UNIVERSITI TEKNOLOGI MARA

FACULTY OF BUSINESS MANAGEMENT

Introduction to Operations Management

Arliza Abdullah OPM530/533

Topics
WHAT IS OPERATIONS MANAGEMENT?

ORGANIZING TO PRODUCE GOODS AND SERVICES

WHY STUDY OM? OPERATIONS IN THE SERVICE SECTOR EXCITING NEW TRENDS IN OPERATIONS MANAGEMENT

THE PRODUCTIVITY ISSSUE

Arliza Abdullah OPM530/533

Organizing to Produce Goods and Services

Essential functions:
Marketing generates demand Operations creates the product Finance/accounting tracks organizational performance, pays bills, collects money

Arliza Abdullah OPM530/533

Functions - Bank

Commercial Bank
1984-1994 T/Maker Co.

Marketing

Operations

Finance/ Accounting

Teller Scheduling

Check Clearing

Transactions Processing

Security

Arliza Abdullah OPM530/533

Functions - Manufacturer

Manufacturing
Finance/ Accounting

Marketing

Operations

Manufacturing

Production Control

Quality Control

Purchasing

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Organizational Charts Manufacturing

Operations
Facilities:
Construction:maintenance

Finance & Accounting

Disbursements/credits Receivables Payables General ledger Funds Management Money market International exchange Capital requirements Stock issue Bond issues and recall

Marketing
Sales promotions Advertising Sales Market research

Production & inventory control

Scheduling: materials control

Supply-chain management Manufacturing

Design

Tooling, fabrication,assembly

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
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Definitions
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 Transformation Process is a series of activities along a value chain extending from supplier to customer where less valuable input resources are transformed into valuable form of output

Transformations of Inputs to Outputs

Inputs
Land, Labor, Capital, Management

Transformation Process
Physical: as in manufacturing operations Locational: as in transportation operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication

Outputs
Goods and Services

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

1995 Corel Corp.

Arliza Abdullah OPM530/533

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

1995 Corel Corp.

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Goods Versus Services

Goods
Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production

Service
Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service

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Goods Versus Services - Continued

Goods
Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product

Service
Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service.

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Continuum from Goods to Services

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.
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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 such a costly part of an organization.

Arliza Abdullah OPM530/533

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An Integrated Value Chain

Value chain: set of activities that create and deliver products to customer

Customer

Manufacturer

Supplier

Flow of information (customer order) Flow of product (order fulfillment)

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Competitiveness and Productivity

Competitiveness

Productivity

degree to which a nation can produce goods and services that meet the test of international markets ratio of output to input sales made, products produced, customers served, meals delivered, or calls answered labor hours, investment in equipment, material usage, or square footage

Output Input

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Productivity

Measures of Productivity
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Measurement Problems
Quality may change while the quantity of inputs and outputs remains constant External elements may cause an increase or decrease in productivity Precise units of measure may be lacking

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Productivity Variables

Labor - contributes about 10% of the annual increase Capital - contributes about 38% of the annual increase Management - contributes about 52% of the annual increase

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Key Variables for Improved Labor Productivity

Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

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Service Productivity
Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality

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New Challenges in OM
From
Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization

To
Global focus Just-in-time Supply chain partnering Rapid product development, alliances

Mass customization Empowered employees, teams

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Changing Challenges for the Operations Manager

Past
Local or national focus Batch (large) shipments Low-bid purchasing Lengthy product development

Causes
Low-cost, reliable worldwide communication and transportation networks Cost of capital puts pressure on reducing investment in inventory Quality emphasis requires that suppliers be engaged in product improvement Shorter life cycles, rapid international communication, computer-aided design, and international collaboration

Future
Global Focus Just-in-time shipments Supply-chain partners Rapid product development, alliances, collaborative designs
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Changing Challenges for the Operations Manager

Past
Standardized products Job specialization Low cost focus

Causes
Affluence and worldwide markets; increasingly flexible production processes Changing sociocultural milieu. Increasingly a knowledge and information society. Environmental issues, ISO 14000, increasing disposal costs

Future
Mass customization Empowered employees, teams, and lean production Environmentally sensitive production, Green manufacturing, recycled materials, remanufacturing
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Arliza Abdullah OPM530/533