognized need to better manage information using ERP and CRM systems
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The activities of operations management
ENVIRONMENT
ENVIRONMENT
INPUT OUTPUTGOODS
AND SERVICES
INPUT TRANSFORMED
RESOURCES
MATERIALS INFROMATION CUSTOMERS
FACILITIES STAFF
INPUT TRASNFORMED
RESOURCES
OPERATIONS STRATEGY
DESIGN
PLANNING AND CONTROL
IMPROVEMENT
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Highlights OM is function that manages the resources that add
value Its role is to transform inputs into products or services Key differences between mfg. and service companies
are tangibility of product and degree of customer contact
Historical milestones range from 1700s Industrial Revolution to the modern Electronic Commerce age
OM must understand and implement major process changes like JIT, TQM, supply chain management, and environmental changes
OM works closely with all other business functions
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Operations Strategy
Operations strategy is the total patterns of decisions and actions which set the role, objectives and activities of the operation so that they contribute to, and support, the organisation’s business strategy
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Operations Strategy – Designing the Operations Function
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The Wal-Mart Strategy and Operations Structure
Corporate Strategy(Gain competitive advantage by) providing customers access to quality
goods, when and where needed, at competitive prices
Operations Strategy– Short cycle times
– Low inventory levels
Operations Structure
– EDI
– Fast transportation system
– Focused locations
– Communication betweenretail stores
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Competitive Advantage
Competitive advantage is term as the extra edge that a firm has over their industry peers (Reid and Sanders, 2005).
The capability of a firm in managing their operation can be transform into their competitive advantage if there can identify and tap into their intangible resources.
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Competitive Priorities- The Edge
Four Important Operations Questions: Will you compete on –
Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs?
Source: Reid and Sanders, 2005.
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Competitive Priorities- The Edge0r Performance Objectives
Quality Time (Speed and
Dependability)
Flexibility Cost
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Speed
Cost
Depend-ability
Flexibility Quality
Lower prices (or higher profits)
Faster customer response
Error-free products and services
Wider varietyMore customisationMore innovationCope with volume fluctuations
On-time deliveries
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Are There Priority Tradeoffs? Which priorities are “Order Qualifiers”? e.g. Must have excellent quality since everyone expects it
Which priorities are “Order Winners”? e.g. Dell competes on all four priorities Southwest Airlines competes on cost McDonald’s competes on consistency FedEx competes on speed Custom tailors compete on flexibility
Can you have both high quality and low cost? e.g. Yes, Coke and Pepsi are good examples
Can you offer design flexibility and short delivery? e.g. Yes, modular housing manufacturers do it
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Measuring Productivity Productivity is a measure of how efficiently inputs are
converted to outputs Productivity = output/input
Total Productivity Measure Total Productivity = $sales/inputs $
Partial Productivity Measure Partial Productivity = cars/employee
Multifactor Productivity Measure Multi-factor Productivity = sales/total
$costs
Source: Reid and Sanders, 2005.
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Highlights Business Strategy is a long
range plan. Functions develop supporting plans
Strategy must address mission, environment, and core competencies
Business strategy provides a guide for designing operations strategy
Operations strategy must consider which competitive priorities are essential to meet business objectives
Competitive priorities are cost, quality, time, and flexibility
Productivity measures how effectively a firm is using resources
Productivity is computed as a ratio of outputs divided by inputs
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References Reid R.D., and Sanders N. R., (2005)
Operations Management, 2nd Edition, Wiley Publication.
Slacks Nigel and Lewis Mike, (2002) Operations Management, Prentice Hall.