Operations Management defined as the management while another might have more difficult cases.

Unless a
of systems or processes that create goods and/or careful analysis is conducted, it may appear that the
provide services. doctor with the difficult cases has a much lower
productivity than the one with the routine cases.
Physical Goods - items produced by business
organizations. Quality assurance. Quality assurance is usually more
challenging for services due to the higher variation in
Services - Activities that provide some combination of
input, and because delivery and consumption occur at
time, location, form, and psychological value. the same time. Unlike manufacturing, which typically
Supply chain – is a sequence of organizations—their occurs away from the customer and allows mistakes
facilities, functions, and activities—that are involved in that are identified to be corrected, services have less
producing and delivering a product or service. opportunity to avoid exposing the customer to mistakes.

Inventory. Many services tend to involve less use of

inventory than manufacturing operations, so the costs
of having inventory on hand are lower than they are for
manufacturing. However, unlike manufactured goods,
services cannot be stored. Instead, they must be
Value - added is the term used to describe the provided “on demand.”
difference between the cost of inputs and the value or
Wages. Manufacturing jobs are often well paid, and
price of outputs
have less wage variation than service jobs, which can
Value Added range from highly paid professional services to
Inputs – land, labor, capital, information, machinery minimum-wage workers.

Outputs- goods, services Ability to patent. Product designs are often easier to
patent than service designs, and some services cannot
Production of goods results in a tangible output. be patented, making them easier for competitors to
copy
Delivery of service generally implies an act.
There are also many similarities between managing the
production of products and managing services.. Here
Consider these points of comparison between Goods are some of the primary factors for both:
and Services
a. Forecasting and capacity planning to match supply
Degree of customer contact. Many services involve a and demand
high degree of customer contact, although services such
b. Process management
as Internet providers, utilities, and mail service do not.
When there is a high degree of contact, the interaction c. Managing variations
between server and customer becomes a “moment of
truth” that will be judged by the customer every time d. Monitoring and controlling costs and productivity
the service occurs.
e. Supply chain management
Labor content of jobs. Services often have a higher
f. Location planning, inventory management, quality
degree of labor content than manufacturing jobs do,
control, and scheduling
although automated services are an exception.

Uniformity of inputs. Service operations are often

subject to a higher degree of variability of inputs. Each Tasks of an Operations Manager
client, patient, customer, repair job, and so on presents
a somewhat unique situation that requires assessment The tasks of operations management ranges across the
and flexibility. Conversely, manufacturing operations organization. Operations management people are
often have a greater ability to control the variability of involved in product and service design, process
inputs, which leads to more-uniform job requirements. selection, selection and management of technology,
design of work systems, location planning, facilities
Measurement of productivity. Measurement of planning, and quality improvement of the organization’s
productivity can be more difficult for service jobs due products or services.
largely to the high variations of inputs. Thus, one doctor
might have a higher level of routine cases to deal with,
The operations function includes many interrelated easier to achieve desired results. There is no shortcut to
activities, such as forecasting, capacity planning, this; operations managers must be familiar with all
scheduling, managing inventories, assuring quality, aspects of the business.
motivating employees, deciding where to locate
facilities, and more. Data-Driven Analysis: In operations management,
decisions are often based on data and analytics.
Forecasting such things as weather and landing Operations managers need to be able to analyze data
conditions, seat demand for flights, and the growth in and draw insights from it to make informed decisions. It
air travel. requires a strong analytical skillset.

Capacity planning, essential for the airline to maintain Stakeholder Analysis: Operations managers need to be
cash flow and make a reasonable profit. (Too few or too able to identify and assess the interests of different
many planes, or even the right number of planes but in stakeholders. It will help them understand the impact of
the wrong places, will hurt profits.) their decisions and choose the course of action that is
most beneficial to all parties involved.
Locating facilities according to managers’ decisions on
which cities to provide service for, where to locate Cost-Benefit Analysis: There is no better way to make
maintenance facilities, and where to locate major and decisions than by doing a cost-benefit analysis.
minor hubs. Operations managers need to be able to weigh the costs
and benefits of different options before making a
Facilities and layout, important in achieving effective decision. It will help them choose the most beneficial
use of workers and equipment. option for the company.
Scheduling of planes for flights and for routine Risk Analysis: Operations managers must identify and
maintenance; scheduling of pilots and flight attendants; assess risks before making any decisions. It will help
and scheduling of ground crews, counter staff, and them avoid potential pitfalls and make the best possible
baggage handlers.
decision for the company. For instance, if an operations
Managing inventories of such items as foods and manager is considering a new course of action, they will
beverages, first-aid equipment, in flight magazines, need to consider the risks involved and decide if the
pillows and blankets, and life preservers. potential benefits are worth the risk.

