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Introduction to Operations ManagementIntroduction to Operations Management
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The best way to start understanding the nature of “Operations” is to look around you
Everything you can see around you (except the flesh and blood) has been processed by an operation
Every service you consumed today (radio station, bus service, lecture, etc.) has also been produced by an operation
Operations Managers create everything you buy, sit on, wear, eat, throw at people, and throw away
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They are all operations
Retail operation
Back office operation in
a bank
Take-out / restaurant operation
Kitchen unit manufacturing
operation
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Organizational ModelOrganizational ModelOrganizational ModelOrganizational Model
MarketingMarketing
MISMISEngineeringEngineering
HRMHRM
QAQA
AccountingAccounting
SalesSalesFinanceFinance
OMOM
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Core and support functions
Accounting and finance
function
Human resources function
Others
Engineering/ technical function
Information/ technical (IT)
function
Marketing function
Product/services development
function
Operations function
Core functions
Support functions
A broad definition of operations management
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The position of the operations function
Marketing Operations
ChurchCall on newcomers
Manage appeals
Retranslate scriptures
Conduct weddings
Advertise on television
Pay suppliers
Design hamburgers
Make hamburgers
Sell to stores Pay staff
Design new furniture
Assemble furniture
Identify needs
Raise capital
Develop product
Make and distribute
Accounting and finance
Product development
Fast food chain
Furniture manufacturer
Process perspective
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Where does the business get its competitive advantageWhere does the business get its competitive advantage??
The way it produces its goods and services?
The way it positions itself in its market?
The “technological”
specification of its product/service?
Product/Service
Technology
Marketing Operations
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Some interfunctional relationships between the operations function and other core and
support functions
Engineering/ technical function
Accounting and finance
function
Human resources function
Information technology (IT) function
Marketing function
Product/service development
function
Financial analysis for performance and decisions
Provision of relevant
data
Analysis of new technology options Understanding of
process technology needs
Understanding of the capabilities and
constraints of the operations process
New product and service ideas
Understanding of the capabilities and
constraints of the operations process
Market requirements
Provision of systems for design, planning and
control, and improvement
Understanding of infrastuctural
and system needs
Recruitment development and training
Understanding of human resource needs
Operations function
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All operations are transformation processes
ENVIRONMENT
ENVIRONMENT
INPUT OUTPUTGOODS
AND SERVICES
TRANSFORMED RESOURCES
MATERIALS INFORMATION CUSTOMERS
FACILITIES STAFF
TRANSFORMING RESOURCES
TRANSFORMATION PROCESS
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Operations Management – Basic Principles
All types of enterprise have an operations function, even if it isn’t called ‘operations.
Most operations produce both products and services.
Materials
Products and services
Information
Customers
Operations management is concerned with producing and
delivering products and services
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A general model of operations management
Input transformed resources
Materials Information Customers
Facilities Staff
Input transforming
resources
Planning and control
ImprovementDesign
The operation’s competitive role
and position
Operation’s strategic
objectives
Operations strategy
CustomersOutput
products and services
Input resources
ENVIRONMENT
ENVIRONMENT
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IKEA STORE
Design elegant products which can be flat-packed efficiently
Design a store layout which gives smooth and effective flow
Ensure that the jobs of all staff encourage their contribution to business success
Maintain cleanliness and safety of storage area Arrange for fast
replenishment of products
Monitor and enhance quality of service to customers
Site stores of an appropriate size in the most effective locations
Continually examine and improve operations practice
Some operations management activities at IKEA
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Process classificationProcess classificationProcess classificationProcess classification
Manufacturing process- Service process.Manufacturing process- Service process. Based on 4 V Based on 4 V Core processes and support processes.Core processes and support processes.
Thus the late-1700s factories had not only machine Thus the late-1700s factories had not only machine power but also ways of planning and controlling the power but also ways of planning and controlling the tasks of workers.tasks of workers.
