DOM 511: OPERATIONS

MANAGEMENT PRACTICE

Magutu Obara Peterson/S.O

Nyamwange
University of Nairobi
School of Business
Dpartement of Management Science
Jan April 2013

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 TOPIC ONE: OVERVIEW OF
OPERATIONS MANAGEMENT
Introduction
Definition of Operations Management
Historical Perspective
Transformation Process Model
Framework for analysing OM decisions
Productions/Operations Management Strategy
Current Issues/Strategic Role of Operations
Management
Why Study Operations Management?

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 Introduction
Operations Management is:
The business function responsible for planning,
coordinating, and controlling the resources
needed to produce products and services for a
company
Operations management may be defined as the
design, operation, and improvement of the
production system that creates the firms
primary products and services.
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 Operations Management is:
An organizations core function

In every organization whether Service or

Manufacturing, profit or Not for profit
Operations Management affects:
Companies ability to compete
Nations ability to compete internationally

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Typical Organization Chart & The
Three Basic Functions

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 What is Role of OM?
OM Transforms inputs to outputs
Inputs are resources such as People, Material, and Money

Outputs are goods and services

To add value
Increase product value at each stage

Value added is the net increase between output product value and
input material value

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 What is Role of OM?
Provide an efficient transformation
Efficiency means performing activities well for least possible cost

Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications

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OMs Transformation Process

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 OM Involves Managing Transformations

Transformation
Input Process Output

(Value Adding)

Transformation is People
enabled by The 5 Ps of OM: Plants
Parts
Processes
Planning and Control
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 Value-Added Process

The operations function involves the conversion of

inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

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 Value-Added & Product Packages
Value-added is the difference between the
cost of inputs and the value or price of
outputs.
Product packages are a combination of goods
and services.
Product packages can make a company more
competitive.

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 A Supply Chain for Bread

Stage of Production Value Value of

Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29

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 Wiley 2010 13
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 OM and Competitiveness

Identifying consumer wants and/or needs is a basic input in an

organizations decision making process, and central to
competitiveness.

Pricing is usually a key factor in consumer buying decisions.

Advertising and promotion are ways organizations can inform

potential customers about features of their products or
services, and attract buyers.
This requires a good operations strategy.

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 Strategy
Mission: Live a good life.
Goal: Successful career, good income.
Strategy: Obtain a college education.
Tactics: Select a college and a major; decide how
to finance college.
Operations: Register, buy books, take courses,
study.

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Strategy

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 Operations Strategy and
Competitiveness
Operations strategy is the HOW in any corporate and
market strategy.
Operations strategy is no longer a tool for continuous
improvement and sustainable competitive advantage in
the manufacturing sector only, since it can be now
applied in the service industry and public organizations.
The operations strategy has three levels:
first, alignment of resources with requirements (fit);
secondly, developing sustainable competitive advantage (sustainability)
and
lastly including the impact of uncertainty

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http://www.baskent.edu.tr/~kilter 20
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 Operations Strategy and
Competitiveness
The degree to which a firm can produce goods and services that meet the test of
international markets while simultaneously maintaining or expanding the
wealth of its shareholders.
Competing on Cost: Eliminate all waste
Invest in:
Updated facilities & equipment
Streamlining operations
Training & development
Competing on Quality
Please the customer
Understand customer attitudes toward and expectations of quality

Competing on Speed
Fast moves
Fast adaptations
Tight linkages

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 Operations Strategy and
Competitive Priorities
Competing on Cost
Standardized products for large markets
Stabilized production process, tight standards, automation (?), focus on added value
operation (simplified procedures /service in airplane cy), training & coaching for
efficiency
Short term & long term productivity actions to be foreseen
Competing on Quality
More than reducing problems & rework costs
Listen to clients expectations for quality
Competing on Flexibility
Adjust to changes in production mix, volume or design
Electronic catalogue + CAD CAM controlled process (windows)
Hand made shoes: scan of feet (12 parameters) => electronically sent to plant
=> 3000 digital lasts (master model) => sent to customers home in weeks
(instead of 9 months) at cost of off-the- shelf shoes
Competing on Speed
Build to order production & efficient supply chains
Decision making pushed down in hierarchy (functional teams)
Close contact with suppliers & clients

