Introduction Introduction

to to Operations Operations ManagementManagement

ContentsContents1- What is Operations Management (OM)?1- What is Operations Management (OM)?

2- Importance of OM .2- Importance of OM .

3- OM decisions.3- OM decisions.

4- OM's contributions to society.4- OM's contributions to society.

5- OM of service & manufacturing organizations5- OM of service & manufacturing organizations

6- The ever-changing world of OM6- The ever-changing world of OM

7- Make or buy decision7- Make or buy decision

8- Historical development of OM.8- Historical development of OM.

1- What is operations management 1- What is operations management (OM)?(OM)?

OM definitionOM definition

Responsibilities of operations managersResponsibilities of operations managers

Difference between OM and PMDifference between OM and PM

What is operations management ?What is operations management ?

1-The collection of people, technology, and systems within a company that has primary responsibility for responsibility for providing the organization’s products or providing the organization’s products or services. services.

2-The management of the direct recourses that are required to produce and deliver an organization's goods and services .

3- A discipline and profession that studies and practices the process of planning, designing, and operating production systems and subsystems to achieve the goals of the organization.

4- The business function responsible for planning, planning, coordinating, and controllingcoordinating, and controlling the resources needed to produce a company’s products and services.

5- The management of the 5- The management of the conversion processconversion process that that transforms inputs into outputs in the form of finished transforms inputs into outputs in the form of finished goods and services.goods and services.

INPUTS •Material•Machines•Labor•Management•Capital- Customer

TRANSFORMATIONPROCESS

OUTPUTS •Goods•Services

FeedbacFeedbackk

Operations as a transformation Operations as a transformation processprocess

Inputs and Outputs of a production Inputs and Outputs of a production systemsystem

InputsInputsExternal:External: Legal, Economic, Social, Technological

Market:Market: Competition, Customer Desires, Product Info.

Primary Resources:Primary Resources: Materials, Personnel, Capital, Utilities

OutputsOutputsDirectDirect Products Services

IndirectIndirect Waste Pollution Technological Advances

What's the difference between PM and What's the difference between PM and OM?OM?

Some thinks that they are really one and the same by different names.

others think that production management is just a subset of operations subset of operations management because operations management because operations involve more than just production.involve more than just production.

if if servicesservices concept concept addedadded to the to the production management it can be production management it can be called operations management.called operations management.

Responsibilities of OM

Products & servicesProducts & services

PlanningPlanning– CapacityCapacity

– LocationLocation

–– Make or buyMake or buy

– LayoutLayout

– ProjectsProjects

– SchedulingScheduling

Controlling/ImprovingControlling/Improving– InventoryInventory

– QualityQuality

OrganizingOrganizing– Degree of centralizationDegree of centralization

– ProcessProcess selectionselection

StaffingStaffing– Hiring/laying offHiring/laying off

– Use of OvertimeUse of Overtime

DirectingDirecting– Incentive plansIncentive plans

– Issuance of work ordersIssuance of work orders

– Job assignmentsJob assignments

– CostsCosts

– ProductivityProductivity

(2) Importance of OM(2) Importance of OM

Importance of OMImportance of OM1- 1- Operations is an important Operations is an important part ofpart of every organizationevery organization 2- We should 2- We should know howknow how goods and services are produced ( goods and services are produced (All managers All managers

should have an understanding the main principles and tools of OM)should have an understanding the main principles and tools of OM)3- 3- It is responsible for the customer fulfillment aspects of an organization. It is responsible for the customer fulfillment aspects of an organization.

Thus, Thus, it manages customer satisfactionit manages customer satisfaction. . 4- OM is such a 4- OM is such a costly part of an organizationcostly part of an organization. (For most . (For most

organizations it absorbs a huge percentage of required capital )organizations it absorbs a huge percentage of required capital )

Companies need to have Companies need to have efficient operations to surviveefficient operations to survive. . To succeed, To succeed, a firm must have a firm must have a strong operations functiona strong operations function teaming with the teaming with the other organization functionsother organization functions..

5- OM 5- OM responsible to increase productivity and profitabilityresponsible to increase productivity and profitability. . Increasing overall productivity leads to economic growth and a higher Increasing overall productivity leads to economic growth and a higher standard of living.standard of living.

