Lecture 1

Manufacturing can be defined as:1. The process of converting material into a more useable

form2. The process of “adding value” to an existing product3. Products may be discrete or continuous4. A complex activity involving a wide variety of

resources and activities

5. Production quantity – number of units of a given part that are produced annually:

Low Medium High6. Product Variety – different type of products that are

produced at a facility

It is an organized activity, so every manufacturing system has an objective

The system transforms the various inputs into useful outputs

It does not operate in isolation from the other organization system

There exists a feedback about the activities which is essential to control and improve system performance

Production machines, tools, fixtures and other related hardware

Material handling system Computer systems to coordinate and/or control the

components Human Workers

An economic activity that typically produce an intangible product such as:

1. Education2. Entertainment3. Lodging4. Government5. Financial Services6. Health Services

It is an organized activity related to identifying the customer specific to the service being provided

The effective communication and provision of the service in terms of its utility and quality

There exists a feedback about the changes/ improvements which are needed to satisfy the customers

Goods1. Tangible2. Produced but may be

consumed after a while3. Can be resold

4. Can be inventoried

5. Aspects of quality are measurable

6. Selling is distinct from production

Services1. Intangible2. Produced and consumed

simultaneously3. Reselling a service is

unusual4. Many services cannot be

inventoried5. Many aspects of quality

are difficult to measure6. Selling is often a part of

the service

Goods7. Product is transportable

8. Site of facility is important for cost

9. Often easy to automate

10.Product is or good is generally common

11.Less customer interaction

Services7. Provider not product is

often transferrable8. Site of facility is important

for customer contact9. Service is often difficult to

automate10.Service is often unique

11.High customer interaction

“It involves understanding the needs of our customers, managing the processes that deliver the services, ensuring our objectives are met, while also paying attention to the continual improvements of our services.” [Johnston & Clark, 2008:3]

Operations management is “the effective and efficient management of the transformation process” [Melnyk & Denzler, 1996:5].

“..operations are processes that take in a set of input resources which are used to transform something, or are transformed themselves, into outputs of products and services.” (Slack, 2010:11).

“The ongoing activities of designing, reviewing and using the operating system, to achieve service outputs as determined by the organization for customers”.

It is the business function that plans, organizes, co-ordinates, and controls the resources needed to produce a company’s goods and services.

Purchasing managers Supply chain and logistics managers Customer service managers Project managers Quality managers Restaurant, hotel, retail, & airport managers Health centre managers, hospital managers Head teachers, etc., etc..

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Automobile assembly factory – Operations management uses machines to efficiently assemble products that satisfy current customer demands

Physician (general practitioner) – Operations management uses knowledge to effectively diagnose conditions in order to treat real and perceived patient concerns

Management consultant – Operations management uses people to effectively create the services that will address current and potential client needs

Disaster relief charity – Operations management uses our and our partners’ resources to speedily provide the supplies and services that relieve community suffering

Advertising agency – Operations management uses our staff ’s knowledge and experience to creatively present ideas that delight clients and address their real needs

1. Operations management is the activity of managing the resources which produce and deliver products and services. The operations function is the part of the organization that is responsible for this activity.

2. Every organization has an operations function because every organization produces some type of products and/or services. However, not all types of organization will necessarily call the operations function by this name. (Note that we also use the shorter terms ‘the operation’ and ‘operations’ interchangeably with the ‘operations function’).

3. Operations managers are the people who have particular responsibility for managing some, or all, of the resources which compose the operations function. Again, in some organizations the operations manager could be called by some other name. For example, he or she might be called the ‘fleet manager’ in a distribution company, the ‘administrative manager’ in a hospital, or the ‘store manager’ in a supermarket.

Operations in the organization

Operations management is just as important in small

organizations as it is in large ones. Irrespective of their size,

all companies need to produce and deliver their products and

services efficiently and effectively. In practice, managing operations in a small or medium-size

organization has its own set of problems. Large companies

may have the resources to dedicate individuals to specialized

tasks but smaller companies often cannot, so people may

have to do different jobs as the need arises.