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 Why Some Organizations Fail
Putting too much emphasis on short-term financial performance at the expense of
research and development.
Failing to take advantage of strengths and opportunities, and/or failing to recognize
competitive threats.
Neglecting operations strategy.
Placing too much emphasis on product and service design and not enough on
process design and improvement.
Neglecting investments in capital and human resources.
Failing to establish good internal communications and cooperation among different
functional areas.
Failing to consider customer wants and needs.

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Production of Goods vs. Delivery of
Services
Manufacturing Services
Production of goods Delivery of services an
tangible output act
Tangible product Intangible product
Product can be Product cannot be
inventoried
inventoried
High customer contact
Low customer contact
Short response time
Longer response time Labor intensive
Capital intensive Service job categories
Government, Wholesale/retail, Financial services,
Healthcare, Personal services, Business services,
Education

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 Challenges of Managing Services
Service jobs are often less structured than
manufacturing jobs
Customer contact is higher
Worker skill levels are lower
Services hire many low-skill, entry-level workers
Employee turnover is higher
Input variability is higher
Service performance can be affected by workers
personal factors
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 On the other hand

Both use technology

Both have quality, productivity, & response issues
Both must forecast demand
Both will have capacity, layout, and location issues
Both have customers, suppliers, scheduling and staffing
issues
Manufacturing often provides services
Services often provides tangible goods

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 Core Factory Services
Operations whether in manufacturing or in a service organization can be

treated as service. The core services customer want;

Quality

Flexibility

Delivery Speed

Price (or production cost)

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 Value-Added Factory Services
Value-Added Factory Services:

These make external or internal customers life easier

Information ability to furnish critical data on product performance, process

parameters & cost

Problem Solving especially in quality

Sales Support By demonstrating the technology, equipment or production

systems the company is trying to sell.

Field Support Ability to replace defective parts quickly

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 Hybrid organizations

Some organizations are a blend of

service/manufacturing/quasi-
manufacturing Quasi-Manufacturing (QM)
organizations
QM characteristics include
Low customer contact & Capital Intensive

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Key Decisions of Operations Managers
What plants and parts
What resources/what amounts
When - Planning and Control
Needed/scheduled/ordered
Where - place
Work to be done
How Processes
Designed
Who People
To do the work
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 Operations Decision Making
Marketplace

Corporate Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations Management

People Plants Parts Processes

Materials & Products &
Customers Services
Planning and Control

Input Output
Production System
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Strategic OM Decision Areas

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Scope of Operations Management
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
Supply chain management
And more . . .
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 Factors that Influence OM Decisions

Economic conditions. These include the general health and direction of the economy,
inflation and deflation, interest rates, tax laws, and tariffs.
Political conditions. These include favorable or unfavorable attitudes toward business,
political stability or instability, and wars.
Legal environment. This includes antitrust laws, government regulations, trade
restrictions, minimum wage laws, product liability laws and recent court experience,
labor laws, and patents.
Technology. This can include the rate at which product innovations are occurring, current
and future process technology (equipment, materials handling), and design
technology.
Competition. This includes the number and strength of competitors, the basis of
competition (price, quality, special features), and the ease of market entry.
Markets. This includes size, location, brand loyalties, ease of entry, potential for growth,
long-term stability, and demographics.

