COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
MASTER OF BUSINESS ADMINISTRATION
 
ADVANCED OPERATIONS MANAGEMENT (MBA 6031)

BY:
Mehari H. (Ass.Prof, MBA, MA, BA)
E-mail: haileg2003@gmail.com

March, 2020
Maichew, Tigray

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 CHAPTER ONE
NATURE OF OPERATIONS MANAGEMENT

Chapter Objectives
Explain what operations management is.
Compare and contrast service and
manufacturing operations.
Describe the key aspects of operations
management decision making.
Briefly describe the historical evolution of
operations management.
Define productivity and identify productivity
measures.

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 1.1. Operations Management
What is Operations?
• Operation is that part of as organization, which is
concerned with the transformation of a range of inputs
into the required output (services) having the requisite
quality level.

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Cont’d
• Operations Management is;
• about how organizations create and deliver products
and services.
• the business function responsible for planning,
coordinating, and controlling the resources needed to
produce an organizations goods and services.
• the process whereby resources, flowing within a
defined system, are combined and transformed by a
controlled manner to add value in accordance with
policies communicated by management.
In general,
 1.2. Operations in an Organization
• The three core functions of any business organization
are:

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1. The operations function
• Responsible for fulfilling customer requests for service
through the production and delivery of products and
services.
2. The marketing (including sales) function
• Responsible for communicating the organization’s
products and services to its markets in order to
generate customer requests for service.
3. The Finance/Accounting function
• Finance- Manages the financial resources of the
organization.
• Accounting- supplies information to management on costs
of labor, materials, and overhead, provide reports on items
such as scrap, downtime, and inventories.
• Thus, marketing, operations, and finance
must interface on
• product and process design,
• forecasting,
• setting realistic schedules,
• quality and quantity decisions, and
• keeping each other informed on the other’s
strengths and weaknesses.

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 Supporting functions

Legal Public relations

Operations

Management Personnel/
Information Human
System (MIS) Resource
The legal department-
• must be consulted on contracts with employees,
customers, suppliers, and transporters, as well as on
liability and environmental issues.
Management information systems (MIS)
• is concerned with providing management with the
information it needs to effectively manage.
Personnel or human resources department
• is concerned with recruitment and training of
personnel, labor relations, contract negotiations,
wage and salary administration, assisting in
manpower projections, and ensuring the health and
safety of employees.
Public relations
• is responsible for building and maintaining a positive
public image of the organization.
 1.3. Historical Development of OM
• OM function is as old as human civilization.
• Operations management emerge as a formal field of study in
the late 1950s and early 1960s, when scholars began to stress
on the systems approach to viewing operations processes.
• The most significant historical milestones that helped to shape
operations management are;
• Industrial revolution
• Scientific management
• Human relations movement
• Operations research
• Quality revolution
• Internet
• Globalization
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 Era Events/Concepts Dates Contributor
Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Scientific
Frank and Lillian
Manageme Time and motion studies 1911
Gilbreth
nt
Activity scheduling chart-gantt 1912 Henry Gantt
Moving assembly line 1913 Henry Ford

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 (Cont’d)
Era Events/Concepts Dates Contributor
Hawthorne studies-physical and
1930 Elton Mayo
technical
Human
1940s Abraham Maslow
Relations
Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Operations
Simulation, waiting
Research Operations research
line theory, decision 1950s
groups
theory, PERT/CPM
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 (cont’d)
Era Events/Concepts Dates Contributor
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran

Quality Strategy and Wickham Skinner,

1980s
Revolution operations Robert Hayes
Business process Michael Hammer,
1990s
reengineering James Champy

Six Sigma 1990s GE, Motorola

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 (Cont.)
Era Events/Concepts Dates Contributor
Internet Internet, WWW, ERP, supply 1990s ARPANET, Tim
Revolution chain management Berners-Lee SAP,
i2 Technologies,
ORACLE
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union, and 1990s Numerous countries
other trade agreements, 2000s and companies
global supply chains,
outsourcing, Services 17
Focuses of the historical development of
OM
 1.4. Today’s OM Environment
Customers demand better quality, greater
speed, and lower costs.
Companies implementing lean systems 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 Interface: Business Information Flow between OM and other
functions of an organization

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 1.5. New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain partnering
 Lengthy product  Rapid product development,
development alliances
 Standard products  Mass customization
 Job specialization  Empowered employees,
teams
 1.6. General Model of OM
• Process design • Operations management
• Layout and flow • Operations performance
• Process technology • Operations strategy
• People in operations • Product and service innovation
• The structure and scope of operations

Transformed Direct – steering

resources operations and
processes
• Materials
• Information Deliver –
• Customers Operations improving the
Design – shaping
operation’s
processes, products Management
Input and services
capabilities Output Value added
resources • products for customers
Develop – planning • services
and controlling
Transforming ongoing operations
resources
• Facilities
• Staff
• Planning and control of operations
• Capacity management
• Operations improvement
• Supply chain management • Quality management
• Inventory management • Risk and recovery
• Planning and control systems
• Lean operations
• Project management
 1.7. Why we study OM
1. to study how people organize themselves for
productive enterprise.
2. To know how goods and services are produced .
3. To understand what operations managers do. In
addition, it will help you explore the numerous and
lucrative career opportunities in the field.
4. it is such a costly part of an organization. A large
percentage of the revenue of most firms is spent in
the OM function.
Indeed, OM provides a major opportunity for an organization
to improve its profitability and enhance its service to society.
 1.9. OM Strategy Decisions
Location
of
facilities Plant
Scheduling layout

