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UNIVERSITY OF PAPUA NEW GUINEA  Define Operations Management
School of Business & Public Policy  Describe historical development of Operations
BUSINESS MANAGEMENT DIVISION  Describe how operations management contributes
significantly to the betterment of a society
3.41202 Operations Management  Show that Operations Management can address
issues in manufacturing and services
Discuss how Operations Management function
Topic 1. Introduction to 
interact with other functions of the organization
Operations Management
David Mo
Lecture: ONE (1) Course Facilitator
Venue: ALT
Date: 01/03/18 1 2

 In the past, OM was only applicable in the What is Operations
manufacturing arena
 However, current trends that this is no longer
relevant, Operations management scope has
enlarged to include the service sectors.
 A service or good - they all go through a
process of transformation in order to be
 “Customer satisfaction” is the Ultimate Goal
 Also OM creates strategic advantage or
competitive edge over competitors.

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What is Operations Management? Cont.

 Operations Management – is the  OM is the management of the
management of the conversion transformation process
process which transforms inputs into
outputs in the form of finished goods
and services.
 Operations:
 core activities of business  Why do you think customers should be
 hence operation deals with the conversion considered an input a process?
process.  Give an example of process in the above
 involves in transforming inputs into case.
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Importance of OM Functions
 Add value to products or services
Production vs Operations Mgt
 Maximizing value addition and results in  Production Management is the
productivity improvement. management of the transformation of
 Every organization regardless has an inputs into output of tangible/physical
operation function by default. products.
◦ synonymous with manufacturing.
 However, not all types of organization will
necessarily call the operations function by  Operations Management covers both
this name. physical products and intangible
 Most importantly, Operations
 Give some examples of operations . Management is the “Execution of
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OM in an Organization
What is the difference and
similarities between Production
and Operation Management?

Figure 1. OM is the Merging of Financial &

Physical Analysis

Topic 6: The Concept of Small Business 9 10

Operations Management Vs
Main activities of Operations
Corporate Strategy
Management (OM)
Procurement or sourcing of input  Operation management activities are
resources namely management, core activities of the firm.
material and labor, equipment capital.
 It is the action-oriented and drilled
Product design and development to
determine the production process for down activities of OM strategies
transforming the input factors into output formulated at the corporate level.
(goods and services).  Hence, success of operations ensure
Control of the transformation process healthy status-quo of the firm as well
for efficient production of goods and as providing competitive edge against
its competitors.
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Top –Down Approach to OM Strategy

Operations Strategy
 Strategic (long-range) - How well the
firm is addressing the needs of customers
Market (capacity planning)
etc)  Tactical (Medium Range) -How to
efficiently schedule resources
 Operational Planning & Control -

Immediate tasks and activities

Marketing Operations Finance
IT Strategy Resource
Strategy Strategy Strategy
Top-down approach means decision at higher
levels acting as constraints on the lower levels (s)

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Top down Approach to OM

Strategy Cont.
 Strategic Decision address:
◦ How will we make the product?
◦ Where do we locate the facilities?
◦ How much capacity do we need?
◦ When should we add more capacity?
 Tactical Decisions
◦ How many workers do we need?
◦ When do we need them?
◦ Should we work overtime or put on a second shift
◦ When should we have materials delivered?
◦ Should we have a finished product inventory?
 Operational planning and control decisions
◦ What job do we work on today?
◦ To whom do we assign what tasks?
Discuss what constraints are and how they affect decisions ◦ What jobs have priority?
and implementations vertically?
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Details of the Transformation

Process Inputs to the process
 One set of inputs to any operation’s processes are
resources to be transformed (Transformed
 These are the resources that are treated,
transformed or converted in the process.
 Some examples of inputs are:
◦ Materials –transform their physical property (shape or
composition) or process materials to change their
location (parcel or packages for delivery companies) or
to change their possessions (retailers).
◦ Information –transform their informational
properties, possession of the information, storage of the
information and location.
◦ Customers –change their physical properties (hair
dressers & cosmetic surgeons), store or accommodate
customers (hotels), transforms the location of
customers (bus, airlines), transforms physiological
states (hospitals), transforms psychological state
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Transformation Process Output of the process

 The other set of inputs required at the  Output of any process is usually a service or
transformation stage are transforming product.
resources.  In recent developments, firms are producing both
 These are the resources which act upon the goods and services.
transformed resources. There are two types Products are usually tangible.
which form the ‘building blocks’ of all Services are usually intangible.
operations: Services may have a shorter stored life.
Products can usually be stored, at least for a time.
◦ Facilities – the buildings, equipment, plant and
process technology of the operation  For example, the service of ‘accommodation in a
◦ Staff – the people who operate, maintain, plan and hotel room for tonight’ will perish if it is not sold
manage the operation. (Note that we use the term before tonight –accommodation in the same room
‘staff ’ to describe all the people in the operation, at tomorrow is a completely different service.
any level.)
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Adding value through the

transformation process (technical core) Historical Development of OM
Evolution of operations management
 Physical transformation: manufacturing theories, principles and practices dated
 Locational transformation: transportation back to roughly two centuries.
Adam Smith - The traditional view of
 Exchange transformation: retailing
manufacturing management began in the
 Storage transformation: warehousing eighteenth century (Economic benefits of
 Physiological transformation: health care specialization of labour)
 Informational transformation: telecommunications Early twentieth century, F.W. Taylor
implemented Smith’s theories and
developed scientific management Theory.
Production management becomes the
acceptable term from 1930s to 1950s.
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 As F.W. Taylor’s works become more widely known,
managers developed techniques that focused on
economic efficiency in manufacturing.
 Workers were studied in great detail to eliminate wasteful
What are some
efforts and achieve greater efficiency.
 With the 1970s emerge two distinct changes in our views: contributions of OM to
1. Operations management was a shift in the service and
manufacturing sectors of the economy. As service sector
became more prominent, the change from ‘production’ to
‘operations’ was evident, the broadening of our field to
include service organization.
2. An emphasis on synthesis, rather than just analysis, in
management practices.

