OPERATION MANAGEMENT

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Topic 8 Page 1

What Does Production Mean Today?

1. The concept of production means services as

well as goods.
2. The key difference between production and
services operations is the customer's involvement
in the latter.
3. Customers are involved in all kinds of production
because electronic communications are key
components in winning and keeping customers.

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Topic 8 Page 2

The Growth of Global Operations

1. Global competition has made production a fasterpaced, more complex activity.

2. New technologies make machines that run cleaner,
faster and safer and that operate on a global scale.
3. With the Internet, producers of both services and
goods can integrate their production with those of
far-off suppliers and customers.

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Topic 8 Page 3

What is Utility?
A products ability to satisfy a human want. Four kinds: time,
place, possession and form

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Topic 8 Page 4

What is Operations (or Production) Management?

Systematic direction and control of the processes that transform

resources into finished products that create value for and provide
benefits to customers

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Topic 8 Page 5

What Are Operations (or Production) Managers?

Managers responsible for ensuring that operations processes create

value and provide benefits

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Topic 8 Page 6

Resource Transformation Process

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Topic 8 Page 7

Operations Processes
1. Operations process is a set of methods and
technologies used in the production of a good
or a service
a. Goods classification is based on whether
an operations process combines
resources or breaks them into
component parts
b. Services classification is based
on the extent of customer contact
required

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Topic 8 Page 8

Goods-Manufacturing Processes: Analytic vs. Synthetic

Processes

1. Analytic process breaks down resources into

components
2. Synthetic process combines raw materials to
produce a finished product

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Topic 8 Page 9

Service Processes: Extent of Customer Contact

High-contact system is an operation in which the

customer is part of the system during service delivery

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Topic 8 Page 10

Service Processes: Extent of Customer Contact

Low-contact system is an operation in which the customer

need not be a part of the system to receive the service

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Topic 8 Page 11

Differences Between Service and Manufacturing Operations

1.
2.
3.

Focus on Performance
Focus on Process and Outcome
Focus on Service Characteristics

a. Intangibility
b. Customization
c. Unstorability
4.

Focus on the Customer-Service Link

a. E-Commerce: The Virtual Presence of the

Customer
5.

Focus on Service Quality Considerations

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Topic 8 Page 12

Operations Planning
1. Managers from many departments contribute to
decisions about operations.
2. The business plan and forecasts developed by top
managers guide operations planning.
a. Forecast is a facet of a long-range
production plan that predicts
future demand

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Topic 8 Page 13

Operations Planning and Control

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Topic 8 Page 14

What is Capacity?
Amount of a product that a company can produce under normal
working conditions

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Topic 8 Page 15

Capacity Planning
1. Capacity Planning for Producing Goods
a. Capacity planning for goods means ensuring
that a firms capacity slightly exceeds normal
demand for its product.
2. Capacity Planning for Producing Services
a. In low-contact processes, maintaining inventory
lets managers set capacity at the level of
average demand.
b. In high-contact processes, managers must plan
capacity to meet peak demand.

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Topic 8 Page 16

Location Planning
1. Location Planning for Producing Goods
a. Location decisions are influenced by proximity
to raw materials and markets, availability of
labor, energy and transportation costs and other
factors.
2. Location Planning for Producing Services
a. Low-contact services can be located near
resource supplies, labor or transportation
outlets.
b. High-contact services must locate near the
customers who participate in the system.

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Topic 8 Page 17

Layout Planning for Producing Goods

1. Layout must be planned for three types of

space:
a. Productive facilities
b. Nonproductive facilities
c. Support facilities

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Topic 8 Page 18

Layout Planning for Producing Goods

1. Process layout groups equipment and people

according to function
2. Cellular layout works well when a family of products
follows a fixed flow path
3. Product layout is set up to make one type of product in
a fixed sequence and is arranged according to its
production requirements

a. Assembly line is a product layout in which a

product moves step-by-step through a plant on
conveyer belts or other equipment until it is
completed

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Topic 8 Page 19

Layouts for Producing Goods

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Topic 8 Page 20

Other Developments in Layout Flexibility

1. U-shaped product line is a product layout in which

machines and workers are placed in a narrow U
shape rather than a straight line
2. Flexible manufacturing system (FMS) is a
production system in which a single factory uses
automation to produce a wide variety of products

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Topic 8 Page 21

Layout Planning for Producing Services

1. In a low-contact system, the facility should

be arranged to enhance the performing of
the service.
2. In a high-contact system, the facility should
be arranged to meet customer needs.

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Topic 8 Page 22

Layout of a Typical Piccadilly Cafeteria

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Topic 8 Page 23

What is Quality?
The American Society for Quality defines quality as the
combination of characteristics of a product or service that
bear on its ability to satisfy stated or implied needs.

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Topic 8 Page 24

Methods Planning
1. Methods Improvement in Goods
a. Process flowchart is a diagram included in a
detailed description of methods
2. Methods Improvement in Services
a. Service flow analysis shows the flow of
processes that make up a given service
b. Designing to Control Employee
Discretion in Services
c. Design for Customer Contact in Services

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Topic 8 Page 25

Service Flow Analysis

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Topic 8 Page 26

Operations Scheduling
1.

Scheduling Goods Operations

a. Master production schedule

shows which products will be
produced, when production will
take place and what resources
will be used
2.

Scheduling Service Operations

a. In low-contact services, work scheduling

may be based either on desired completion
dates or on the time of order arrivals.
b. In high-contact services, the customer must
be accommodated as part of the system
and its processes.

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Topic 8 Page 27

Tools for Scheduling Service Operations

Gantt chart diagrams steps to be performed and

specifies the time required to complete each step

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Topic 8 Page 28

Tools for Scheduling Service Operations

PERT chart breaks down large projects into steps

and specifies the time required to perform each one

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Topic 8 Page 29

What is Operations Control?

Process of monitoring production performance by

comparing results with plans

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Topic 8 Page 30

What is Follow-Up?
Production control activity for ensuring that production
decisions are being implemented

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Topic 8 Page 31

Materials Management
1. Materials management allows managers
not only to control but also to plan and
organize materials flow
a. Standardization is the use of standard
and uniform components in the
production process

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Topic 8 Page 32

Four Major Areas in Materials Management

1. Transportation includes the means of transporting

resources to the manufacturer and finished goods to
buyers
2. Warehousing is the storage of both incoming materials
for production and finished goods for distribution to
customers
3. Inventory control includes the receiving, storing,
handling and counting of all raw materials, partly
finished goods and finished goods
4. Purchasing is the acquisition of the raw materials and
services that a firm needs to produce its products

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Topic 8 Page 33

Purchasing Processes
1. Holding costs are costs of keeping extra supplies or
inventory on hand
2. Opportunity costs are additional earnings that the
company must pass up because funds are tied up in
inventory
3. Lead time is the gap between the customers order
placement and the sellers shipment
4. Supplier selection is the process of deciding which
suppliers to buy from

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Topic 8 Page 34

Tools for Operations Process Control

1. Worker Training
2. Lean Production Systems:
Just-in-Operations

a. Just-in-Time (JIT) Production

3. Material Requirements Planning
a. Bill of Materials
b. Manufacturing Resource Planning (MRP II)

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Topic 8 Page 35

What is Quality Control?

Management of the production process designed to

manufacture goods or supply services that meet specific
quality standards

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Topic 8 Page 36