OBJECTIVES
Operations Management
Why Study Operations Management?
Transformation Processes Defined
Operations as a Service
The Importance of Operations Management
WHAT IS OPERATIONS
MANAGEMENT?
DEFINED
Operations management (OM) is defined as the
design, operation, and improvement of the systems
that create and deliver the firm’s primary products
and services
WHY STUDY OPERATIONS
MANAGEMENT?
Systematic Approach
to Org. Processes
Business Education Operations Career Opportunities
Management
Cross-Functional
Applications
MAJOR COMPONENTS OF AN
OPERATIONS SYSTEM
Input ( external & internal)
Transformation / Conversion process
Output ( product & services)
Random Fluctuations
Feedback
RANDOM
INPUT FLUCTUATIONS OUTPUT
• EXTERNAL • DIRECT
•LOCATION / STORAGE
POLITICAL • INDIRECT
•TRANSPORTATION
LEGAL
•PHSYCHOLOGICAL
ECONOMICAL
•PHYSIOLOGICAL
SOCIAL
CROSS CULTURAL •EXCHANGE
• INTERNAL •OTHER SERVICES
MATERIAL
TRANSFORMATION /
MACHINE
CONVERSION PROCESS
MEN
MONEY
FEEDBACK
METHOD
WHAT IS A TRANSFORMATION
PROCESS?
DEFINED
A transformation process is defined as a use of
resources to transform inputs into some desired
outputs
TRANSFORMATIONS
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
WHAT IS A SERVICE AND WHAT IS A
GOOD?
“Ifyou drop it on your foot, it won’t hurt
you.” (Good or service?)
“Services never include goods and goods never
include services.” (True or false?)
Manufacturing or Service?
Tangible intangible
PRODUCTION OF GOODS VS.
DELIVERY OF SERVICES
Production of goods – tangible output
Delivery of services – an act
Service job categories
Government
Wholesale/retail
Financialservices
Healthcare
Business services
Education
KEY DIFFERENCES
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
Manufacturing vs Service
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
Core Services
Defined
CORE SERVICES ARE BASIC
THINGS THAT CUSTOMERS
WANT FROM PRODUCTS THEY
PURCHASE
Value-Added Services
Defined
VALUE-ADDED SERVICES
DIFFERENTIATE THE
ORGANIZATION FROM
COMPETITORS AND BUILD
RELATIONSHIPS THAT BIND
CUSTOMERS TO THE FIRM IN A
POSITIVE WAY
CORE SERVICES PERFORMANCE
OBJECTIVES
Quality
Operations
Flexibility Speed
Management
Price (or cost
Reduction)
Value-AddedProblem
ServiceSolving
Categories
Operations Sales Support
Information
Management
Field Support
ERA CONCEPT YEAR ORIGINATOR
Industrial revolution
steam engine 1769 James Watt
Divison of labor 1776 Adam Smith
Interchangeable Parts 1790 Eli Whitney
Scientific Management
Principles of SM 1911 FW Taylor
Time and Motion studies 1911 Gilbreth
Activity scheduling chart 1912 Henry Gantt
Moving Assembly line 1913 Henry Ford
Human Relations Hawthorne studies 1930 Elton Mayo
Motivation theories 1940 Abraham Maslow
Operation research
Linear Prg. 1947 George Dantzig
Digital Computers 1951 Remington Rand
Simulation, Waiting line 1950 OR group
PERT CPM MRP 60's OR group
ERA CONCEPT YEAR ORIGINATOR
Quality revolution
JIT 70's Taichi Ohno
TQM 80's Deming Juran Crosby
BPR 90's Hammer Champy
Internet revolution www 90's ARPANET
ERP 90's SAP
e commerce 2000 IT group
Service revolution goihg on
Scope of Operations Management
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . ..
