INDUSTRIAL

MANAGEMENT
Topic 1:
BASIC CONCEPTS IN
OPERATION MANAGEMENT
UiTM Shah Alam
Lecturer: Pn. Nurul Hayati Abdul Halim
T1-A14-12A
NY_MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

Learning outcomes
At the end of this lesson students should be able
to :
1. Discuss the nature of production/operations
management
2. Recognize the functions of production/operations
manager
3. Compare and contrast the differences between goods
and services operations management
4. Identify the current trends and issues in
production/operations management
MEM 575: Courtesy of Mc Graw Hills & PearsonPrentice Hall

Operations Management (1)

Operations Management is:
The management of systems or processes
that create goods and/or provide services

Operations Management affects:

Companies ability to compete

Nations ability to compete internationally

MEM 575: Courtesy of Mc Graw Hills & PearsonPrentice Hall

Operations Management (2)

Production is the creation of goods
and services

Operations management is the set

of activities that creates value in the
form of goods and services by
transforming inputs into outputs
MEM 575: Courtesy of Mc Graw Hills & PearsonPrentice Hall

Why Study OM?

1. OM is one of three major functions
(marketing, finance, and operations) of any
organization
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
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

The Organization
The Three Basic Functions
Organization

Finance

Operations

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Pearson-Prentice Hall

Marketing

Organization
Essential functions:
Marketing generates demand
Production/operations creates the
product
Finance/accounting tracks how well the
organization is doing, pays bills, collects
the money
MEM 575: Courtesy of Mc Graw Hills & PearsonPrentice Hall

Example of Organizational Charts

Commercial Bank
Operations

Finance

Marketing

Teller
Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security

Investments
Security
Real estate

Loans
Commercial
Industrial
Financial
Personal
Mortgage

Accounting

Auditing
Trust Department

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Pearson-Prentice Hall

Figure 1.1(A) 8

Example of Organizational Charts

Airline
Operations
Ground support
equipment
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
4/18/2016

Finance/
accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange

Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising

Figure 1.1(B)
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

Example of Organizational Charts

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

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

Process analysis
Development and installation of
production tools and equipment
4/18/2016

Figure 1.1(C)
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

10

Value-Added Process
The operations function involves the conversion of
inputs into outputs

Value added
Inputs
Land
Labor
Capital

Outputs
Goods
Services

Transformation/
Conversion
process
Feedback

Control
Figure 1.2

Feedback

Feedback
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Pearson-Prentice Hall

11

Value-Added and Product Packages

1. Value-added elements make the
difference between the cost of inputs and
the value or price of outputs.
2. Product packages are a combination of
goods and services.
3. Product packages can make a company
more competitive.
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Pearson-Prentice Hall

12

The GoodsService Continuum

Figure 1.3

Goods

Service
Surgery, teaching
Song writing, software development

Computer repair, restaurant meal

Automobile repair, fast food
Home remodeling, retail sales

Automobile assembly, steel making

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Pearson-Prentice Hall

13

Food Processor
Table 1.2

Inputs
Raw vegetables
Metal sheets
Water
Energy
Labor
Building
Equipment

Processing
Cleaning
Making cans
Cutting
Cooking
Packing
Labeling

Outputs
Canned
vegetables

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Pearson-Prentice Hall

14

Hospital
Table 1.2

Inputs
Doctors, nurses
Hospital
Medical supplies
Equipment
Laboratories

Processing

Outputs

Examination
Surgery
Monitoring
Medication
Therapy

Treated
patients

MEM 575: Courtesy of Mc Graw Hills &

Pearson-Prentice Hall

15

Production of Goods
vs. Delivery of Services
1. Production of goods tangible output
2. Delivery of services an act
3. Service job categories
Government
Wholesale/retail
Financial services
Healthcare
Personal services
Business services
Education
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Pearson-Prentice Hall

16

Table 1.3

Key Differences:
Goods vs. Service

Characteristic

Goods

Service

Customer contact

Low

High

Uniformity of input

High

Low

Labor content (predictable)

Low

High

Uniformity of output

High

Low

Output; production & delivery

Tangible

Intangible

Measurement of productivity

Easy

Difficult

Opportunity to correct problems;Quality

Assurance

High

Low

Inventory

Much

Little

Evaluation

Easier

Difficult

Patentable

Usually

Not usually

MEM 575: Courtesy of Mc Graw Hills & Pearson-Prentice

Hall

17

 Operations Management includes:

1.

2.
3.
4.
5.
6.
7.
8.

9.

Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating and training employees
Locating facilities
Supply chain management
And more . . .
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

18

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, financial
advising, renting or leasing
Entertainment
Films, radio and television,
concerts, recording
Communication
Newspapers, radio and TV
newscasts, telephone, satellites
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

19

What Operations
Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
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& Pearson-Prentice Hall

20

Ten Critical Decisions

Ten Decision Areas
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 management
9. Scheduling
10. Maintenance

Chapter(s)
5
6, Supplement 6
7, Supplement 7
8
9
10, Supplement 10
11, Supplement 11
12, 14, 16
13, 15
17

MEM 575: Courtesy of Mc Graw Hills &

Pearson-Prentice Hall

Table 1.2
21

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.)

MEM 575: Courtesy of Mc Graw Hills &

Pearson-Prentice Hall

22

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.)
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

23

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.)
MEM 575: Courtesy of Mc Graw Hills
& Pearson-Prentice Hall

24

The Critical Decisions

7. Supply chain management
Should we make or buy this component?
Who are our suppliers and who can
integrate into our e-commerce program?

8. Inventory, material requirements

planning, and JIT
How much inventory of each item should
we have?
Table 1.2 (cont.)
When do we re-order?
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

25

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
Who is responsible for maintenance?
When do we do maintenance?
Table 1.2 (cont.)
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

26

Where are the OM Jobs?

4/18/2016

NY_MEM 575: Courtesy of Mc Graw Hills &

Pearson-Prentice Hall

Figure 1.2

27

Ethical Issues
1.
2.
3.
4.
5.
6.
7.
8.
9.

Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Workers rights
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Pearson-Prentice Hall

28

Trends in Business
Major trends
1.
2.

3.
4.
5.

6.
7.

The Internet, e-commerce, e-business

Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior
MEM 575: Courtesy of Mc Graw Hills &
Pearson-Prentice Hall

29

Other Important Trends

1.
2.
3.
4.
5.
6.

Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement
Increased regulation and product liability
Lean production

MEM 575: Courtesy of Mc Graw Hills &

Pearson-Prentice Hall

30

Learning outcomes
At the end of this lesson students should be able
to :
1. Discuss the nature of production/operations
management
2. Recognize the functions of production/operations
manager
3. Compare and contrast the differences between goods
and services operations management
4. Identify the current trends and issues in
production/operations management
MEM 575: Courtesy of Mc Graw Hills & PearsonPrentice Hall

31

Lets Recap
1. What is the nature of production/operation
management
2. What are the functions of production/operations
manager; identify and discuss.
3. What are the differences between goods and
services operations management; compare and
contrast
4. What are the current trends and issues in
production/operations management; identify

MEM 575: Courtesy of Mc Graw Hills &

Pearson-Prentice Hall

32