EXPRODU

Introduction to Production/ Operations

Management
Hard Rock Cafe
Global Company Profile

 First opened in 1971

 Now – 110 restaurants in over 40 countries
 Rock music memorabilia
 Creates value in the form of good food and entertainment
 3,500+ custom meals per day in Orlando
 How does an item get on the menu?
 Role of the Operations Manager

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Agenda – Week 1
EXPRODU

 Introduction to Operations Management

 Three major functional areas of organization

 Service and manufacturing operations

 The function and nature of the operations manager’s job

 Current trends in business that impact Operations Management

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What is Operations Management?
Introduction to Operations Management

 Production is the creation of goods and services

 Operations management (OM) is the set of activities that creates value in the
form of goods and services by transforming inputs into outputs

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Why Study Operations Management?
Introduction to Operations Management

 Operations Management is one of three major functions (Marketing, Finance, and

Operations) of any organization

 We want (and need) to know how goods and services are produced

 We want to understand what operations managers do

 Operations Management is such a costly part of an organization

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There are three options to increase a company’s contribution
Introduction to Operations Management

Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

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There are three options to increase a company’s contribution
Introduction to Operations Management

Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

7
There are three options to increase a company’s contribution
Introduction to Operations Management

Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

8
There are three options to increase a company’s contribution
Introduction to Operations Management

Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

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Agenda – Week 1
EXPRODU

 Introduction to Operations Management

 Three major functional areas of organization

 Service and manufacturing operations

 The function and nature of the operations manager’s job

 Current trends in business that impact Operations Management

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Functional areas
Three major functional areas of organization

 Marketing – generates demand

 Production/operation – generates the product

 Finance/accounting – tracks how well the organization is doing, pays bills, collects the
money

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Organization Chart for a banking institution
Three major functional areas of organization

Commercial Bank

Operations Finance Marketing

Teller Scheduling Investments Loans
Check Clearing Security Commercial
Collection Real estate Industrial
Transaction processing Financial
Facilities design/layout Personal
Vault operations Mortgage
Maintenance Accounting
Security

Auditing
Trust Department

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Organization Chart for an airline
Three major functional areas of organization

Airline

Operations Finance/ accounting Marketing

Ground support equipment Accounting Traffic administration
Maintenance Payables Reservations
Reservations
Ground Operations Receivables Schedules
Schedules
General Ledger
Facility Finance Tariffs (pricing)
maintenance
Catering Cash control Sales
Flight Operations International Advertising
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science

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Organization Chart for a manufacturing organization
Three major functional areas of organization
Manufacturing

Operations Finance/ accounting Marketing

Facilities Construction; maintenance Disbursements/ credits Sales promotion
Production and inventory control Receivables Advertising
Scheduling; materials control Payables Sales
Quality assurance and control General ledger
Funds Management Market research
Supply-chain management
Manufacturing Money market
Tooling; fabrication; assembly International
exchange
Design Capital requirements
Product development and design
Detailed product specifications Stock issue
Industrial engineering Bond issue
Efficient use of machines, space, and recall
and personnel
Process analysis
Development and installation of
production tools and equipment

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Agenda – Week 1
EXPRODU

 Introduction to Operations Management

 Three major functional areas of organization

 Compare service and manufacturing operations

 The function and nature of the operations manager’s job

 Current trends in business that impact Operations Management

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Differences between goods and services in characteristics
Compare service and manufacturing operations

 Characteristics of a Good  Characteristics of Service

– Tangible product
– Production usually separate from
consumption
– Low customer interaction
– Consistent product definition
– Can be inventoried
– Can be resold
– Quality is measurable
– Transportable
– Site of facility important for cost
– Often easy to automate
– Intangible product
– Processed and consumed at the same time
– Often unique
– High customer interaction
– Inconsistent product definition
– Often knowledge based
– Frequently dispersed
– Difficult to measure quality
– Provider of the service is often transportable
– Site of facility is important for customer
contact
– Often difficult to automate

