1

Introduction to
Operations

Production
Production is the process by which raw
materials and other inputs are converted into
finished products. Another word synonymous
to production is manufacturing management
which is the process of exploitation of
resources to achieve desired goals

WHAT IS OPERATIONS MANAGEMENT?

DEFINED
Operations management (OM) is defined as
the design, operation, and improvement of
the systems that create and deliver the
firms primary products and services

Production is the creation of goods

Operations management (OM) is the set of
activities that creates value in the form of
goods and services by transforming inputs into
outputs

ROLE OF OPERATIONS RESEARCH(OR) IN OPERATIONS MANAGEMENT

(OM)

Operations management is the field of

management
Operations research is the application of
quantitative methods to decision making in all
the fields
Operations managers use the decision making
tool of OR (Critical path scheduling) in decision
making

PRODUCTION AND OPERATIONS MANAGEMENT

The term Production and operations management is

being increasingly replaced by simply operations
management , as the production function relating to the
manufacturing organizations has become the part of
operations

Operations management is a broad term which includes

manufacturing as well as service organization

WHY STUDY OPERATIONS

MANAGEMENT?
Systematic Approach
to Org. Processes

Business Education

Operations
Management

Cross-Functional
Applications

Career Opportunities

WHAT IS A TRANSFORMATION PROCESS?

DEFINED

A transformation process is defined as a user

of resources to transform inputs into some
desired outputs

Operations as a transformation process.

Internal and
external customers

Inputs

Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy

Transformation
Processes and
operations

5
2

Information on
performance

Outputs
Services
Goods

The Transformation Process

10

For a Service Organization (An MBA

Institute)
Random disturbances
Quality of
inputs
monitored

Raw minds
(students)
Teachers
Class rooms
Computer lab
Library
Projectors
(OHP,
LCD
etc)
Administrative
staff

INPUTS

Strikes of students,
teachers or staff
Undue interference of
the government in the
working of institutions
Transformation
Process

Quality of
outputs
monitored

Enlightened students with:

Good communication
skills
Pleasant personalities
Leadership qualities
Good analytical ability
Team spirit
Decision making abilities
Computer skills

Feedback Mechanisms
Success at placement interviews
Grades obtained in examinations
OUTPUTS
Rising career graph of alumni in the industry
Number of applications for admission
in the institute
Ratings of surveys

The Transformation Process For a 11

Purely Manufacturing Organization
(A Refrigerator
Manufacturer)
Random disturbances
Machines &
Equipments
Building
Components,
parts, subassemblies, etc.
Workers
Office
infrastructure
(computers,
furniture, etc.)
Packaging
material
Capital
Managers

INPUTS

High turnover of workers

and managers
Quality of
Recession
inputs
Governments taxation
monitored
policy
Strikes instigated by trade
unions
Transformation
Process

Feedback Mechanisms
Rising sales volume
Lesser customer complaints
Positive response of customers
in
the feedback forms

Quality of
outputs
monitored

Customers satisfied with:

Good cooling performanc
Less consumption with
electricity
Good after-sales service
New advanced features

OUTPUTS

12

TRANSFORMATIONS

Physical-manufacturing

Exchange--retailing

Physiological--health care

Informational--telecommunications

13

Operations as a technical core.

Finance/Accounting
Budgets
Cost analysis
Capital investments
Stockholder
requirements
Product/Service
Availability
Lead-time estimates
Status of order
Delivery schedules

Orders for materials

Production and delivery
Schedules Quality
Requirements Design/

Operations
Material availability
Quality data
Delivery schedules
Designs

Sales forecasts
Customer orders
Customer feedback
Promotions

Recruitment and selection

Performance evaluations
Job design/work
measurement

Hiring/firing
Training
Personnel needs
Skill sets

Human Resources

Marketing

Suppliers

Production and
Inventory data
Capital budgeting requests
Capacity expansion and
Technology plans

14

HOW IS OPERATIONS RELEVANT

TO MY MAJOR?

Accounting

Information
Technology

Management

As an auditor you must understand the

fundamentals of operations
management.
IT is a tool, and theres no better place
to apply it than in operations.
We use so many things you learn in an
operations classscheduling, lean
production, theory of constraints, and
tons of quality tools.

