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Introduction to
Operations
Management
1-1
Lecture Outline
Operations Management Definition
Nature, importance & Its Historical Evolution
Transformation Processes
Difference Between goods and services
System Perspective
Types of Production system
Functions, challenges, current priorities and
recent trends
Operation Strategy Framework & Strategic
Fit
Supply chain Managment
1-2
Introduction to Operations
Management
What is Production?
Production takes place when resources such as
raw materials or components, are changed into
products. It refers to those activities that
bring a product into being.
What is Operations?
It is that part of an organization, which is
concerned with the transformation of a range
Introduction to Operations Management
(Contd..)
What is Production Management?
It is a set of interrelated management activities, which
are involved in manufacturing certain products.
1-15
Management Science (Mid-1900s)
Developed new quantitative techniques for
common OM problems:
Major contributions include:
inventory modeling
linear programming
project management
forecasting
statistical sampling
quality control techniques
1-16
Computer Age (1970s)
Provided the tool necessary to support the
widespread use of Management Sciences
quantitative techniques the ability to
process huge amounts of data quickly &
relatively cheaply
1-17
Developments (1980s)
Japanese Influence
Just-In-Time (JIT):
Techniques designed to achieve high-volume
production using coordinated material flows,
continuous improvement, & elimination of
waste
Total Quality Management (TQM):
Techniques designed to achieve high levels
of product quality through shared
responsibility & by eliminating the root causes
of product defects
Business Process Reengineering: 1-18
Developments (1990s)
Flexibility:
Offer a greater variety of product choices on
a mass scale (mass customization)
Time-based competition:
Developing new product designs &
delivering customer orders more quickly than
competitors
Supply Chain Management
Cooperating with suppliers & customers to
reduce overall costs of the supply chain &
increase responsiveness to customers 1-19
Developments (1990s)
Global competition:
International trade agreements open new markets for
expansion & lower barriers to the entry of foreign
competitors (e.g.: NAFTA & GATT)
Creates the need for decision-making tools for
facility location, compliance with with local
regulations, tailoring product offerings to local tastes,
managing distribution networks,
Environmental issues:
Pressure from consumers & regulators to reduce,
reuse & recycle solid wastes & discharges to air &
water
1-20
Electronic Commerce
Internet & related technologies enable new
methods of business transactions:
E-tailing creates a new outlet for retail
goods & services with global access and 24-
7 availability
Internet provides a cheap network for
coordinating supply chain management
information
Developing influence of broadband & wireless
1-21
GOODS Vs SERVICES
GOODS:
Goods are basically objects or products which have to
be manufactured, stored, transported, marketed and
sold.
SERVICES:
A service is an activity or benefit that one party can
offer to another that is essentially intangible and does
not result in the ownership of anything. Its production
may or may not be tied to a physical product
- Kotler and Armstrong (1981)
1-22
1-23
1-24
Contd
Physical goods Services
tangible intangible
homogeneous heterogeneous
Production and distribution are separated Production, distribution and consumption are
from consumption simultaneous processes
A thing An activity or process
1-27
SYSTEM PERSPECTIVE
A System is a group of interrelated items in which no
item studied in isolation will act in the same way as it
would in the system.
Systems view of operations management states that
activities in an
operations system can be classified as inputs,
transformation I process
Processing
and output. Inputs
O are classified
into three general categories-external, market and
Labor N Process and Product design U Goods
Material P Purchasing and Inventory Control T
Services
U P
primary resources.
Capital Operational Planning and control
T U
T
1-29
PRODUCTION SYSTEM
Definition:
The set of resources and procedures involved
in converting raw material into products and
delivering them to customers
Types of Production System:
Types of
Production
Intermittent Continuous
Production Production
Scope of
Materials Production & Product
Management Operations Design
Management
Quality
Control Process Design
Production &
Planning
Control
Functions of Operations Management
Operations as Key Functional Area:
Finance
Operations
Marketing HRM
Opeartions Function in an Organization:
Operating Support Layer
Customer Layer 1. Marketing 2. IT
3. Maintenance 4. Design
Ultimate Customer
5. Quality 6. Material
Dealers
Core Operations
Retailers Layer
Testing Supplier Layer
Assembly Sub-Contractors
Layer of Innovation Fabrication Suppliers
Innovation Strategy Machining Other Service
Research & Development Service Delivery Providers
System
CHALLENGES & CURRENT PRIORITIES IN OM
CHALLENGES:
Competitive pressure due to Economic Reforms
Growing customer Expectations
Technological Developments
Environmental Issues
CURRENT PRIORITIES:
Relate the operations system to customer/market
requirements
Acquire capabilities to tolerate product/service
proliferation
Develop systems and procedures that promote learning
Develop green manufacturing practices
RECENT TRENDS IN OM
Flexibility Lean Production
Total Quality Just in time production
Management Computer Aided
Time Reduction manufacturing
Computer Aided
Worker Involvement
Design
Business Process E-Supply Chain
Re-engineering Management
Global Market Place Enterprise Resource
Operations Strategy Planning
Environmental Issues
OPERATIONS STRATEGY
DEFINITION:
Operations strategy is the development of a long-term
plan for using the major resources of the firm for a high
degree of compatibility between these resources and the
firms longterm corporate strategy.
