Production

&
Operations Management
MGT-362

1
 Production & Operations
Management
Dr. Muhammad Imran Malik

 Quizzes, Assignments/Presentations = 25 marks

 Exam 1 = 10 marks
 Exam 2 = 15 marks
 Final term exam = 50 marks
 Total = 100 marks

2
Operations Management - Books
 Operations Management by Roberta S. Rusell & Bernard
W. Taylor III

 Operations Management by Dan Reid & Nada R. Sanders

 APA Referencing for
Assignments
APA reference for a book

APA reference for a research paper

© Wiley 2010 4
 Reference of a book
Kumar, R. (2005). Research Methodology: A step-by-step guide
for beginners, (2nd ed.). Sage publications. New Delhi.

5
 Reference of a Research Paper
Khan, S.R., Long, C.S., & Iqbal, S.M.J. (2014). Leadership Competency: A Tool
for Project Success. Middle-East Journal of Scientific Research, 19 (10),
1280-1283.

6
Lecture 1
 Introduction to
Operations Management
Sequence
1. Definition
2. What are operations?
3. Operations as transformation process
4. Major functions of operations manager
5. Skills possessed by an operation
manager

9
 Operations Management

The business function responsible for

planning, coordinating, and controlling
the resources needed to produce products
and services for a company
Few terms
 Planning:
 The process of setting goals, developing strategies, and
outlining tasks and schedules to accomplish the goals.
 Defining goals, establishing strategies to achieve goals,
developing plans to integrate and coordinate activities.
 Coordinating:
 The synchronization and integration of activities,
responsibilities and command to achieve organizational
goals.
Few terms
 Controlling:
 Minimizing the discrepancy between the actual
and desired state of affairs (performance).
 Monitoring, comparing, and correcting mistakes in
work.
What are operations?
© Wiley 2010 14
Operations at a Hospital
 Preparing rooms
 Scheduling doctors and nurses
 Processing paper work
 Ordering supplies
 Preparing for patients
 Dealing with patients
 Maintaining the facility
 Laying out the facility etc.
Operations at Bank
 Transferring funds
 Processing funds
 Providing cheques
 Cashing cheques
 Preparing monthly statements
 Approving credit cards etc.
Operations at a Retail Store
 Purchasing goods
 Stocking goods
 Selling goods
 Keeping track of inventory
 Laying out the store
 Locating the store
 Forecasting demand etc.
Operations at Cable TV Company
 Taking orders
 Installing equipment
 Maintaining equipment
 Keeping shows “on air”
 Scheduling work etc.
 Differentiating
Operation,
Transformation and
Operations Management
 Operations,
Transformation and OM

 What is Operation?
 a function or system that transforms inputs into outputs
of greater value
 What is a Transformation Process?
 a series of activities along a value chain extending from
supplier to customer
 activities that do not add value are superfluous
(unnecessary) and should be eliminated
 What is Operations Management?
 design, operation, and improvement of productive
systems – looking at tools and materials and procedures
to do work.

1-20
 Operations as a
transformation process
 The Transformation Process

INPUT
Material

Machines

Labor

Management

Capital
 The Transformation Process

INPUT
Material

Machines  TRANSFORMATION
Labor PROCESS

Management

Capital
 The Transformation Process

INPUT
Material
OUTPUT
Machines  TRANSFORMATION
Goods
Labor PROCESS
Services
Management

Capital
 The Transformation Process

INPUT
Material
OUTPUT
Machines  TRANSFORMATION
Goods
Labor PROCESS
Services
Management

Capital

 Feedback
Major functions of Operations
Manager
 Operations Manager Deals
with…….???
 Organizing work
 Selecting processes
 Arranging layouts
 Locating facilities
 Designing jobs
 Measuring performance
 Controlling quality
 Scheduling work
 Managing inventory
 Planning production
Organizing work
 To put the activities into a systematic
manner to complete a task, that
ultimately leads to achievement of
organizational goals.
 Activities --> task --> job (PMBOK®)
Selecting processes
 Processes can vary by considering two criteria
that are “volume” and “Standardization”.
 There are alternative design solutions for cost
and quality.
 Project
 Jobbing
 Batching
 Mass
 Continuous
Terms to Clear
 Volume = quantity
 Customization = as per customer preferences
 Standardization = as per manufacturer preferences

Low at standardization means high

customization and vice versa

Low variety means high standardization

and vice versa

30
Product-Process Matrix
 Selecting processes (Continued)

 Project
 A project (process) is used to make a one-off product to a customer
specification. A feature of a project (as a process) is that the location
of the product is stationary. Examples of project include building
construction, movie film production, custom-built furniture.