15

HOW IS OPERATIONS RELEVANT

TO MY MAJOR?

Economics

Marketing

Finance

Its all about processes. I live by

flowcharts and Pareto analysis.
How can you do a good job marketing a
product if youre unsure of its quality or
delivery status?
Most of our capital budgeting requests
are from operations, and most of our
cost savings, too.

16

HISTORICAL EVENTS IN
OPERATIONS MANAGEMENT
Era
Industrial
Revolution

Scientific
Management

Events/Concepts

Dates

Originator

Steam engine
Division of labor
Interchangeable parts
Principles of scientific

1769
1776
1790

James Watt

1911

Frederick W. Taylor

Time and motion studies

1911

Frank and Lillian

Gilbreth

Activity scheduling chart

1912

Henry Gantt

Moving assembly line

1913

Henry Ford

management

Adam Smith
Eli Whitney

HISTORICAL EVENTS IN
OPERATIONS MANAGEMENT
Era
Human
Relations

Operations
Research

Events/Concepts

Dates

Originator

Hawthorne studies

1930
1940s
1950s
1960s
1947
1951

Elton Mayo
Abraham Maslow
Frederick Herzberg
Douglas McGregor
George Dantzig
Remington Rand

1950s

Operations research
groups

Motivation theories
Linear programming
Digital computer
Simulation, waiting
line theory, decision
theory, PERT/CPM
MRP, EDI, EFT, CIM

1960s,
1970s

Joseph Orlicky, IBM

and others

17

HISTORICAL EVENTS IN
OPERATIONS MANAGEMENT
Era

Events/Concepts

Dates Originator

JIT (just-in-time)
TQM (total quality

1970s

Quality

management)
Strategy and

Revolution

operations

1980s
1980s

Reengineering

1990s

Six Sigma

1990s

Taiichi Ohno (Toyota)

W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy
GE, Motorola

18

HISTORICAL EVENTS IN
OPERATIONS MANAGEMENT
Era

Events/Concepts

Internet
Revolution

Internet, WWW, ERP,

1990s
supply chain management

19

Dates Originator
ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,

E-commerce

Globalization

WTO, European Union,

Global supply chains,
Outsourcing, Service
Science

2000s

1990s
2000s

ORACLE, Dell
Amazon, Yahoo,
eBay, Google, and
others
China, India,
emerging
economies

HISTORICAL EVENTS IN
OPERATIONS MANAGEMENT
Era

Events/Concepts

Dates Originator

Green
Revolution

Global warming, An
Inconvenient Truth, Kyoto

Today

Numerous
scientists,
statesmen and
governments

20

21

GLOBALIZATION

Why go global?
favorable

cost
access to international markets
response to changes in demand
reliable sources of supply
latest trends and technologies

Increased globalization
results

from the Internet and falling trade barriers

22

HOURLY COMPENSATION

23

GDP PER CAPITA

24

TRADE IN GOODS, % OF GDP

PRODUCTIVITY AND
COMPETITIVENESS

Competitiveness
degree

to which a nation can produce goods and

services that meet the test of international markets

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

25

26

MEASURES OF PRODUCTIVITY

27

OPERATIONS STRATEGY
AND COMPETITIVENESS

The McGraw-Hill Companies, Inc.,

28

OPERATIONS STRATEGY

Operations strategy can be viewed as a part of a

planning process that co-ordinates operational
goals with those of the larger organization

Since the goals of the large organization change

overtime , the operation strategy must be
designed to anticipate future needs

The operations capabilities of a firm can be

viewed as a portfolio best suited to adapt to the
changing product and service needs of the firms
customers

29

OPERATIONS STRATEGY
Strategy Process

Example

Customer Needs

More Product

Corporate Strategy

Increase Org. Size

Operations Strategy

Decisions on Processes
and Infrastructure

Increase Production Capacity

Build New Factory

30

COMPETITIVE DIMENSIONS

Cost- Make it cheap

Product Quality and Reliability Make it good
Delivery Speed- Make it fast
Delivery Reliability -Deliver it when
promised
Coping with Changes in Demand-Change
its volume
Flexibility and New Product Introduction
Speed- Fast and frequent Change
Other Product-Specific Criteria-Support
it

