Introduction to Operations Management John. What is Operations Management? John.

Introduction to

Operations

Management

John

What is Operations What is Operations

Management?Management?

John

3 Basic Functions of Business Organizations

Ensure and allocating financial

resources

Produce goods or services

Assess consumer needs, and sell /

promote goods or services

John

Operations: A Transformation Process

Workers

Managers

Equipment

Facility

Materials

Land

Energy

Information

Goods

Services

IInputsnputs OutputsOutputs

Operations and

processes

Feedback

Performance

Lead time The time between ordering a good or service and receiving it.Dr Felton Lean

Operations Management

The management of systems or processes

that create goods and/or provide services.

Planning

Coordinating

Executing

OVERVIEW OF OPERATIONS MANAGEMENT MODEL

TransformationTransformation ProcessProcess

OutputOutput

Goods orGoods orServicesServices

ControlControl

Input: resourcesInput: resources raw materialsraw materials machinesmachines personnelpersonnel capitalcapital land/buildingsland/buildings utilitiesutilities informationinformation etc.etc.

Operations management is Operations management is the process of obtaining and the process of obtaining and utilizing resources to utilizing resources to produce useful goods and produce useful goods and services so as to meet the services so as to meet the goals of the organization.goals of the organization.

• The difference between the cost of inputsand the value or price of outputs.

Inputs Material Labor

Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

Value added

Value of the output or price of the output as accepted by the customers, not just enforced by the supplier.

Land

Operations management considers Operations management considers howhow the input are transformed into the input are transformed into goods or services.goods or services.

Control is when something is Control is when something is learned about the goods or learned about the goods or services that is used to more services that is used to more effectively transform future goods effectively transform future goods or services.or services.

• The difference between the cost of inputsand the value or price of outputs.

Inputs Material Labor

Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

Value added

Value of the output or price of the output as accepted by the customers, not just enforced by the supplier.

Land

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Feedback and Control

Measurements taken at various points in the transformation process for control purposes are called feedback.

The process of comparing outputs to previously established standards to determine if corrective action is needed is called controlling

Physical Flow Information Flow

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Operations = Transformation Process

InputsInputs5 MsManagement, Methods, Material, Machines, Maintenance

Also: Personnel , information & energy

Transformation/conversion processTransformation/conversion process Cutting, machining, storing, transporting,

investing, analyzing

OutputOutput Goods/services

Value-added The difference between the cost of inputs and the value or price of outputs.

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EXAMPLE OF OPERATIONS MANAGEMENT PROCESS

Automobile factoryAutomobile factory Input Output

steel, plastic Car glass, paint

tools Transformationequipment processmachinespersonnel, buildingsutilities, etc.

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Example: Hospital

Inputs Processing Outputs

Table 1.2

Healthy

patients

Doctors, nurses

Hospital

Medical Supplies

Equipment

Laboratories

Examination

Surgery

Monitoring

Medication

Therapy

Improvement of patients health condition

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Example: MBA

Inputs Processing Outputs

Table 1.2

Knowledge

• Text Book

• Lecture Notes

• Handouts

• Course CD

• ……

Lecturing

Tutoring

Assignment

Exam

Future

operations

managers

Teaching Evaluation

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Manufacture or Manufacture or

Service Operations?Service Operations?

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• Degree of standardization• Type of Operation

• Manufacturing or Service

Major characteristics of operational systems

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Manufacturing or Service?

Tangible Act

Production of goods

Delivery of services

“perceptible by the senses especially the sense of touch”WordNet ® 2.0, © 2003 Princeton University

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– Standardized , high degree of uniformity Radio, canned food, automatic car washes

– Customized Eyeglasses, tailoring

Degree of standardization

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– Project– Job shop– Repetitive production– Continuous processing

Types of operations

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Production management is Production management is concerned with the concerned with the manufacturing of goods:manufacturing of goods:

Examples of goods:Examples of goods:carscarsbooksbookschairschairscomputerscomputershouseshousesetc.etc.

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Manufacturing vs. Service

Characteristic Manufacturing ServiceOutput

Uniformity of output

Uniformity of input

Labor content

Measurement of productivity

Customer contact

Opportunity to correct quality problems before delivery

Evaluation

Patentable

Table 1.3

Tangible

High

High

Low

Easy

Low

High

Easy

Usually

Intangible

Low

Low

High

Difficult

High

Low

Difficult

Not Usually

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Operations management is Operations management is also concerned with the also concerned with the management of service management of service industries as well as the industries as well as the manufacturing of goods.manufacturing of goods.

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What does What does

Operations Manger Operations Manger

Do?Do?