 Jobbing (make to order)

 Jobbing processes are used to make a one-off, or low volume,
product to a customer specification. The product moves to the
location of transforming resources such as equipment, raw material.
Examples of the use of a jobbing process include tailors.
 Selecting processes (Continued)

 Batch
 Batch processes cover a relatively wide range of volume and variety
combinations. Products are grouped into batches whose batch size
can range from two to 100s. Examples of the use of a batch process
include vehicle component assembly and clothing manufacture.
 Mass
 A mass or line process produces products of high volume and low
variety. The process of production will essentially be the same for all
the products and so it is cost effective to use specialized labor and
equipment. Examples of the use of a mass process include assembly
of consumer durables such as televisions.
 Selecting processes (Continued)

 Continuous
 A continuous process operates continually to produce a very high
volume of a standard product. The products produced by a
continuous operation are usually as a continuous flow, rather than in
discrete items, such as oil and gas. Examples of a continuous
process include oil refining, electricity production and steel making.
Standardization vs.
Customization

© Wiley 2010 35
Arranging layouts
 Process layout
 Product layout
 Fixed position layout
 Customer oriented layout
 Basic layouts
 Process layouts (job shop) (make to order)
 group similar activities together
according to process or function they
perform (all types of operations are
performed by a single person)
 Product layouts (an assembly line)
 arrange activities in line according to
sequence of operations for a particular
product or service (different persons
perform different operations)
 Fixed-position layouts
 are used for projects in which product
cannot be moved
• Process layout groups machinery and equipment according to
their functions.

• A dedicated area is assigned for a specific function (e.g. a

cafeteria in a university, French fries are available at separate
place, bread is available at different place but to make a burger
one person has to perform different tasks.)

• Different activities are performed by single person in a

controlled area.
Examples of process layout
 Products
 Preparation of McDonalds Burger
 Preparation of French fries at KFC
 Services
 Laundry
 Opening an account at a bank
 An admission at university
• Product layout sets up production equipment along a
product-flow line, and the work in process moves
along this line past workstations.
• Efficiently produces large numbers of similar items.
(standardized product in large volume)
• Specific activities are performed by different people at
different work stations
Examples of product lay out
 Products
 Toyota producing cars

 Services
 Preparation of Passports/CNIC
• A fixed-position layout places the product in one spot, and
workers, materials, and equipment come to it.
Examples of fixed position lay
out
 Products
 “Terbela Dam” project
 Airbus producing plane

 Services????
 All customized services
• Customer-oriented layout arranges facilities to enhance the interactions
between customers and a service.
Factors to consider while
Locating facilities
 Transportation
 Proximity to raw materials (suppliers)
 Proximity to markets (distributors and customers)
 Availability of transportation alternatives
 Physical factors
 Water supply
 Energy
 Hazardous wastes
 Human factors
 Labor supply
 Living conditions (social classes)
Designing jobs
 Work arrangement (or rearrangement) aimed at reducing or
overcoming job dissatisfaction and employee alienation
(to be a stranger) arising from repetitive
and mechanistic tasks.

 Job enrichment
 Job enlargement
 Job rotation etc.
Measuring performance
 Measuring input to output ratio
 Hours worked system
 Units produced system
 Labor productivity
 Machine productivity etc.
Controlling quality
 TQM
 Six sigma
 Business Process Reengineering
• International Organization for Standardization (ISO) -
mission is to promote the development of standardized products
to facilitate trade and cooperation across national borders.
• ISO 9000 series of standards sets requirements for quality
processes.
• ISO 14000 series also sets standards for operations that
minimize harm to the environment.
Scheduling work
 Daily schedules
 Weekly schedules
 Monthly schedules
 Scheduling to meet deadlines
 Peak season vs. off season
 Techniques used
 Gantt chart etc.
 CPM
 PERT
Managing Inventory
 Perpetual inventory system
 Periodic inventory system
 Just in time inventory system
 Vendors managed inventory
 Inventory
 Any stored resource used to satisfy a
current or future need (raw materials,
work-in-process, finished goods, etc.)
 Excessive inventory levels are costly
 Insufficient inventory levels lead to
stockouts
 Vendor Managed Inventory
(VMI)