Assuring quality, essential in flying and maintenance Determining the Scope of the Decision: Once the
operations, where the emphasis is on safety, and objectives have been determined, the manager needs to
important in dealing with customers at ticket counters, decide on the scope of the decision. It will help them
check-in, telephone and electronic reservations, and identify the parameters within which the decision needs
curb service, where the emphasis is on efficiency and to be made. For instance, for a brand new plan, they will
courtesy. need to decide how many resources are required and
how much time needs to be invested.
Motivating and training employees in all phases of
operations. Analyzing the Available Options: Operations managers
need to be able to identify and assess the available
options before making any decisions. It will help them
choose the most beneficial option for the company. For
Critical Decisions
instance, multiple options may be available, but one
Decision-making in operations management is the option may be more valuable in the long run, even
decision-making process about efficiently using though it requires more resources upfront.
resources to produce goods or services. Operations
Making the Decision: Operations managers must be
management decisions aim to maximize efficiency while
able to make decisions quickly and efficiently. It requires
meeting customer needs.
a strong ability to think on one’s feet and make
There are a few critical points that influence operations decisions under pressure. It may also need the
management decisions. Here are the eight key points operations manager to delegate authority to make
you need to know: decisions.

Ascertaining Company’s Objectives: The operations

manager needs to be aware of the company’s objectives
THE HISTORICAL EVOLUTION OF OPERATIONS
in order to make decisions that are aligned with these
MANAGEMENT
goals. It will streamline the operations and make it
The Industrial Revolution Harrington Emerson applied Taylor’s ideas to
organization structure and encouraged the use of
 Industrial Revolution began in the 1770s in experts to improve organizational efficiency. He testified
England and spread to the rest of Europe and to in a congressional hearing that railroads could save a
the United States during the 19th century. million dollars a day by applying principles of scientific
 Substitute machine power for human power. management.
 Most significant machine was steam engine.
Henry Ford, the great industrialist, employed scientific
What did take place? management techniques in his factories.

 Production became fast and low costly one The Human Relations Movement
 Economies of Scale
 Development of Standard Gauging System the human relations movement emphasized the
 Factories grew rapidly importance of the human element in job design.
 Provided countless jobs Lillian Gilbreth, a psychologist and the wife of Frank
Scientific Management Gilbreth, worked with her husband, focusing on the
human factor in work. Many of her studies dealt with
 Widely change the management of factories worker fatigue. In the following decades, there was
 Developed by Frederick Winslow Taylor, the much emphasis on motivation.
Father of Scientific Management
Elton Mayo argued that motivation is critical for
 Based on observation, measurement,
improving productivity.
analysis and improvement of work methods
and economic incentives. Douglas McGregor added Theory X and Theory Y
 Studied to identify the best method for
doing each job. Theory X - reward and punishment system - resulted in
 Henry Ford practically adopted the Scientific an adversarial environment
Management principles for Taylor
Theory Y - the physical and mental aspects - resulted in
 Introduce the moving assembly line , which
empowered workers and a more cooperative spirit
affected to many industries.
 Introduced mass production to the William Ouchi added Theory Z
automotive industry.
combined the Japanese approach with such features as
 The concept of “Interchangeable Parts” was
lifetime employment, employee problem solving, and
applied by Eli Whitney, An American
Inventor consensus building, and the traditional Western
approach that features short-term employment,
 The basis for interchangeable parts was to
specialists, and individual decision making and
standardize parts
responsibility
 Any part in the batch of parts would fit any
automobile coming down the assembly line Decision Models and Management Science
 Result was a high decrease in assembly time
and cost. Accompanied by the development of several
 Concept of Division Labor , which Adam quantitative techniques:
Smith wrote about in the wealth of nations
 F.W. Harris develop a Mathematical model for
(1776) was used by Ford.
inventory order size in 1915
 An operation is divided up into series of
 H.F. Dodge, H.G. Romig and W. Shewhart
many small task, individual workers
developed a statistical procedure for sampling
assigned to one of those task
and quality control in 1930
Frank Gilbreth was an industrial engineer who is often  L.H.C. Tippot conducted studies that provided
referred to as the father of motion study. He developed the groundwork for statistical sampling theory
principles of motion economy that could be applied to in 1935.
incredibly small portions of a task.  After World War II, efforts to develop and refine
quantitative tools for decision making
Henry Gantt recognized the value of nonmonetary continued, resulting in decision models for
rewards to motivate workers, and developed a widely forecasting, inventory management, project
used system for scheduling, called Gantt charts management, and other areas of operations
management
Productivity

A measure of the effective use of resources, usually

expressed as the ratio of output to input.

