Operation Management

Definition of 'Operations Management'

• Operations management refers to the administration of business practices to create the highest level of efficiency possible within an organization. Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize the profit of an organization.

Production and Operations

Operations Management

• Operation system is either manufacturing sector or service sector. The input requirements and the transformation process, in which part of the value addition takes place to get the required quantity of the product or services with the targeted quality within the specified time period, is carried out in a most economical way. Operation Management Plan coordinates and controls all the activities in the operation system to achieve the stated objectives.

• The operation system includes both manufacturing sector as well as service sector, but when you use the word PM, you should be careful to note that it refers to the manufacturing sector but not the service sector. Suppose, you are designing a layout for the hospital you should say that you are applying Operations Management Technique not the Production Management Technique.

Nature / Scope / Introduction :

• Know the production & operation function as process of value addition.

• Recognize the distinction between product & services.• Understand all organizations as conversion system whether

in manufacturing or service sectors.• Identify problems of decision making in operations

management.• Distinguish functions & requirements of different

departments.• Facilities required for production & operation.

Production and operation function• Creation• Customer Service• Profit(produce a product or service that creates profit and revenue for

the company)• Evaluation(self-evaluating entity that monitors the quality, quantity, and

cost of goods produced)• Tasks(include forecasting, scheduling, purchasing, design, maintenance,

people management, flow analysis, reporting, assembly and testing)• Fulfilment

Specifying the production function

• A production function can be expressed in a functional form as the right side of

Q= f (X1,X2,X3,…..Xn) where: Q=quantity of output X1,X2,X3,…..Xn=quantities of factor inputs (such

as capital, labour, land or raw materials).

STRATEGIC IMPORTANCE OF THE PRODUCTION FUNCTION

• Effective production and operations management can:• Lower a firm’s costs of production.• Boost the quality of its goods and services.• Allow it to respond dependably to customer demands.• Enable it to renew itself by providing new products.

Top-down Approach to OM StrategyOperations Strategy Decisions

Strategic (long-range)Needs of customers

(capacity planning)Tactical (medium-range)

Efficient scheduling of resources

Operational planning and control (short-range)

Immediate tasks and activities

Mass Production

•  A system for manufacturing products in large amounts through effective combinations of employees with specialized skills, mechanization, and standardization.

• Assembly line Manufacturing technique that carries the product on a conveyor system past several workstations where workers perform specialized tasks.

• Applied by Henry Ford to improve the efficiency of automobile manufacturing.

• Before assembly line, produced one car per worker per 12-hour workday.

• After assembly line, produced eight cars per worker per 12-hour workday.

• Efficient method for making mass quantities of similar items.

• Not flexible.

• Flexible Production

• Produces smaller batches of goods cost-effectively with information technology.

• Information technology to share the details of customer orders.

• Programmable equipment to fulfill the orders.

• Skilled people to carry out whatever tasks are needed to fill a particular order.

• Customer-Driven Production

• Evaluates customer demands to link what a manufacturer makes with what customers want to buy.

• Link computers in factories to retail scanners to create short-term forecasts and design production schedules.

• Make product only after customer orders it.

• Example: Dell

PRODUCTION PROCESSES

• Synthetic production system Combines a number of raw materials or parts or transforms raw materials to produce finished products.

• Example: Dell’s assembly line

• Continuous production process Generates finished products over a lengthy period of time.

• Example: Steel industry

• Intermittent production process Generates products in short production runs, shutting down machines frequently or changing their configurations to produce different products.

• Example: Most services

THE JOB OF PRODUCTION MANAGERS

• Oversee the work of people and machinery to convert inputs (materials and resources)

into finished goods and services.• Four main tasks:

Planning the Production Process

• Begins by choosing what goods or services to offer customers.

• Convert original product ideas into final specifications.

• Design the most efficient facilities to produce those products.

Implementing the Production Plan

• Make, Buy, or Lease Decision

• Choosing whether to manufacture a needed product or component in house, purchase it from an outside supplier, or lease it.

• Factors in the decision include cost, availability of reliable outside suppliers, and the need for confidentiality.

• Selection of Suppliers

• Based on comparison of quality, prices, dependability of delivery, and services offered by competing companies.

• Inventory Control

• • Perpetual inventory Systems continuously monitor the amounts and locations of stocks.

• Just-in-Time Systems

• • Management philosophy aimed at improving profits and return on investment by minimizing costs and eliminating waste through cut- ting inventory on hand.

• Materials Requirement Planning

• • Computer-based production planning system by which a firm can ensure that it has needed parts and materials available at the right time and place in the correct amounts.

Controlling the Production Process

• • Production control Creates a well-defined set of procedures for coordinating people, materials, and machinery to provide maximum production efficiency.

• Production Planning

• • Determining the amount of resources (including raw materials and other components) an organization needs to produce a certain output.

• Routing

• • Determining the sequence of work throughout the facility and specifying who will perform each aspect of the work at what location.

OM’s Contributions to Society

• Higher Standard of Living–Ability to increase productivity–Lower cost of goods and services

• Better Quality Goods and Services–Competition increases quality

• Improved Working Conditions–Better job design and employee participation

Application of OM to Service Operations

–Batch cooking operations at McDonald’s–Just-in-Time (JIT) at Northern Telecomm, Inc.–Automatic inventory replenishment at Wal-Mart

An Expanded Definition of Quality

•Quality is important in all functional areas of an organization.

•Quality is now much more than the technical requirements for manufactured goods.

• Service quality (customer relationships) is equally important.

Quality

Linking OM to Customers and Suppliers

• Benefits of Buffering the Transformation Process– The process was often more efficient than input and

distribution processes.– Productivity was maximized when processes operated at

continuous rates.– Process management skills were different from those of

other functional activities.• Disadvantages of Buffering the Transformation Process

– Information lag in interaction with other functional activities.– Lack of communication between customers and the shop

floor for problem solving.