Introduction: Operations Management

Some material have been adopted from OM sources such as Heizer & Render (2014); Stevenson (2012), Russell & Taylor (2011)

Cases of select companies that have excelled in Operations

Company Core Competency

• Paradigm shift in Quality! Lean manufacturing, short design-to-market cycles

• Strategic Sourcing

• Distribution system—Every Day Low Prices

• QVSC, Location, layout, supplier development

• Guaranteed Delivery, Hub and spoke system

• Supply chain management and mass customization

Essential Functions of Business

Essential functions: Marketing – generates demand, provides

customer and market information

Finance/accounting – tracks how well the organization is doing, invests money, arranges working capital, pays bills, collects the money

Production/operations – creates the product and/or delivers the service

Support functions—accounting, human resources, information systems, purchasing, engineering, etc.

The Production System

Operations Management (O.M.)

It is the systematic direction and control of the processes that

convert inputs into finished goods and services.

O.M. is the proper utilization and management of the

five ‘P’s of a business:

People Workforce

Products Inventory

Plant Machines, equipment and building

Processes Methods required for the conversion process

Production The actual conversion process (mfg. and service)

The Operations function in many businesses can control up to 70 %

of the business’s assets

Operations Activities

• Strategy

• Output Planning

• Capacity Planning

• Facility Location

• Facility Layout

• Aggregate Planning

• Inventory Management

• Materials Requirements Planning

• Scheduling

• Quality Control

What is Operations Management?

• Definition:

– “OM organizes, plans, controls, and improves the use of process, inventory, workforce, and facility & equipment in order to determine the ranking of the competitive priorities--price, quality, dependability, flexibility, and time--thereby providing short-term profit, long-term profit and improved market share” (Finch and Luebbe, 1995)

Competitive AdvantageCompetitive Advantage

Value Activities

Resources Capabilities

OM: Adding Value

Significant Events in OM

Competitive Priorities• Competing on Cost

• Competing on Quality•High performance design

•Consistent quality

• Competing on Flexibility•Customization

•Volume/product-mix Flexibility

• Competing on Time•Fast delivery

•On time delivery

•Development speed

• Dependability

Manufacturing vs. ServiceCharacteristic

Output

Customer contact

Uniformity of input

Labor content

Uniformity of output

Measurement of productivity

Opportunity to correct quality

problems before delivery to

customer

Manufacturing

Tangible

Low

High

Low

High

Easy

High

Service

Intangible

High

Low

High

Low

Difficult

Low

High

Manufacturing vs. Service (cont.)

Characteristic Mgf Service

Response Time Long Short

Capital Intensity High Low

Markets Diverse Local

Consumption Delayed ImmediateThese differences are beginning to fade

in many cases

Facilitating Good Concept• Often confusion in trying to classify

organization as manufacturer or service

• Facilitating good concept avoids this ambiguity

• All organizations defined as service

• The tangible part of the service is defined as facilitating good

• Pure services

New Trends in OM

Local or

national focus

Reliable worldwide

communication and

transportation networks

Global focus

Batch/large

shipments

Short product life cycles and

cost of capital put pressure

on reducing inventory

Just-in-time

performance

Low-bid

purchasing

Supply chain competition

requires that suppliers be

engaged in a focus on the

end customer

Supply chain

partners,

collaboration,

alliances

Past Causes Future

New Trends in OM

Lengthy

product

development

Shorter life cycles, Internet,

rapid international

communication, computer-

aided design, and

international collaboration

Rapid product

development,

alliances,

collaborative

designs

Standardized

products

Affluence and worldwide

markets; increasingly flexible

production processes

Mass

customization

with added

emphasis on

quality

Job

specialization

Changing socioculture

milieu; increasingly a

knowledge and information

society

Empowered

employees,

teams, and lean

production

Past Causes Future

Additional Trends• Service Sector Growth (80+ jobs)

• Surge in Service Productivity

• Global competition

• Competition based on

– Quality

– Time Reduction

– Technology

• Flexibility and Economies of Scope

Recent Trends (Continued)

• Worker involvement• Emphasis on supply chain management• Reengineering• Environment, Ethical, and Workforce Diversity• The Experience Economy (Pine & Gilmore, 1999)

– “Businesses must orchestrate memorable events for their customers, they argue, and that memory itself becomes the product - the "experience".”

• Mass Customized service

Classification and Evolution of Economic Offerings

Ethics and Social Responsibility

Challenges facing operations managers:

Developing and producing safe, quality products

Maintaining a clean environment

Providing a safe workplace

Honoring community commitments