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Operations Management includes:

Forecasting

Capacity planning

Scheduling

Managing inventories

Assuring quality

Motivating employees

Deciding where to locate facilities

And more . . .

Scope of Operations Management

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Example: Airline Company

Forecasting:Forecasting: Weather, landing conditions, seat

demands for flights.

Capacity Planning:Capacity Planning: How many number of planes

in each route?

Scheduling:Scheduling: Scheduling of planes for flights and

for routine maintenance, scheduling of pilots and

flights attendants.

Quality:Quality: Quality of the services, Safety.

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Example: Automobile Factory

Forecasting:Forecasting: Demands for cars.

Capacity Planning :Capacity Planning : Number of shifts, level of

workforce.

Inventory:Inventory: Various component, parts.

Scheduling:Scheduling: Scheduling of various types of cars,

Scheduling of workforce.

Quality:Quality: Quality of products, services.

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Responsibilities of Operations Manager

Products & services

Planning

– Capacity

– Location

–– Make or buy

– Layout

– Projects

– SchedulingControlling/Improving

– Inventory

– Quality

Organizing

–Degree of centralization

– Process selection

Staffing

–Hiring/laying off

–Use of OvertimeDirecting

– Incentive plans

–Issuance of work orders

– Job assignments

– Costs

– Productivity

Table 1.6

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Why is Operations Why is Operations

Management Management

Important?Important?

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Reasons to Study Operations Management

50% or more of the jobs in industry are operations management-related:

Customer ServiceQuality AssuranceProduction PlanningSchedulingInventory ManagementLogistics

Operations Management activities are at the core of all business organizations.

All Other Functional Areas are interrelated with Operations Management

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Operations as Technical Core

Operations

Finance

Capital Markets, Stockholders

Marketing

Customers

Work

ers

Sup

plie

rs

Pu

rchasi

ng

Pers

on

nel

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IMPORTANCE OF OPERATIONS MANAGEMENT

Improves productivity:

* Effective control of the conversion process of inputs into

outputs (e.g., fewer defect output, less wastage of material

inputs, effective allocation of staff, will lead to more output

per unit time).

** Higher productivity leads to higher profits – How?

Improves our ability to meet customer needs:

* Ensure provision of high quality products and services at

reasonable prices (not just cheap output)

* Enables us to provide service to our target customers better

than our competitors

* Meeting customer needs is crucial to long term survival of

the firm – Why?

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IMPORTANCE OF OPERATIONS MANAGEMENT

Central to the building of a brand name/reputation of the company/firm, as a competitive weapon:

* High-quality product/service provider

* Low cost/good value producer/service provider (e.g.,

Woolworths, Sony & Panasonic)

* Fast delivery or response/lead time (e.g., Hong Kong –

for 2 hrs suit tailoring

Improves the living standards of citizens and wealth of nations:

* Has impact on GDP per capital – high output per unit

time

* High-value added vs. skills needed to manufacture

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The Overlapping of Three Major Functions

Figure 1.5

Operations

FinanceMarketing

• Budgeting• Economic

analysis of investment proposals

• Provision of funds

……• Financial

indicators

• Competitor• Customer

preference• Trend of

technology …… • Judgment of

manufacturability

• Fulfillment lead time

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OPERATIONAL-BASED COMPETITIVE ADVANTAGE

Operational based competitive advantage can be achieved by:

* Doing things right the first time - Quality advantage;

- defect free output, lower costs, improved competitiveness, can even lead to higher prices (e.g., Sony, Toyota, etc).

* Doing things cost effectively - Cost advantage;

- cost efficiency leads to price competitiveness and decent

profits

- Lack of cost competitiveness can lead to large-scale

retrenchments

* Do things fast: Speed advantage; can lose sales if slow

- Reputation for speed is important

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OPERATIONAL-BASED COMPETITIVE ADVANTAGE

* Change things quickly: Adaptability-advantage (ability to

change from making Tea, Coffee, etc)

- Change operations to meet customer demand for variety

- SME Furniture manufacturer (beds, chairs, tables, sofa)

* Do things right every time: Reliability-advantage

- offer error-free products or services to customers EVERY

time

* Do things better: Service-advantage and continuous

improvement (e.g., TQM – all aspects of business important

in delivering quality service to customer).

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Types of Manufacturing Processes

(subset of OM Transformations).

Conversion - iron ore to iron, mixtures to steel, crude oil to gas, etc.

Fabrication - blue beads to pen tops.

Assembly - parts to assemblies.

Testing - in-house or on-site testing.