Such an informal structure can allow the company to

respond quickly as opportunities or problems present

themselves. But decision making can also become

confused as individuals’ roles overlap. Small companies may have exactly the same

operations management issues as large ones but they

can be more difficult to separate from the mass of other

issues in the organization. However, small operations

can also have significant advantages;

Terms such as competitive advantage, markets and business are usually associated with companies in the for-profit sector.

Yet operations management is also relevant to organizations whose purpose is not primarily to earn profits. Managing the operations in an animal welfare charity, hospital, research organization or government department is essentially the same as in commercial organizations.

Operations have to take the same decisions – how to produce products and services, invest in technology, contract out some of their activities, devise performance measures, and improve their operations performance and so on.

More complex and involve a mixture of political, economic, social and environmental objectives a greater chance of operations decisions being made under

conditions of conflicting objectives. So, for example, it is the operations staff in a children’s welfare department who have to face the conflict between the cost of providing extra social workers and the risk of a child not receiving adequate protection.

“As the Operations Manager … you will be a key member of the management team, supporting the General Manager to ensure that the centre runs smoothly and efficiently by improving profitability

Specific responsibilities include:◦stock management, customer service, financial

performance, health and safety, facilities and HR. You will directly manage and develop a small

team which will include general assistants, a stock controller and a goods inwards assistant.

Main responsibilities:◦Delivering efficient stock & product management

& leading and managing staff efficiently whilst adhering to LEAN Management Principles

◦Setting and reviewing staff targets, to deliver continual improvement.

◦Fleet Management and the organization of the delivery drivers’ routes in line with the LEAN Management Principles

◦Managing couriers efficiently to the benefit of the Company

Finance: This area is responsible for securing financial resources at favorable prices and allocating those resources throughout the organization.

Marketing: This area is responsible for assessing consumer wants and needs, and selling and promoting the organization’s goods or services.

Operations: This area is responsible for producing the goods or providing the services offered by the organization.

In other words the role of operations management is to transform a company’s inputs into the finished goods or services.

ORGANIZATION

Finance Operations Marketing

It involves: Inputs: That is capital, labor, land and

information Transformational Processes: That is

storing, transporting, cutting etc. Outputs: That is goods and services.

The essence of the operations function is to add value during the transformation process.

Value Added: It is the term used to describe the difference between the cost of inputs and the value or price of outputs.

or The net increase created during the

transformation of inputs into final outputs.

Firms use the money generated by value-added for

Research and development, Investment in new facilities and equipment, Worker salaries, and, Profits.

The volume of their output; The variety of their output; The variation in the demand for their output; The degree of visibility which customers have of the

production of their output.

The essence of high-volume burger production is McDonald’s, which serves millions of burgers around the world every day.

The first thing you notice is ◦ the repeatability of the tasks people are doing and the

systematization of the work where ◦ standard procedures are set down specifying how each part of the

job should be carried out.◦ Also, because tasks are systematized and repeated, it is

worthwhile developing specialized fryers and ovens. ◦ All this gives low unit costs.

Now consider a small local cafeteria serving a few ‘short-order’ dishes.◦ The range of items on the menu may be similar ◦ the volume will be far lower, ◦ so the repetition will also be far lower and ◦ the number of staff will be lower (possibly only one person) and

therefore individual staff are likely to perform a wider range of tasks.

◦ This may be more rewarding for the staff, but less open to systematization.

◦ Also it is less feasible to invest in specialized equipment. ◦ So the cost per burger served is likely to be higher (even if the

price is comparable).

A taxi company offers a high-variety service. It is prepared to pick you up from almost anywhere and drop you off almost anywhere. ◦ To offer this variety it must be relatively flexible. ◦ Drivers must have a good knowledge of the area, and

communication between the base and the taxis must be effective. ◦ However, the cost per kilometre travelled will be higher for a taxi

than for a less customized form of transport such as a bus service. ◦ Although both provide the same basic service (transportation), the

taxi service has a high variety of routes and times to offer its customers, while the bus service has a few well-defined routes, with a set schedule. If all goes to schedule, little, if any, flexibility is required from the operation.

All is standardized and regular, which results in relatively low costs compared with using a taxi for the same journey.

