In the name of Allah the most

beneficent the most merciful

There
the

is

no shame in not
knowing;
shame lies in not
finding out.

Operations
Management (1)
By
Syed Mukhtar Ahmed Jilani
MS (MS), MBA (HR), MCS
smajilani@yahoo.com
2

Prescribed & Recommended Readings

The prescribed reading for this course is the AIOU text book
The prescribed additional reading for this course are:
James B. Dilworth Operations Management: Design, Planning, and Control

for Manufacturing and Services McGraw Hill, Inc. 1992 ISBN 0-07-016988-8.
Ray Wild Production and Operations Management: Text and Cases Cassel

Educational Ltd 1999 ISBN 0-304-33077-9

Operations Management

Learning Objectives
Understand the growing need for better operations

management in manufacturing and service sectors

Define Operations Management?
The role and activities of operation management
The input-transformation-output model
Difference between goods and services

Operations Management

Why Study OM?

OM is one of three major functions
(marketing, finance, and operations) of any
organization
We want (and need) to know how goods and
services are produced
We want to understand what operations
managers do
OM is a very costly part of an organization

Operations Management

Options for Increasing Contribution

Sales
Cost of Goods
Gross Margin
Finance Costs
Subtotal
Taxes at 25%
Contribution

Current
$100,000
80,000
20,000
6,000
14,000
3,500
$ 10,500

Marketing
Option

Finance/
Accounting
Option

OM
Option

Increase
Sales
Revenue 50%
$150,000
120,000
30,000
6,000
24,000
6,000
$ 18,000

Reduce
Finance
Costs 50%
$100,000
80,000
20,000
3,000
17,000
4,250
$ 12,750

Reduce
Production
Costs 20%
$100,000
64,000
36,000
6,000
30,000
7,500
$ 22,500

What Is Operations Management?

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

Operations Management

OMs Transformation Role

Source: Reid and Sanders, 2005.

8

Operations Management

Organizing to Produce Goods and Services

Essential functions:

Marketing generates demand

Production/operations creates the
product
Finance/accounting tracks how well
the organization is doing, pays bills,
collects the money

Operations Management

Typical Organization Chart

Source: Reid and Sanders, 2005.

10

Operations Management

The Activities of Operations

Management
ENVIRONMENT
INPUT
TRANSFORMED
RESOURCES
MATERIALS
INFROMATION
CUSTOMERS

INPUT
FACILITIES
STAFF
INPUT
TRASNFORMED
RESOURCES

OPERATIONS
STRATEGY

IMPROVEMENT
DESIGN
PLANNING AND
CONTROL

ENVIRONMENT

GOODS
OUTPUT
AND
SERVICES

Inputs

The Activities of Operations

Management

Transformed resources the resources that are treated,

transformed or converted in some way. The transformed
resources which operations take in are usually a mixture of
materials, information and customers.
Transforming resources the resources that act upon the
transformed resources. Facilities and staff are the two types
of transforming resources. Facilities include building,
equipment, plant and process technology etc., Staff includes
all those who operate, maintain, plan and manage the
operation.
MGT 507 Operations Management

Where are the OM Jobs?

13

Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement

Operations Management

Evolution
of
Operations
Management

Contributions From:

15

Human factors
Industrial engineering
Management science
Biological science
Physical sciences
Information technology

Operations Management

The Heritage of OM
Division of labor (Adam Smith 1776; Charles
Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/ Sorenson
1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922)
Quality control (Shewhart 1924; Deming
1950)
MGT 507 Operations Management

The Heritage of OM

Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)
Material requirements planning (Orlicky 1960)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization (1992)
Internet (1995)
MGT 507 Operations Management

Todays OM Environment
Customers demand better quality, faster

deliveries, and lower costs

Increased cross-functional decision making
Recognized need to better manage
information using ERP and CRM systems

18

Operations Management

Goods
and
Services

Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
20

Operations Management

Characteristics of Services
Intangible product
Produced and consumed
at same time
Often unique
High customer interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
21

