OPM - Topic 1 - Introduction About OPM

Topic 1 Introduction to Operations & Production Management
© Dr. Muhammad Wasif
Operations &
Production Management
(OPM)
Dr. Muhammad Wasif
Visiting Faculty, IBA.
Section 1.1
Introduction to Operations &

Production Management
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Topic 1 Introduction to Operations & Production Management © Dr. Muhammad Wasif
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What are Goods ?
 Something Tangible
 Consistent product definition
 Production usually separate
from consumption
 Low customer interaction
 Often procedure based
 Can be inventoried
Topic 1 Introduction to Operations & Production Management © Dr. Muhammad Wasif www 3
What are Services ?
 Intangible product
 Often unique, Inconsistent
product definition
 Produced and consumed
at same time
 High customer interaction
 Often knowledge-based
 Frequently dispersed
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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
Goods and Services
Goods Services
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Commonalities: Products & Services

 Entail customer satisfaction as a key
measure of effectiveness
 Require demand forecasting
 Require design of both the product and the
process
 Involve purchase of materials, supplies, and
services
 Require resource planning, such as;
equipment, tools, buildings, and skills, etc.
What is Production ?
 Creating goods and services
Raw Goods &

Production
Material Services
 Examples are;
 Mcdonald’s used to provide take away meals.
 K-Electric generating and supplying electricity
 Automobile industry manufacturing cars.
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What are Operations ?

 Creates value in the form of goods and services by transforming
inputs into outputs.
Raw Material Goods +

+ services + Operations Services +
information
Information
 Examples are;
 Now Mcdonald’s provide take away and accommodating dine in service.
 K-Electric generating and supplying electricity with enhanced customer care
and better monitoring and control of their transmission.
 Automobile industry manufacturing cars and delivering enhanced after-sales
and buying services to the customers.
Essential Functions
Materials &
Services Inputs
Finance
Operations Acquires financial
Translates materials resources and capital
And services into Support Functions for inputs
outputs • Accounting
• Information Systems
• Human Resources
• Engineering
Product &
Service Sales Revenue
Outputs
Marketing
Generates sales
of outputs
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Ten Decision Areas

1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply chain management
8. Inventory management
9. Scheduling
10. Maintenance
Section 1.2
Organizational Processes &

Productivity
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Process View External environment
Internal &
External
 Process view is important Customer
rather than department view.
 A process can have its own set Inputs Processes and
of objectives, involve a work • Workers Operations
• Managers Outputs
flow that cuts across • Equipment 1 3
departmental boundaries, and • Facilities 5 • Goods
• Materials 2 4 • Services
require resources from several • Land
departments. • Energy
 Such as; passenger Information

transportation, manufacturing on
performance
a car etc.
Process View
 To produce the good, manufacturing processes are
possessed.
 To produce the services, services processes are executed.
 Key difference between the two are due to;
(1) the nature of their output and
(2) the degree of customer contact.
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Productivity
 Productivity is a basic measure of performance for economies,
industries, firms, and processes.
 It is the measure of outputs (goods and services) gained with
respect to the inputs (labor, capital, material etc.) consumed.
 Productivity is the measure of how specified resources are
managed to accomplish timely objectives as stated in terms of
quantity and quality.
 Efficiency is the measure of tangible output relative to tangible
input, whereas productivity is of both tangible and in-tangible.
Productivity
OPM
Inputs
Outputs
Products
Services
Feedback to control process

inputs or process technology
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Productivity in Manufacturing & Service

Starbuck: A team of 10 analysts
continually look for ways to shave
time. Some improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
Productivity has improved by 27%, or about 4.5% per year.
Productivity in Manufacturing & Service

 A manager at an insurance firm might measure office productivity as the
number of insurance policies processed per employee per week.
 A manager at a carpet company might measure the productivity of
installers as the number of square yards of carpet installed per hour.
 A manager at beverage company can measure productivity of a capping
machine by measuring number of capped bottles with the invested capital
on the machine.
 A manager can measure the number of part produced with the electricity
consumed by the machine.
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Single-factor Productivity
 Labor-hour is the common measure of input;

 Manufacturing output is easier to quantify.