6- Operational decision-making 6- Operational decision-making requires a long-term perspectiverequires a long-term perspective and requires and requires inputs from all business functionsinputs from all business functions..

OM Decisions tend to be costly and difficult to reverseOM Decisions tend to be costly and difficult to reverse

Some definitionsSome definitions

Productivity:Productivity: The ration of what is produced by an operation or process to what

is required to produced it, that is ,the output from the operations divided by the input to the input operation (ratio of output to input)

Efficiency:Efficiency: producing something at the producing something at the lowest possible costlowest possible cost Effectiveness:Effectiveness: doing the right things to create the most value for the firm ValueValue quality divided by price Competitive advantage:Competitive advantage: competitive advantage is an advantage over competitors gained by

offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices

3- OM decisions3- OM decisionsStrategicStrategic

TacticalTactical

operationaloperational

OM decisionsOM decisionsOperations managers must make decisions on three levels:Operations managers must make decisions on three levels:

Strategic decisionsStrategic decisions

senior management responsibility senior management responsibility More More broad broad in nature in nature Determine the success of an organization's strategyDetermine the success of an organization's strategy, , Very risky and hard to Very risky and hard to reversereverse Have significant Have significant long - termlong - term impact, ,and impact, ,and less frequent.less frequent. Examples:Examples: How will we make the product? Where do we locate the facility? How much capacity do we need? When should we add more capacity?

Tactical decisionsTactical decisions

Medium-Medium- range decisions focus on resource needs, range decisions focus on resource needs, schedules, & quantities to produce schedules, & quantities to produce

Tactical decisions are Tactical decisions are frequentfrequent, must align with , must align with strategic decisions.strategic decisions.

Involves resource allocation and utilization.Involves resource allocation and utilization. Involves a Involves a moderate degree of uncertainty and riskmoderate degree of uncertainty and risk.... They are the link between lower and high level They are the link between lower and high level

managementmanagement Examples:Examples: How many workers do we need?How many workers do we need? When do we need them?When do we need them? Should we work overtime or put on a second sift?Should we work overtime or put on a second sift? When should we have material delivered?When should we have material delivered? Should we have a finished goods inventory?Should we have a finished goods inventory?

Operational decisionsOperational decisions

Involves a short time horizonshort time horizon. Involves very little uncertainty and risk. Examples :Examples :

What jobs do we work on today or this week?

To whom do we assign what task? What jobs have priority?

OM decisionsOM decisions

Strategic Tactical Operating

Characteristics

Longer term decisions

Medium term decisions

Shorter term decisions

Responsibility of the senior management

Responsibility of middle and senior managers

Responsibility of middle and lower management levels

High capital investment

Broad in nature Narrow in scope These decisions concern the day-to-day activities of workers

4- OM's contributions to 4- OM's contributions to societysociety

Higher Standard of Living Higher Standard of Living

Better Quality Goods and ServicesBetter Quality Goods and Services

Concern for the EnvironmentConcern for the Environment

Improved Working ConditionsImproved Working Conditions

Operations management's Operations management's contributions to societycontributions to society

OM's contributions to society:-OM's contributions to society:-((A)- Higher Standard of Living A)- Higher Standard of Living

(B) - Better Quality Goods and (B) - Better Quality Goods and ServicesServices

(C)- Concern for the Environment(C)- Concern for the Environment

(D)- Improved Working Conditions(D)- Improved Working Conditions

(A)- Higher standard of living

A major factor in raising the standard of living in a society is the ability to increase its productivityability to increase its productivity.

Higher productivity is the result of increased efficiency in Higher productivity is the result of increased efficiency in operationsoperations, which in turn translates into lower cost goods which in turn translates into lower cost goods and servicesand services.

Thus, higher productivity provides Thus, higher productivity provides consumers with more discretionary consumers with more discretionary income, which contributes to their income, which contributes to their higher standard of living. higher standard of living.

