Operations Management

• Systematic direction, control, and evaluation of

the entire range of processes that transform
inputs into finished goods or services.
• Environmental factors-culture, political, and
market influences
• Inputs-HR, capital, materials, land, energy,
information, customer
• Transformations-convert inputs into outputs
O.M. (cont)

• Outputs-goods or services, and waste

• Customer Contact-customers actively
participate in transformation
processes, self-service
• Performance Feedback-repair
records, customer comments
Operations Management
– Refers to the management of the production
system that transforms inputs into finished
goods and services.
• Production system: the way a firm acquires
inputs then converts and disposes outputs.
• Operations managers: responsible for the
transformation process from inputs to outputs.
– Operations management seeks to increase
the quality, efficiency, and responsiveness
of the firm.
• Seeks to provide a competitive advantage.
Operations Management
Concepts
– Quality: goods and services that are reliable
and perform correctly.
• Quality allows customers to receive the
performance that they expect.
– Efficiency: the amount of input to produce a
given output.
• Less input required lowers cost and waste.
– Responsiveness to customers: actions
taken to respond to customer needs.
• Firm can react quickly and correctly to customer
needs as they arise.
Differences Between
Services and Goods
• Information Asymmetry
• Intangible
• Inventory
• Customer Contact
• Response Time
• Labor Intensity
Typical Characteristics of Services and
Goods Producers
Primarily Primarily
Primarily Service Continuum of Goods
Producers Characteristics Producers

Mixed
Intangible, nondurable Tangible, durable

Output can’t be Output can be

inventoried inventoried

High customer contact Low customer contact

Short response time Long response time

Labor intensive Capital intensive

Positioning Strategies-
approach selected for
transformational processes
many of one product
• Process Focus-layout of plant and
equipment around each
production unit
– custom made
– Low Volume
– Norwegian Ship Building
• Product Focus-arranging plant
and equipment around one or a
few output types
– many of one product
– high-volume, highly
automated
– low flexibility
– Factory Lines
• Intermediate Strategy-plant
and equipment layout reflects
some of both strategies
– batches of products
– Kinko's, Ball Homes
• Agile Strategy-mass
customization
Flexibility
• Product Flexibility-speed with which products are created,
ability to customize, ability to modify products for special
needs
• Volume Flexibility-ability to respond to sudden changes in
demand, change from small to full scale
• Process Flexibility-ability to manufacture a variety of
goods in a short time, adjust to product mix over time,
ability to accommodate changes in raw materials
Core Positioning Strategies
Continuous
process Product focus
(stable)

Auto assembly
Resource flows

Mass
production plant
Intermediate
Mail processing
Garment
Large industry
batch
Process focus
Branch banks

Space shuttle
Sporadic Legal practice
(unstable)
Custom products,Mixture of custom and standard Standard products,
low volume products, moderate volume high volume
Product volume
Improving Responsiveness to
Customers
– Without customers, organizations cease to exist.
• Non-profit and for-profit firms all have customers.
• Managers need to identify who the customer is and their needs.
– What do customers want? Usually customers prefer:
• A lower price to a higher price.
• High quality over low quality.
• Fast service over slow service.
– Also good after sale support.
• Many features over few features.
• Products tailored to their specific needs.
Quality-how well a product
does what the customer
expects
• Internal View-within the organization

• External View-value customers

expect

• Value-the relationship between

quality and price
Competitiveness Value Map
Higher Premium
Poor value
value
Relative Price

Average
value

Economy
value Outstanding
value
Lower
Inferior Superior
Relative Quality
Price v. Attributes
– Firms offering high quality, fast service and other
customer desires, often must raise price.
– Customers must tradeoff price for attributes.
– Operations management tries to push the
price/attribute curve to the right with better
production.
• Provides more attributes at the same cost.
– By enhancing the price/attribute relationship, the firm can
increase its competitive position.
Customer Responsive Production
Systems
– An output’s attributes is determined by
the production system.
• Firms must strike a balance between cost
and attributes
– Improving Quality: can apply to firms
producing goods and services.
• A firm that provides higher quality than
others at the same price is more responsive
to customers.
• Higher quality can also lead to better
efficiency.
– Lowers waste levels and operating costs.
Total Quality Management

• The continuous process of ensuring

every aspect of production builds in
product quality
• Traditional Quality-product inspection
during or at the end of the
transformation process
Total Versus Traditional
Quality
Total Quality Management Traditional Quality Control
■ Quality is a strategic issue
■ Plan for quality
■ Quality is everybody’s responsibility
■ Strive for zero defects
■ Quality means conformance to
requirements that meet or exceed
customers’ expectations
■ Scrap and reworking are only a small
part of the costs of nonconformance
■ Quality is a tactical issue
■ Screen for quality
■ Quality is the responsibility of the
quality control department
■ Some mistakes are inevitable
■ Quality means inspection
■ Scrap and reworking are the major
costs of poor quality
Improving Efficiency
– Labor productivity allows labor comparisons
between organizations.
• Improved efficiency leads to lower costs and better
performance.
– TQM and Efficiency: TQM can lead to much higher
labor productivity.
• When quality rises, less time is wasted on scrap.
– Flexible manufacturing and efficiency: reduces
the set-up costs for production systems.
Facilities layout: seeks to design the
machine-worker interface to increase
production efficiency.
Efficient Manufacturing
– Most firms face major expense when setting up to
produce a product.
• These costs must be paid before production begins.
– The more often products to be built change, the higher setup
costs become.
• Flexible Manufacturing reduces setup costs.
– Just-in-Time (JIT) inventory, while developed for
TQM, also adds to efficient production.
• Many costs are reduced including warehousing, holding
costs and inventory tracking.
– Firm does not have a supply of parts, but can be vulnerable to
strikes or supply problems.
Efficient Manufacturing
– Self-managed teams boost efficiency by allowing for
a flatter organization structure.
• The team takes the role of the supervisor.
• Teams working together often become very skilled at
enhancing productivity.
– Kaizen: Japanese term for a management philosophy
the stresses the need for continuous improvement.
• Better operations can come from many, small, continuous
improvements.
• Focus on what adds value to the product and try to eliminate
steps that do not add value (such as inspection for defects).
Reengineering
– Process Reengineering: the fundamental rethinking and
radical redesign of the business process.
• Can boost efficiency by directing efforts to activities that add
value to the good or service produced.
• While Kaizen focuses on continuous enhancements, process
reengineering considers wholesale change.
– Top managers must support operations enhancement tools
for them to be accepted by workers.
• Usually, a successful operations change means a complete
change in the organizational culture.
• Without a supporting culture, change will not succeed.
Nine Categories of Operations
Management Decisions
• Product plans
• Competitive Priorities
• Positioning Strategies
• Location
• Technological Choices
• Quality management and control
• Inventory management and control
• Materials Management
• Master production scheduling
Inventory Costs
• What contributes to inventory costs?
• TOTAL COST = ORDERING + CARRYING
– Carrying Costs
• Warehouse
• Insurance
• Obsolescence
• taxes
• breakage
– Ordering Costs
• Placing the order
• Transportation
• Shortage
Inventory Terms

• Lead Time
– Elapsed time between placing and receiving an order
• EOQ-economic order cost
– optimum order quantity yielding the lowest total
inventory cost
• Just-in-time
• finished goods to sell
• sub assemblies to be assembled
• purchases of raw materials to be transformed
Cost Trade-Offs in Determining
Inventory Levels
High

Average annual cost ($) Total cost

Carrying cost

Order cost

Low
Small Q1 Large

Quantity (Q)
•THANK YOU