In the name of Allah the most beneficent the most merciful

“There is no shame in not knowing;

the shame lies in not finding out.”

2

Operations Management – (1)

By

Syed Mukhtar Ahmed JilaniMS (MS), MBA (HR), MCS

smajilani@yahoo.com

The prescribed reading for this course is the AIOU text book

The prescribed additional reading for this course are: James B. Dilworth Operations Management: Design, Planning, and Control

for Manufacturing and Services McGraw Hill, Inc. 1992 ISBN 0-07-016988-8.

Ray Wild Production and Operations Management: Text and Cases Cassel Educational Ltd 1999 ISBN 0-304-33077-9

3 Operations Management

Prescribed & Recommended Readings

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Understand the growing need for better operations management in manufacturing and service sectors

Define Operations Management?The role and activities of operation managementThe input-transformation-output model Difference between goods and services

Learning Objectives

Operations Management

Why Study OM?

• OM is one of three major functions (marketing, finance, and operations) of any organization

• We want (and need) to know how goods and services are produced

• We want to understand what operations managers do

• OM is a very costly part of an organization

5 Operations Management

Sales $100,000 $150,000 $100,000 $100,000Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000Gross Margin 20,000 30,000 20,000 36,000Finance Costs – 6,000 – 6,000 – 3,000 – 6,000Subtotal 14,000 24,000 17,000 30,000Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Finance/Marketing Accounting OM

Option Option Option

Increase Reduce ReduceSales Finance Production

Current Revenue 50% Costs 50% Costs 20%

Options for Increasing Contribution

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Production is the creation of goods and services

Operations management (OM) is the set of activities that creates value in the form

of goods and services by transforming inputs into outputs

What Is Operations Management?

Operations Management

8

Source: Reid and Sanders, 2005.

OM’s Transformation Role

8Operations Management

• Essential functions:• Marketing – generates demand• Production/operations – creates the

product• Finance/accounting – tracks how well

the organization is doing, pays bills, collects the money

Organizing to Produce Goods and Services

9 Operations Management

Source: Reid and Sanders, 2005.

Typical Organization Chart

10Operations 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

The Activities of Operations Management

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.

The Activities of Operations Management

MGT 507 – Operations Management

• Technology/methods• Facilities/space utilization• Strategic issues• Response time• People/team development• Customer service• Quality• Cost reduction• Inventory reduction• Productivity improvement

Where are the OM Jobs?

13 Operations Management

Evolution of

Operations Management

• Human factors• Industrial engineering• Management science• Biological science• Physical sciences• Information technology

Contributions From:

15 Operations Management

• Division of labor (Adam Smith 1776; Charles Babbage 1852)

• Standardized parts (Whitney 1800)

• Scientific Management (Taylor 1881)

• Coordinated assembly line (Ford/ Sorenson 1913)

• Gantt charts (Gantt 1916)

• Motion study (Frank and Lillian Gilbreth 1922)

• Quality control (Shewhart 1924; Deming 1950)

The Heritage of OM

MGT 507 – Operations Management

• Computer (Atanasoff 1938)

• CPM/PERT (DuPont 1957)

• Material requirements planning (Orlicky 1960)

• Computer aided design (CAD 1970)

• Flexible manufacturing system (FMS 1975)

• Baldrige Quality Awards (1980)

• Computer integrated manufacturing (1990)

• Globalization (1992)

• Internet (1995)

The Heritage of OM

MGT 507 – Operations Management

Customers demand better quality, faster deliveries, and lower costs

Increased cross-functional decision makingRecognized need to better manage

information using ERP and CRM systems

Today’s OM Environment

18 Operations Management

Goods and

Services

• Tangible product

• Consistent product definition

• Production usually separate from consumption

• Can be inventoried

• Low customer interaction

Characteristics of Goods

20 Operations Management

• Intangible product

• Produced and consumed at same time

• Often unique

• High customer interaction

• Inconsistent product definition

• Often knowledge-based

• Frequently dispersed

Characteristics of Services

21 Operations Management

• Can be resold• Can be inventoried• Some aspects of quality

measurable• Selling is distinct from

production• Product is transportable

• Site of facility important for cost

• Often easy to automate• Revenue generated primarily

from tangible product

Attributes of Goods(Tangible Product)