. .
 For example 1000 units are produced by 250 labor-hr

(25workers and 10 hours)
1000
4 .
250
Productivity Factors
 Units of output per labor hour
Labor
 Units of output per shift
Productivity
 Value-added per labor hour
 Units of output per machine hour
Machine
 Units of output per machine
Productivity
depreciation.
 Units of output per dollar input
Capital
 Dollar value of output per dollar
Productivity
input
 Units of output per kilowatt-hour
Energy
 Dollar value of output per kilowatt-
Productivity
hour
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Multi-factor Productivity
 Also known as total factor productivity

 Output and inputs are often expressed in dollars
 KLEMS represents all production inputs: K is capital services;

L is labor services; E, energy; M, materials; and S refers to
purchased services
 Use of productivity measures aids managers in determining
how well they are doing.
Multi-factor Productivity
Example: (labor and materials productivity):
 200 units produced that sell for $12.00 each
 Materials cost $6.50 per unit
 40 hours of labor were required at $10 an hour
200 $12
1.41
200 $6.5 40 $10
 Is the productivity measure of 1.41 in the previous example good or bad?

 Can’t tell without a reference point
 Compare to previous measures (e.g.: last week) or to another benchmark
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Relative Productivity
 Can be used to compare a process’s productivity at a given time
(P2) to the same process’ productivity at an earlier time (P1)
 Last week a company produced 150 units using 200 hours of labor.
This week, the same company produced 180 units using 250 hours
of labor
150
0.75
200 0.71 0.75
0.053
180 0.75
0.71
250
Measurement Problems
 Quality may change while the quantity of inputs and outputs

remains constant (increasing quality compliances may
decrease the productivity).
 External elements may cause an increase or decrease in

productivity (political situation, poor transpiration, law and
order situation etc.)
 Precise units of measure may be lacking
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Productivity Variables
 Labor - contributes about 10% of the

annual increase
 Capital - contributes about 38% of the

annual increase
 Management - contributes about 52% of

the annual increase
Service Productivity
 Typically labor intensive
 Frequently focused on unique individual

attributes or desires
 Often an intellectual task performed by

professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
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 Customer-centric: Customized Services.
such as; Plastic surgery, personal
Customer Knowledge
cruise, construction etc.
High
centric centric
Contact Intensity
service service
 Knowledge-centric: Customer does
not/cannot provide process inputs. such Process Flexibility
Low
as; Medical, Teaching, legal, centric centric
consultations etc. service services
 Process-centric: Customer has to Low High

follow process but have little options
of output. Such as Mobile service, Complexity of service
banking etc.
 Flexibility-centric: Too flexible to
choose output. Such as stores, e-shops.
 Productivity is determined by all not directly quantifiable

factors that manifest in employee and customer satisfaction,
strongly based on;
 the quality of customer-employee interaction and relationship,
 covering the resource,
 process,
 customer and outcome dimension of service delivery.
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Service Productivity Exists in case of

welfare service
Ref: Measuring State and Local, Government Labor Productivity. U.S. Department of Labor,
Bureau of Labor Statistics
Ref 5
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Ref 5
Section 1.3
Corporate & Operations Strategies
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 Action plan to maintain mission and achieve vision.
 Corporate strategy provides an overall direction that

serves as the framework for carrying out all the
organization’s functions.
 Specifies the means by which operations implements corporate
strategy and helps to build a customer-driven firm.
 Links long-term and short-term operations decisions
 to corporate strategy and develops the capabilities the firm

needs to be competitive.
Developing Missions and Strategies

Vision
 Vision : What organization want to be.
 Mission : The reason for existence for an Mission
organization Goals
 Goals : Provide detail and Organizational Strategies
scope of mission Functional Goals
 The Strategy tells the Finance