 In a traditional supply chain, retailer would decide

when and how much to order/buy from manufacturer.
 Under VMI, the supplier decides (instead of the
retailer) on when and how much to replenish.
 The retailer and the supplier mutually agree on an
objective that the supplier will use to guide
replenishment decisions.
 The retailer shares point-of-sales data with the supplier.
Planning production
 A glance at all the steps involved in the
production process.
 Mass production
 Flexible production
 Customer-driven production
 Mass Production – manufacturing products in large
amounts through standardization, mechanization and
specialized skills. (fuel, cloth)
 Flexible Production – producing smaller batches using
information technology, communication and cooperation.
(Toyota, shoes, clothes etc.)
 Customer-Driven Production – evaluating customer
demands to link with manufacturer. (Projects/Dell).
 Production control creates a well-defined
set of procedures for coordinating
people, materials, and machinery.
Lecture 3
Skills Possessed by Operations
Manager
 Skills possessed by an
operations manager
 Conceptual – what to produce?
 Innovation, direction oriented, broad vision etc.
 Problem solving
 Decision making

 Technical - how to produce?

 Knowledge about machinery, systems, processes etc.
 Usage of machine
 Maintenance of machine

 Behavioral - by whom to produce?

 Motivation, leadership, social support, mentoring, etc.
 Theory X and Theory Y.
 Controlling behavior, motivating them, retaining them etc.
OM’s 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
 Assignment/Presentation No.1
Group 1

 How companies manage their business

in the e- business environment?
 It must cover
 Forms of e-business
 Forms of e-business used in Pakistan
 Impact of e-business on operations
management of businesses operating
across globe.
 Assignment/Presentation No.1
group 2
 Historical development of Operations
Management.
 State the era and developments in that
era.
 What management concepts were used in
that era.
 Assignment and Presentation
Group 3
 Globalization and Operation
Management

© Wiley 2010 64
 Assignment/presentation
due date = February, 2016
Assignment Guidelines
1. Written assignment be submitted individually.
2. Assignment must comprise of at-least 2-3 pages covering all the aspects.
3. Assignment must be typed and printed, written in your own words.
4. Title page must contain – title, assignment number, logo, name of student, Reg.
number, due date of assignment and name of institution.
5. Proper references using APA style for the material used must be provided at the
end of the assignment.
6. Plagiarism will be checked for each assignment submitted.
7. Plagiarism is allowed up to 19% (in case of direct quotations).
8. Assignments exceeding Plagiarism will be marked “zero”.
9. Assignments must be submitted before presentation.
10. Use times new roman 14 font for title page and 12 font for body of the text.
11. Late submission of assignments will be marked “zero”.
12. Assignment must be submitted in soft and hard form.
13. There is no concept of re-assignment, re-presentation and re-quiz”.
Presentation guidelines
1. Presentation will be marked individually.
2. Students are supposed to speak in English
3. Every individual student is required to present for
at-least “seven minutes”.
4. Prepare proper slides including explanation points
and examples.
5. Pictures and videos may be added keeping in
view the time limit.
6. Failing to present in the allowed time will result in
cancellation of assignment and presentation and
will bring no marks to students.
Can we see transformation in
every field of life?
 Example Primary Inputs Transformation Outputs
Computer factory Hard drives, Assemble Desktop or laptop
computer memory, components to meet computer
computer chips, customer order
keyboard, cases,
power supply, DVD
drives etc.
Trucking firm

Departmental store

Automobile body
shop

Police department
69
 Example Primary Inputs Transformation Outputs
Computer factory Hard drives, Assemble Desktop or laptop
computer memory, components to meet computer
computer chips, customer order
keyboard, cases,
power supply, DVD
drives etc.
Trucking firm Trucks, personnel, Packages and Delivered goods
building,, fuel, transport goods
packing supplies etc. from sources to
destinations
Departmental store Buildings, Attract customers, Merchandize sold
merchandize, stores goods, sells
scanners, racks, products.
personnel, utilities

Automobile body Damaged autos, Transforms Repared auto mobile

shop paints supplies, demaged auto bodies
machines, tools bodies into
buildings, personnel. facsimilies of the
original
Police department
70 Personnel, police, Detect crimes and Lower crime rates
equipment, brings criminals to and peaceful
Transformation Process –
At a glance

© Wiley 2010 71
Transformation Process Bifurcation

 Physical: as in manufacturing operations

 Locational: as in transportation operations
 Exchange: as in retail operations
 Physiological: as in health care (normal
functioning of a human body)

 Psychological: as in entertainment (mental

processes and behavior)

