Introduction to Operations Management

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The best way to start understanding the nature of
“Operations” is to look around you

Everything you can see around you (except the flesh

and blood) 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, throw at people, and throw away

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 Back office Kitchen unit
operation in manufacturing
a bank operation

They are all

operations

Take-out /
Retail restaurant
operation operation
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 Organizational Model

Finance
Sales HRM

OM
QA
Marketing

MIS Accounting
Engineering

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 Core and support functions
Core functions Engineering/
technical
Support functions
function
Accounting
and finance Product/services
function development
function

Others
Operations Marketing
function function

Human
resources
function
Information/
technical (IT) A broad definition of
function operations
management
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 The position of the operations function

Accounting Product
Marketing Operations
and finance development

Call on Manage Retranslate Conduct

Church newcomers appeals scriptures weddings

Fast food Advertise on Pay Design Make

chain television suppliers hamburgers hamburgers

Furniture Sell to Design new Assemble

Pay staff
manufacturer stores furniture furniture

Process Identify Raise Develop Make and

perspective needs capital product distribute

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 Where does the business get its competitive advantage?

The
“technological”
specification of its Product/
product/service? Service
Technology

The way it
produces its
goods and
Marketing Operations services?
The way it
positions itself
in its market?
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 Some interfunctional relationships between the
operations function and other core and
support functions
Engineering/ Understanding of the Product/service
technical capabilities and development
function constraints of the function
operations process
Analysis of new
technology options Understanding of
process technology
Accounting needs New product and
Provision service ideas
and finance of relevant Understanding of the
function data capabilities and
Operations constraints of the
Financial analysis function operations process
for performance
and decisions Market
requirements
Marketing
Understanding of human function
resource needs Understanding Provision of systems for
of infrastuctural design, planning and
Recruitment and system control, and improvement
development needs
and training
Human Information
resources technology
function (IT) function

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 All operations are transformation
processes
TRANSFORMED ENVIRONMENT
RESOURCES

MATERIALS
INFORMATION
CUSTOMERS

TRANSFORMATION GOODS
INPUT OUTPUT AND
PROCESS
SERVICES
FACILITIES
STAFF

TRANSFORMING
RESOURCES
ENVIRONMENT

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 Operations Management – Basic Principles

Materials Operations
management is
Information concerned with Products and
producing and services
Customers delivering products
and services

All types of enterprise have an operations function, even if

it isn’t called ‘operations.
Most operations produce both products and services.

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 A general model of operations management
Operation’s
ENVIRONMENT strategic
objectives

Operations
The operation’s
strategy
competitive role
and position
Input
transformed
resources
Materials Design Improvement
Information
Customers Output
Input
products and Customers
resources
services
Facilities
Staff
Planning and
Input control
transforming
resources

ENVIRONMENT
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 Some operations management activities
at IKEA
Design a store layout
which gives smooth Ensure that the jobs of
Design elegant
and effective flow all staff encourage their
products which can be
flat-packed efficiently contribution to
business success

Site stores of an IKEA STORE

Continually examine
appropriate size in
and improve
the most effective
operations practice
locations

Maintain
Monitor and enhance
cleanliness and
quality of service to
safety of storage
customers
area Arrange for fast
replenishment of
products

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 Process classification

● Manufacturing process- Service process.

● Based on 4 V
● Core processes and support processes.

● Thus the late-1700s factories had not only machine

power but also ways of planning and controlling the
tasks of workers.