1-Improve productivity1-Improve productivity

3- Lower cost of goods & services3- Lower cost of goods & services

5-Higher standard of living5-Higher standard of living

Higher standard of livingHigher standard of living

2- Result of increased 2- Result of increased efficiency in operationsefficiency in operations

4- More income4- More income

(B) - Better quality of goods (B) - Better quality of goods and servicesand services One of the many One of the many consumer benefitsconsumer benefits of increased of increased

competition is the higher-quality products that are competition is the higher-quality products that are available today. available today.

Quality standards are continually increasingQuality standards are continually increasing. . Many companies today have established Many companies today have established Six-Sigma Six-Sigma

quality standardsquality standards (pioneered by Motorola in the late (pioneered by Motorola in the late 1980s), resulting in no more than 1980s), resulting in no more than 3.4 defects per 3.4 defects per millionmillion opportunities. opportunities.

Such high quality standards were Such high quality standards were onceonce considered not considered not only prohibitively expensive but also virtually only prohibitively expensive but also virtually impossible to achieve even if cost wasn't a impossible to achieve even if cost wasn't a consideration.consideration.

Today we know that such high quality is not only very Today we know that such high quality is not only very possible, but also results in lower costs, because possible, but also results in lower costs, because firms can reduce their waste and rework. firms can reduce their waste and rework.

(C)- Concern for the (C)- Concern for the environmentenvironment

Many companies today are taking up the Many companies today are taking up the challenge to challenge to produce environmentally produce environmentally friendly products with environmentally friendly products with environmentally friendly processesfriendly processes, all of which falls , all of which falls under the purview of operations under the purview of operations management.management.

Recycling and concern for air and water Recycling and concern for air and water qualityquality

(D)-Improved working conditions

Managers recognize the benefits of providing workers with benefits of providing workers with better working conditions. better working conditions.

This includes not only the work environmentwork environment but also the design of the jobs themselvesdesign of the jobs themselves.

Workers are now encouraged to participate in improving participate in improving operations through suggestionsoperations through suggestions.

After all, who would know betterwho would know better how to do a particular operation than that person who does it every daythan that person who does it every day.

Managers also have learned that there is a very clear very clear relationship between satisfied workers and satisfied relationship between satisfied workers and satisfied customers, especially in service operations. customers, especially in service operations.

((EmpowermentEmpowerment :The concept of encouraging and authorizing workers to take the initiative to improve operations, reduce costs, and improve product quality and customer service.)

5- OM of service and manufacturing 5- OM of service and manufacturing organizationsorganizations

Importance of service nowImportance of service now

Service natureService nature

The affect of service nature on OM activitiesThe affect of service nature on OM activities

OM of service and manufacturing OM of service and manufacturing organizationsorganizations

Initially, operations management concepts focused almost entirely on manufacturingfocused almost entirely on manufacturing.

As countries become more developedmore developed, services continue to represent a larger larger percentage of their economies. percentage of their economies.

Now Less than 20%Now Less than 20% of all jobs are in manufacturing (and they are declining)and they are declining)

Almost 80% of jobs are in the service sector (and they are increasing)

Nearly half of all jobs are in POM

Services as a percent of Gross Domestic Product (GDP) for Services as a percent of Gross Domestic Product (GDP) for different countriesdifferent countries

1850

Services

Industry

Farming

80%

40%

0

U.S. Employment, % Share

Development of the service Development of the service economyeconomy

1950 1900 2000

U.S. manufacturing vs service U.S. manufacturing vs service employmentemployment

Year Mfg. Service45 79 2150 72 2855 72 2860 68 3265 64 3670 64 3675 58 4280 44 4685 43 5790 35 6595 32 6800 30 70

Growth in services in the United StatesGrowth in services in the United States

Service and manufacturing Service and manufacturing similaritiessimilarities

All use technology Both have quality, productivity, &

response issues All must forecast demand Each will have capacity, layout, and

location issues All have customers and suppliers All have scheduling and staffing issues

Manufacturing vs. serviceManufacturing vs. service

Characteristic Manufacturing ServiceOutput

Customer contact

Uniformity of input

Labor content

Uniformity of output

Measurement of productivity

Opportunity to correct

Tangible

Low

High

Low

High

Easy

High

Intangible

High

Low

High

Low

Difficult

Lowquality problems

High

Manufacturing vs. serviceManufacturing vs. service

1- Customer contact:1- Customer contact: Service, by natureService, by nature, involves a much high degree of customer contactinvolves a much high degree of customer contact than than

manufacturing.manufacturing. The performance of service often occurs at the The performance of service often occurs at the point of consumptionpoint of consumption. .

