LESSON 1

INTRODUCTION
What is Production?
Is the process of converting or transforming
resources into goods and services
Application of resources such as people and
machinery to convert materials into finished
goods and services.
What is Operation?
Is the set of all activities associated with
producing goods and services
What is POM?
are the activities that transform
resources into goods and services
is defined as the design, operation,
and improvement of the systems
that create and deliver the firms
primary products and services.
The management of systems or
processes that create goods and
provide services.
Why Study POM?
It is one of the 3 critical parts of any organization:
Marketing generates demand
Operations creates the product
Finance/accounting tracks organizational
performance, pays bills, collects money
It shows us how goods and services are
produced
It shows us what POM managers do
It is the most costly part of any organization
What is Role of OM?
OM Transforms inputs to outputs

Inputs are resources such as

People, Material, and Money

Outputs are goods and services

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Key OM Concepts
Efficiency - Doing something at the lowest
possible cost

Effectiveness - Doing the right things to create

the most value for the organization

Value - Quality divided by price

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OMs Transformation Role
To add value

Increase product value at each stage

Value added is the net increase between

output product value and input material value

Provide an efficient transformation

Efficiency means performing activities well

for least possible

Wiley 2010 cost 9
OMs Transformation Process

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 Value-Added Process
Figure 1.2
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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Typical Organization Chart

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 The Organization
Figure 1.1

The Three Basic Functions

Organization

Finance Operations Marketing

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SCOPE & ACTIVITIES OF POM
There are two types of scope & activities of POM :
1. Strategic level.
(a) Design & development of new product.
(b) Process design & Planning
(c) Facilities location & layout planning
(d) Design of material handling
(e) Capacity planning

2. Operational level.
(a) Production Planning
(b) Inventory Control
(c) Product maintenance & replacement
(d) Cost Control & Cost Reduction
 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

The Transformation Process (value adding) 4

Oversee the work of people and machinery to convert inputs
(materials and resources) into finished goods and services.
 Choose what goods or services to offer customers.
Convert original product ideas into final specifications.
Design the most efficient facilities to produce those products.
 Types of Operations
Table 1.4
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites

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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 has the most diverse organizational function
Manages the transformation process
All business functions need information from OM
in order to perform their tasks

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Significant Events in POM
Taylors 4 Principles of Scientific Management:
Replace rule-of-thumb work methods with methods
based on a scientific study of the tasks
Scientifically select, train, and develop each worker
rather than passively leaving them to train
themselves
Cooperate with the workers to ensure that the
scientifically developed methods are being followed
Divide work nearly equally between managers and
workers, so that the managers apply scientific
management principles to planning the work and
the workers actually perform the tasks
Service or Good?

Services never include goods and goods never

include services. (True or false?)

7
What about McDonalds?
Service or Manufacturing?

The company certainly manufactures tangible

products

Why then would we consider McDonalds a

service business?

8
Goods vs. Services
Goods Service
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of Quality difficult to
quality measurable measure
Selling is distinct from
Selling is part of
production
service
Tangible product
Intangible product
Low customer contact
High customer contact
Goods vs. Services - Continued
Goods Service
Product is Provider, not product
transportable is transportable
Site of facility Site of facility
important for cost important for
Revenue generated customer contact
primarily from Revenue generated
tangible product primarily from
Longer response time
intangible service
Short response time
Capital intensive
Labor intensive
Characteristics of Goods
Consistent product
definition
Production usually
separate from
consumption

1995 Corel Corp.

Characteristics of Services

Inconsistent product
definition
Produced & consumed at
same time
Often unique
Often knowledge-based

1995 Corel Corp.

Frequently dispersed
Similarities for Service/Manufacturers
Both use technology
Both have quality, productivity, & response
issues
Both must forecast demand
Both can have capacity, layout, and location
issues
Both have customers, suppliers, scheduling and
staffing issues

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 Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual
Goods Contain Services / Services
Contain Goods
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
Percent of Product that is a Good Percent of Product that is a Service
Changing Challenges for the
Operations Manager
Past Causes Future
Local or Low-cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just-in-time
shipments reducing investment in shipments
inventory
Low-bid Quality emphasis requires that Supply-chain
purchasing suppliers be engaged in product partners
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
Changing Challenges for the
Operations Manager
Past Causes Future
Standardized Affluence and worldwide markets; Mass
products increasingly flexible production customization
processes
Job Changing sociocultural milieu. Empowered
specialization Increasingly a knowledge and employees,
information society. teams, and lean
production
Low cost Environmental issues, ISO 14000, Environmentally
focus increasing disposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing