Lecture 1: Introduction to Operations Management

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Learning Objectives
What you will learn in this lecture:

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 ?

Operations Management is about the way organizations produce goods and services

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Examples of Operations
Back office operation in a bank Kitchen unit manufacturing operation

They are all operations

Retail operation Take-out / restaurant operation

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Concept of Operations Management

The best way to start understanding the nature of operations is to look around you Everything you can see around you has been processed by an operation Every service you consumed today (radio station, bus service, lecture, etc.) has also been produced by an operation

Operations Managers create everything you buy, sit on, wear, eat, and throw away
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Operations Managements Remit

Operations is not just concerned with what goes on at

the point of production, but is also directly concerned with supplying the materials, the location and layout of facilities, the programming of operations and the motivation of employees.

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Some interfunctional relationships between the operations function and other core and support functions
Engineering/ technical function
Analysis of new technology options Provision of relevant Accounting and data Understanding of the capabilities and constraints of the operations process

Product/service development function

Understanding of process technology New product and needs service ideas

finance function

Financial analysis for performance and decisions Understanding of human resource needs Recruitment development and training

Operations function

Understanding of the capabilities and constraints of the operations process

Market requirements

Marketing function
Understanding of infrastructural and system needs Provision of systems for design, planning and control, and improvement

Human Resources function

Information Technology (IT) function

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Operations Management
Restricted sense
Planning , organising and controlling production process and management of interface with support functions

Broader sense
Relevant to every sphere of organisational activity

Operations Management regarded as one of key

functions of enterprise such as Finance, Marketing, HRM and sometimes Purchasing Management
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Typical Organization Chart

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Activities of Operations manager

o Understanding the operations strategic objectives o Developing an operations strategy for the organization o Designing the operations products, services and processes o Planning and controlling the operation o Improving the performance of the operation.
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Operations Management at IKEA

Design elegant products which can be flat-packed efficiently Design a store layout which gives smooth and effective flow

Ensure that the jobs of all staff encourage their contribution to business success
Continually examine and improve operations practice

Site stores of an appropriate size in the most effective locations Maintain cleanliness and safety of storage area

Arrange for fast replenishment of products

Monitor and enhance quality of service to customers

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OMs Transformation Role

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The input-transformation-output model

T ransformed resources Materials Information Customers

Input
T ransforming resources Facilities Staff

Transformation process

Out put

Goods and services

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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 GOODS
CRUDE OIL PRODUCTION ALUMINIUM SMELTING

SPECIALIST MACHINE TOOL MANUFACTURER

Tangible Can be stored Production precedes consumption Low customer contact Can be transported Quality is evident
RESTAURANT COMPUTER SYSTEMS SERVICES

PSYCHOTHERAPY CLINIC

MANAGEMENT CONSULTANCY

Intangible Cannot be stored Production and consumption are simultaneous High customer contact Cannot be transported Quality difficult to judge

PURE SERVICES North South University School of Business

Similarities-Service/Manufacturing
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 Scientific management Human relations movement Management science Computer age Late 1700s Early 1900s 1930s to 1960s Mid-1900s 1970s

Just-in-Time Systems (JIT)

Total quality management (TQM) Reengineering Flexibility Time-Based Competition Supply chain Management Global Competition Environmental Issues Electronic Commerce

1980s
1980s 1990s 1990s 1990s 1990s 1990s 1990s Late 1990s

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Todays 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
INPUT TRANSFORMED RESOURCES MATERIALS INFROMATION CUSTOMERS

OPERATIONS STRATEGY

IMPROVEMENT DESIGN PLANNING AND CONTROL

INPUT
FACILITIES STAFF INPUT TRASNFORMED RESOURCES

GOODS OUTPUT AND SERVICES

ENVIRONMENT

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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 organisations 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 Structure Operations Strategy

Short cycle times Low inventory levels EDI Fast transportation system Focused locations Communication between retail stores

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Competitive Advantage

Competitive advantage is the term as the extra edge that a firm has over their industry peers

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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?

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Competitive Priorities- The Edge or Performance Objectives

Quality
Time (Speed and Dependability)

Flexibility
Cost

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The Five Competitive Objectives

Quality Being RIGHT Being FAST

Responsiveness / Speed

Dependability

Being ON TIME

Flexibility

Being ABLE TO CHANGE

Cost

Being PRODUCTIVE

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The Five Competitive Objectives

Lower prices (or higher profits) Cost Speed Dependability

Faster customer response

On-time deliveries

Quality

Flexibility

Error-free products and services

Wider variety More customisation More innovation Cope with volume fluctuations

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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 McDonalds 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

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Highlights
Business Strategy is a long
range plan. Functions develop supporting plans

Competitive priorities are cost,

quality, time, and flexibility

Strategy must address

mission, environment, and core competencies

Productivity measures how

effectively a firm is using resources

Business strategy provides a

guide for designing operations strategy

Productivity is computed as a
ratio of outputs divided by inputs

Operations strategy must

consider which competitive priorities are essential to meet business objectives

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