Productivity is an index that measures output (goods

and services) relative to the input (labor, materials,
energy, and other resources) used to produce it. It is
usually expressed as the ratio of output to input:

Productivity = output/input

Partial measure = output/labor, output/machine,

ourput/capital, output/energy

Multifactor = output/ labor+machine+capital

Labor productivity Total measure = goods or service produced / all outputs

 Units of output per labor hour

 Units of output per shift
Operations Strategy
 Value-added per labor hour
 Dollar value of output per labor hour Mission
Machine productivity The reason for the existence of an organization.

 Units of output per machine hour “What business are we in?”

 Dollar value of output per machine hour
Mission Statement
Capital productivity
States the purpose of an organization.
 Units of output per dollar input
 Dollar value of output per dollar input Mission Statement Components

Energy productivity 1. Customers—Who are the firm’s customers?

 Units of output per kilowatt-hour 2. Products or services—What are the firm’s major
 Dollar value of output per kilowatt-hour products or services?

3. Markets—Geographically, where does the firm

compete?

4. Technology—Is the firm technologically current?

5. Survival, growth, and profitability—Is the firm

committed to growth and financial soundness?

6. Philosophy—What are the basic beliefs, values,

aspirations, and ethical priorities of the firm?

7. Self-concept—What is the firm’s distinctive

competence or major competitive advantage?

8. Public image—Is the firm responsive to social,

community, and environmental concerns?

9. Concern for employees—Are employees a valuable

asset of the firm?

Goal

Provide detail and scope of the mission.

Strategies loyalty to the organization, expertise,
dedication, and experience.
Plans for achieving organizational goals.
 Facilities and equipment. Capacities, location,
Strategy Formulation age, and cost to maintain or replace can have a
significant impact on operations
To formulate an effective strategy, managers must take  Financial resources. Cash flow, access to
into account the core competencies of the additional funding, existing debt burden, and
organizations, and they must scan the environment. cost of capital are important considerations.
 Customers. Loyalty, existing relationships, and
They must determine what competitors are doing, or
understanding of wants and needs are
planning to do, and take that into account. They must
important.
critically examine other factors that could have either
 Products and services. These include existing
positive or negative effects.
products and services, and the potential for new
This is sometimes referred to as the SWOT approach products and services.
(strengths, weaknesses, opportunities, and threats).  Technology. This includes existing technology,
the ability to integrate new technology, and the
SWOT is often regarded as the link between probable impact of technology on current and
organizational strategy and operations strategy future operations.
An alternative to SWOT analysis is Michael Porter’s five  Suppliers. Supplier relationships, dependability
forces model. of suppliers, quality, flexibility, and service are
typical considerations.
1. Rivalry among existing competition
2. Bargaining power of suppliers Other factors include patents, labor relations, company
3. Bargaining power of buyer or product image, distribution channels, relationships
4. Threat of new entrance with distributors, maintenance of facilities and
5. Threat of substitutes product equipment, access to resources, and access to markets

In formulating a successful strategy, organizations must Supply Chain Strategy

take into account both order qualifiers and order A supply chain strategy specifies how the supply chain
winners. should function to achieve supply chain goals. The
Order qualifiers Characteristics that customers perceive supply chain strategy should be aligned with the
as minimum standards of acceptability to be considered business strategy. If it is well executed, it can create
as a potential for purchase. value for the organization. It establishes how the
organization should work with suppliers and policies
Order winners Characteristics of an organization’s goods relating to customer relationships and sustainability.
or services that cause it to be perceived as better than Supply chain strategy is covered in more detail in a later
the competition. chapter.

Environmental scanning The monitoring of events and Operations strategy is narrower in scope, dealing
trends that present threats or opportunities for a primarily with the operations aspect of the organization.
company. Operations strategy relates to products, processes,
methods, operating resources, quality, costs, lead times,
important factors may be internal or external.
and scheduling.
External Factors:

