1 Operations Management Lesson 1 Fundamentals of Operations Management Prepared by Sudarsan Jayasingh.

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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.