Introduction

Operations management

Syllabus
1. Introduction to Operations Management 2. Product design 3. Process selection 4. Facility decisions - Layout design - Location analysis 5. Capacity planning 6. Aggregate Planning 7. Supply Chain Management 8. Inventory Management 9. MRP, Scheduling 10. Quality Management, JIT

Basic Functions of Business Organizations

Ensure and allocating financial resources

Produce goods or services

Assess consumer needs, and sell / promote goods or services

What is Operations Management?

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

Introduction
Operations management is the management of an organizations productive resources or its production system. A production system takes inputs and converts them into outputs. The conversion process is the predominant activity of a production system. The primary concern of an operations manager is the activities of the conversion process.

Historical Milestones in OM
The Industrial Revolution Post-Civil War Period Scientific Management Human Relations and Behaviorism Operations Research The Service Revolution

The Industrial Revolution

The industrial revolution developed in England in the 1700s. The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories. Adam Smiths The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor. Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers.

The Industrial Revolution

The industrial revolution spread from England to other European countries and to the United Sates. In 1790 an American, Eli Whitney, developed the concept of interchangeable parts. The first great industry in the US was the textile industry. In the 1800s the development of the gasoline engine and electricity further advanced the revolution. By the mid-1800s, the old cottage system of production had been replaced by the factory system.

Post-Civil War Period

During the post-Civil War period great expansion of production capacity occurred. By post-Civil War the following developments set the stage for the great production explosion of the 20th century:
increased capital and production capacity the expanded urban workforce new Western US markets an effective national transportation system

Scientific Management
Frederick Taylor is known as the father of scientific management. His shop system employed these steps:
Each workers skill, strength, and learning ability were determined. Stopwatch studies were conducted to precisely set standard output per worker on each task. Material specifications, work methods, and routing sequences were used to organize the shop. Supervisors were carefully selected and trained. Incentive pay systems were initiated.

Scientific Management
In the 1920s, Ford Motor Companys operation embodied the key elements of scientific management:
standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts

Human Relations and Behavioralism

In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production. Researchers and managers alike were recognizing that psychological and sociological factors affected production. From the work of behavioralists came a gradual change in the way managers thought about and treated workers.

Operations Research
During World War II, enormous quantities of resources (personnel, supplies, equipment, ) had to be deployed. Military operations research (OR) teams were formed to deal with the complexity of the deployment. After the war, operations researchers found their way back to universities, industry, government, and consulting firms. OR helps operations managers make decisions when problems are complex and wrong decisions are costly.

The Service Revolution

The creation of services organizations accelerated sharply after World War II. Today, more than two-thirds of the US workforce is employed in services. About two-thirds of the US GDP is from services. There is a huge trade surplus in services. Investment per office worker now exceeds the investment per factory worker. Thus there is a growing need for service operations management.

The Computer Revolution

Explosive growth of computer and communication technologies Easy access to information and the availability of more information Advances in software applications such as Enterprise Resource Planning (ERP) software Widespread use of email More and more firms becoming involved in EBusiness using the Internet
faster, better decisions over greater distances

Today's Factors Affecting OM

Global Competition Quality, Customer Service, and Cost Challenges Rapid Expansion of Advanced Technologies Continued Growth of the Service Sector Scarcity of Operations Resources Social-Responsibility Issues

Studying Operations Management

Operations as a System Decision Making in OM

Operations as a System
Production System Conversion Subsystem
Control Subsystem

Inputs

Outputs

Inputs of an Operations System

External
Legal, Economic, Social, Technological

Market
Competition, Customer Desires, Product Info.

Primary Resources
Materials, Personnel, Capital, Utilities

Conversion Subsystem
Physical (Manufacturing) Locational Services (Transportation) Exchange Services (Retailing) Storage Services (Warehousing) Other Private Services (Insurance) Government Services (Central and State)

Outputs of an Operations System

Direct
Products Services

Indirect
Waste Pollution Technological Advances

Production as an Organization Function

Companies cannot compete with marketing, finance, accounting, and engineering alone. We focus on OM as we think of global competitiveness, because that is where the vast majority of a firms workers, capital assets, and expenses reside. To succeed, a firm must have a strong operations function teaming with the other organization functions.

Decision Making in OM
Strategic Decisions Operating Decisions Control Decisions

Strategic Decisions
These decisions are of strategic importance and have long-term significance for the organization. Examples include deciding:
the design for a new products production process where to locate a new factory whether to launch a new-product development plan

Operating Decisions
These decisions are necessary if the ongoing production of goods and services is to satisfy market demands and provide profits. Examples include deciding:
how much finished-goods inventory to carry the amount of overtime to use next week the details for purchasing raw material next month

Control Decisions
These decisions concern the day-to-day activities of workers, quality of products and services, production and overhead costs, and machine maintenance. Examples include deciding:
labor cost standards for a new product frequency of preventive maintenance new quality control acceptance criteria

What Controls the Operations System?