31

DEALING WITH TRADE-OFFS

For
Forexample,
example, ifif we
wereduce
reducecosts
costsby
byreducing
reducingproduct
product
quality
qualityinspections,
inspections, we
wemight
might reduce
reduceproduct
product quality.
quality.
For
Forexample,
example,ifif we
we
improve
improvecustomer
customer service
service
problem
problemsolving
solvingby
bycrosscrosstraining
trainingpersonnel
personnel to
to deal
deal
with
withaawider-range
wider-range of
of
problems,
problems, they
theymay
may
become
becomeless
lessefficient
efficientat
at
dealing
dealingwith
withcommonly
commonly
occurring
occurringproblems.
problems.

Cost
Flexibility

Delivery
Quality

32

CORE SERVICES PERFORMANCE OBJECTIVES

Quality

Flexibility

Operations
Managemen
t

Price (or cost

Reduction)

Speed

POSITIONING THE FIRM:

COST

Waste elimination
relentlessly

pursuing the removal of all waste

Examination of cost structure

looking

33

at the entire cost structure for reduction potential

Lean production
providing

low costs through disciplined operations

34

POSITIONING THE FIRM: SPEED

Fast moves, Fast adaptations, Tight linkages

Internet
Customers

expect immediate responses

Service organizations
always

competed on speed (McDonalds, LensCrafters, and Federal

Express)

Manufacturers
time-based

competition: build-to-order production and efficient

supply chains

Fashion industry
two-week

design-to-rack lead time of Spanish retailer, Zara

POSITIONING THE FIRM:

QUALITY

Minimizing defect rates or conforming to design

specifications

Ritz-Carlton - one customer at a time

Service

35

system designed to move heaven and earth to

satisfy customer

Employees
Teams
Each

empowered to satisfy a guests wish

set objectives and devise quality action plans

hotel has a quality leader

36

POSITIONING THE FIRM: FLEXIBILITY

Ability to adjust to changes in product mix,

production volume, or design

Mass customization: the mass production of

customized parts

National Bicycle Industrial Company

offers

11,231,862 variations
delivers within two weeks at costs only 10% above standard
models

37

OPERATIONS STRATEGY FRAMEWORK

Customer Needs

New product : Current product

Competitive
dimensions & requirements

Quality, Speed, Flexibility, and Price

Enterprise capabilities
Operations andOperations
Supplier Capabilities
& Supplier capabilities
R&DR&D
Technology

Systems

People Systems
Technology

Distribution
People

Distribution

Support Platforms
Financial management

Human resource management

Information management

38

ORDER QUALIFIERS AND WINNERS

Order

qualifiers are the basic criteria that

permit the firms products to be considered as
candidates for purchase by customers
what qualifies an item to be considered for
purchase

Order

winners are the criteria that

differentiates the products and services of
one firm from another
what wins the order

39

ORDER WINNERS
AND ORDER QUALIFIERS

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts,
Operations and Process Management, Prentice Hall, 2006, p. 47

40

STRATEGY FORMULATION
1.
2.
3.

4.
5.

Defining a primary task

What is the firm in the business of doing?
Assessing core competencies
What does the firm do better than anyone else?
Determining order winners and order qualifiers
What qualifies an item to be considered for
purchase?
What wins the order?
Positioning the firm
How will the firm compete?
Deploying the strategy

41

STRATEGIC PLANNING
Mission
and Vision
Voice of
the
Busines
s

Marketing
Strategy

Corporate
Strategy

Operations
Strategy

e
h
t
f
o
e
c
i
o
V
Customer

Financial
Strategy

42

BALANCED SCORECARD

Balanced scorecard
measuring
1.
2.
3.
4.

more than financial performance

finances
customers
processes
learning and growing

Key performance indicators

.set

of measures to help managers evaluate performance

in critical areas

43

BALANCED SCORECARD

Radar Chart

Dashboard

44

EVOLUTION OF OPERATIONS AND

SUPPLY CHAIN MANAGEMENT

Supply chain management

management of the flow of information, products, and services across a

network of customers, enterprises, and supply chain partners