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The output from most types of operation is a mixture of goods and services
Cru
de
oil
pro
du
cti
on Pure goods
TangibleCan be stored
Production precedes consumption
Low customer contact
Can be transportedQuality is evident
IntangibleCannot be storedProduction and consumption are simultaneousHigh customer contactCannot be transportedQuality difficult to judge
Pure services
Alu
min
ium
sm
elt
ing
Sp
ec
iali
st
ma
ch
ine
to
ol
ma
nu
fac
ture
r
Re
sta
ura
nt
Co
mp
ute
r s
ys
tem
s
se
rvic
es
Ma
na
ge
me
nt
co
ns
ult
an
cy
Ps
yc
ho
the
rap
y c
lin
ic
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A Typology of OperationsIMPLICATIONS IMPLICATIONS
High LowVisibility
High LowVariation in demand
High LowVariety
Low HighVolume
Time lag between production and consumptionStandardizedLow contact skillsHigh staff utilizationCentralizationLow unit costs
Short waiting toleranceSatisfaction governed by customer perceptionCustomer contact skills neededReceived variety is highHigh unit cost
Changing capacityAnticipationFlexibilityIn touch with demandHigh unit cost
FlexibleComplexMatch customer needsHigh unit cost
Low repetitionEach staff member performs more of jobLess systemizationHigh unit costs
StableRoutinePredictableHigh utilizationLow unit costs
Well definedRoutineStandardizedRegularLow unit costs
High repeatabilitySpecializationSystemizationCapital intensiveLow unit cost
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Volume
Important to understand how different operations are positioned on the 4 V’s.
Is their position where they want to be?
Do they understand the strategic implications?
Variety
Variation
Visibility
Low
High
High
High
High
Low
Low
LowInland Resort Hotel
Formule 1 type Hotel
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Volume
Variety
Variation
Visibility
Low
High
High
High
High
Low
Low
LowPret a
MangerIKEA
Pret a Manger and IKEA
4 V’s analysis
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IntroductionIntroductionIntroductionIntroduction
Operations managementOperations management is the management of an is the management of an organization’s productive resources or its production organization’s productive resources or its production system.system.
A A production systemproduction system takes inputs and converts them takes inputs and converts them into outputs.into outputs.
The The conversion processconversion process is the predominant activity of is the predominant activity of a production system.a production system.
The primary concern of an The primary concern of an operations manageroperations manager is the is the activities of the conversion process.activities of the conversion process.
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The Process ViewThe Process ViewThe Process ViewThe Process View
Process- Any activity or group of activities that take Process- Any activity or group of activities that take one or more inputs , provide one or more outputs for one or more inputs , provide one or more outputs for its customersits customers
Different from the functional or departmental view. Different from the functional or departmental view. It is a more relevant picture of the way the firms It is a more relevant picture of the way the firms
actually work.actually work. Often go beyond department boundaries- has its set of Often go beyond department boundaries- has its set of
objectives, involves a workflow that cuts across dept objectives, involves a workflow that cuts across dept boundaries, and requires resources from several boundaries, and requires resources from several departments departments
Main processes can have sub processes within itMain processes can have sub processes within it
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Conventionally organizational boundaries are drawn around functional processes
Function 1 Function 2 Function 3 Function 4
Bu
sin
ess
pro
cess
es
Cu
sto
mer
nee
ds
fulf
ille
d
Cu
sto
mer
nee
ds
Micro operations processes
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BPR advocates reorganizing (re-engineering) micro operations to reflect the natural customer-focused business processes
Bu
sin
ess
pro
cess
es
Cu
sto
mer
nee
ds
fulf
ille
d
Cu
sto
mer
nee
ds
Function 1 Function 2 Function 3 Function 4
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Process classification contd ..Process classification contd ..Process classification contd ..Process classification contd ..
Core processesCore processes
- A chain of Activities that deliver value o the - A chain of Activities that deliver value o the external customers .external customers .
Customer relationship process- identifying attracting Customer relationship process- identifying attracting building relationship with external customers, building relationship with external customers, facilitating placement of order etc.facilitating placement of order etc.
New service development processNew service development process Order fulfillment processOrder fulfillment process Supplier development relationship processSupplier development relationship process
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Process classification contd ..Process classification contd ..Process classification contd ..Process classification contd ..
Support processesSupport processes - Provides vital resources , inputs to the core Provides vital resources , inputs to the core
processes processes - BudgettingBudgetting- RecruitmentRecruitment- Evaluation and compensationEvaluation and compensation- Regulatory complianceRegulatory compliance- Capital acquisition Capital acquisition
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Historical Milestones in OMHistorical Milestones in OM
The Industrial RevolutionThe Industrial Revolution Post-Civil War PeriodPost-Civil War Period Scientific ManagementScientific Management Human Relations and BehaviorismHuman Relations and Behaviorism Operations ResearchOperations Research The Service RevolutionThe Service Revolution
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The Industrial RevolutionThe Industrial RevolutionThe Industrial RevolutionThe Industrial Revolution
The The industrial revolutionindustrial revolution developed in England in the developed in England in the 1700s.1700s.