 Informational: as in communication
 Products & Services

 Products  Services
 Tangible product  Intangible service
 Product can be  Service cannot be
inventoried inventoried
 Low customer contact  High customer contact
 Longer response time  Short response time
 Capital intensive  Labor intensive
 Common Operations
Strategies used for Products
and Services
 On the other hand…
 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
 Hybrid organizations
 These organizations are a blend of
service and manufacturing/products.
 Also known as Quasi - Manufacturing
(QM) organizations.
Operations Management and
Decision Making
Operations Management Decisions
 All organizations make decisions and follow a
similar path
 Strategic and tactical decisions
 Strategic Decisions – set the direction for the entire
company; they are broad in scope and long-term in
nature.
 Tactical decisions: focus on specific day-to-day issues
like resource needs, schedules, & quantities to produce
OM Decisions
 Good Morning
September 19, 2016
Production and Operations Management

© Wiley 2010 80
Operations Management in
the Current Era

81
Today’s OM Environment
 Customers demand better quality, greater
speed, and lower costs
 Recognized need to better manage
information using ERP and CRM systems
 Increased cross-functional decision making
 Globalization
 National business
 International business
 Trans-national business
 Global business

It can take the form of purchasing from foreign suppliers,

producing in foreign lands, selling in foreign markets, and/or
partnering with foreign firms.
 Risks of Globalization
 Cultural differences
 Supply chain logistics
 Safety, security, and
stability
 Quality problems
 Corporate image
 Loss of capabilities
Lecture 4
Competitiveness and
productivity
 Competitiveness and
Productivity
 Competitiveness
 How effectively a company competes in the
national/global marketplace?
 Competitiveness brings better quality of life for
employees and general society.
 Productivity
 ratio of output to input
 Output
 sales made, products produced, customers
served, meals delivered, or calls answered
 Input
 labor hours, investment in equipment, material
usage, or square footage
Productivity
 Single factor productivity (partial productivity)
 Multi-factor productivity
 Total factor productivity
Productivity

Measures of Productivity
 Measuring Productivity
 Productivity is a measure of how efficiently inputs are converted to
outputs.
Productivity = output/input

 Total Productivity Measure.

Total Productivity = (total output)/(total of all inputs)

 Partial/single factor Productivity Measure

Partial Productivity = (total output)/(single input)

 Multifactor Productivity Measure.

Multi-factor Productivity = (total output)/(several inputs)
Single Factor Productivity

© Wiley 2010
 Some Single Factor Measurements

•Labor Productivity
– Quantity (or value) of output / labor hrs
– Quantity (or value) of output / shift

• Machine Productivity
– Quantity (or value) of output / machine hrs
• Energy Productivity
– Quantity (or value of output) / kwh
• Capital Productivity
– Quantity (or value) of output / value of input
 Examples of Partial Productivity
Measures

Labor Productivity Units of output per worker

Units of output per labor hour

Units of output per shift

Machine Productivity
 Units of output per machine hour

Capital Productivity
Units of output per money input
Money value of output per money input

Energy Productivity
Units of output per kilowatt-hour
Money value of output per kilowatt-hour
 Formulae

Single-factor Output Output Output Output

measures Labor Machine Capital Energy
 Example 1 – Single Factor
Productivity

 Units produced = 10,000 units

 Labor hours used = 500 hrs

Find out the labor productivity per hour

used.
 Example 1 – Single Factor
Productivity

 Units produced = 10,000 units

 Labor hours used = 500 hrs

SOLUTION
Labor productivity = Units produced/labor hours used
= 10,000 units/500 hrs
= 20 units per hour.
 Example 2 – Single Factor
Productivity

 Units produced = 10,000 units

 Labor hours used = 500 hrs
 Units sold for $ 10/unit

Find out the labor productivity per

hour.
 Example 2 – Single Factor
Productivity

 Units produced = 10,000 units

 Labor hours used = 500 hrs

 Units sold for $ 10/unit

SOLUTION
Labor productivity = Units produced x rate per unit sold
/labor hours used
= 10,000 units x $10 per unit/500 hrs
= $200 per hour.
 Example 3 – Single Factor
Productivity

 Units produced = 10,000 units

 Labor hours used = 500 hrs
 Labor rate = $9/hr

Find out unit produced per dollar

 Example 3 – Single Factor
Productivity

 Units produced = 10,000 units

 Labor hours used = 500 hrs

 Labor rate = $9/hr

SOLUTION
Labor productivity = Units produced/labor hours used x
labor rate per hour
= 10,000 units/500 hrs x $9 per hour
= 2.2 units per $
 Example 4 - Partial Productivity

Saman Furniture has hired 02 workers to paint chairs.

Together they have painted 10 chairs in 4 hours.
What is labor productivity for the pair?

Find out the labor productivity (chairs)

per labor hour
 Example 4 - Partial Productivity

Saman Furniture has hired 02 workers to paint chairs.

Together they have painted 10 chairs in 4 hours.
What is labor productivity for the pair?

