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North South University School of Business

Lecture 1: Introduction toOperations Management

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Learning Objectives

What you will learn in this lecture: Define Operations Management

The role and activities of operation management

The input-transformation-output model

Difference between goods and services

What is Operations strategy Performance objectives of operations strategy

Productivity Measurement

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North South University School of Business3

What is Operations Management ?

Operations Management is about the way

organizations produce goods and services

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They are all

operations

Back office operation in a

bank

Kitchen unit

manufacturing operation

Retail operation

Take-out / restaurant

operation

Examples of Operations

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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 has been

processedby an operation

Every service you consumed today (radio station,

bus service, lecture, etc.) has also beenproduced

by an operation

Operations Managers create everything you buy, sit

on, wear, eat, and throw away

Concept of Operations

Management

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North South University School of Business6

Operations Managements Remit

Operations is not just concerned with what goes on at

the point of production, but is also directly concerned

with supplying the materials, the location and layout offacilities, the programming of operations and the

motivation of employees.

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Some interfunctional relationships between the

operations function and other core and support functions

Understanding of thecapabilities and

constraints of theoperations process

New product andservice ideas

Understanding of thecapabilities and

constraints of theoperations process

Marketrequirements

Recruitmentdevelopmentand training

Understanding of humanresource needs

Financial analysisfor performance

and decisions

Provision ofrelevant

data

Provision of systems fordesign, planning and

control, and improvement

Understandingof infrastructuraland system

needs

Analysis of newtechnology options

Understanding ofprocess technology

needs

Engineering/technicalfunction

Accounting andfinancefunction

HumanResourcesfunction

InformationTechnology(IT) function

Marketingfunction

Product/servicedevelopment

function

Operationsfunction

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Operations Management

Restricted sense Planning , organising and controlling production process and

management of interface with support functions

Broader sense Relevant to every sphere of organisational activity

Operations Management regarded as one of keyfunctions of enterprise such as Finance, Marketing, HRMand sometimes Purchasing Management

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Typical Organization Chart

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Activities of Operations

manager

o Understanding the operations strategic

objectives

o Developing an operations strategy for the

organization

o Designing the operations products, services

and processeso Planning and controlling the operation

o Improving the performance of the operation.

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Design a store layout

which gives smooth

and effective flowDesign elegant products

which can be flat-packed

efficiently

Site stores of an

appropriate size in the

most effective

locations

Maintain cleanliness

and safety of storage

areaArrange for fast

replenishment of

products

Monitor and enhance

quality of service to

customers

Continually examine and

improve operations

practice

Ensure that the jobs of

all staff encourage their

contribution to business

success

Operations Management

at IKEA

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OMs Transformation Role

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The input-transformation-output

model

Transformationprocess

Input Out putGoodsandservices

T ransformedresources

MaterialsInformationCustomers

T ransformingresources

FacilitiesStaff

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Transformed resources

the resources that are treated,transformed or converted in some way. The transformed

resources which operations take in are usually a mixture of

materials, information and customers.

Transforming resources

the resources that act upon the

transformed resources. Facilities and staffare the two types

of transforming resources. Facilities include building,

equipment, plant and process technology etc., Staff includes

all those who operate, maintain, plan and manage theoperation.

Inputs

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CRUD

E

OILPRODUCTION

ALUMINIU

MS

MELTING

SPECIALISTMAC

HINETOOL

MANUFACTU

RER

RESTAURANT

CO

MPUTER

SYSTEMS

SERVICES

MANAGEMENT

CON

SULTANCY

PSYCHOTHER

APYCLINIC

The output from most operations is a

mixture of goods and servicesPURE GOODS

Tangible

Can be stored

Production precedesconsumption

Low customercontact

Can be transportedQuality is evident

PURE SERVICES

Quality difficult to judge

Cannot be transported

High customer contact

Production and

consumption aresimultaneous

Cannot be stored

Intangible

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Similarities-Service/Manufacturing

All use technology

Both have quality, productivity, & response

issues

All must forecast demand

Each will have capacity, layout, and location

issues

All have customers and suppliers

All have scheduling and staffing issues

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Historical Development of OM

