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Chapter 1 - Introduction to

Operations Management
Operations Management

Mr. Yilak Alamrew


Learning Objectives

 Define and explain OM

 Explain the role of OM in business
 Describe the decisions that operations
managers make
 Describe the differences between service
and manufacturing operations
 Identify current trends in OM
 Identify Activities of OM
Nature of OM

 Operation is the part of an organization

which is concerned with the
transformation of a range of inputs into
the required output(services).
 Operations management is a business
function responsible for planning,
coordinating, and controlling the resources
needed to produce a company’s products
and services. 3
Operations Management is:

 A management function

 An organization’s core function

 In every organization whether Service

or Manufacturing, profit or Not for profit

Typical Organization Chart
(core functions)

 Production management: -often
used to refer to set of interrelated
management activities, which are
involved in manufacturing certain
physical products.
 Operations management: -refers to
the concept of Production Management
extended to services products .
 Distinguish between two meanings of
 Operations as a function, meaning the
part of the organization which produces the
products and services for the organization’s
external customers;
 Operations as an activity, meaning the
management of the processes within any of
the organization’s functions.
What is Role of OM?

 OM Transforms inputs to outputs

 Inputs are resources such as
 People, Material, and Money

 Outputs are goods and services

OM’s Transformation Process

OM’s Transformation Role
 To add value
 Increase product value at each stage

 Value added is the net increase between output product

value and input material value

 Provide an efficient transformation

 Efficiency – means performing activities well for least
possible cost

Manufacturers vs Service
 Services:  Manufacturers:
 Intangible product  Tangible product
 Product cannot be  Product is inventoried
inventoried  Low customer contact
 High customer contact  Longer response time
 Short response time  Capital intensive
 Labor intensive

Similarities for Service/Manufacturers
 Both use technology
 Both have quality, productivity, & response
 Both must forecast demand
 Both can have capacity, layout, and location
 Both have customers, suppliers, scheduling
and staffing issues

Service vs Manufacturing
 Output from manufacturing
operations are tangible goods
 Goods are tangible physical
 We can see, feel and inspect them.
 Outputs from service operations are
usually intangible and perishable.
 They are often ideas, concepts or
information or an act.
OM Decisions
 All organizations make decisions and
follow a similar path
 First decisions very broad – Strategic
 Strategic Decisions – set the direction for the
entire company; they are broad in scope and
long-term in nature

OM Decisions
 Following decisions focus on specifics -
Tactical decision
 Tactical decisions: focus on specific day-to-day
issues like resource needs, schedules, & quantities
to produce
 are frequent
 Strategic decisions less frequent
 Tactical and Strategic decisions must align

OM Decisions

Today’s OM Environment
 Customers demand better quality, greater
speed, and lower costs
 Companies implementing lean system
concepts – a total systems approach to
efficient operations
 Recognized need to better manage
information using ERP and CRM systems
 Increased cross-functional decision making

Operations in Organizations
 Most businesses are supported by the
functions of operations, marketing, and
 The major functional areas must
interact to achieve the organization

OM Interface: Business Information Flow between OM and
other functions of an organization

Assefa T.T
 20
 Marketing is not fully able to meet customer needs if
they do not understand what operations can produce
 Finance cannot judge the need for capital
investments if they do not understand operations
concepts and needs
 Information systems enables the information flow
throughout the organization
 Human resources must understand job requirements
and worker skills
 Accounting needs to consider inventory management,
capacity information, and labor standards

• In addition, there are the support
functions which enable the core
functions to operate effectively.
• These include, for example:

a. IS, Accounting & HR

b. the human resources function – which

recruits and develops the organization’s

staff as well as looking after their
welfare. 23
Operations System
 The heart of OM is the management of
production systems.
 The system uses operations resources
to transform inputs into desired output.


 An Input to OM’s system may be a raw material, a

customer, or a finished product from another system.
 Operations management is principally concerned with the
use of resources; which are categorized as follows:
 Materials, i.e. the physical items consumed or converted by
the system, e.g. raw materials, fuel, indirect materials.
 Capital, i.e. the physical items equipment and facilities, used
by the system, e.g. plant, tools, vehicles, buildings.
 Human Resources, i.e. the people, workers and managers,
who provide or contribute to the operation of the system,
without which neither machine nor materials are effectively
 These resources are inputs to the operation system.
Assefa T.T
 25
 The transformation process, as part of an OM
system, can be
 Physical or chemical , as in manufacturing operations;
 Locational, as in transportation or warehouse
 Exchange, as in retail operations;
 Physiological, as in health care;
 Psychological or attitudinal , as in entertainment;
 Informational, as in communication;
 Educational , as in a school;
 Storage, as in a distribution centre.
 Types of Transformation Processes

 Operations  Examples
 Physical/Chemical 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

Activities of operations management
 Operations managers have some responsibility
for all the activities in the organization which
contribute to the effective production of
products and services.
 And while the exact nature of the operations
function’s responsibilities will, to some extent,
depend on the way the organization has
chosen to define the boundaries of the
function, there are some general classes of
activities that apply to all types of operation.

Assefa T.T 28
1. Developing an operations strategy
for the organization.
 Operations management involves
hundreds of minute-by-minute decisions,
so it is vital that there is a set of general
principles which can guide decision-
making towards the organization's long
term goals-this is an operations strategy.

2. Designing the operation’s
products, services Location, layout
and processes.
 Design is the activity of determining the
physical form, shape and composition of
products, services and processes.
 It is a crucial part of operations
managers’ activities.

3. Planning and controlling the
 Planning and control is the activity of
deciding what the operations resources
should be doing, then making sure that
they really are doing it.

Assefa T.T
 31
4. Improving the performance of the
 The continuing responsibility of all
operations managers is to improve the
performance of their operation.

1.1.4 The evolution of operations
 Although history is full of amazing production
achievements-the pyramids of Egypt, the Great
Wall of China, operations management did not
begin until the Industrial Revolution in the 1700s.
 Prior to that time, skilled crafts persons and their
apprentices fashioned goods for individual
customers from studios in their own homes.
 Every piece was unique, hand-fitted, and made
entirely by one person, a process known as craft

 Industrial revolution Late 1700s
 Scientific management Early 1900’s
 Human relations movement 1930s to 1960s
 Management science Mid-1900s
 Computer age 1970s
 Just-in-Time Systems (JIT) 1980s
 Total quality management (TQM)1980’s
 Reengineering 1990s
 Flexibility 1990s
 Time-Based Competition 1990s
 Supply chain Management 1990’s
 Global Competition 1990s
 Environmental Issues 1990s
 Electronic Commerce Late 1990s
 Outsourcing 2000s