 Labor productivity = output/labor

Labor productivity = chairs painted/ labors x
hours used).

= (10 chairs)/(02 x 4 hr)

= (10 chairs)/(8 hr) or 1.25 chairs/hr
 Total Productivity (All factor
Productivity)

It is the ratio of units produced divided by

the inputs used together.
 Formula
 AFP = Output/all inputs
 Example – Total Factor Productivity

Units produced = 10,000 Units

Units Sold for $10/unit
Labor hours used for production = 500 labor hours
Labor rate = $9/hr
Cost of raw material = $30,000
Overhead = $15,500

Find out the total factor productivity

 Example – Total Factor Productivity
 Output
AFP =
Labor + Materials + Overhead

 (10,000 units) * ($10)

AFP =
 (500)*($9) + ($30,000) + ($15,500)

 AFP = 2.0
 Total Productivity: example
Saman Furniture makes kitchen chairs. The weekly
dollar value of its output, including finished goods
and work-in-process, is $14,280. The value of inputs
(labor, materials, capital) is approximately $16,528.
What is the total productivity measure (%) for Saman
Furniture?
 Total productivity = output/input
 = $14,280/$16,528 = .864 or 86.4%
 Multifactor Productivity: example

Saman Furniture averages 35 chairs/day. Labor costs

average $480, material costs are typically $200, and
overhead cost is $250. Saman sells 35 chairs to a
retailer for $70/unit. Find multifactor productivity.
Multifactor productivity = (value of output)/(labor +
material + overhead costs)

= ($70/chair x 35 chairs)/(480+200+250)
 = ($2450)/($930) or 2.63 chairs/hr
 Interpreting Productivity
Measures
 Productivity measures must be
compared to something, i.e. another
year, a different company etc. to know
the productivity of a manufacturing
concern.
 Exercise
 Determine the productivity for the following
data
 Four workers installed 720 sq yards of carpet in
eight hours.

Requirement
Find out the yards per hour carpet installation.
 Solution
 Formula

 Productivity = yards of carpet installed ÷ labor hours worked

 Productivity = 720 sq yards / (4 workers x 8 hrs)

 Productivity = = 22.5 yards per hour

 Exercise
 Keeping in view the previous example,
a new worker joins the group. The next
job (900 yards) is done in 9.5 hour.
What is the new productivity, and what
is the productivity change?
 Solution
 Productivity = yards of carpet installed ÷ labor hours worked
 900 yards / (5 workers x 9.5 hrs)

 = 18.9 yards per hour

 Calculating Percentage
Change in Productivity
Formula

New – Old
Old

Converting to percentage and Multiply the

result with 100
 Solution
 Productivity = yards of carpet installed ÷ labor hours worked
 900 yards / (5 workers x 9.5 hrs)
= 18.9 yards per hour
Measuring Change
 New productivity – previous productivity ÷ previous productivity

 18.9 - 22.5 = -3.6 yards/hr

 -3.6/22.5 = - 0.16 yards/hr
 Converting to percentage = 100 x (- 0.16)
 16 percent lesser than the previous hour.
 Example - Productivity Change
 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.
 Which productivity measure should be used?
 Answer: Could be classified as a Partial Measure.
 Is productivity increasing or decreasing?
 Answer: Last week’s productivity = 480/2000 = 0.24
 This week’s productivity is = 560/2400 = 0.23.
 So, productivity has decreased slightly.
 Change in productivity = (0.23 – 0.24)/0.24 x 100 = ?
 Exercise
 A machine produced 68 usable pieces in
two hours.
 Calculate pieces produced per hour by a
machine.
 Solution
 Formula

 Productivity = units produced ÷ hours consumed for production

 Productivity = 68 pieces / 02 hours

 Productivity = 34 pieces per hour.
 Productivity Measure
Example
Determine the multifactor productivity for the
combined input using the following data:

Output;
1760 units
Input;
Labor $1000,
Material $520,
Overhead $2000.
Requirement;
Find out output per dollar
 Productivity Measure
Example - Solution
Output: 1760 units
Input: Labor $1000, Material $520, Overhead $2000.

Multifactor Productivity

Output
Labor + Material + Overhead

1760 units = 0.50 units/dollar

$1000 + $520 + $2000
Lecture 5
 Operations–Oriented
Barriers to Entry

 Economies of Scale
 Capital Investment
 Access to Supply and Distribution
Channels
 Learning Curve

1-121
 Evolution of Operations
Management

 Craft production
 process of handcrafting products or
services for individual customers
 Division of labor
 dividing a job into a series of small tasks
each performed by a different worker
 Interchangeable parts
 standardization of parts initially as
replacement parts; enabled mass
production

1-122
 Evolution of Operations
Management (cont.)