Types of Operations
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
Responsibilities of Operations Management
Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
KEY DECISIONS OF OPERATIONS
MANAGERS
What
What resources/what amounts
When
Needed/scheduled/ordered
Where
Work to be done
How
Designed
Who
To do the work
Business Operations Overlap
Operations
Marketing Finance
Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing Public
Operations Relations
Legal
Personnel
Accounting MIS
SUPPLY-CHAIN MANAGEMENT
Planning, organizing, directing, & controlling flows of
materials
Begins with raw materials
Continues through internal operations
Ends with distribution of finished goods
Involves everyone in supply-chain
Example: Your supplier’s supplier
Objective: Maximize value & lower waste
THE SUPPLY-CHAIN
VISA
®
Material Flow Credit Flow
Supplier Manufacturing Retailer Consumer
Supplier Wholesaler Retailer
Schedules Order Cash
Flow Flow
THE SUPPLY CHAIN
Market research data
scheduling information
Engineering and design data
Supplier Order flow and cash flow Customer
Ideas and design to
Inventory satisfy end customer
Material flow
Supplier Credit flow
Manufacturer Customer
Inventory Inventory
Supplier
Distributor Customer
Inventory
FACILITY 2
INVESTOR
HUBS OF
POOL 1
RAW
FACILITY 1 MATERIAL
INVESTOR
POOL 2
GLOBAL SUPPLY-CHAIN ISSUES
Supply chains in a global environment must be:
flexible enough to react to sudden changes in parts
availability, distribution, or shipping channels, import
duties, and currency rates
able to use the latest computer and transmission
technologies to manage the shipment of parts in and
finished products out
staffed with local specialists to handle duties, trade,
freight, customs and political issues
PRODUCTIVITY
Output
Productivity =
Input
PRODUCTIVITY
Policies processed
Labor productivity =
Employee hours
PRODUCTIVITY
600 policies
Labor productivity =
(3 employees)(40 hours/employee)
PRODUCTIVITY
Labor productivity = 5 policies/hour
PRODUCTIVITY
Labor productivity = 5 policies/hour
Multifactor productivity =
Quantity at standard cost
Labor cost + Materials cost + Overhead cost
PRODUCTIVITY
Labor productivity = 5 policies/hour
Multifactor productivity =
(400 units)($10/unit) $4000
= = 2.35
$400 + $1000 + $300 $1700
PRODUCTIVITY MEASURES EXAMPLE
The state ferry service charges $18 per ticket plus a $3
surcharge to fund planned equipment upgrades. It expects to
sell 4,700 tickets during the eight-week summer season. During
that period, the ferry service will experience $110,000 in labor
costs. Materials required for each passage sold (tickets, a
tourist-information sheet, and the like) cost $1.30. Overhead
during the period comes to $79,000.
a. What is the multifactor productivity ratio?
b. If ferry-support staff work an average of 310 person-hours per
week for the 8 weeks of the summer season, what is the labor
productivity ratio? Calculate labor productivity on an hourly
basis.
SOLUTION
Multifactor productivity is the ratio of the value of output to the value of
input.
Tickets sold = 4,700 Value of output = 4700 X [18 + 3]
= $98700
Price = $18
Surcharge = $3
Labor costs = $110,000 Overhead = $79,000
Materials costs = $1.30 X 4700 = $ 6110
Value of input = 110000 + 79000 + 6110 = $ 195110
Multifactor productivity = 98700 / 195110 = 0.51
SOLUTION
Labor productivity is the ratio of the value of output to labor
hours The value of output is already computed
Hours per week = 310 Weeks = 8
Labor hours of input = 310 X 8 = 2480
Labor productivity = $ 98700 / 2480 = $ 39.80 / hour
ASSIGNMENT
Design the operation system for agriculture industry.
Discuss the recent trends in operations management as
Internet, e-commerce, e-business , Globalization.
Discuss the journey of operations management from
industrial revolution to internet revolution.
ASSIGNMENT
Define the concepts mass customization, service factory,
smart inventory, lean production, business process
reengineering, business process outsourcing, knowledge
process outsourcing.