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Human resources. These include the skills and abilities of managers and workers; special
talents (creativity, designing, problem solving); loyalty to the organization; expertise;
dedication; and experience.
Facilities and equipment. Capacities, location, age, and cost to maintain or replace can have a
significant impact on operations.
Financial resources. Cash flow, access to additional funding, existing debt burden, and cost of
capital are important considerations.
Customers. Loyalty, existing relationships, and understanding of wants and needs are
important.
Products and services. These include existing products and services, and the potential for new
products and services.
Technology. This includes existing technology, the ability to integrate new technology, and the
probable impact of technology on current and future operations.
Suppliers. Supplier relationships, dependability of suppliers, quality, flexibility, and service are
typical considerations.
Other. Other factors include patents, labor relations, company or product image, distribution
channels, relationships with distributors, maintenance of facilities and equipment, access
to resources, and access to markets.

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 OM Decision Making Framework
Models
Quantitative approaches
Analysis of trade-offs
Systems approach

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 Historical Events in OM
Industrial Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam Smith
Interchangeable parts 1790 Eli Whitney

Scientific Management
Principles 1911 Frederick W. Taylor
Time and motion studies 1911 Frank & Lillian Gilbreth
Activity scheduling chart 1912 Henry Gant
Moving assembly line 1913 Henry Ford

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 Historical Events in OM
Human Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories 1940s Abraham Maslow
1950s Frederick Hertzberg
1960s Douglas McGregor

Management Science
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, PERT/CPM, 1950s Operations research
Waiting line theory groups
MRP 1960s Joseph Orlicky, IBM

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 Historical Events in OM
Quality Revolution
JIT 1970s Taiichi Ohno, Toyota
TQM 1980s W. Edwards Deming,
Joseph Juran, et. al.
Strategy and operations Skinner, Hayes
Reengineering 1990s Hammer, Champy
World Trade Organization 1990s Numerous countries
and companies

Globalization
European Union and 1970s IBM and others
other trade agreements
EDI, EFT, CIM 1980s

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 Historical Events in OM
Information Age/
Internet Revolution
Internet, WWW, ERP 1990s ARPANET, Tim
Supply chain Berners-Lee, SAP, i2
management, Technologies, ORACLE,
E-commerce PeopleSoft, Amazon,
Yahoo, eBay,
and others

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 Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior

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 Supply Chain
Figure 1.1

Suppliers Direct Final

Producer Distributor
Suppliers Suppliers Consumer

Supply Chain: A sequence of activities

And organizations involved in producing
And delivering a good or service

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 Other Important Trends
Ethical behavior
Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement
Increased regulation and product liability
Lean production

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 Todays OM Environment
Customers demand better quality, greater speed, and
lower costs
Companies implementing lean system concepts a
total systems approach to efficient operations
Recognized need to better manage information using
ERP and CRM systems
Increased cross-functional decision making

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 OM in Practice
OM has the most diverse organizational function
Manages the transformation process
OM has many faces and names such as;
V. P. operations, Director of supply chains, Manufacturing
manager
Plant manger, Quality specialists, etc.
All business functions need information from OM in
order to perform their tasks

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 Current Issues in OM Practice
Speeding up the time it takes to get new products into production.
Developing flexible production systems to enable mass customization of
products and services.
Managing global production networks.
Developing and integrating new production technologies into existing
production systems.
Achieving high quality quickly and keeping it up in the face of
restructuring.

Managing a diverse workforce.

Conforming to environmental constraints, ethical standards, and

government regulations.

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 A New Paradigm for OM

Post-War U.S. Dominance in Manufacturing

Available capacity built to support the war effort
Pent-up demand for consumer goods
Destruction of overseas production capabilities
Proactive Operations Function (Skinner)
Add value to products, increase profit margins.
Compete on dimensions other than costs:
Quality
Speed of delivery
Process flexibility
 The Ever-Changing World of OM
Increased Global Competition
Transformation into a global economy
Pressure to excel on multiple competitive dimensions
Increased emphasis on logistics
Advances in Technology
Information technology (IT)
Internet email and commerce (B2B)
Automation and robotics
Fords Global Network to Support the Manufacturing of the
Escort
Business Information Flow

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 Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
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Inputs Provided by OM to Other Functional Areas
 OM Across the Organization
Most businesses are supported by the
functions of operations, marketing, and
finance
The major functional areas must interact to
achieve the organization goals

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 OM Across the
Organization cont
Marketing is not fully able to meet customer needs if they do
not understand what operations can produce
Finance cannot judge the need for capital investments if they
do not understand operations concepts and needs
Information systems enables the information flow throughout
the organization
Human resources must understand job requirements and
worker skills
Accounting needs to consider inventory management,
capacity information, and labor standards

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Why Study Operations Management?