 Scientific management
 systematic analysis of work methods
 Mass production
 high-volume production of a standardized
product for a mass market
 Lean production
 adaptation of mass production that prizes
quality and flexibility

1-123
 Historical Events in
Operations Management

Era Events/Concepts Dates Originator

Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford

1-124
 Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operations Operations research
line theory, decision 1950s
Research groups
theory, PERT/CPM
1960s, Joseph Orlicky, IBM
MRP, EDI, EFT, CIM
1970s and others
1-125
 Historical Events in Operations
Management (cont.)

Era Events/Concepts Dates Originator

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran
Quality
Strategy and Wickham Skinner,
Revolution 1990s
operations Robert Hayes
Business process Michael Hammer,
1990s
reengineering James Champy

1-126
 Historical Events in Operations
Management (cont.)
Era Events/Concepts Dates Originator
Globalization WTO, European Union, 1990s Numerous countries
and other trade 2000s and companies
agreements
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain Berners-Lee SAP,
management i2 Technologies,
ORACLE,
PeopleSoft
E-commerce 2000s Amazon, Yahoo,
eBay, and others

1-127
 Historical Development of OM
 Craft production 1700s
 Industrial revolution Late 1700s
 Scientific management (Model – T) Early 1900s
 Human relations movement 1930s-
 Management science 1940s-
 Computer age 1960s-
 Environmental Issues 1970s-
 JIT & TQM* 1980s-

*JIT= Just in Time, TQM= Total Quality Management

 Historical Development con’t
 Reengineering 1990-
 Global competition 1980-
 Flexibility – Lean production 1990-
 Time-Based Competition 1990-
 Supply Chain Management 1990-
 Electronic Commerce 2000-
 Outsourcing & flattening of world 2000-
For long-run success, companies must place much importance on their
operations
History of Operations Management
 Industrial revolution: The rapid development of industry in
Britain that was brought about by the introduction of
machinery.
 Scientific Management: A theory of management that suggested
that work flows with the objective of improving labor
productivity (improving work efficiency).
 Human relations movement; worker’s motivation and technical
aspects of work effect productivity.
 Management science: scientific analysis of work methods.
 Computer age: making the machines computerized for less error
and wastage.
 Environmental issues: it addressed the problems faced by the
environment like pollution etc.
History of operations management
 Just in Time: An inventory strategy companies employ to
increase efficiency and decrease waste by receiving goods only
as they are needed in the production process, thereby reducing
inventory costs.
 Total Quality management: continuously improving the quality
of products and services for maximum customer satisfaction.
 Reengineering: Systematic starting over and reinventing the
way a firm, or a business process, gets its work done.
 Global competition: business competition among countries
around the globe
 Flexibility: responsive to change
 Time based competition: A corporate strategy that has identified
a focus on time as providing a competitive edge due to its value
by the customer.
History of operations
management
 Supply chain management: Supply chain management (SCM) is
the management of a network of interconnected businesses
involved in the ultimate provision of product.
 Electronic commerce: business conducted electronically via use
of internet.
 Outsourcing: obtaining goods and services from an outside
suppliers.
Operations Management and
E - Business
 Assignment/Presentation No.1

 How companies manage their business

in the e- business environment?
 It must cover
 Forms of e-business
 Forms of e-business used in Pakistan
 Impact of e-business on operations
management of businesses operating
across globe.
 Impact of E-Business on Operations
Management
 Benefits of E-Business
 Comparison shopping by
customers
 Direct contact with customers
 Business processes conducted
online
 Impact on Operations
 Customer expectations escalate;
quality must be maintained and
costs lowered
 No more guessing about demand
is necessary; inventory costs go
down; product and service design
improves; build to-order products
and services is made possible
 Transaction costs are lower;
customer support costs decrease;
e-procurement saves big bucks
 Impact of E-Business on Operations
Management (cont.)

 Benefits of E-Business  Impact on Operations

 Access to customers
worldwide
 Middlemen are eliminated
 Access to suppliers
worldwide
 Demand increases; order fulfillment
and logistics become major issues;
production moves overseas
 Logistics change from delivering to a
store or distribution center to
delivering to individual homes;
consumer demand is more erratic and
unpredictable than business demand
 Outsourcing increases; more alliances
and partnerships among firms are
formed; supply is less certain; global
supply chain issues arise
 Impact of E-Business on Operations
Management (cont.)