Strategies
Marketing
Strategies
Operations
Strategies
organization how to get
there Tactics Tactics Tactics
Operating Operating Operating

procedures procedures procedures
 Tactics : The methods and actions taken to accomplish strategies
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process of identifying
groups of customers to
Corporate and Operations
address their needs
are the critical operational
dimensions a process or
supply chain must possess to
satisfy customers
Strategies
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Corporate & Operations

Strategies
Reasons to Globalize
 Reduce costs : Foreign locations with lower wage rates can
lower direct and indirect costs. E.g. Dell production in
Maxico, Apple’s in China, CAREPILLAR in Bangalore, India etc.
 Improve supply chain : Locating facilities closer to unique
resources. E.g. Bio-fuels in brazil, Pakistan and India, Adidas
production in China, perfume manufacturing in France.
 Provide Better Goods and Services : Objective and
subjective characteristics of goods and services. E.g. Gerry's
dnata stations for on-time deliveries, Gourmet food for
quality foods, Standard Chartered bank for its unique and
new services.
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Reasons to Globalize
 Understand Markets : Interacting with foreign customers

and suppliers can lead to new opportunities. E.g. Cell
phones designed in Europe, motherboards are produced in
Japan but production in China,
 Learn to Improve Operations : Remain open to the free
flow of ideas. E.g. General Motors partnered with a
Japanese auto manufacturer to learn Lean Manufacturing.
 Attract and Retain Global Talent : Offer better employment
opportunities. E.g. LRQA rotates people from Pakistan to
dubai and other places.
References
1. Operations Management, 11th Ed., by J. Heizer & B.
Render
2. Productivity Improvement in Manufacturing SMEs,
Thomos Munyoi,Boysono Mbonyone, Chorles Mbohwo,
CRC Press, 2018.
3. Operations Management, 7th Ed., N. Slack, A.B. Jones,
R. Johnston.
4. Cases in Operations Management, S. Chambers, C.
Harland, A. Harison, N. Slack.
5. Methodology for the Analysis and Optimization of Service
Productivity considering qualitative Factors, Fraunhofer,
University of Stuttgart.
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Topic 1 Introduction to Operations & Production Management

Introduction to Operations &

What are Goods ?

What are Services ?

Goods and Services

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

Goods and Services

Commonalities: Products & Services

Raw Goods &

What are Operations ?

Raw Material Goods +

Ten Decision Areas

Organizational Processes &

Topic 1 Introduction to Operations & Production Management © Dr. Muhammad Wasif

Process View External environment

 Such as; passenger Information

Feedback to control process

Productivity in Manufacturing & Service

Productivity has improved by 27%, or about 4.5% per year.

Productivity in Manufacturing & Service

 Labor-hour is the common measure of input;

 For example 1000 units are produced by 250 labor-hr

 Also known as total factor productivity

 KLEMS represents all production inputs: K is capital services;

 Is the productivity measure of 1.41 in the previous example good or bad?

 Quality may change while the quantity of inputs and outputs

 External elements may cause an increase or decrease in

 Precise units of measure may be lacking

 Labor - contributes about 10% of the

 Capital - contributes about 38% of the

 Management - contributes about 52% of

 Typically labor intensive

 Frequently focused on unique individual

 Often an intellectual task performed by

 Often difficult to mechanize

 Often difficult to evaluate for quality

 Process-centric: Customer has to Low High

 Productivity is determined by all not directly quantifiable

 the quality of customer-employee interaction and relationship,

 covering the resource,

 customer and outcome dimension of service delivery.

Service Productivity Exists in case of

Corporate & Operations Strategies

Topic 1 Introduction to Operations & Production Management © Dr. Muhammad Wasif

Corporate & Operations Strategies

 Action plan to maintain mission and achieve vision.

 Corporate strategy provides an overall direction that

 Links long-term and short-term operations decisions

 to corporate strategy and develops the capabilities the firm

Developing Missions and Strategies

 Goals : Provide detail and Organizational Strategies

scope of mission Functional Goals

 The Strategy tells the Finance

Operating Operating Operating

 Tactics : The methods and actions taken to accomplish strategies

Corporate & Operations Strategies

Corporate & Operations

 Understand Markets : Interacting with foreign customers

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