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Most goods contain a service, most services contain a good
Compare service and manufacturing operations

Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service 17

Agenda – Week 1
EXPRODU

 Introduction to Operations Management

 Three major functional areas of organization

 Service and manufacturing operations

 The function and nature of the operations manager’s job

 Current trends in business that impact Operations Management

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What kind of work does Operations Managers do?
The function and nature of the operations manager’s job

– Organizing
 Basic Management Functions (PLOCS)
 Directing, motivating, and
– Planning communication with employees,
 defining goals and objectives individually & in groups
 deciding what type of activities the company  Conflict resolution.
will engage in
 determining the resources needed to – Controlling
achieve the organization’s goals &  Monitoring performance of people &
objectives. units
 Provision of feedback or information
– Leading about progress
 Attracting people to the organization  Identification of performance problems
 Grouping jobs into work units & actions to correct problems.
 Marshaling and allocation of resources
 Creating good working conditions – Staffing
 The selection and training of individuals
for specific job functions, and charging
them with the associated
responsibilities
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The operations manager plays an important role in the
company
The function and nature of the operations manager’s job

Service and product design

– What good or service should we offer?
– How should we design these products and services?
Quality management
– How do we define quality?
– Who is responsible for quality?
Process and capacity design
– What process and what capacity will these products require?
– What equipment and technology is necessary for these processes?
Location
– Where should we put the facility?
– On what criteria should we base the location decision?
Layout design
– How should we arrange the facility and material flow?
– How large must the facility be to meet our plan?
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The operations manager plays an important role in the
company
The function and nature of the operations manager’s job

Human resources and job design

– How do we provide a reasonable work environment?
– How much can we expect our employees to produce?
Supply-chain management
– Should we make or buy this component?
– Who are our suppliers and who can integrate into our e-commerce program?
Inventory management
– How much inventory of each item should we have?
– When do we re-order?
Scheduling
– Are we better off keeping people on the payroll during slowdowns?
– Which jobs do we perform next?
Maintenance
– Who is responsible for maintenance?
– When do we do maintenance?
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Where are the OM Jobs?
The function and nature of the operations manager’s job

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Agenda – Week 1
EXPRODU

 Introduction to Operations Management

 Three major functional areas of organization

 Service and manufacturing operations

 The function and nature of the operations manager’s job

 Current trends in business that impact Operations Management

23
 Eight Changing Challenges for the Operations Manager
Current trends in business that impact Operations Management
Past Causes Future

Local or Low-cost, reliable Global focus

1. national worldwide communication
focus and transportation
networks

2. Batch (large) Short product life cycles Just-in-time

shipments and cost of capital put shipments
pressure on reducing
inventory
3. Low-bid Quality emphasis requires Supply-
purchasing that suppliers be engaged chain
in product improvement partners,
Enterprise
Resource
Planning,
e-commerce
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 Eight Changing Challenges for the Operations Manager
Current trends in business that impact Operations Management
Past Causes Future

Lengthy Shorter life cycles, Rapid product

4. product Internet, rapid international development,
development communication, computer- alliances,
aided design, and collaborative
international collaboration designs
5. Standardized Affluence and worldwide Mass
products markets; increasingly customization
flexible production with added
processes emphasis on
quality
6. Job Changing socioculture Empowered
specialization milieu; increasingly a employees,
knowledge and information teams, and
society lean
production

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 Eight Changing Challenges for the Operations Manager
Current trends in business that impact Operations Management

Past Causes Future

7. Low-cost Environmental issues, ISO Environmentally

focus 14000, increasing disposal sensitive
costs production,
green
manufacturing,
recycled
materials,
remanufacturing
8. Ethics not Businesses operate more High Ethical
at forefront openly; public and global Standards and
review of ethics; opposition social
to child labor, bribery, responsibility
pollution expected

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