Systematic Approach
to Org. Processes
( Analytical thinking)

Business Education
( Students need Operations
Career Opportunities
exposure) Management

Cross-Functional
Applications magutumop2011
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Line and Staff Jobs in OM

Exhibit 1.11
 Chapter 1 Highlights
OM is the business function that is responsible for managing
and coordinating the resources needed to produce a
companys products and services.
The role of OM is to transform organizational inputs into
companys products or services outputs
OM is responsible for a wide range of decisions, ranging from
strategic to tactical.
Organizations can be divided into manufacturing and service
organizations, which differ in the tangibility of the product or
service

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 Review of Learning Objectives

Define and explain OM

Explain the role of OM in business
Describe the decisions that operations
managers make
Describe the differences between service and
manufacturing operations
Identify major historical developments in OM

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 Review of Learning Objectives cont

Identify current trends in OM

Describe the flow of information between OM
and other business functions

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 Course Outline:

Course Objectives:
The objectives of this course are:
to develop an understanding of the role of operations management as a functional
area of management and develop ability to apply operations management concepts
in a variety of settings including manufacturing, service and non-business
organizations;
to introduce the body of theory and analytical tools developed for operations
management and to show how they can be used to support operations
management decisions. We will discuss strategic, tactical and operational issues in
operations management.
A selection of key topics will be covered in depth. We will strive to maintain a fairly
rigorous level of discussion throughout the course, proceeding from outlining the
main concepts and tradeoffs related to each topic to the development of analytical
approaches to operations issues.

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 1. An overview of Operations Management

Introduction and Historical Perspective

Transformation Process Model

Framework for analysing OM decisions

Productions/Operations Management Strategy

Strategic Role of Operations Management

2. Design Considerations

Product/Service Design Issues

Capacity Planning

Facilities location

Production flows

Facilities layout

Work design

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 3. Operative Decisions
Inventory Planning and Control
Aggregate Production Planning
Detailed scheduling of systems
Resource Requirements Planning
4. Supply Chain management
Drive towards supply chain management
Supply chain strategy Development
Performance metrics
ICT in Supply Chains
Challenges of managing supply chains
5. Quality Management
Quality Control
Quality Assurance
Total Quality Management
6. Project Management
7. Revising and Improving Operations Systems
Improvement Approaches
Technology and improvements

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 Suggested Texts/References
1. Production and Operations Management: Manufacturing and Services by Chase, Aquilano and
Jacobs
2. Operations Management by Nigel Slack and Stuart Chambers
3. Operations Management by Jay Heizer and Barry Render
4. Operations Management by William J. Stevenson.
5. Operations Management by Norman Gaither and Greg Frazier
6. The Management of Operations: A Conceptual Emphasis by Jack R. Meredith
7. Operations Management in service Industries and the Public Sector by C. Voss et al
8. Production/Operations Management by Thomas E. Hendrick and Franklin G Moore
9. Production and Operations Management by Raymond R. Mayer
10. International Journal of Production and Operations Management
11. International Journal of Supply Chain Management
Course Assessment
Case studies 10%
Assignments 10%
Term paper 10%
CAT 20%
Final Exam 50%

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Accessing Notes On E-learning Portal
1. www.uonbi.ac.ke >>>Resources
2. E-Learning Portal>>>Multimedia Portal
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Password>>>>mba
4. Chose DOM511>>documents