Manufacturing allows a Manufacturing allows a separation between production and consumptionseparation between production and consumption, so , so that manufacturing can occur away from the consumer. that manufacturing can occur away from the consumer.

Customer are sometimes apart of the system (self-service operations-shopping Customer are sometimes apart of the system (self-service operations-shopping +gas stations) +gas stations) so tight control on process is impossibleso tight control on process is impossible

2- Uniformity of input:2- Uniformity of input: Service operations are subject to Service operations are subject to greater variability of inputgreater variability of input than typical than typical

manufacturing operations. manufacturing operations. Each patient, each client and each auto repair Each patient, each client and each auto repair presents a specific presents a specific

problemproblem that often must be diagnosed before it can be remedied that often must be diagnosed before it can be remedied Manufacturing operations often Manufacturing operations often have the ability to carefully control the have the ability to carefully control the

amount of variability of inputamount of variability of input and thus achieve low variability in outputs. and thus achieve low variability in outputs. Job requirements for manufacturing are generally more uniform than those for Job requirements for manufacturing are generally more uniform than those for

serviceservice

Manufacturing vs. serviceManufacturing vs. service

3- Labor content of jobs:3- Labor content of jobs: Many services involve a higher labor content than manufacturing

operations

4- Uniformity of output4- Uniformity of output Because high mechanization generates products with low Because high mechanization generates products with low

variability , manufacturing tends to be smooth and efficient ,variability , manufacturing tends to be smooth and efficient , service activities sometimes appear to be slow and awkwardslow and awkward and

output is more variable. Automated services are exception to thisAutomated services are exception to this

5- Measurement of productivity5- Measurement of productivity Measurement of productivity is more straightforward straightforward in

manufacturing due to the high degree of uniformity of most uniformity of most manufacturing items.manufacturing items.

In service operations , variations in demand intensity and in variations in demand intensity and in requirements from job to job make productivity measurement requirements from job to job make productivity measurement more difficultmore difficult

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•Attributes of Attributes of GOODSGOODS

Tangible productTangible product

- Product can be inventoried.inventoried.- Some aspect of qualityquality are measurable.- Selling is distinct from production.- SiteSite of facility is important for cost.cost.- Often easy to automateautomate.- Revenue is generated primarily from the tangible tangible product.product.CapitalCapital intensive

Goods vs. servicesGoods vs. services

•Attributes of SERVICESAttributes of SERVICES• Intangible ProductsIntangible Products

- Many services cannot be inventoried.- Many aspects of quality are difficult to measure.- Selling is often a part of the servicepart of the service.Provider, not product, is often transportable.SiteSite of facility is important for customer customer contact.contact.Service is often difficult to automateautomate.Revenue is generated primarily from the intangible serviceintangible service.LaborLabor intensiveintensive

6- The ever - changing world of 6- The ever - changing world of OMOM

Increased global competitionIncreased global competition

Advances in technologyAdvances in technology

Linking OM to customers and suppliersLinking OM to customers and suppliers

The ever-changing world of The ever-changing world of OMOM

Operations management is continuously Operations management is continuously changing to meet the new and exciting changing to meet the new and exciting challenges of today's business world. challenges of today's business world.

This ever-changing world is This ever-changing world is characterized by characterized by increasing global competition and advances in increasing global competition and advances in technology. Emphasis is also shifting within the technology. Emphasis is also shifting within the operations function to link it more closely with both operations function to link it more closely with both customers and suppliers. customers and suppliers.

Here we will consider these issuesHere we will consider these issues:

(A)- Increased global (A)- Increased global competitioncompetition

Global (economy, village, and landscape): are terms used to describe how the world is becoming smaller, and countries how the world is becoming smaller, and countries are becoming more dependent on each other.are becoming more dependent on each other.