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Process Flow StructuresFlow of Product or Service

Job shop/ Unit Production

Batch/ Process Departments

Assembly Line/ Product Departments

Continuous Flow/ Process Industries

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Process selectionDeciding on the way production of goods or services will be organized

Major implicationsCapacity planningLayout of facilitiesEquipmentDesign of work systems

Introduction

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Forecasting

Product andService Design

TechnologicalChange

CapacityPlanning

ProcessSelection

Facilities andEquipment

Layout

WorkDesign

Figure 6.1

Process Selection and System Design

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VarietyHow much

FlexibilityWhat degree

Volume Expected output

Job Shop

Batch

Repetitive

Continuous

Process Selection

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Job shopSmall scale

BatchModerate volume

Repetitive/assembly lineHigh volumes of standardized goods or services

ContinuousVery high volumes of non-discrete goods

Process Types

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Process Type

Job Shop Appliance repairEmergency room

Not feasible

Batch Commercialbakery

ClassroomLecture

Repetitive Automotiveassembly

Automaticcarwash

Continuous(flow)

Notfeasible

Oil refineryWater purification

Figure 6.2

Product – Process Matrix

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Dimension

Job variety Very High Moderate Low Very low

Process flexibility

Very High Moderate Low Very low

Unit cost Very High Moderate Low Very low

Volume of output

Very High Low High Very low

Figure 6.2 (cont’d)

Product – Process Matrix

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Automation: Machinery that has sensing and control devices that enables it to operate

Fixed automationProgrammable automation

Automation

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• Computer-aided design and manufacturing systems (CAD/CAM)

• Numerically controlled (NC) machines

• Robot

• Manufacturing cell

• Flexible manufacturing systems(FMS)

• Computer-integrated manufacturing (CIM)

Automation

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PROCESS FLOW CONT’D

UNIT/JOB SHOP – One of a Kind, Custom Tools, Buildings, Software, Research Projects, Exclusive Restaurants

BATCH – Furniture, Clothes, Most Plastic Parts, Many Photo Shops

MASS – Autos, BIC pens, Consumer Electronics, One-Hour Photos, Fast Food Restaurants

CONTINUOUS PROCESS – Chemicals, Primary Materials, Petroleum, Lumber

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INTERMITTENT & CONTINUOUS

INTERMITTENT PROCESSESUNIT BATCH

CONTINUOUSE PROCESSESMASS ASSEMBLY LINECONTINUOUS PROCESS

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IV.Continuous

Flow

III.Assembly

Line

II.Batch

I.Job

Shop

LowVolumeOne of a

Kind

MultipleProducts,

LowVolume

FewMajor

Products,HigherVolume

HighVolume,

HighStandard-

ization

CommercialPrinter

French Restaurant

HeavyEquipment

Coffee Shop

AutomobileAssembly

Burger King

SugarRefinery

Flexibility (High)Unit Cost (High)

Flexibility (Low)Unit Cost (Low)

Source: Modified from Robert Hayes and Steven Wheelwright, Restoring Our Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons, 1984). p. 209.

Exhibit 5.9Exhibit 5.9

13

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ABOVE THE DIAGONAL

Flexibility/Variety is HigherCosts are HigherOK with low volume marketsOK when high customization is necessaryThreats:A competitor can undercut youRisky when high volume can be stimulated through price competition

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BELOW THE DIAGONAL

Costs are lowerAutomation is higherGreater investment Threats:Greater market risk – what do you do with an automated highly specialized plant when demand decreases?Competition may match costs with greater product variety.

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Service Operations

Types of Service Operations

Service

Capital Intensive Labor Intensive

Monitored by Unskilled Operators

Automatic Operated by Skilled Operators

Unskilled Labor

Skilled Labor

Professionals

Vending machines, automated car washes

Movie theaters, taxis, dry cleaners

Airlines, medical testing, excavating

Lawn care, janitorial, guards

Appliance repair, banks, catering

Doctors, lawyers, consultants

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Service Operations

Defining Services - Types of Processes

Project

Job Shop

Flow Shop

Continuous Process

Construction,

Shipbuilding

Sign-making

Tailoring

Automobiles

Appliance Shop

Oil Refinery

Cereal Plant

Consulting,

Software Devel.

Auto Repair

Restaurant

Fast Food Rest.

Car Wash

ATMs

Police / Fire Svc

Type Mfg. Example Service Example

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Service Operations

The Transformation Process - Services

Service Primary Conversion Desired System Input Process Output

College Students Knowledge Educated . Transmission People

Hospital Patient Health Care Healthy . People

Restaurant Customers Food Satisfied . Preparation Customers

Video Store Customers Fill Requests Satisfied . Customers

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Production Cycle

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New Product Development

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