Information about the outputs, the conversions, and the inputs is fed back to management. This information is matched with managements expectations When there is a difference, management must take corrective action to maintain control of the system

Goods vs. Services

Output of most Operations a Mixture of Goods and Services

PURE GOODS
CRUDE OIL PRODUCTION

ALUMINIUM SMELTING

SPECIALIST MACHINE TOOL MANUFACTURER

Tangible Can be stored Production precedes consumption Low customer contact Can be transported Quality is evident
MANAGEMENT CONSULTANCY

COMPUTER SYSTEMS SERVICES

RESTAURANT

Intangible Cannot be stored Production and consumption are simultaneous High customer contact Cannot be transported Quality difficult to judge

PSYCHOTHERAPY CLINIC

PURE SERVICES
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Goods Versus Services - 1

Good Service

Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production

Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service

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Goods Versus Services - 2

Good
Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product

Service
Provider, not product is transportable Site of facility important for customer contact Often difficult to automate

Revenue generated primarily from intangible service.

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Operations processes have different characteristics

The Four Vs
Volume of demand
How many the organisation makes Service vs. Mass Production

Variety in operations
The ability to adapt the transformation process to meet needs of the customer Taxi vs. Train

Variation in demand
Adapting to changing demand

Visibility of transformation
How much of the operations functions are visible to the customer Some operations have mixed high/low visibility eg Restaurant Front and Kitchen

Often they are in conflict

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A Typology of Operations
EXAMPLES Electricity generator factory Gourmet restaurant Pioneering surgery Taxi service
Bespoke tailor University tutorials Corporate tax advice Department store Electricity utility Financial audits Emergency service London underground Health care "Cook at your table" restaurant Dentist Music teacher EXAMPLES Television plant Fast food restaurant Routine surgery Mass rapid transport Off-the-peg suit plant University lectures Financial audits Jeans shop Bread bakery Consultancy advice Shopping mall security Trucking operation Most manufacturing Prepackaged sandwich maker Dental technicians Distance learning

Low

VOLUME

High

High

VARIETY

Low

High VARIATION IN DEMAND Low

High

VISIBILITY

Low

The Most Important Conflict Volume vs. Variety

Project Unique Job Batch Unique Made to aspect to order each product Very low to low Very high to high Low to medium Medium to high Mass Continuous Made to stock Commodity

Product

Volume

Very Low

High

Very High

Variety

Infinite

Low

Very Low

Process Types - Products

High

Project
Job Batch

Variety

Mass Continuous Low

Low

Volume

High
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Process Types - Services

High

Professional
Service (e.g shops)

Variety

Mass Services

Low

Low

Volume

High
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Five Performance Objectives

Five Performance Objectives

Quality Speed Dependability Flexibility Cost

The Five Performance Objectives

1. Quality 2. Speed: how long do customers have to wait to receive their products or services 3. Dependability: customers receive their goods and services when promised 4. Flexibility / Adaptability : Greater ability to change operations in some way 5. Cost

The Benefits Of Quality.

What is it ................ ? Getting it right first Time!
Internal Benefits
Reduces Costs. Increases Dependability. Increases Speed. Boosts Moral. Increased Customer Retention Increased Profit.

External Benefits
Customer Gets Correct Product Or Service.

Correct Specifications.
Appropriate Intangibles. Customer Satisfaction. Customer Retention.

The Benefits Of Speed.

What is it ................ ? The Lead Time From Order To Delivery.
Internal Benefits
External Benefits
The Customer Receives Their Order Quickly.

Reduces Inventory. Reduces Risk. Increases Response Rate. Reduces Cost. Increases Dependability.

The Availability Of Goods Is High.

Enhances Offering To Customer. Increases Likelihood of Purchase. Increases Satisfaction. Increases Profit.

The Benefits Of Dependability.

What is it ................ ?
Delivering The Customers Orders When They Wanted Them!
Internal Benefits
Saves Time With Reliable Planning. Saves Money Because Can Plan For Least Cost. Gives Stability To Planned Schedule. Reduces Buffer Stock. Reduces Rushed Poor Quality.

External Benefits
The Customer Receives Their Order When Wanted. The Availability and Utilisation Of Goods Is High. Increases Satisfaction.

Increases Profit.

The Internal Benefits Of Flexibility.

What is it ................ ?
Changing What The Operation Does, How and When It Does It.
Internal Benefits External Benefits
Increases The Range Of Products and Services Available. Allows A Varying Mix Of Products. Can Alter The Volume Of Products delivered. Can Vary the Delivery Schedule. Better Meets Customer Requirements.

Increases Speed Of Response. Saves Time. Maintains Dependability.

The operations function can provide a competitive advantage through its performance at the five competitive objectives

Quality

Being RIGHT

Speed

Being FAST

Dependability

Being ON TIME

Flexibility

Being ABLE TO CHANGE

Cost

Being PRODUCTIVE

The benefits of excelling

Minimum price, highest value

Cost
Quick delivery Speed Minimum cost, maximum value Fast throughput Error-free processes Quality Error-free products and services Reliable operation Ability to change Flexibility Frequent new products, maximum choice Dependability Dependable delivery

Polar Diagrams.
Cost

Speed

Dependability

Quality

Flexibility