The world is rapidly transforming itself into a single global economy, The world is rapidly transforming itself into a single global economy, which referred to as a global village or global landscape. which referred to as a global village or global landscape.

Markets once dominated by local or national companies are now Markets once dominated by local or national companies are now vulnerable to vulnerable to competitioncompetition from literally all corners of the world. from literally all corners of the world. For example, in the For example, in the 1960s,1960s, only 7only 7 percentpercent of the firms in the United of the firms in the United States exposed to foreign competition; by the late States exposed to foreign competition; by the late 1980s,1980s,

This figure exceeded This figure exceeded 70 percent70 percent, and that percentage has , and that percentage has continued to grow. continued to grow.

Consequently, as companies Consequently, as companies expand their business to include expand their business to include foreign markets, so too must the operations management foreign markets, so too must the operations management function function take a more global perspective in order for companies to take a more global perspective in order for companies to remain competitive. remain competitive.

To s prosper in such a global marketplace companies To s prosper in such a global marketplace companies must excel must excel in more than one dimensionin more than one dimension, which previously was the norm. , which previously was the norm.

Ford’s Global Network to Support the Ford’s Global Network to Support the Manufacturing of the EscortManufacturing of the Escort

((B)- Advances in technologyB)- Advances in technology

Advance in technology in recent years have had a significant effect on the OM function:

IT+ automation + Internet Competition Product life cycle New jobs Robots E-???

(C )- Linking OM to customers and (C )- Linking OM to customers and supplierssuppliers

In the pastIn the past, most manufacturing organizations viewed operations strictly as an internal function that hadinternal function that had to be buffered from the external environment by other organizational buffered from the external environment by other organizational functions. functions.

Orders were generated by the marketing functionmarketing function; supplies and raw materials were obtained through the purchasing functionpurchasing function; capital for equipment purchases came from the finance function; the labor force was obtained through the human human resources functionresources function; and the product was delivered by the distribution functiondistribution function

Now more and more firms are recognizing the competitive advantage achieved when the transformation process is not is not isolatedisolated, as when customers are invited to view their as when customers are invited to view their operating facilities firsthand operating facilities firsthand

(C )- Linking OM to customers and (C )- Linking OM to customers and supplierssuppliers

companies are working companies are working more closely with suppliersmore closely with suppliers. . Firms like Toyota, have suppliers Firms like Toyota, have suppliers deliver product directly to deliver product directly to

the factory floor, eliminating need for a stockroom. the factory floor, eliminating need for a stockroom. The relationship between the transformation processes of suppliers The relationship between the transformation processes of suppliers

and customer often referred to as a and customer often referred to as a product's value chain.product's value chain. ( steps an organization requires to produce a good or service, regardless of ( steps an organization requires to produce a good or service, regardless of

where the are performed)where the are performed) A value chain consists of all the steps A value chain consists of all the steps actually add value to actually add value to

the productthe product. This concept helps managers to eliminate all non . This concept helps managers to eliminate all non added steps (such added steps (such as inspections and inventoryas inspections and inventory) and ) and consequently results in a higher of dependence among the value-consequently results in a higher of dependence among the value-added functions within the chain. added functions within the chain.

This integration of both suppliers and customers into the This integration of both suppliers and customers into the transformation process to blur the boundaries between what were transformation process to blur the boundaries between what were previously totally independent organizations (previously totally independent organizations (Virtual enterprises)Virtual enterprises)

(company whose boundaries are not clearly defined due to the integration of (company whose boundaries are not clearly defined due to the integration of customers and suppliers)customers and suppliers)

7- Make or buy?7- Make or buy?

CapacityCapacityExpertiseExpertiseQuality Quality DemandDemandCostCostRiskRisk

Make or buy?Make or buy? Many organizations buy parts or contract out services, Many organizations buy parts or contract out services,

for a variety of reasons. Among those factors are:for a variety of reasons. Among those factors are:

1- Available capacity:1- Available capacity: If an organization has available the equipment,equipment,

necessary skills, and timenecessary skills, and time, it often make sense to produce an item or perform a service in-house.

The additional costs would be relatively small compared with required to buy items or subcontract services.

2- Expertise:2- Expertise: If a firm lacks the expertiselacks the expertise to do a job satisfactorily,

buyingbuying might be a reasonable alternative.