 Benefits of E-Business  Impact on Operations

 Online auctions and e-  Competitive bidding lowers cost

marketplaces
 Better and faster  More timely information is
decision making
of materials; supply needs can be
found in one location
available with immediate access
by all stakeholders in decision-
making process; customer orders
and product designs can be
clarified electronically; electronic
meetings can be held;
collaborative planning is
facilitated
 Impact of E-Business on Operations
Management (cont.)

 Benefits of E-Business  Impact on Operations

 IT synergy  Productivity increases as

information can be shared more
efficiently internally and
between trading partners
 Order fulfillment, logistics,
 Expanded supply warehousing, transportation and
chains delivery become focus of
operations management; risk is
spread out; trade barriers fall
Summary of the topics covered
 Operations management – definition
 Examples of operation at bank, hospital, hotel, cable TV etc.
 Difference between Operations, trabsformation and OM
 Operations as transformation process
 Major functions of OM
 Organizing work
 Selecting processes
 Arranging layouts
 Locating facilities
 Designing jobs
 Measuring performance
 Controlling quality
 Scheduling work
 Managing inventory
 Planning production
Summary of topics covered
 Skills possessed by operations manager
 Transformation process – physical, locational, exchange,
physiological, psychological, informational.
 Products and services – definitions
 Common strategies used in products and services
 Differences in products and services
 Operations managers decisions – strategic and tactical
 History of OM
 Competitiveness and productivity measures
 E-businesses and their impact on operations
Lecture 6
Operations Strategy
The Role of Operations
Strategy
 Provide a plan that makes best use of
resources which;
 Specifies the policies and plans for using
organizational resources
 Supports Business Strategy as shown on
next slide
Business/Functional Strategy
Developing a Business
Strategy
 A business strategy is developed after
taking into account many factors and
following are some strategic decisions
such as;
 What business is the company in (mission)
 Analyzing and understanding the market (environmental
scanning)
 Identifying the companies strengths (core competencies)
Three Inputs to a Business Strategy
Define Mission, Vission and
Strategy
Examples from Strategies
 Mission: Dell Computer- “to be the most
successful computer company in the world”
 Environmental Scanning: Internal and
external scanning
 Core Competencies: customer satisfaction
via mass customization, strength of workers,
modern facilities, market understanding, best
technologies, financial know-how, logistics
 Strategy
It is a common vision that unites an
organization, provides consistency in
decisions, and keep the organization moving
in the right direction.

It is managerial actions and plan.

Plan of action to achieve organizational goals.

2-149
Understanding few terms…
 Strategies
 Plans for achieving organizational goals
 Mission
 The reason for existence for an organization
 Mission Statement
 Description of the mission
 Goals
 Provide detail and scope of mission
 Tactics
 The methods and actions taken to accomplish
strategies
2-151
 Strategy Example
Rabia is a university student. She would like to
have a career in business, have a good job, and
earn enough income to live comfortably

Mission: Live a good life

 Goal: Successful career, good income
 Strategy: Obtain a university education
 Tactics: Select a university and a major
 Operations: Register, buy books, take
courses, study, graduate, get job
 Corporate strategy and
Operations Strategy

 Corporate strategy views the organization

as a system of interconnected parts, each
working with the others to achieve desired
goals.
 Operations Strategy supports the
corporate strategy and requires continuous
cross-functional interaction.
Steps in Corporate Strategy
Formulation
 Four Steps for Strategy
Formulation
 Defining a primary task
 What is the firm in the business of doing? The purpose of a firm –
e.g. Pepsi is in the business of drink colas. The broader aspect
covered by Pepsi is to be in consumer product.
 Assessing core competencies
 What does a firm do better than anyone else? e.g. higher quality,
faster delivery or lower cost, technology. The ability to transform
technology rapidly into new products and processes.
 Determining order winners and order qualifiers.
 What wins the order?

 What qualifies an item to be considered for purchase?

 Positioning the firm

 How will the firm compete? Choosing one or two important things
on which to concentrate and doing them extremely well.
(Strengths)
 Core Competencies
 Core competencies include…
 A well-trained and flexible Workforce
 Having well-located & flexible Facilities
 Having Market and Financial Know-How.
 Expertise in Systems and Technology.
Strategy Formulation
 Order winners (manufacturer side)
 Characteristics of an organization’s goods or
services that cause it to be perceived as better
than the competitor
 Order qualifiers (customer side)
 Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential purchase
Competitive Priorities
 Cost
 Quality
 Flexibility
 Speed/time
Competitive Priorities- The Edge
 Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
 All of the above? Some? Tradeoffs?
 Competitive Priorities

