Introduction to Operations Management

Operations
Operations Management
Management
Instructor:
Instructor: Dr.
Dr. Rizwan
Rizwan Ahmed
Ahmed

Lecture outline
What is Operations Management
Operations in Organization
Manufacturing and Service
Operations
Operations and Productivity
Conclusion

Operations Management is:

The business function responsible for
efficiently planning, coordinating, and
controlling the resources needed to
produce products and services for a
company

Wiley 2010

Operations Management is:

A management function
An organizations core function
In every organization whether Service or
Manufacturing, profit or Not for profit

Wiley 2010

Role of OM: A Transformation

Process
OM Transforms inputs to outputs
So Operation Management is a set of
activities that creates value in the form of
goods and services by transforming
inputs into outputs; A transformation
process

OMs Transformation
Process
a series of activities along a value chain extending from supplier to
customer
activities that do not add value are superfluous and should be eliminated

TRANSFORMATION
PROCESS: SANDWICH
MAKING

TRANSFORMATION
PROCESS: BUS SERVICE

OMs Transformation Role

To add value

Increase product value at each stage

Value added is the net increase between output product value

and input material value

Provide an efficient transformation

Efficiency means performing activities well for least possible

cost

Some Types of
Transformation Process

Physical: as in manufacturing operations

Locational: as in transportation
operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication

Inputs to Operations
Inputs: All physical and nonphysical
resources coming into the system
Primary Resources

Materials, Personnel, Skills, Capital, Utilities,

Machines, Equipment, Facilities

Secondary Resources (External)

Market

Competition, Customer Desires, Product Info.

PEST

Political, Legal, Economic, Social, Technological

Outputs from Operations

Outputs can be classified as:
Direct/Primary

Goods
Services

Indirect/Secondary

Waste
Pollution
Technological Advances

Classroom activity
Time to consider an example.

Can you tell me how the operations system

works for lets say a farm?
Organize your thoughts and Focus on the
inputs, transformation process, and outputs,
one by one.
Write down inputs, transformation process,
and outputs

Why Study Operations

Management?
OM 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 accounts for 60-80% of the direct
expenses that burden a firms profit

Operations in organization
Organization

Production/
operations

Marketing

Finance

Production/
operations

Marketing

Figure

: The three basic functions of business organizations

Finance

Organizational Charts
Commercial Bank
Operations

Finance

Marketing

Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security

Investments
Security
Real estate

Loans
Commercial
Industrial
Financial
Personal
Mortgage

2008 Prentice Hall, Inc.

Accounting
Auditing

Trust Department
Figure 1.1(A)
1 16

Organizational Charts
Manufacturing
Operations
Facilities

Construction; maintenance

Production and inventory control

Scheduling; materials control

Quality assurance and control

Supply chain management
Manufacturing
Tooling; fabrication; assembly

Design

Product development and design

Detailed product specifications

Industrial engineering

Efficient use of machines, space,

and personnel

Process analysis

Development and installation of

production tools and equipment

2008 Prentice Hall, Inc.

Finance/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall

Marketing
Sales
promotion
Advertising
Sales
Market
research

Figure 1.1(C)
1 17

OM in Practice
OM has the most diverse organizational
function
Manages the transformation process
All business functions need information from
OM in order to perform their tasks
The major functional areas must interact to
achieve the organization goals

Wiley 2010

18

Operations
Function

Operations
function interacts
with

Sales & Marketing

Finance and
accounting
Human resources
Outside suppliers

Role of Operations
Manager
The job of an operations manager?

Develop & Implement the operations

strategy
Improve
Productivity/efficiency
Cost

Quality

Gain competitive advantage

Manufacturing vs. Service

Operations
Differences
Output
Output consumption
Output Inventoried
Customer contact
Labor Intensity
Quality
Automation

Services
Intangible
Immediate
No
Extensive
High
Subjective
Difficult

Goods
Tangible
Long term
Yes
Little
Low
Objective
Easy

Manufacturing vs. Service

Operations
Both use technology
Both have quality, productivity, & response issues
Both must forecast demand
Both will have capacity, layout, and location issues
Both have customers, suppliers, scheduling and
staffing issues
Manufacturing often provides services
Services often provides tangible goods

Wiley 2010

22

Goods and Services

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

Figure 1.4
2008 Prentice Hall, Inc.

1 23

Manufacturing vs. Service

Operations
In the new world of business, a factory is a
service operation and service is a factory
operation. Intense competition is forcing firms
to provide a better total product (a mix of
goods and services).

What is Productivity?
Defined
Productivity is a common measure on
how well resources are being used. In
the broadest sense, it can be defined
as the following ratio:
Outputs
Inputs
One of the main objectives of operations
management is to improve productivity!

How to Improve Productivity?

One of the main objectives of operations
management is to improve productivity!

Operations in every organization consist of

a large number of micro activities or
micro operations.
Slight improvements in these micro
operations may increase productivity to a
large extent.

Improving Productivity at
Starbucks
A team of 10 analysts
continually look for ways to
shave time. Some
improvements:

Operations improvements have helped

Stop requiring signatures
Saved
seconds
Starbucks increase
yearly8 revenue
per
on credit card purchases
pertotransaction
outlet by $200,000
$940,000 in six
under $25
years.
Productivity
improved
27%, or
Change the size of
the ice has Saved
14by
seconds
about 4.5%
year.
scoop
per per
drink
New espresso machines

Saved 12 seconds
per shot

Partial Measure Productivity

Partial measures of productivity =

Output or Output or Output or Output

Labor

Capital

Materials

Energy

Productivity measures may be different in different

industries and organizations
Retail???

Productivity Calculations
Labor Productivity
Productivity =

Units produced
Labor-hours used
1,000
=
250

= 4 units/labor-hour

One resource input single-factor productivity

Multi-Factor Productivity
Productivity =

Output
Labor + Material + Energy +
Capital + Miscellaneous

Also known as total factor productivity

Multiple resource inputs multi-factor productivity

Example of Productivity
Measurement

You have just determined that your service employees

have used a total of 2400 hours of labor this week to
process 560 insurance forms. Last week the same
crew used only 2000 hours of labor to process 480
forms.

Is productivity increasing or decreasing?

Answer: Last weeks productivity =
480/2000 = 0.24, and this weeks
productivity is = 560/2400 = 0.23. So,
productivity is decreasing slightly.

Example of Productivity
Measurement

John makes wooden boxes in which to ship

motorcycles. John and three other employees invest a
total of 10 hours each per day making 120 boxes
What is their productivity?

120boxes
1.1 (a)
=3.0boxes/hour
40hours

After redesigning the process they are producing 125

boxes with same labor. What is productivity now?
125boxes
(b)
=3.125boxes/hour
40hours

Change in Productivity? = 0.125 boxes/hour

Percent change in productivity?

percentagechange=

0.125boxes
= 4.166%
3.0

Example of Productivity
Measurement
Kleen
Carpets cleaned 65 rugs in October consuming
following resources
Labor

520 hrs at $13 per hr

Solvent

100 gallons at $5 per gallon

Machine rental

20 days at $50 per day

(a) What is the Labor productivity per dollar

65
65
=
(52013)
$6,760
=.0096rugsperlabor$

(a)Laborproductivity=

(b) What is multifactor productivity

Multifactor
65
(b)
65
=
= .00787rugsper$
productivity(520 $13) + (100 $5) + (20 $50)

$8,260

Assignment
Search a case study on productivity in any sector e.g.
retail, banking, manufacturing, mining, education etc.
Describe the measures/metrics of productivity used
and how productivity was increased.