1

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 2

OBJECTIVES
 Operations Management
 Why Study Operations Management?
 Transformation Processes Defined
 Operations as a Service
 The Importance of Operations
Management
 Historical Development of OM
 Current Issues in OM

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 3

What is Operations Management?

Defined
Operations management (OM) is
defined as the design, operation,
and improvement of the systems
that create and deliver the firm’s
primary products and services

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 4

Why Study Operations

Management?
Systematic Approach
to Org. Processes

Business Education Operations Career Opportunities

Management

Cross-Functional
Applications

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 5

The consultancy services market

% of world revenues of 40 largest firms

Financial Marketing/sales
6 2

Organizational
design
11 Operations and process
management
31

Benefits/Actuarial
16

IT strategy Corporate strategy

17 17

Source: Nigel Slack and Michael Lewis 2003

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 6

 The Future of Operations

– Outsourcing everything
– Smart factories
– Talking inventory
– Industrial army of robots
– What’s in the box
– Mass customization
– Personalized recommendations
– Sign here, please

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 7

Production Systems

Under Developed
Productive System
developed country
country
Food Shelter Goods Health Education Transport
Durable care system Quality
Quality Non high
Low Durable

High standard
•Change in civilization
Low standard Of living
Of living •Increase productive output
•Need for management

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 8

Emergence of Operations
Management
Manufacturing & agricultural

Operation Productive
Science Technology output
Management

Use principle of Service industries

Management Government org
Resources :
Men,Material,Machine(3Ms)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 9

What is production ?
 A process by which goods & services are
created
 Production is a step By step conversion of

one form of material into another form –

chemically, mechanically.
 Form utility is either created or

enhanced(eg wood  chair, chilly

powder curry)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 10

Production/Service
Process
Men Production
Machines Functions Production
Plants Services Activities Products
Services Services
Methods Information
Materials
Capital Add Values
Energy Produce outputs Outputs for
satisfaction of
Human wants
Resources Step by step conversion of one form of
Plan, organise direct co- material into another form
inputs ordinate control

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 11

Why Production ?
Why Operations Management ?
Add Values
Quality
Services
Goods Quantity

Production Time
Activity
Place
Services Products
Price
Add Values

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 12

Manufacturing = Production
Manufacturing mgmt = Production mgmt
Production Mgmt +services = operation mgmt
Example of non manufacturing
Hospital Bank
organizations
Transportation software
Warehousing farming

Operation in service organization has some unique feature which are :-

* Non inventor able output of services, since generally no stock is
produced
* variable demand
* mostly labour intensive operations
* location of services is directed by the location of the users

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 13

Production Management

1. Plan
2. Organise Production Raw
3. Direct function Material
4. Control

Finished
1. Decision making management function Product
2. Decision managing the process
3. To convert raw material into product

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 14

Objective of Production
Management
 Ultimate Objective  Intermediate objective
 Optimum utilization of
 Manufacturing cost at various inputs
pre-establish costs  Machinery & eqpt
 Product quality at  Materials
specified quality  Manpower
 Manufacturing  Manufacturing services
schedule at
predetermined period
or time

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 15

Summary

 Production has to develop a product :

 with the correct quality
 In time
 At right place
 At the right price

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 16

Responsibilities of Operations
Managers/Production Managers
Finance I Capital
management
N Policy
policy
Labour O
Accounting P Transfor
society Facilities mation ProductsU
Marketing U
process T
Material services
Engineering T P

technology Factory U
hospital T

Bank,
control Internal
hotel
feedback
External feedback
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All
 17

Operations Management
Decision Types
 Strategic (long-term)
 Tactical (intermediate-term)
 Operational planning and control
(short-term)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 18

What is a Transformation
Process?

Defined
A transformation process is defined
as a use of resources to transform
inputs into some desired outputs

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 19

Transformations
 Physical--manufacturing
 Locational--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational--telecommunications

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 20

What is a Service and What is a

Good?

 “If you drop it on your foot, it won’t

hurt you.” (Good or service?)

 “Services never include goods and

goods never include services.” (True
or false?)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 21

OM in the Organization Chart

Finance Operations
Operations Marketing

Plant
Plant Operations
Operations Director
Director
Manager
Manager Manager
Manager

Manufacturing,
Manufacturing, Production
Production control,
control,
Quality
Quality assurance,
assurance, Engineering,
Engineering,
Purchasing,
Purchasing, Maintenance,
Maintenance, etc
etc

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 22

Core Services
Defined

Core services are basic things

that customers want from
products they purchase

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 23

Core Services Performance Objectives

Quality

Operations
Flexibility Speed
Management

Price (or cost

Reduction)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 24

Value-Added Services
Defined
Value-added services
differentiate the organization
from competitors and build
relationships that bind
customers to the firm in a
positive way

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 25

Value-Added Service Categories

Problem Solving

Operations Sales Support

Information
Management

Field Support

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 26

The Importance of
Operations Management

 Synergies must exist with other

functional areas of the
organization
 Operations account for 60-80%

of the direct expenses that

burden a firm’s profit.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 27

Historical Development of OM
 JIT and TQC
 Manufacturing Strategy Paradigm
 Service Quality and Productivity
 Total Quality Management and Quality
Certification

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 28

Historical Development of OM
(cont’d)
 Business Process Reengineering

 Supply Chain Management

 Electronic Commerce

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 29

Current Issues in OM
 Coordinate the relationships between
mutually supportive but separate
organizations.
 Optimizing global supplier, production,
and distribution networks.
 Increased co-production of goods and
services

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 30

Current Issues in OM (cont’d)

 Managing the customer’s
experience during the service
encounter
 Raising the awareness of
operations as a significant
competitive weapon

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 31

Question Bowl
A major objective of this book is to show how smart
managers can do which of the following?
a. Improve efficiency by lowering costs
b. Improve effectiveness by creating value
c. Increasing value by reducing prices
d. Serving customers well
e. All of the above

Answer: e. All of the above

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 32

Question Bowl
In the Input-Transformation-Output Relationship,
a typical “input” for a Department Store is
which of the following?
a. Displays
b. Stocks of goods
c. Sales clerks
d. All of the above
e. None of the above

Answer: e. None of the above (The above are

considered “Resources” of a department store.
The correct answer is “Shoppers”.)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All

 33

Question Bowl
In which of the following decades did the
concept of quality control originate?
a. 1920’s
b. 1930’s
c. 1940’s Answer: b. 1930’s (Tools such
d. 1950’s
as sampling inspection and
e. 1970’s
statistical tables where first
developed by Walter
Shewhart, H. F. Dodge, and H.
G. Romig.)
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All
 34

End of Chapter 1

©The McGraw-Hill Companies, Inc.,