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OM Contributions to Society Emergence and latest trends in OM

1. The application of OM concepts in service
Hence, some of the direct benefits of OM to the society are:
 Higher Standard of Living - Ability to increase
productivity is a way forward to increase standard of 2. An expanded definition of quality,
 Lower cost of goods and services - (higher competition 3. The introduction of OM concepts to other
results in reduction in prices which leads to equal functional areas such as marketing and
opportunities to purchase to increase higher standard of
living. human resources, and
 Better Quality Goods and Services - Competition
increases quality 4. The realization that the OM function can
 Concern for the Environment -Recycling and concern add value to the end product.
for air and water quality
 Improved Working Conditions - Better job design and
5. Increase global competition
employee participation 6. Advances in technology

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1. Application of OM concepts in Service Operations Difference between Goods and Services

 Goods
 Theodore Livitt, Harvard School of Business ◦ Tangible (its object that can be touched and seen)
– first to recognized that many concepts that ◦ Can be inventoried (stored it for future)
have previously been developed for ◦ No interaction between customer and process
manufacturing can actually be applied to service  Services
operations. ◦ Intangible (being acts)
 In his article entitled, “Production Line ◦ Cannot be inventoried (cannot stored it)
Approach to Service” highlighted based on an ◦ Direct interaction between customer and process
observation at McDonald’s:
 Batch cooking operations at McDonald’s (where Note: Product (Goods and Services)
hamburgers are cooked in batches of 12 at a time)  Goods can still be sold later to generate
or other restaurants customers are batch into revenue; whereas services once not sold at a
groups of eight to increase efficiency. given time then revenue is lost forever. Eg.
Hotel rooms not occupied tonight.
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3. Expanded OM concepts into

2. An Expanded Definition of Quality
other function
 Quality is an important component in Just like expanding
OM to cover service
operations management.
 And quality is no longer limited to the
operation management function, OM is expanded to other functional
 Quality definition is extended to included all areas also
the functional areas of an organization
For example marketing, finance,
 Quality is now much more bigger than the
technical requirements for manufactured accounting, IT, etc
goods. So the scope and coverage of OM has
 Therefore, service quality (customer been expanded to other functions.
relationships) is equally important as quality
goods produced for customers.

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4. OM function Add value to the end 4. Increase global competition

The world has transformed to a single
 In 1970’s, Wickam Skinner at Harvard global economy (global village or global
Business School, suggested that landscape).
production process actually add value to Local and national companies are
products, a company manufactured (that vulnerable to competition from all corners
of the world.
affects how much a customer is willing
To survive and prosper in the global
to pay for the product). marketplace, pressures are on companies
 Therefore firms should compete on to excel on multiple competitive
other dimensions other than cost to dimensions, for instance, global economy
increase profit margin. frees the limitation of where to buy and
 These dimensions include quality aspects,
make their products.
speed of delivery and process flexibility etc.
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For example 6. Advances in Technology

 Collect customer details and build data
 Mass customized products to meet the needs
of individual customers based on data.
 Growth of Internet and E-Commerce helps
communication with customers and
 Increase automation and robotics

Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed. (New

York: W. W. Norton and Company, 1997), p. 58. Reprinted with permission
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Linking OM to Customers &

Suppliers (Supply Chain Mgt)
 In the past most organizations try to keep There are basically three components
their internal environment as secrecy in the supply chain that interact with
from the external environment.
other functions in the organization to
 Likewise, respective departments or
functions restrict information leakage and add value to the delivery of the output
sharing. system.
 However, this is not relevant in this era. Up-stream Supply Chain (Suppliers)
 OM is now the link in the chain of the Operations (Your transformation process)
overall supply chain and inter- Down-stream Supply Chain (Customers)
departmental functions.

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The value chain and its support function Value chain

• Value chain consists of steps an

organization requires to produce a
good or a service regardless of where
they are performed.

• The relationship between the

transformation processes of suppliers
and customers is the product’s value

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Other Recent Development is the

Integration of Manufacturing and Conclusion
 Operations Management existed long before
 Recently, managers recognized the industrial revolution
importance of both manufacturing and  OM responsible for transforming humanity
services and the need to integrate the two. and standard of living for the world
 Companies conducting world class  Still OM is changing and will continue to
operations require compatible change
manufacturing and service operations.
 Therefore, the way forward is integration of
the two.

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 Davis M.M, & Heineke J. (2007) Operations Management:
Integrating Manufacturing and Services. New York, USA:
McGraw-Hill Irwin.
 Aswathappa K, & Shridhara B.K. (2005) Production and
Operations Management. Delhi, India: Himalaya Publishing
 Kumar S.A, & Suresh N. (2009) Operations Management. New
Delhi, India: New Age International (P) Limited Publishers.

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