The steam engine, invented by James Watt in 1764, The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories.largely replaced human and water power for factories.
Adam Smith’s Adam Smith’s The Wealth of NationsThe Wealth of Nations in 1776 touted in 1776 touted the economic benefits of the the economic benefits of the specialization of laborspecialization of labor..
Thus the late-1700s factories had not only machine Thus the late-1700s factories had not only machine power but also ways of planning and controlling the power but also ways of planning and controlling the tasks of workers.tasks of workers.
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The Industrial RevolutionThe Industrial RevolutionThe Industrial RevolutionThe Industrial Revolution
The industrial revolution spread from England to The industrial revolution spread from England to other European countries and to the United Sates.other European countries and to the United Sates.
In 1790 an American, Eli Whitney, developed the In 1790 an American, Eli Whitney, developed the concept of concept of interchangeable partsinterchangeable parts..
The first great industry in the US was the textile The first great industry in the US was the textile industry.industry.
In the 1800s the development of the gasoline engine In the 1800s the development of the gasoline engine and electricity further advanced the revolution.and electricity further advanced the revolution.
By the mid-1800s, the old By the mid-1800s, the old cottage systemcottage system of of production had been replaced by the production had been replaced by the factory systemfactory system..
. . . more. . . more
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Scientific ManagementScientific ManagementScientific ManagementScientific Management
Frederick Taylor is known as the father of Frederick Taylor is known as the father of scientific scientific managementmanagement. His . His shop systemshop system employed these steps: employed these steps: Each worker’s skill, strength, and learning ability Each worker’s skill, strength, and learning ability
were determined.were determined. Stopwatch studies were conducted to precisely set Stopwatch studies were conducted to precisely set
standard output per worker on each task.standard output per worker on each task. Material specifications, work methods, and routing Material specifications, work methods, and routing
sequences were used to organize the shop.sequences were used to organize the shop. Supervisors were carefully selected and trained.Supervisors were carefully selected and trained. Incentive pay systems were initiated.Incentive pay systems were initiated.
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Scientific ManagementScientific ManagementScientific ManagementScientific Management
In the 1920s, Ford Motor Company’s operation In the 1920s, Ford Motor Company’s operation embodied the key elements of scientific management:embodied the key elements of scientific management: standardized product designsstandardized product designs mass productionmass production low manufacturing costslow manufacturing costs mechanized assembly linesmechanized assembly lines specialization of laborspecialization of labor interchangeable partsinterchangeable parts
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Human Relations and BehavioralismHuman Relations and BehavioralismHuman Relations and BehavioralismHuman Relations and Behavioralism
In the 1927-1932 period, researchers in the In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were Hawthorne Studies realized that human factors were affecting production.affecting production.
Researchers and managers alike were recognizing Researchers and managers alike were recognizing that psychological and sociological factors affected that psychological and sociological factors affected production.production.
From the work of From the work of behavioralistsbehavioralists came a gradual came a gradual change in the way managers thought about and change in the way managers thought about and treated workers.treated workers.
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Operations ResearchOperations ResearchOperations ResearchOperations Research
During World War II, enormous quantities of During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had to resources (personnel, supplies, equipment, …) had to be deployed.be deployed.
Military Military operations researchoperations research (OR) teams were formed (OR) teams were formed to deal with the complexity of the deployment.to deal with the complexity of the deployment.
After the war, operations researchers found their way After the war, operations researchers found their way back to universities, industry, government, and back to universities, industry, government, and consulting firms.consulting firms.
OR helps operations managers make decisions when OR helps operations managers make decisions when problems are complex and wrong decisions are problems are complex and wrong decisions are costly.costly.
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The Service RevolutionThe Service RevolutionThe Service RevolutionThe Service Revolution
The creation of services organizations accelerated The creation of services organizations accelerated sharply after World War II.sharply after World War II.
Today, it is a dominant sector in many countries Today, it is a dominant sector in many countries In terms of contribution to the GDP as well as share In terms of contribution to the GDP as well as share
of employment.of employment. Emergence of service giants- Mc Donald's , Fed EX Emergence of service giants- Mc Donald's , Fed EX Thus there is a growing need for service operations Thus there is a growing need for service operations
management.management.