Consider the demand pattern for a successful summer holiday resort hotel. ◦ At the height of ‘the season’ the hotel could be full to its capacity.◦ Off-season demand, however, could be a small fraction of its

capacity. Such a marked variation in demand means that the operation must change its capacity in some way.

Compared with a hotel of a similar standard with level demand. ◦ A hotel which has relatively level demand can plan its activities well

in advance. Staff can be scheduled, food can be bought and rooms can be cleaned in a routine and predictable manner. This results in a high utilization of resources and unit costs which are likely to be lower than those in hotels with a highly variable demand pattern.

Visibility is a slightly more difficult dimension of operations to envisage. ◦ how much of the operation’s activities its customers experience, or ◦ how much the operation is exposed to its customers.

Generally, customer-processing operations are more exposed to their customers than material- or information-processing operations. But even customer processing operations have some choice as to how visible they wish their operations to be.

For example, a retailer could operate ◦ high-visibility ‘bricks and mortar’. In the ‘bricks and mortar’,

high-visibility operation, customers will directly experience most of its ‘value-adding’ activities. Customers will have a relatively short waiting tolerance, and may walk out if not served in a reasonable time.

◦ Customers’ perceptions, rather than objective criteria, will also be important. ◦ If they perceive that a member of the operation’s staff is discourteous to them, they

are likely to be dissatisfied (even if the staff member meant no discourtesy), so high-visibility operations require staff with good customer contact skills.

◦ Customers could also request goods which clearly would not be sold in such a shop, but because the customers are actually in the operation they can ask what they like! This is called high received variety.

◦ This makes it difficult for high-visibility operations to achieve high productivity of resources, so they tend to be relatively high-cost operations.

◦Lower-visibility web-based operation◦ Conversely, a web-based retailer, while not a pure low-contact

operation, has far lower visibility.◦ Time lag between the order being placed and the items ordered by

the customer being retrieved and dispatched does not have to be minutes as in the shop, but can be hours or even days.

◦ This allows the tasks of finding the items, packing and dispatching them to be standardized by staff who need few customer contact skills. Also, there can be relatively high staff utilization.

● Understanding the operation’s strategic performance objectives.

The first responsibility of any operations management team is to understand what it is trying to achieve. This means understanding how to judge the performance of the operation at different levels, from broad and strategic to more operational performance objectives.

● Developing an operations strategy for the organization.

Operations management involves hundreds of minute-by-minute decisions, so it is vital that there is a set of general principles which can guide decision-making towards the organization’s longer-term goals. This is an operations strategy.

● Designing the operation’s products, services and processes.

Design is the activity of determining the physical form, shape and composition of products, services and processes. It is a crucial part of operations managers’ activities.

● Planning and controlling the operation.

Planning and control is the activity of deciding what the operations resources should be doing, then making sure that they really are doing it.

● Improving the performance of the operation.

The continuing responsibility of all operations managers is to improve the performance of their operation.

● The social responsibilities of operations management.

It is increasingly recognized by many businesses that operations managers have a set of broad societal responsibilities and concerns beyond their direct activities. The general term for these aspects of business responsibility is ‘corporate social responsibility’ or CSR. It should be of particular interest to operations managers, because their activities can have a direct and significant effect on society.

Type of Operations Goods Producing

Storage/ Transportation

Exchange

Entertainment

Communication

Examples Farming, mining, construction,

manufacturing, power generating. Warehousing, Trucking, mail

service, moving, taxis, buses, hotels, airlines

Retailing, Wholesaling, financial advising, renting, leasing, library loans, stock exchanges.

Films, radios, television plays, concerts

Newspapers, TV newscasts telephone, satellites, the internet

The operations function include all the activities directly related to producing goods or providing services

Goods-Oriented: It exists both in manufacturing and assembly operations.

Service-Oriented: Include areas such as health care, transportation, food handling, and retailing

System design involves decisions that relate to: System capacity The geographic location of facilities Arrangement of departments Placement of equipment within physical structure Product and service planning Acquisition of equipment

Decision Area Product and service design

Capacity

Process Selection

Process Layout

Basic Issues Customer demands,

improvement of products

Capacity needed and how the organization best meet capacity requirements.

What process should the organization use?

What is the best arrangement for departments, equipment?