Human Product
Resources /service
design
OM

Maintenance
management Process
design

Materials Production
Managem planning
ent and control
Quality
control
 1.8. Objectives of Operations Management
• The objective of operations management is to
produce goods and services of;
• Right quality
• Right quantity
• At the right time
• At right manufacturing cost
• Customer service
• Resource utilization

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 1.10. Manufacturing and Service
organizations
• Manufacturing and service organizations are often
different in terms of what is done but quite similar in
terms of how it is done.
• Manufacturing organizations:
• primarily produce a tangible product and typically have low
customer contact.
• Service organizations:
• primarily produce an intangible product, such as ideas,
assistance, or information, and typically have high customer
contact.

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 Categories of services
• The majority of service jobs fall into these categories:
• Professional services (e.g., financial, health care, legal)
• Mass services (e.g., utilities, Internet, communications)
• Service shops (e.g., tailoring, appliance repair, car wash, auto
repair/maintenance)
• Personal care services (e.g., beauty salon, spa, barbershop)
• Government services (e.g., Medicare, mail, social services, police, fire)
• Education (e.g., schools, universities)
• Food service (e.g., catering)
• Services within organizations (e.g., payroll, accounting, maintenance, IT, HR,
janitorial)
• Shipping and delivery (e.g., truck, railroad, boat, air)
• Residential services (e.g., lawn care, painting, general repair, remodeling, interior
design)
• Transportation (e.g., mass transit, taxi, airlines, ambulance)
• Travel and hospitality (e.g., travel bureaus, hotels, resorts)
• Miscellaneous services (e.g., copy service, temporary help)
 Cont’d
Manufacturing vs. Service
Characteristic Manufacturing Service

 Out put Tangible Intangible

 Customer contact Low High

 Uniformity of input High Low

 Labor content Low High

 Uniformity of output High Low

 Measurement of Easy difficult

productivity High Low 28
 1.11. Productivity
• Productivity is nothing but the reduction in
wastage of resources such as labor, machines,
materials, power, space, time, capital, etc.
• Productivity can also be defined as human effort
to produce more and more with less and less
inputs of resources so that the products can be
purchased by a large number of people at
affordable price.
• Productivity implies development of an attitude of
mind and a constant urge (desire) to find better,
cheaper, easier, quicker, and safer means of doing
a job, manufacturing a product and providing
service.
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 1.11.1.Productivity Measures
Output
Productivity =
Input

Output Ouput Output

Partial Measures/Single - factor productivity  ; ;
Single Input Labor Capital
Output Ouput Output
Multifactor Measures  ; ;
Multiple Inputs Labor + Machine Labor + Capital + Energy

Goods or services produced

Total Measure 
All inputs used to produce them

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 Examples
1. let’s say that the weekly Birr value of a company’s outputs, such
as finished goods and work in progress is Birr 10,000 and that
the value of its inputs such as labor, materials, and capital is Birr
8,600. What is the company’s total productivity?
2.Student tuition fee of Raya University is birr 150 per semester
credit hour. The state supplements the university’s revenue by birr
100 per semester credit hour. Average class size for a typical 3
credit hours course is 50 students. Labor costs are Birr 4000 per
class, materials costs are birr 20 per student per class, and
overhead costs are birr 25,000 per class.
a. What is the multifactor productivity ratio for this course
process?
b. If instructors work an average of 14 hours per week for 16
weeks for each 3 credit class of 50 students, what is the labor
productivity ratio?
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 Solution

a.
•   Multifactor productivity is the ratio of the value of output to the value of
input resources.
Value of output x (3 cr hrs/student) x (150 tution+100 state support)/cr
hr.
= 37500/class
Value of inputs= L +M +OH
=400 +(20/St X 50 St/class)+25,000
=30,000/class
So, MFP= OUT PUT/INPUT
=37500/30000=1.25
b. Labor productivity is the ratio of the value of output to labor hours. The
value of output is the same as in part a=birr 37500 /class. So
Labor hours of input= 14hrs/week X16 weeks/class= 224 hours/class
Labor productivity = output/input
=37500/class/224 hours/class
=birr 167.41/hr
 1.11.2. Factors Affecting Productivity
1. Scarcity of some resources: Resources such as energy, water and
number of metals will create productivity problems.
2. Work-force changes: Change in work-force effect productivity to
a larger extent, because of the labor turnover.
3. Innovations and technology: This is the major cause of increasing
productivity.
4. Capital/labor ratio: It is a measure of whether enough
investment is being made in plant, machinery, and tools to
make effective use of labor hours.
5. Regulatory effects: These impose substantial constraints on some
firms, which lead to change in productivity.
6. Bargaining power: Bargaining power of organized labor to
command wage increases excess of output increases has had a
detrimental effect on productivity. 33
7. Managerial factors: Managerial factors are the ways an
organization benefits from the unique planning and managerial
skills of its manager.
8. Quality of work life: It is a term that describes the
organizational culture, and the extent to which it motivates
and satisfies employees.

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Thank you!!