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The Computer RevolutionThe Computer RevolutionThe Computer RevolutionThe Computer Revolution
Explosive growth of computer and communication Explosive growth of computer and communication technologiestechnologies
Easy access to information and the availability of Easy access to information and the availability of more informationmore information
Advances in software applications such as Enterprise Advances in software applications such as Enterprise Resource Planning (ERP) softwareResource Planning (ERP) software
Widespread use of emailWidespread use of email More and more firms becoming involved in E-More and more firms becoming involved in E-
Business using the InternetBusiness using the Internet Result:Result: faster, better decisions over greater distances faster, better decisions over greater distances
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Today's Factors Affecting OMToday's Factors Affecting OMToday's Factors Affecting OMToday's Factors Affecting OM
Global CompetitionGlobal Competition Quality, Customer Service, and Cost ChallengesQuality, Customer Service, and Cost Challenges Rapid Expansion of Advanced TechnologiesRapid Expansion of Advanced Technologies Continued Growth of the Service SectorContinued Growth of the Service Sector Scarcity of Operations ResourcesScarcity of Operations Resources Social-Responsibility IssuesSocial-Responsibility Issues
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Studying Operations ManagementStudying Operations Management
Operations as a SystemOperations as a System Decision Making in OMDecision Making in OM
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Conversion SubsystemConversion SubsystemConversion SubsystemConversion Subsystem
Physical Physical (Manufacturing)(Manufacturing) Locational Services Locational Services (Transportation)(Transportation) Exchange Services Exchange Services (Retailing)(Retailing) Storage Services Storage Services (Warehousing)(Warehousing) Other Private ServicesOther Private Services (Insurance) (Insurance) Government ServicesGovernment Services (Federal) (Federal)
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Decision Making in OMDecision Making in OMDecision Making in OMDecision Making in OM
Strategic DecisionsStrategic Decisions Operating DecisionsOperating Decisions Control DecisionsControl Decisions
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Strategic DecisionsStrategic Decisions
These decisions are of strategic importance and have These decisions are of strategic importance and have long-term significance for the organization.long-term significance for the organization.
Examples include deciding:Examples include deciding: the design for a new product’s production processthe design for a new product’s production process where to locate a new factorywhere to locate a new factory whether to launch a new-product development planwhether to launch a new-product development plan
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Operating DecisionsOperating DecisionsOperating DecisionsOperating Decisions
These decisions are necessary if the ongoing These decisions are necessary if the ongoing production of goods and services is to satisfy market production of goods and services is to satisfy market demands and provide profits.demands and provide profits.
Examples include deciding:Examples include deciding: how much finished-goods inventory to carryhow much finished-goods inventory to carry the amount of overtime to use next weekthe amount of overtime to use next week the details for purchasing raw material next monththe details for purchasing raw material next month
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Control DecisionsControl Decisions
These decisions concern the day-to-day activities of These decisions concern the day-to-day activities of workers, quality of products and services, production workers, quality of products and services, production and overhead costs, and machine maintenance.and overhead costs, and machine maintenance.
Examples include deciding:Examples include deciding: labor cost standards for a new productlabor cost standards for a new product frequency of preventive maintenancefrequency of preventive maintenance new quality control acceptance criterianew quality control acceptance criteria
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What Controls the Operations System?What Controls the Operations System?What Controls the Operations System?What Controls the Operations System?
Information about the outputs, the conversions, and Information about the outputs, the conversions, and the inputs is fed back to management.the inputs is fed back to management.
This information is matched with management’s This information is matched with management’s expectationsexpectations
When there is a difference, management must take When there is a difference, management must take corrective action to maintain control of the systemcorrective action to maintain control of the system
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Operations Activities as Feedback Loops
Design activities set the basic configuration
Planning & control activities guide short/medium term changes
Planning & Control
Design
Improvement
Improvement activities guide longer term changes
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Plan
I. Operations Strategy and Managing Change
1. Introductionto the Field
2. Operations Strategy and Competitiveness
3. Project Management
III. SupplyChain Design
9. Supply Chain Strategy
10. Strategic Capacity
Management
11. Just-in-Time and Lean Systems
IV. Planning and Controlling the Supply Chain
12. Forecasting and Demand Management
13. Aggregate Sales and Operations Planning
14. Inventory Control
15. Materials Requirements Planning 8. Operations Consulting
and Reengineering
16. Operations Scheduling
II. Product Designand Process
Selection
4. ProcessAnalysis
5. ProductDesign and
Process Selection-Manufacturing
6. ProductDesign and
Process Selection-Services
7. QualityManagement
17. Synchronous Manufacturing and Theory of Constraints
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SummarySummarySummarySummary