Decision Area Design of work

systems

Location

Basic Issues What is the best way to

motivate employees? How can productivity be improved?

What is the satisfactory location of the facility/store, etc.?

Tactical/Operational Decisions: Such decisions are specific and short-term in nature and are bound by strategic decisions.

Such decisions typically pertain to the system operation.

System operations involve decisions that relate to: Management of personnel Inventory planning and control Scheduling Project management Quality assurance

Decision Area Quality

Quality Control

Supply Chain Management

Inventory Management

Aggregate Planning

Basic Issues How is quality defined? How are

quality goods achieved and improved?

Are processes performing adequately? What standards should be used?

How to achieve effective flows of information and goods throughout the chain?

How much to order? When to reorder? Which items should get the most attention?

How much capacity will be needed over the intermediate range?

Strategic Decisions

•Broad in scope•Long-term in nature•All-encompassing

e.g., What are the unique features of our product that make us competitive?

Tactical/Operational Decisions

•Narrow in scope•Short-term in nature•Concerning a small group of issues

e.g., Who will work the 2nd Shift tomorrow?

The operations manager is more involved in day-to-day operating decisions than with decisions relating to system design.

However, the operations manager has a vital stake in system design because system design essentially determines many of the parameters of system operation.

1. Purchasing: It has the responsibility for procurement of materials, supplies, and equipment.

Close contact with operations is necessary to ensure correct quantities and timing of purchases.

The purchasing department is often called on to evaluate vendors for quality, reliability, service, price, and ability to adjust to changing demand.

Purchasing is also involved in receiving and inspecting the purchased goods.

Contd.

2. Industrial Engineering: It is often concerned with scheduling, performance standards, work methods, quality control, and material handling.

3. Distribution: It involves the shipping of goods to warehouses, retail outlets, or final customers.

4. Maintenance: It is responsible for general upkeep and repair of equipment, buildings and grounds, heating and air-conditioning, removing toxic wastes, parking and perhaps security.

Organization: Operations is the core function of an organization. Provide primarily services or create goods. Responsible for creating those goods or providing services. Major portion of the assets in most business organizations.

Society: More than half of all employed people in most

countries have jobs in operations. Providing services and, the consumption of these goods

and services is an integral part of our society.

The Interrelated Activities:o Forecasting o Capacity planningo Schedulingo Managing inventorieso Assuring qualityo Motivating and training employees

Forecasting Weather and landing conditions Seat demand for flights Growth in air travel

Capacity Planning Ensuring the maintenance of cash flow and

generating reasonable profit. The adjustment of flight timings and

destinations that could maximize profits.

Scheduling Maintenance of flight schedule Schedules of on duty pilots and flight

attendants Scheduling of ground crews, counter staff,

and baggage handlers.

Managing Inventories Managing inventories such as:

Foods and beveragesFirst-aid equipmentIn-flight magazinesPillows and blanketsLife preservers

Assuring Quality Quality Assurance: It is essential in flying

and maintenance operations. Emphasis

◦ safety ◦ dealing with customers at ticket counters, ◦ check-in, ◦ telephone,◦ electronic reservations and ◦ taxi service where the emphasis is on efficiency

and courtesy.

Motivating and Training Employees Employee motivation and training in all

phases of operations.

Locating FacilitiesLocating facilities according to manager’s decisions on which cities to provide service for, where to locate major and minor hubs.

• The operations function consists of all activities directly related to producing goods or providing services. Such activities include:

1. Development of idea for a product or service2. Product verification and funding3. Product Development4. Product Production5. Product Distribution

Contd.

Operations Management involves: Product and Service design Process selection Selection and management of technology Design of work systems Location planning Facilities planning Quality improvement of the organization’s

products and services

to develop your knowledge and understanding key principles, concepts & processes associated with◦operational planning, control and improvement of

‘efficiency’ of business operations. to deepen your understanding of the strategic

importance of operations management for competitive success in a global economy.

Journal of Operations Management International Journal of Operations & Production Mgt International Journal of Quality and Reliability Mgt International Journal of Productivity & Performance Mgt Managing Service Quality Total Quality Management Total Quality Management and Business Excellence The Service Industries Journal The TQM Magazine

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