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 The output from most types of operation is a
mixture of goods and services
Pure goods
Crude oil production

Tangible
Can be stored
Aluminium smelting

Specialist machine tool Production precedes

consumption
Low customer
manufacturer

contact
Can be transported
Quality is evident
Restaurant

Computer systems
services

Intangible
Management

Psychotherapy clinic
consultancy
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to
judge
Pure services
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 A Typology of
IMPLICATIONS Operations IMPLICATIONS
Low repetition High repeatability
Each staff member Low Volume High Specialization
performs more of job Systemization
Less systemization Capital intensive
High unit costs Low unit cost

Well defined
Flexible Routine
Complex High Variety Low Standardized
Match customer needs
Regular
High unit cost Low unit costs

Changing capacity Stable

Anticipation Routine
Flexibility High Variation in demand Low Predictable
In touch with demand High utilization
High unit cost Low unit costs

Time lag between

Short waiting tolerance production and
Satisfaction governed by consumption
customer perception Standardized
Customer contact skills Low contact skills
needed High Visibility Low
High staff utilization
Received variety is high
Centralization
High unit cost
Low unit costs
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 Low Volume High

High Variety Low

High Variation Low

High Visibility Low

Inland Formule
Resort 1 type
Hotel Hotel

Important to understand how different operations are

positioned on the 4 V’s.
Is their position where they want to be?
Do they understand the strategic implications?
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 Pret a Manger and IKEA
4 V’s analysis

Low Volume High

High Variety Low

High Variation Low

High Visibility Low

Pret a IKEA
Manger

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 Introduction

● Operations management is the management of an

organization’s productive resources or its production
system.
● A production system takes inputs and converts them
into outputs.
● The conversion process is the predominant activity of
a production system.
● The primary concern of an operations manager is the
activities of the conversion process.

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 The Process View

● Process- Any activity or group of activities that take

one or more inputs , provide one or more outputs for its
customers
● Different from the functional or departmental view.
● It is a more relevant picture of the way the firms
actually work.
● Often go beyond department boundaries- has its set of
objectives, involves a workflow that cuts across dept
boundaries, and requires resources from several
departments
● Main processes can have sub processes within it
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 Micro operations processes
Function 1 Function 2 Function 3 Function 4

Customer needs fulfilled

Business processes
Customer needs

Conventionally organizational boundaries are drawn around functional processes

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 Function 1 Function 2 Function 3 Function 4

Customer needs fulfilled

Business processes
Customer needs

BPR advocates reorganizing (re-engineering) micro operations to reflect the

natural customer-focused business processes

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 Process classification contd ..

● Core processes
- A chain of Activities that deliver value o the
external customers .
● Customer relationship process- identifying attracting
building relationship with external customers,
facilitating placement of order etc.
● New service development process
● Order fulfillment process
● Supplier development relationship process

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 Process classification contd ..

● Support processes
- Provides vital resources , inputs to the core
processes
- Budgetting
- Recruitment
- Evaluation and compensation
- Regulatory compliance
- Capital acquisition

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 Historical Milestones in OM

● The Industrial Revolution

● Post-Civil War Period
● Scientific Management
● Human Relations and Behaviorism
● Operations Research
● The Service Revolution

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 The Industrial Revolution

● The industrial revolution developed in England in the

1700s.
● The steam engine, invented by James Watt in 1764,
largely replaced human and water power for factories.
● Adam Smith’s The Wealth of Nations in 1776 touted
the economic benefits of the specialization of labor.
● Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.

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 The Industrial Revolution

● The industrial revolution spread from England to

other European countries and to the United Sates.
● In 1790 an American, Eli Whitney, developed the
concept of interchangeable parts.
● The first great industry in the US was the textile
industry.
● In the 1800s the development of the gasoline engine
and electricity further advanced the revolution.
● By the mid-1800s, the old cottage system of
production had been replaced by the factory system.
● . . . more 26
 Scientific Management

● Frederick Taylor is known as the father of scientific

management. His shop system employed these steps:
●
Each worker’s skill, strength, and learning ability
were determined.
●
Stopwatch studies were conducted to precisely set
standard output per worker on each task.
●
Material specifications, work methods, and routing
sequences were used to organize the shop.
●
Supervisors were carefully selected and trained.
●
Incentive pay systems were initiated.
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 Scientific Management

● In the 1920s, Ford Motor Company’s operation

embodied the key elements of scientific management:
●
standardized product designs
●
mass production
●
low manufacturing costs
●
mechanized assembly lines
●
specialization of labor
●
interchangeable parts

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 Human Relations and Behavioralism

● In the 1927-1932 period, researchers in the Hawthorne

Studies realized that human factors were affecting
production.
● Researchers and managers alike were recognizing that
psychological and sociological factors affected
production.
● From the work of behavioralists came a gradual change
in the way managers thought about and treated
workers.

