Institute of Business and technology

Operations Management
chapter 1


Kapeel Kumar

MBA- Ms in HRM , Institute of business and
Technology.
Phd Management sciences in Process , Szabist
Lecturer Management sciences , IBT
Sales Manager , State life Insurance
Content Writer , Creative Chaos

Kapeel2008@gmail.com
0301-3440600





Evaluation Breakup

Mid-term 20
Quiz 1 and 2 10
Assignments/Mini presentations/homework 10
Class participation & behavior 10
Term Project 20
Final Examination 30

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 14
Chapter Objectives
Introduce and define operations management (OM) in
terms of its contribution and the activities it involves.
Describe how operations contributes to the overall
betterment of society.
Present operations as a function that addresses
issues in both manufacturing and services.
Show how operations management is gaining more
recognition both internally and externally to an
organization.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 15
Chapter Objectives (contd)
Demonstrate how the operations management
function interacts with the other functional areas within
an organization.
Present a brief history of operations management as a
field and its evolution to its current role in an
organization.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 16
Managerial Issues
Shift in balance of power to consumers
Globalization of business and markets
E-commerce
Achieving higher levels of productivity
Creating higher quality products
Delivering better customer service
Achieving shorter delivery times
Reducing labor and material costs
Operations management
Operations management teams design the method
of conversion of inputs (materials, labor,
proprietary information, etc.) into outputs (goods,
services, value-added products, etc.) that is most
beneficial to the organization. Operations
management teams attempt to balance costs with
revenue to achieve the highest net operating profit
possible.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 17

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 18
What Is Operations Management?
Operations Management
Management of the conversion process which
transforms inputs such as raw material and
labor into outputs in the form of finished goods
and services.
Transformation Process
(components)
Inputs
(customers
and/or
materials)
Outputs
(goods
and
services)
2011 Pearson Education, Inc. publishing as Prentice Hall
Why Study OM?
1. OM is one of four major functions of any
organization, we want to study how people
organize themselves for productive enterprise
2. We want (and need) to know how goods
and services are produced
3. We want to understand what operations
managers do
4. OM is such a costly part of an
organization
2011 Pearson Education, Inc. publishing as Prentice Hall
Options for Increasing Contribution


Table 1.1
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods 80,000 120,000 80,000 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs 6,000 6,000 3,000 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% 3,500 6,000 4,250 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce
Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 111
Role of OM within an Organization
Exhibit 1.1
2011 Pearson Education, Inc. publishing as Prentice Hall
Commercial Bank
Operations

Teller Scheduling

Check Clearing

Collection

Transaction processing

Facilities design/layout

Vault operations

Maintenance

Security

Finance

Investments

Security

Real estate

Accounting

Auditing





Marketing

Loans

Commercial

Industrial

Financial

Personal

Mortgage

Trust Department


Human Resources

Recruitment

Job evaluation

Performance evaluation

Wage and Salary Adm.

Personnel records



Organizational Charts
2011 Pearson Education, Inc. publishing as Prentice Hall
Manufacturing
Operations

Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply-chain management
Manufacturing
Tooling; fabrication; assembly
Design
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space,
and personnel
Process analysis
Development and installation of
production tools and equipment
Finance/ accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall

Marketing
Sales
promotion
Advertising
Sales
Market research
Human Resources

Recruitment

Job evaluation

Performance evaluation

Wage and Salary Adm.

Personnel records



Organizational Charts

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 114
Top-down Approach to OM Strategy
Operations Strategy Decisions
Strategic (long-range)
Needs of customers
(capacity planning)
Tactical (medium-range)
Efficient scheduling of
resources
Operational planning
and control (short-range)
Immediate tasks and
activities

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 115
An Operational-Level OM Perspective
OMs function focuses on adding value
through the transformation process
(technical core) of converting inputs into
outputs.
Physical: manufacturing
Locational: transportation
Exchange:retailing
Storage: warehousing
Physiological: health care
Informational: telecommunications

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 116
The Transformation Process within OM
Exhibit 1.2

