Introduction to Operations Management

Operations Management Session 1

Objectives
The student will be able to:
Define Operations Management Describe the nature and role of the operations function Construct and use transformation models Appreciate that operations produce both products and services Understand the difference between micro and macro operations Understand the importance of internal suppliercustomer chains Build a Typology of Operations based on the Four Vs Appreciate how operations fit in with Operations Strategy
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Topics
What is Operations? What do Operations Managers do? Operations Management in Goods and Services Transformation Model Business Process Analysis Typology of Operations Missions and Strategies
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Definition
Operations Management (OM) management of activities that lead to the creation of goods and services through the transformation of inputs to outputs

Functions - Airline

Marketing

Operations

Finance/ Accounting

Flight Operations

Ground Support

Facility Maintenance

Catering

OM - Critical Decisions
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Managing quality Design of goods and services Process and capacity design Layout design Human resources Location strategies Supply-chain management Inventory management Scheduling Maintenance
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The Critical Decisions - 1

Quality management

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

Goods and services design

The Critical Decisions - 2

Process and Capacity design

What processes will these products require and in what order? What equipment and technology is necessary for these processes?

The Critical Decisions - 3

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?
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Human resources and job design

The Critical Decisions - 4

Supply chain management and JIT Just-in-time Inventory, Material Requirements Planning

Should we make or buy this item? Who are our good suppliers and how many should we have? How much inventory of each item should we have? When do we re-order?
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The Critical Decisions - 5

Immediate, 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? Where should we put the facility On what criteria should we base this location decision?

Maintenance

Location

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Output of most Operations 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

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Goods Versus Services - 1

Good Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Service Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service

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Goods Versus Services - 2

Good
Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product

Service
Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service.

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The Transformation Model

Input Resources Input Transformed Resources
Materials Information Customers

Output Services + Products

Transformation Process Input Transforming Resources

Facilities Staff

Customers

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Economic System Transforms Inputs to Outputs

Inputs
Land, Labour, Capital, Management

Process
Economic system transforms inputs to outputs at about an annual 1% increase in productivity: - capital 1/6 of 1% - labour 1/6 of 1% - management 2/3 of 1%
Feedback Loop

Outputs
Goods and Services

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Macro and Micro Operations

Micro
An operation or process that can not be split up into smaller operations and processes

Macro
An operation or process that can be split up into smaller operations and processes

All Macro operations are made up of many Micro operations

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Internal Customer Concept

To treat internal suppliers and customers as if they were independent external organisations Each micro-operation should identify its internal customers and internal suppliers Discuss with them what they need and what they can offer Related to Business Process Re-engineering (BPR)
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The Four Vs
Volume of demand
How many the organisation makes Service vs. Mass Production

Variety in operations
The ability to adapt the transformation process to meet needs of the customer Taxi vs. Train

Variation in demand
Adapting to changing demand

Visibility of transformation
How much of the operations functions are visible to the customer Some operations have mixed high/low visibility eg Restaurant Front and Kitchen

Often they are in conflict

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A Typology of Operations
Electricity generator factory Gourmet restaurant Pioneering surgery Taxi service

Low

Volume

High

Television plant Fast food restaurant Routine surgery Mass rapid transport

Bespoke tailor University tutorials Corporate tax advice Department store

High

Variety

Low

Off-the-peg suit plant University lectures Financial audits Jeans shop

Electricity utility Financial audits Emergency service London underground

High

Variation in Demand

Low

Bread bakery Consultancy advice Shopping mall security Trucking operation

Health care "Cook at your table" restaurant Dentist Music teacher

High

Visibility

Low

Most manufacturing Prepackaged sandwich maker Dental technicians Distance learning

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The Most Important Conflict

Volume vs Variety
Project Job Unique aspect to each product Very low to low Very high to high Batch Mass Continuous

Product

Unique

Made to order

Made to stock

Commodity

Volume

Very low

Low to med Medium to high

High

Very high

Variety

Infinite

Low

Very low

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Process Types - Products

High Project Job Batch

Variety

Mass Continuous Low

Low

Volume

High

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Process Types - Services

High Professional Service (e.g shops)

Variety

Mass Services

Low

Low

Volume

High

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Organisation Mission Statement

Mission the purpose or rationale for an organisations existence Example Mission Statement To manufacture and service a growing and profitable worldwide microwave communications business that exceeds our customers expectations
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Operations Management Mission Statement

General To produce products consistent with the companys mission as the worldwide low-cost manufacturer Specific To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production and field service opportunities
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Strategies
Strategy How an organisation expects to achieve its missions and goals Generic Strategies
Competing on price Competing on differentiation Competing on response

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