Attributes of Services (Intangible Product)

• Reselling unusual• Difficult to inventory• Quality difficult to measure

• Selling is part of service

• Provider, not product, isoften transportable

• Site of facility important forcustomer contact

• Often difficult to automate• Revenue generated primarily

from the intangible service

Goods Versus Services

22Operations Management

Automobile

Computer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

Percent of Product that is a Good Percent of Product that is a Service

100% 75 50 25 0 25 50 75 100%| | | | | | | | |

Goods and Services

All use technology Both have quality, productivity, & response

issuesAll must forecast demandEach will have capacity, layout, and location

issuesAll have customers and suppliersAll have scheduling and staffing issues

Similarities - Goods / Service

24 Operations Management

Operations Managers

Basic Management Functions• Planning• Organizing• Staffing• Leading• Controlling

What Operations Managers Do

26 Operations Management

• 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.

Activities of Operations manager

27 Operations Management

Ten Decision Areas• Design of goods and services• Managing quality• Process and capacity

design • Location strategy• Layout strategy• Human resources and job design • Supply chain management• Inventory management • Scheduling• Maintenance

Ten Critical Decisions

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• Design of goods and services• What good or service should we offer?• How should we design these products and

services? • Managing quality

• How do we define quality?• Who is responsible for quality?

The Critical Decisions

29 Operations Management

• Process and capacity design• What process and what capacity will these

products require?• What equipment and technology is necessary

for these processes?

• Location strategy• Where should we put the facility?• On what criteria should we base the location

decision?

The Critical Decisions

30 Operations Management

• Layout strategy• How should we arrange the facility?• How large must the facility be to meet our plan?

• Human resources and job design• How do we provide a reasonable work

environment?• How much can we expect our employees to

produce?

The Critical Decisions

31 Operations Management

• Supply chain management• Should we make or buy this component?• Who are our suppliers and who can integrate into

our e-commerce program?

• Inventory, material requirements planning, and JIT• How much inventory of each item should we have?• When do we re-order?

The Critical Decisions

32 Operations Management

• Intermediate and short–term scheduling• Are we better off keeping people on the payroll

during slowdowns?• Which jobs do we perform next?

• Maintenance• Who is responsible for maintenance?• When do we do maintenance?

The Critical Decisions

33 Operations Management

Highlights of

Operations Management

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

Highlights

35 Operations Management

New Trends

• Global focus• Just-in-time performance• Supply chain partnering• Rapid product development• Mass customization• Empowered employees• Environmentally sensitive production• Ethics

New Trends in OM

37 Operations Management

Local or national focus

Reliable worldwide communication and transportation networks

Global focus, moving production offshore

Batch (large) shipments

Short product life cycles and cost of capital put pressure on reducing inventory

Just-in-time performance

Low-bid purchasing

Supply chain competition requires that suppliers be engaged in a focus on the end customer

Supply chain partners, collaboration, alliances, outsourcing

Past Causes Future

New Trends in OM

Lengthy product development

Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs

Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization with added emphasis on quality

Job specialization

Changing socioculture milieu; increasingly a knowledge and information society

Empowered employees, teams, and lean production

Past Causes Future

New Trends in OM

Low-cost focus

Environmental issues, ISO 14000, increasing disposal costs

Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing

Ethics not at forefront

Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution

High ethical standards and social responsibility expected

Past Causes Future

New Trends in OM

Ethics and

Social Responsibility

Ethics and Social Responsibility

Challenges facing operations managers:

• Developing and producing safe, quality products

• Maintaining a clean environment

• Providing a safe workplace

• Honoring community commitments

MGT 507 – Operations Management