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 Operations Research

● During World War II, enormous quantities of

resources (personnel, supplies, equipment, …) had to
be deployed.
● Military operations research (OR) teams were formed
to deal with the complexity of the deployment.
● After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.
● OR helps operations managers make decisions when
problems are complex and wrong decisions are
costly.
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 The Service Revolution

● The creation of services organizations accelerated

sharply after World War II.
● Today, it is a dominant sector in many countries
● In terms of contribution to the GDP as well as share
of employment.
● Emergence of service giants- Mc Donald's , Fed EX
● Thus there is a growing need for service operations
management.

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 The Computer Revolution

● Explosive growth of computer and communication

technologies
● Easy access to information and the availability of more
information
● Advances in software applications such as Enterprise
Resource Planning (ERP) software
● Widespread use of email
● More and more firms becoming involved in E-Business
using the Internet
● Result: faster, better decisions over greater distances

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 Today's Factors Affecting OM

● Global Competition
● Quality, Customer Service, and Cost Challenges
● Rapid Expansion of Advanced Technologies
● Continued Growth of the Service Sector
● Scarcity of Operations Resources
● Social-Responsibility Issues

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 Studying Operations Management

● Operations as a System
● Decision Making in OM

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 Conversion Subsystem

● Physical (Manufacturing)
● Locational Services (Transportation)
● Exchange Services (Retailing)
● Storage Services (Warehousing)
● Other Private Services (Insurance)
● Government Services (Federal)

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 Decision Making in OM

● Strategic Decisions
● Operating Decisions
● Control Decisions

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 Strategic Decisions

● These decisions are of strategic importance and have

long-term significance for the organization.
● Examples include deciding:
●
the design for a new product’s production process
●
where to locate a new factory
●
whether to launch a new-product development plan

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 Operating Decisions

● These decisions are necessary if the ongoing

production of goods and services is to satisfy market
demands and provide profits.
● Examples include deciding:
●
how much finished-goods inventory to carry
●
the amount of overtime to use next week
●
the details for purchasing raw material next month

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 Control Decisions

● These decisions concern the day-to-day activities of

workers, quality of products and services, production
and overhead costs, and machine maintenance.
● Examples include deciding:
●
labor cost standards for a new product
●
frequency of preventive maintenance
●
new quality control acceptance criteria

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 What Controls the Operations System?

● Information about the outputs, the conversions, and

the inputs is fed back to management.
● This information is matched with management’s
expectations
● When there is a difference, management must take
corrective action to maintain control of the system

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 Operations Activities as Feedback Loops
Design activities set the basic configuration
Planning & control activities guide short/medium term changes
Improvement activities guide longer term changes

Design

Planning & Control

Improvement
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 I. Operations Strategy 1. Introduction
and Managing Change to the Field

Plan 2. Operations Strategy

and Competitiveness
3. Project
Management
II. Product Design
and Process III. Supply 9. Supply
Selection Chain Design Chain Strategy

10. Strategic 11. Just-in-Time

4. Process Capacity and Lean
Analysis Management Systems

5. Product 6. Product
Design and Design and IV. Planning and 12. Forecasting
Process Selection Process Selection Controlling the and Demand
-Manufacturing -Services Supply Chain Management

13. Aggregate Sales and

7. Quality Operations Planning
Management

14. Inventory 15. Materials

8. Operations Consulting Control Requirements Planning
and Reengineering

16. Operations Scheduling

17. Synchronous Manufacturing

and Theory of Constraints
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Summary

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