 Economic
 Political
 Legal
 Technology
 Competition

Internal Factors
Operations strategy - the approach, consistent with the
 Human resources. These include the skills and
organization strategy, that is used to guide the
abilities of managers and workers, special
operations function.
talents (creativity, designing, problem solving),
Quality-based strategies focus on maintaining or 1. Save time and money
improving the quality of an organization’s products or
With the right planning, you can ensure that your work
services. Quality is generally a factor in both attracting
and retaining customers. is delivered on time and within budget. Using project
management methods, you can map your project’s
journey from the outset and know in advance where the
deadlines — and projected spend — are going to fall, so
Organizations have achieved time reduction in some of
you can more efficiently allocate your resources, helping
the following: you to avoid delays and project overspend
Planning time: The time needed to react to a 2. Improve internal communications
competitive threat, to develop strategies and select
tactics, to approve proposed changes to facilities, to Working together can be hard. With more efficient
adopt new technologies, and so on. project management processes, you can reduce the
complexity of collaboration, increase transparency, and
Product/service design time: The time needed to ensure accountability, even when you’re working across
develop and market new or redesigned products or teams or departments
services.
3. Make better business decisions
Processing time: The time needed to produce goods or
provide services. This can involve scheduling, repairing With clearer records of how your project is progressing,
equipment, methods used, inventories, quality, training, you get a deeper understanding of where your
and the like. resources are being spent, what you need to prioritize
and when, and if you’re at risk of going off track. Good
Changeover time: The time needed to change from project management means that you can forecast issues
producing one type of product or service to another. before they become issues, prevent bottlenecks, and
This may involve new equipment settings and make smarter, data-driven decisions.
Delivery time: The time needed to fill orders.
4. Iterate on your successes
Response time for complaints: These might be Project management helps you to scale high
customer complaints about quality, timing of deliveries, performance and build on your team’s best practices. By
and incorrect shipments. These might also be using the data and learnings from previous projects,
complaints from employees about working conditions you’re able to pinpoint where your team is excelling and
(e.g., safety, lighting, heat or cold), equipment where there’s room for improvement
problems, or quality problems.
5. Better project planning = significantly better projects

PERT - Program Evaluation & Review Technique

Project Management
CPM – Critical Path Method
Project management is the process of planning,
organizing, and overseeing the overall execution of a PERT and CPM
project from the beginning to its end.
are two of the most widely used techniques for planning
The general role of a project manager is to define a and coordinating large-scale projects.
project’s goals, create an actionable project plan,
By using PERT or CPM, managers are able to obtain:
allocate the essential resources, and manage the project
team as a whole. In addition, project managers are 1. A graphical display of project activities
responsible for ensuring that projects are completed on
time, within budget, and to the satisfaction of the 2. An estimate of how long the project will take
necessary stakeholders
3. An indication of which activities are the most critical
Effective project management requires: to timely project completion

 strong communication skills 4. An indication of how long any activity can be delayed
 attention to detail without delaying the project
 and adapting to ever-changing circumstances
Parts of a node
Benefits of Project Management
 Possible enumeration

These changes took place in the application of

Industrial revolution in the 1770s

 Production became fast and low costly one

 Economies of Scale
ES: early start  Development of Standard Gauging System
 Factories grew rapidly
EF: early finish  Provided countless jobs
LS: late start What are eight key critical points that influence
operations management decisions
LF: late finish
 Ascertaining Company’s Objectives
 Data-Driven Analysis
 Stakeholder Analysis
 Cost-Benefit Analysis
 Risk Analysis
 Determining the Scope of the Decision
 Analyzing the Available Options
 Making the Decision

Theories developed by Douglas McGregor

 Theory X
 Theory Y

Consider these points of comparison between Goods

and Services

 Degree of Customer Contact

 Labor Content of Jobs
 Uniformity of Inputs
 Measurement of Productivity
 Quality Assurance
 Inventory
 Wages
 Ability to Patent

Mission Statement Components

 Customers
 Products or services
 Markets
 Technology
 Survival, growth, and profitability
AON – activity on nodes  Philosophy
 Self-concept
AOA – activity on arrow  Public image
 Concern for employees
SWOT approach By using PERT or CPM, managers are able to obtain:

 Strengths  A graphical display of project activities

 Weaknesses  An estimate of how long the project will take
 Opportunities  An indication of which activities are the most
 Threats critical to timely project completion
 An indication of how long any activity can be
Michael Porter’s five forces model. delayed without delaying the project
 Rivalry among existing competition
 Bargaining power of suppliers
 Bargaining power of buyer
 Threat of new entrance
 Threat of substitutes product

External Factors:

 Economic
 Political
 Legal
 Technology
 Competition

Internal Factors

 Human resources.
 Facilities and equipment
 Financial resources.
 Customers. Loyalty
 Products and services.
 Technology
 Suppliers

Effective project management requires:

 strong communication skills

 attention to detail
 and adapting to ever-changing circumstances

Organizations have achieved time reduction in some of

the following:

 Planning time:
 Product/service design time
 Processing time:
 Changeover time:
 Delivery time
 Response time for complaints

Benefits of Project Management

 Save time and money

 Improve internal communications
 Make better business decisions
 Iterate on your successes
 Better project planning