Some of the major long-term issues addressed in operations
strategy include
How large do we make our facilities?
What type of process(es) do we install to make the
products or provide services?
What will our supply chain look like?
What will be the nature of our workforce?
How do we ensure quality?
1-37
OPERATIONS STRATEGY PROCESS
1-38
OPERATIONS STRATEGY PROCESS (Contd)
VISION: A statement that provides long-term direction and motivation for the
organization
MISSION: A statement about the organization's business scope and methods of
competing
CORPORATE STRATEGY: Overall strategy adopted by the parent corporation
STRATEGIC BUSINESS UNIT (SBU): Stand-alone business within
conglomerate that operates like an independent company
BUSINESS STRATEGY: How a strategic business unit (SBU) addresses the
specific markets it serves and products it provides
FUNCTIONAL STRATEGY: Strategy developed by a function within an
organization to support the business strategy
COMPETITIVENESS: Company's position in the marketplace relative to its
competition
OPERATIONS STRATEGY: How the operations function contributes to
competitive advantage
COMPETITIVE PRIORITIES: How the operations function provides a firm
with a specific competitive advantage
1-39
ELEMENTS OF OPERATIONS STRATEGY
1-40
4 PERSPECTIVES THAT REFLECT OPERATIONS STRATEGY
1-41
STRATEGIC FIT IN OPERATIONS STRATEGY
Market
Market
Operations
Strategy Owners
Target Types of
Types of hip of
Market Operation
Products Resourc
Segment Operation
s
Customer es
s
s Excellenc
Particular Product
Distinctiv
e Manage
Customer Features
e ment of
Requirem &
Capabiliti Resourc
ents Performa
es es
nce Success comes
from Strategic Fit 1-42
OPERATIONS STRATEGY FRAMEWORK
Competitive
dynamics at Order Winners
the Order Qualifiers
marketplace
Generic
Strategic Competitive
Options for Priorities:
sustaining Quality, Cost,
competitive Delivery &
advantage Flexibility
Firm-Level
Corporate
strengths &
Strategy
Weaknesses
Measures for
Strategic options Operations
operational
for operations Strategy
excellence
1-43
OPERATIONS STRATEGY FRAMEWORK (Manufacturing)
1-44
What Is a Supply Chain?
Flow of products and services from:
Raw materials manufacturers
Intermediate products manufacturers
End product manufacturers
Wholesalers and distributors and
Retailers
Connected by transportation and storage
activities
Integrated through information, planning,
and integration activities
SUPPLY CHAIN MANAGEMENT
DEFINITION:
Supply Chain Management deals with the management of
materials,
information, and financial flows in a network consisting of
suppliers,
manufacturers, distributors and customers.
Stanford Supply Chain Forum
Supply chain management is a set of approaches utilized to
efficiently integrate suppliers, manufacturers, warehouses, and
stores, so that merchandise is produced and distributed at the
right quantities, to the right locations, and at the right time, in
order to minimize system wide costs while satisfying service
level requirements
1-46
The SCM Network
OBJECTIVES OF SUPPLY CHAIN MANAGEMENT
Service Orientation
Systems Orientation
Competitiveness & Efficiency
Minimizing the Time and Work-in-progress
Improving visibility of demand & pipeline
Improving Quality
Reduces Transportation & Warehousing
Rationalose supplier base
Life-cycle support
Improving Value
1-49
FLOWS IN SCM
Material Flow
Converter
Supplier Retailer
Distributor
Source
Converter Consumers
Distributor
Supplier End-User
Value-Added Services
Funds/Demand Flow
Information Flow
Cycle view
Push/pull view
Cycle View of Supply Chains
Customer
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
Customer order cycle Replenishment cycle
Customer arrival Retail order
Customer order entry
Customer order trigger
fulfillment Retail order entry
Customer order receiving
Retail order
fulfillment
Manufacturing cycle Retail order
Order arrival from receiving
the distributor,
retailer, or customer
Production
scheduling
Manufacturing and
Push/Pull View of Supply
Chains
Pull processes: execution is initiated
in response to a customer order
Customer
Order Arrives