OPERATIONS MANAGEMENT

Production
Creation

of goods and services

OM is the set of activities that creates

value in the form of goods and services by
transforming inputs into outputs
Transformation
Input

Process

output

Food Processor
Inputs

Processing

Outputs

Raw Vegetables
Metal Sheets
Water
Energy
Labor
Building
Equipment

Cleaning
Making cans
Cutting
Cooking
Packing
Labeling

Canned
vegetables

Hospital Process
Inputs

Processing

Outputs

Doctors, nurses
Hospital
Medical Supplies
Equipment
Laboratories

Examination
Surgery
Monitoring
Medication
Therapy

Healthy
patients

MANAGEMENT

FUNCTIONS TO PRODUCE (G/S)

Finance
Investment
Costs
Revenue
Anything

related to money

Marketing
Marketing

research

Sales
Advertisement
Promotion

FUNCTIONS TO PRODUCE (G/S)

Operations/Production
Production
Activities

related to production

Inventory
Design
Quality

control

IMPORTANCE OF OM

One of the three major functions of

production
We need to know how goods and services
are produced
Job of operations managers
Costly part of organization

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

Sales
Cost of Goods
Gross Margin
Finance Costs
Subtotal
Taxes at 25%
Contribution

Marketing
Option

Finance/
Accounting
Option

OM
Option

Current

Increase
Sales
Revenue 50%

Reduce
Finance
Costs 50%

Reduce
Production
Costs 20%

$100,000
80,000
20,000
6,000
14,000
3,500
$ 10,500

$150,000
120,000
30,000
6,000
24,000
6,000
$ 18,000

$100,000
80,000
20,000
3,000
17,000
4,250
$ 12,750

$100,000
64,000
36,000
6,000
30,000
7,500
$ 22,500

FUNCTIONS OF OM

Planning
Organizing
Staffing
Leading
Controlling

CRITICAL DECISIONS

Design of goods and services

What goods
How should

should offer
design

Managing quality
What is quality
Quality control

Process and capacity

What
What

process and capacity will be required

technology and equipment is needed

CRITICAL DECISIONS

Location strategy

Where should be the

Selection of location

Layout strategy

Arrangement of
Size of facility

facility

facility

Human resources and job design

Better work environment
Benchmark for employees

CRITICAL DECISIONS

Supply chain management

Outsource or produce the
Decision about suppliers

Inventory management
How much inventory
When to reorder

component

Maintenance

we should keep

When maintenance is required

Who is responsible for maintenance

HISTORY OF OM

Eli Whitney (1765 - 1825)

Interchangeable

parts
Showed that machines can produce
standardized parts to exact specifications

Frederick W Taylor (1856 - 1915)

Father

of scientific management
Chief engineer of Midvale Steel
Studied how tasks were done
Motion and time studies

HISTORY OF OM
Seek

the best way to produce

Matching employees to right job
Provide proper training
Provide proper work methods and tools
Incentives for work done

Henry Ford (1863 - 1947)

Concept

of moving assembly lines

Unfinished products moves and men stood

HISTORY OF OM

W Edwards Deming (1900 - 1993)

Quality

control methods
Quality can be improved
Better working environment for workers
Used statistics to analyze process

CHALLENGES IN OM

Global focus
Just in time
Supply chain management
Rapid product development
Mass customization
Empowered employees and teams

CHARACTERISTICS OF GOODS

Tangible product
Consistent product definition
Production usually separate from
consumption
Can be inventoried
Low customer interaction

CHARACTERISTICS OF SERVICES

Intangible product
Produced and consumed at same time
Often unique
High customer interaction
Inconsistent product definition
Often knowledge-based

NEW TRENDS IN OM

Global focus
Just in time
Supply chain
Rapid product development
Mass customization
Empowered employees
Environmentally sensitive production
Ethics

PRODUCTIVITY

The ratio of outputs divided by one or

more inputs
Productivity = units produced
input used
Unit produced 1000
Labor hours 250
Productivity = 1000/250 = 4 units per lh

PRODUCTIVITY

Single factor
The

use of just one input to measure

productivity is single factor productivity

Multifactor
Multifactor

includes all inputs

output / labor + material + energy + capital

MEASUREMENT PROBLEMS

Quality
May

change while inputs and outputs are

constant

External environment
May

cause increase or decrease in

productivity

Units of measure
May

be lacking

SERVICE PRODUCTIVITY

Typically labor intensive

Frequently individually processed
Often an intellectual task performed by
professionals
Often difficult to evaluate for quality

ETHICS/SOCIAL RESPONSIBILITY

Developing and producing safe, quality

products
Maintaining a clean environment
Providing a safe workplace
Community commitments