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 117
Input-Transformation-Output
Relationships for Typical Systems
Exhibit 1.3
Types of Operations
Table 1.4
Operations Examples
Goods Producing Farming, mining, construction ,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 119
OMs Contributions to Society
Higher Standard of Living
Ability to increase productivity
Lower cost of goods and services
Better Quality Goods and Services
Competition increases quality
Concern for the Environment
Recycling and concern for air and water quality
Improved Working Conditions
Better job design and employee participation
2011 Pearson Education, Inc. publishing as Prentice Hall
What Operations
Managers Do
Planning
Organizing
Staffing
Leading
Controlling
Basic Management Functions
Responsibilities of Operations Management
Products & services
Planning

Capacity

Location


Make or buy

Layout

Projects

Scheduling
Controlling/Improving

Inventory

Quality
Organizing

Degree of centralization

Process selection
Staffing

Hiring/laying off

Use of Overtime
Directing

Incentive plans

Issuance of work orders

Job assignments

Costs

Productivity
Table 1.6
2011 Pearson Education, Inc. publishing as Prentice Hall
The Critical Decisions
1. Design of goods and services
What good or service should we offer?
How should we design these products and
services?
2. Managing quality
How do we define quality?
Who is responsible for quality?
Table 1.2 (cont.)
2011 Pearson Education, Inc. publishing as Prentice Hall
The Critical Decisions
3. Process and capacity design
What process and what capacity will these
products require?
What equipment and technology is
necessary for these processes?
4. Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?
Table 1.2 (cont.)
2011 Pearson Education, Inc. publishing as Prentice Hall
The Critical Decisions
5. Layout strategy
How should we arrange the facility?
How large must the facility be to meet our
plan?
6. Human resources and job design
How do we provide a reasonable work
environment?
How much can we expect our employees to
produce?
Table 1.2 (cont.)
2011 Pearson Education, Inc. publishing as Prentice Hall
The Critical Decisions
7. Supply-chain management
Should we make or buy this component?
Who should be our suppliers and how can we
integrate them into our strategy?
8. Inventory, material requirements planning, and
JIT
How much inventory of each item should we
have?
When do we re-order?
Table 1.2 (cont.)
2011 Pearson Education, Inc. publishing as Prentice Hall
The Critical Decisions
9. Intermediate and shortterm scheduling
Are we better off keeping people on the
payroll during slowdowns?
Which jobs do we perform next?
10. Maintenance
How do we build reliability into our
processes?
Who is responsible for maintenance?
Table 1.2 (cont.)
Key Decisions of Operations Managers
What
What resources/what amounts
When
Needed/scheduled/ordered
Where
Work to be done
How
Designed
Who
To do the work

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 128
Good
The Emergence of OM
Application of OM to Service Operations
Batch cooking operations at McDonalds
Just-in-Time (JIT) at Northern Telecomm, Inc.
Automatic inventory replenishment at Wal-Mart
Service Product
2011 Pearson Education, Inc. publishing as Prentice Hall
New Challenges in OM
Global focus
Just-in-time
Supply-chain
partnering
Rapid product
development,
alliances
Mass
customization
Empowered
employees, teams
To From
Local or national focus
Batch shipments
Low bid purchasing

Lengthy product
development

Standard products

Job specialization
Manufacturing or Service?
Tangible
Act
2011 Pearson Education, Inc. publishing as Prentice Hall
Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |
Manufacturing vs Service
Characteristic Manufacturing Service
Output
Customer contact
Uniformity of input
Labor content
Uniformity of output
Measurement of productivity
Opportunity to correct
Tangible
Low
High
Low
High
Easy
High
Intangible
High
Low
High
Low
Difficult
Low
quality problems
High
2011 Pearson Education, Inc. publishing as Prentice Hall
Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
2011 Pearson Education, Inc. publishing as Prentice Hall
Characteristics of Service
Intangible product
Produced and consumed at
same time
Often unique
High customer interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 135

1-6
Differences Between
Goods and Services
Goods
Tangible
Can be
inventoried
No interaction
between
customer and
process
Services
Intangible
Cannot be
inventoried
Direct interaction
between
customer and
process

Exhibit 1.7

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 136
Most Products Are a Bundle
of Goods and Services
Exhibit 1.8

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 137
An Expanded Definition of Quality
Quality is important in all functional areas of
an organization.
Quality is now much more than the technical
requirements for manufactured goods.
Service quality (customer
relationships) is equally
important.
Quality

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 138
A New Paradigm for OM
Post-War U.S. Dominance in Manufacturing
Available capacity built to support the war effort
Pent-up demand for consumer goods
Destruction of overseas production capabilities
Proactive Operations Function (Skinner)
Add value to products, increase profit margins.
Compete on dimensions other than costs:
Quality
Speed of delivery
Process flexibility


Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 139
The Ever-Changing World of OM
Increased Global Competition
Transformation into a global economy
Pressure to excel on multiple competitive
dimensions
Increased emphasis on logistics
Advances in Technology
Information technology (IT)
Internet email and commerce (B2B)
Automation and robotics

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 140
Fords Global Network to Support
the Manufacturing of the Escort
Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed.
(New York: W.W. Norton and Company, 1997), p. 58.
Exhibit 1.9

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 141
Linking OM to Customers and Suppliers
Benefits of Buffering the Transformation
Process
The process was not disturbed by
environmental interaction.
The process was often more efficient than input
and distribution processes.
Productivity was maximized when processes
operated at continuous rates.
Process management skills were different from
those of other functional activities.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 142
Linking OM to Customers and Suppliers
Disadvantages of Buffering the Transformation
Process
Information lag in interaction with other
functional activities.
Lack of communication between customers and
the shop floor for problem solving.
Value Chain
Steps an organization requires to produce a
good or a service regardless of where they are
performed.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 143
The Value Chain and Its Support Functions


Exhibit 1.10

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 144
Line and Staff Jobs in OM
Exhibit 1.11

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 145
Inputs Provided by OM to
Other Functional Areas
Exhibit 1.12

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 146
Historical Development of OM
Prior to 1900
Cottage industry produced custom-made goods.
Watts steam engine in 1785.
Whitneys standardized gun parts in 1801.
Industrial Revolution began at mid-century.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 147
Historical Development of OM (cont.)
Scientific Management (Frederick W. Taylor)
Systematic approach to increasing worker
productivity through time study, standardization
of work, and incentives.
Viewed workers as an interchangeable asset.
Other Management Pioneers
Frank and Lillian Gilbreth
Motion study and industrial psychology
Henry L. Gantt
Scheduling and the Gantt chart

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 148
Historical Development of OM (cont.)
Moving Assembly Line (1913)
Labor specialization reduced assembly time.
Hawthorne Studies
Yielded unexpected results in the productivity of
Western Electric plant workers after changes in
their production environment.
Led to recognition of the importance of work
design and employee motivation.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 149
Historical Development of OM (cont.)
Operations Research (Management Science)
Outgrowth of WWII needs for logistics control
and weapons-systems design.
Seeks to obtain mathematically optimal
(quantitative) solutions to complex problems.
OM Emerges as a Field
19501960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 150
Historical Development of OM (cont.)
OM Emerges as a Field
19501960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.
The Marriage of OM and IT
Integrated solutions approaches
Business process reengineering
Supply chain management
Systems integration (SAP)

Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 151
Historical Development of OM (cont.)
Operations Management in Services
OM concepts can apply to both manufacturing
and service operations.
Integration of Manufacturing and Services
Conducting world class operations requires
compatible manufacturing and service
operations.
2011 Pearson Education, Inc. publishing as Prentice Hall
Significant Events in OM
Figure 1.3
Self-Check
What are the 4 essential function of organizing
products and services?
What basic functions do managers do?
What 10 critical decisions do managers make?

Answer Key
1. Marketing, Production/operations,
Finance/accounting, Human Resources
2. Planning, Organizing, Staffing, Leading,
Controlling
3. 10 critical decisions
1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory, material requirements planning,
and JIT
9. Intermediate and shortterm scheduling
10. Maintenance









Fast Food Feast Case
Visit at least two different fast-food restaurants that make
hamburgers. For example, McDonald's, Jollibee, Whoopee
are good choices. Observe the basic operational
differences between these stores. Note the differences in
the following processes:
QUESTIONS
How are in-store orders taken?
Are the hamburgers prepared to order, or are they
prepared ahead of time and delivered from a storage bin?
How are special orders handled?
How are the hamburgers cooked?
How are the hamburgers assembled?
Is a microwave oven used in the process?
How are other common items, such as french fries and
drinks, handled?

Refrences
Operations Management, 10e
Principles of Operations Management, 8e by
Heizer and Render
Introduction to Operations Management 4e by
DAVIS ,AQUILANO & ,CHASE



Fundamentals of Operations Management 4e The McGraw-Hill Companies, Inc., 2003 156