Operations Management

Yenny Lego

INTRODUCTION
What is Production ? Production is the creation of goods.

What is Operation ?
What is Operations management Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

INTRODUCTION

If you drop it on your foot, it wont hurt you. (Goods or service?)

Services never include goods and goods never include services. (True or false?)

Why study OM?

We study OM for four reasons:
1. OM is one of the three major functions of any organization, and it is integrally related to all the other business functions. 2. To know how goods & services are produced 3. To understand what operations managers do 4. OM is such a costly part of an organization.

Functions - Bank
Commercial Bank
Operations
Teller Scheduling Check Clearing Collection Transaction processing Facilities design/layout Vault operations Maintenance Security

Finance
Investments Security Real estate Accounting

Marketing
Loans Commercial Industrial Financial Personal Mortgage Trust Department

Auditing

Functions - Airline
Airline Operations
Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science

Finance/ accounting
Accounting Payables Receivables General Ledger Finance Cash control International exchange

Marketing
Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

Functions - Manufacturing
Manufacturing Operations
Facilities
Construction; maintenance

Finance/ accounting
Disbursements/ credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issue and recall

Marketing
Sales promotion Advertising Sales Market research

Production and inventory control

Scheduling; materials control

Quality assurance and control Supply-chain management Manufacturing

Tooling; fabrication; assembly

Design
Product development and design Detailed product specifications

Industrial engineering
Efficient use of machines, space, and personnel

Process analysis
Development and installation of production tools and equipment

Characteristics of Goods
Tangible product

Consistent product definition

Production usually separate from consumption Can be inventoried Low customer interaction

Characteristics of Service
Intangible product

Produced and consumed at same time

Often unique

High customer interaction

Inconsistent product definition

Often knowledge-based

Goods and Services

Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling
100%
|

75
|

50
|

25
|

0
|

25
|

50
|

75
|

100%
|

Percent of Product that is a Good

Percent of Product that is a Service

Organization using inputs to produce goods & services

To create goods & services, all organizations perform three functions:
Marketing generating the demand or taking the order for a product or service Production/operations creating the product Finance/accounting tracking how well the organization is doing, pays the bills, and collects the money

The productivity challenge

The creation of goods and services requires changing resources into goods & services. The more efficiently we make this change, the more productive we are and the more value is added to the good or service provided. Productivity is the ratio of outputs (goods & services) divided by the inputs (resources, such as labor and capital). The operations managers job is to improve the ratio or to improve productivity (efficiency).

Productivity
Definition (Recall): The ratio of outpus (goods and services) divided by one or more inputs (such as labour, capital, or management)
Productivity measurement: 1. Single factor productivity Productivity = Unit produced Input used 2. Multifactor productivity Productivity = Unit produced labour + material+ capital

Collins Corp. Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

8 unit/day Overhead = $400/day

Old labor productivity

8 unit/day 32 labor-hrs

Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

8 unit/day Overhead = $400/day

Old labor productivity

8 unit/day = 32 labor-hrs

= .25 unit/labor-hr

Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

New System: 14 unit/day Old labor productivity New labor productivity 8 unit/day 32 labor-hrs 14 unit/day 32 labor-hrs

8 unit/day Overhead = $400/day

Overhead = $800/day

= .25 unit/labor-hr

Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

New System: 14 unit/day Old labor productivity New labor productivity 8 units/day = 32 labor-hrs 14 units/day = 32 labor-hrs

8 units/day Overhead = $400/day

Overhead = $800/day

= .25 units/labor-hr

= .4375 units/labor-hr

Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

New System: 14 units/day Old multifactor productivity 8 units/day $640 + 400

8 units/day Overhead = $400/day

Overhead = $800/day

Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

New System: 14 units/day Old multifactor productivity 8 unit/day $640 + 400

8 units/day Overhead = $400/day

Overhead = $800/day

= .0077 units/dollar

Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

New System: 14 units/day Old multifactor productivity New multifactor productivity 8 units/day $640 + 400

8 units/day Overhead = $400/day

Overhead = $800/day

= .0077 units/dollar

14 units/day = $640 + 800

Collins Title Productivity

Old System:

Staff of 4 works 8 hrs/day Payroll cost = $640/day

New System: 14 units/day Old multifactor productivity New multifactor productivity 8 units/day $640 + 400

8 units/day Overhead = $400/day

Overhead = $800/day

= .0077 units/dollar

14 units/day = $640 + 800

= .0097 units/dollar

Mission and Strategy

Mission Strategy

Mission statements tell an organization where it is going. In Missions should there are statements that say: where are you going? Organizations purpose for being Provides boundaries & focus Answers What do we provide society? Strategy - how you are going to get there; an action plan Tactics? (Prosdem) Operational Strategy ?

Example
Mission : Live a good life Strategy : Obtain a college education Tactics : select a college and major, decide how to finance college.

Please make another

Sample Mission - Merck

The mission of Merck is to provide society with superior products and services - innovations and solutions that improve the quality of life and satisfy customer needs to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return

Misi Blue Bird Group

Tercapainya kepuasan pelanggan, meraih serta mempertahankan diri sebagai pemimpim pasar disetiap jenis usaha yang kita terjuni. Untuk sektor transportasi, menyediakan transportasi darat yang handal dengan kualitas tinggi dan pelayanan prima, serta tetap selalu mempertahankan efisiensi dalam penggunaan setiap sumber daya yang ada, dan melakukannya sebagai satu tim yang utuh. Tujuan akhir dari segala aktivitas Blue Bird Group adalah untuk kesejahteraan stakeholder

Strategies for Competitive Advantage

1.

Differentiation, provide something unique to customers by physical characteristics and/or service attribute. 2. Cost Leadership, provide the maximum value as perceived by customer. 3. Quick Response, provide value that related with good performance, reliability, and flexibility.

10 Strategic OM Decisions
Goods & service design Quality Process & capacity design Location selection Layout design Human resource and job design Supply-chain management Inventory Scheduling Maintenance

10 Strategic ( Cont`d )

Goods and service design

What product or service should we offer? How should we design these products and services?
Who is responsible for quality? How do we define quality?

Quality management

10 Strategic ( Cont`d )
Process and capacity design

What processes will these products require and in what order? What equipment and technology is necessary for these processes? Where should we put the facility On what criteria should we base this location decision?

Location

10 Strategic ( Cont`d )
Layout design

How should we arrange the facility? How large a facility is required? How do we provide a reasonable work environment? How much can we expect our employees to produce?

Human resources and job design

10 Strategic ( Cont`d )
Supply chain management

Should we make or buy this item? Who are our good suppliers and how many should we have?

Inventory, material requirements planning,

How much inventory of each item should we have? When do we re-order

10 Strategic ( Cont`d )
Intermediate, short term, and project scheduling

Is subcontracting production a good idea? Are we better off keeping people on the payroll during slowdowns?
Who is responsible for maintenance? When do we do maintenance?

Maintenance