Make or buy?Make or buy?3- Quality consideration:3- Quality consideration: Firms that specialize can usually offer high qualityspecialize can usually offer high quality than an

organization can attain itself.

Conversely, unique quality requirements or the desire to closely closely monitormonitor quality may cause an organization to perform a job itself.

4- The nature of demand:4- The nature of demand: When demand for an item is high and steadyhigh and steady, the organization is

often better off doing the work itselfdoing the work itself. However, wide fluctuations in demand or small ordersfluctuations in demand or small orders are

usually better handled by specializations who are able to combine combine orders from multiple sources, which results in a higher orders from multiple sources, which results in a higher volumevolume and tends to offset individual buyer fluctuations.

Make or buy?Make or buy?5- Cost:5- Cost: Any cost savings achieved from buying or making must be weighted Any cost savings achieved from buying or making must be weighted

against the preceding factorsagainst the preceding factors. Cost saving might come from the item itself or from transportation cost savings. If there are fixed costs associated with making an item that cannot be reallocated if the cannot be reallocated if the

service or product is outsourcedservice or product is outsourced , that has to be recognized in the analysis. Conversely, outsourcing may help a firm avoid incurring fixed costs.

6- Risk:6- Risk: Outsourcing may involve certain risks. one is Outsourcing may involve certain risks. one is loss of control operations. loss of control operations.

Another is the need to disclose propriety information.Another is the need to disclose propriety information. In some cases , a firm might choose to perform In some cases , a firm might choose to perform part of the job part of the job

itselfitself and let others handle the rest in order to maintain flexibility and let others handle the rest in order to maintain flexibility and to hedge against and to hedge against loss of a subcontractorloss of a subcontractor . .

If part or all the work will be done “ in-house”, capacity alternatives If part or all the work will be done “ in-house”, capacity alternatives will need to developedwill need to developed

8- Historical development of OM8- Historical development of OMPrior to 1900Prior to 1900Scientific Management Scientific Management Other Management Pioneers (Gilbreth + Gantt)Other Management Pioneers (Gilbreth + Gantt)Moving Assembly Line Moving Assembly Line Hawthorne StudiesHawthorne StudiesOperations Research Operations Research OM Emerges as a FieldOM Emerges as a FieldThe Marriage of OM and ITThe Marriage of OM and ITOM in ServicesOM in ServicesIntegration of Manufacturing and ServicesIntegration of Manufacturing and Services

Historical development of Historical development of OMOM

Prior to 1900:Prior to 1900: Cottage industry produced custom-made goods. Watt’s steam engine in 1785. Whitney’s standardized gun parts in 1801. Industrial Revolution began at mid-century.

Scientific Management (Frederick W. Taylor):Scientific Management (Frederick W. Taylor): Systematic approach to increasing worker productivity through time study,

standardization of work, and incentives. Viewed workers as an interchangeable asset.

Other Management Pioneers:Other Management Pioneers: Frank and Lillian Gilbreth

Motion study and industrial psychology Henry L. Gantt

Scheduling and the Gantt chart

Historical development of Historical development of OMOM

Moving Assembly Line (1913):Moving Assembly Line (1913): Labor specialization reduced assembly time.

Hawthorne Studies:Hawthorne Studies: Yielded unexpected results in the productivity of Western Electric plant

workers after changes in their production environment. Led to recognition of the importance of work design and employee

motivation.

Operations Research (Management Science):Operations Research (Management Science): Outgrowth of WWII needs for logistics control and weapons-systems design. Seeks to obtain mathematically optimal (quantitative) solutions to complex

problems.OM Emerges as a Field:OM Emerges as a Field:

1950–1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system.

1950–1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system

Historical development of Historical development of OMOM

The Marriage of OM and IT:The Marriage of OM and IT: Integrated solutions approaches

Business process reengineering Supply chain management Systems integration (SAP)

Operations Management in Services:Operations Management in Services: OM concepts can apply to both manufacturing and service

operations.

Integration of Manufacturing and Services:Integration of Manufacturing and Services: Conducting world class operations requires compatible

manufacturing and service operations