Industrial revolution Late 1700s

Scientific management Early 1900s

Human relations movement 1930s to 1960s

Management science Mid-1900s

Computer age 1970s

Just-in-Time Systems (JIT) 1980s

Total quality management (TQM) 1980s

Reengineering 1990s

Flexibility 1990s

Time-Based Competition 1990s

Supply chain Management 1990s

Global Competition 1990s

Environmental Issues 1990s

Electronic Commerce Late 1990s

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Todays OM Environment

Customers demand better quality, faster deliveries, and

lower costs

Increased cross-functional decision making

Recognized need to better manage information usingERP and CRM systems

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The activities of operations

management

ENVIRONMENT

ENVIRONMENT

INPUT OUTPUTGOODS

AND

SERVICES

INPUT

TRANSFORMED

RESOURCES

MATERIALS

INFROMATION

CUSTOMERS

FACILITIES

STAFF

INPUT

TRASNFORMED

RESOURCES

OPERATIONS

STRATEGY

DESIGN

PLANNING AND

CONTROL

IMPROVEMENT

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Highlights

OM is function that manages the resources that add value

Its role is to transform inputs into products or services

Key differences between mfg. and service companies are tangibility

of product and degree of customer contact

Historical milestones range from 1700s Industrial Revolution to the

modern Electronic Commerce age

OM must understand and implement major process changes like

JIT, TQM, supply chain management, and environmental changes

OM works closely with all other business functions

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Operations Strategy

Operations strategy is the total

patterns of decisions and actions

which set the role, objectives andactivities of the operation so that they

contribute to, and support, the

organisationsbusiness strategy

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Operations Strategy Designing

the Operations Function

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The Wal-Mart Strategy and

Operations Structure

Corporate Strategy

(Gain competitive advantage by) providing customers access to qualitygoods, when and where needed, at competitive prices

Operations Strategy

Short cycle times Low inventory levels

Operations Structure

EDIFast transportation systemFocused locationsCommunication between

retail stores

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Competitive Advantage

Competitive advantage is the term as the extra

edge that a firm has over their industry peers

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Competitive Priorities- The Edge

Four Important Operations Questions: Will you compete

on

Cost?

Quality?

Time?

Flexibility?

All of the above? Some? Tradeoffs?

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Competitive Priorities- The Edge

or Performance Objectives

Quality

Time (Speed and Dependability)

Flexibility

Cost

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The Five Competitive

Objectives

Responsiveness /

Speed

Flexibility

Cost

Dependability

Quality Being RIGHT

Being FAST

Being ON TIME

Being ABLE TO CHANGE

Being PRODUCTIVE

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Speed

Cost

Depend-

ability

FlexibilityQuality

Lower prices

(or higher profits)

Faster customer

response

Error-free products

and services

Wider variety

More customisation

More innovation

Cope with volume

fluctuations

On-time

deliveries

The Five Competitive Objectives

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Are There Priority Tradeoffs?

Which priorities are Order Qualifiers?e.g. Must have excellent quality since everyone expects it

Which priorities are Order Winners?

e.g. Dell competes on all four priorities

Southwest Airlines competes on costMcDonalds competes on consistency

FedEx competes on speed

Custom tailors compete on flexibility

Can you have both high quality and low cost?

e.g. Yes, Coke and Pepsi are good examples

Can you offerdesign flexibility and short delivery?

e.g. Yes, modular housing manufacturers do it

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Measuring Productivity

Productivity is a measure of how efficiently inputs are

converted to outputsProductivity = output/input

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Highlights

Business Strategy is a longrange plan. Functions developsupporting plans

Strategy must addressmission, environment, and

core competencies

Business strategy provides aguide for designing operationsstrategy

Operations strategy mustconsider which competitivepriorities are essential to meetbusiness objectives

Competitive priorities are cost,quality, time, and flexibility

Productivity measures howeffectively a firm is usingresources

Productivity is computed as aratio of outputs divided byinputs

OM_Spring2012_01

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