Cost 1. Low-cost operations

Quality 2. Top quality
 3. Consistent quality
Time 4. Delivery speed
 5. On-time delivery
 6. Development speed
Flexibility 7. Customization
 8. Variety
 9. Volume flexibility
Cost
 Any financial value attached to a
product or service.
Competing on Cost?
 Offering product at a low price relative to competition
 Typically high volume products
 Often limit product range & offer little
customization
 May invest in automation to reduce unit costs
 Can use lower-skill labor
 Probably use product focused layouts
 Low cost does not mean low quality
 Competitive Priorities: Cost
 Companies that compete on cost relentlessly pursue
the elimination of all wastes.
 Lincoln Electric
 Reduced costs by $10 million a year for 10 years
 Skilled machine operators save the company millions that
would have been spent on automated equipment
 Southwest Airlines
 One type of airplane facilitates crew changes, record-
keeping, maintenance, and inventory costs
 Direct flights mean no baggage transfers
 $30 million annual savings in travel agent commissions by
requiring customers to contact the airline directly
Quality
 Error free products
 High consistency
 Reliability – degree of consistency

 Durability – degree of toughness

 Provide more satisfaction

Competing on Quality?
 Quality is defined differently depending on who is
defining it
 Two major quality dimensions include
 High performance design:
 Superior features, high durability, & excellent customer service

 Product & service consistency:

 Meets design specifications
 Error free delivery

 Quality needs to address

 Product design quality – product/service meets requirements
 Process quality – error free products
 Competitive Priorities:
Quality
 Most companies approach quality in a defensive or
reactive mode; quality is confined to minimizing
defect rates or conforming to design specifications.
 Ritz-Carlton - one customer at a time
 Every employee is empowered to satisfy a guest’s wish
 Teams at all levels set objectives and devise quality action
plans
 Each hotel has a quality leader
 Quality reports tracks
 guest room preventive maintenance cycles

 percentage of check-ins with no waiting

 time spent to achieve industry-best clean room

appearance
 Guest Preference Reports are recorded in a database
Time
 Time to market
 Idea generation to finished product

2-167
Competing on Time?
 Time/speed one of most important
competition priorities
 First that can deliver often wins the race
 Time related issues involve
 Rapid delivery:
 Focused on shorter time between order placement and delivery
 On-time delivery:
 Deliver product exactly when needed every time
 Competitive Priorities:
Speed
More than ever before, speed has become a source of
competitive advantage. The internet has conditioned
customers to expect immediate response and rapid
product shipment.
 Wal-Mart
 refill its stock twice a week
 Hewlett-Packard
 produces electronic testing equipment in five days
 General Electric
 reduces time to manufacture circuit-breaker boxes into three
days and dishwashers into 18 hours
 Dell
 ships custom-built computers in two days
 Motorola/Nokia/Samsung
 needs less than 30 minutes to build to order mobile phones.
Flexibility
 Accommodating/ responding to changes
quickly
 Volume flexibility (variation in quantity)
 Expansion flexibility (variation in machinery/location)
 Product flexibility (variation in products)
 Production flexibility (producing new products)
Competing on Flexibility?
 Company environment changes rapidly
 Company must accommodate change by being
flexible
 Production flexibility:
 Easily switch production from one item to another
 Easily customize product/service to meet specific requirements
of a customer

 Volume flexibility:
 Ability to ramp production up and down to match market
demands
 Competitive Priorities:
Flexibility
 It is the ability to adjust to change in product mix,
production volume, or design.
 Custom Foot Shoe Store:
 Customer’s feet are scanned electronically to capture
measurements
 custom shoes are mailed to the customer’s home in weeks
 prices are comparable to off-the-shelf shoes
 National Bicycle Industrial Company
 offers 11,231,862 variations
 delivers within two weeks at costs only 10% above standard
models
 Strategy and the
Internet
 Internet can be used to create a unique business strategy,
to support a company’s existing competitive advantages,
and to bring new and traditional activities into a more
tightly integrated systems.
 eBay

 unlimited capacity and a huge market

 all work is done by buyers and sellers and there

is no marginal cost
 Cisco

 integrated value chain is its competitive

advantage
 Strategy and the
Internet (cont.)
 GE’s Trading Process Network: an automated Web-based
purchasing system
 cut average purchasing cost in half
 enabled a much larger group of suppliers to bid on jobs
 customers were able to track their orders through shop in real
time
 Intel
 sells $2 billion a month over the Internet
 purchases 80% of its direct materials online
 replaced 19,000 sales-order faxes received daily
Benefits of using internet
 Costs
 Reach
 Flexibility
 Reliability
 Global access
 Less paper waste
More in next class….