Operations Management

Goods Versus Services

Attributes of Goods
(Tangible Product)
Can be resold
Can be inventoried
Some aspects of quality
measurable
Selling is distinct from
production
Product is transportable
Site of facility important for cost
Often easy to automate
Revenue generated primarily
from tangible product
22

Operations Management

Attributes of Services
(Intangible Product)
Reselling unusual
Difficult to inventory
Quality difficult to measure
Selling is part of service
Provider, not product, is
often transportable
Site of facility important for
customer contact
Often difficult to automate
Revenue generated primarily
from the intangible service

Goods and Services

Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100%
|

75
|

50
|

25
|

Percent of Product that is a Good

0
|

25
|

50
|

75
|

100%
|

Percent of Product that is a Service

Similarities - Goods / Service

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
24

Operations Management

Operations Managers

What Operations Managers Do

Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling

26

Operations Management

Activities of Operations manager

Understand the operations strategic objectives
Developing an operations strategy for the
organization
Designing the operations products, services and
processes
Planning and controlling the operation
Improving the performance of the operation.

27

Operations Management

Ten Critical Decisions

Ten Decision Areas

28

Design of goods and services

Managing quality
Process and capacity
design
Location strategy
Layout strategy
Human resources and job design
Supply chain management
Inventory management
Scheduling
Maintenance
Operations Management

The Critical Decisions

Design of goods and services

What good or service should we offer?

How should we design these products and
services?

Managing quality

29

How do we define quality?

Who is responsible for quality?

Operations Management

The Critical Decisions

Process and capacity design

What process and what capacity will these

products require?
What equipment and technology is necessary
for these processes?

Location strategy

30

Where should we put the facility?

On what criteria should we base the location
decision?

Operations Management

The Critical Decisions

Layout strategy

How should we arrange the facility?

How large must the facility be to meet our plan?

Human resources and job design

31

How do we provide a reasonable work

environment?
How much can we expect our employees to
produce?

Operations Management

The Critical Decisions

Supply chain management

Should we make or buy this component?

Who are our suppliers and who can integrate into
our e-commerce program?

Inventory, material requirements planning, and JIT

32

How much inventory of each item should we have?

When do we re-order?

Operations Management

The Critical Decisions

Intermediate and shortterm scheduling

Are we better off keeping people on the payroll

during slowdowns?
Which jobs do we perform next?

Maintenance

33

Who is responsible for maintenance?

When do we do maintenance?

Operations Management

Highlights
of
Operations
Management

Highlights
OM is function that manages the resources that add value
Its role is to transform inputs into products or services
Key differences between mfg. and service companies are

tangibility of product and degree of customer contact

Historical milestones range from 1700s Industrial Revolution to
the modern Electronic Commerce age
OM must understand and implement major process changes like
JIT, TQM, supply chain management, and environmental
changes
OM works closely with all other business functions

35

Operations Management

New Trends

New Trends in OM

37

Global focus
Just-in-time performance
Supply chain partnering
Rapid product development
Mass customization
Empowered employees
Environmentally sensitive production
Ethics

Operations Management

New Trends in OM
Past

Causes

Future

Local or
national
focus

Reliable worldwide
communication and
transportation networks

Global focus,
moving
production
offshore

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,
outsourcing

New Trends in OM
Past

Causes

Future

Lengthy
product
development

Shorter life cycles,

Internet, rapid international
communication, computeraided 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

New Trends in OM
Past

Causes

Future

Low-cost
focus

Environmental issues, ISO

14000, increasing disposal
costs

Environmentally
sensitive
production, green
manufacturing,
recycled
materials,
remanufacturing

Ethics not
at forefront

Businesses operate more

openly; public and global
review of ethics; opposition
to child labor, bribery,
pollution

High ethical
standards and
social
responsibility
expected

Ethics
and
Social Responsibility

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

MGT 507 Operations Management