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Introduction to Operations
Management and
Productivity
Adzlina/UiTMK/Chapter 1 1
What Is Operations Management?
Product/Output
Goods or services
Consumer goods, industrial goods or producer
goods
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
Adzlina/UiTMK/Chapter 1 2
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.
Adzlina/UiTMK/Chapter 1 3
Objectives of OM
To produce a specific product, on a schedule,
at minimum cost
To achieve customer satisfaction by providing
them G+S at competitive cost, affordable price,
within a reasonable time schedule
To be an effective producer - max the value of
output
To enhance productivity through efficiency of
the production process
To adapt for future survival - production system
has to be flexible, ability to respond rapidly to
changes in product design or process design
Adzlina/UiTMK/Chapter 1 4
Organizing to Produce Goods and
Services
Functions:
Marketing
- Gets customers
Operations
- creates product or service
Finance/Accounting
- Obtains funds
- Tracks money
Adzlina/UiTMK/Chapter 1 5
Functions - Bank
Commercial Bank
Adzlina/UiTMK/Chapter 1 6
Functions - Manufacturer
Manufacturing
Adzlina/UiTMK/Chapter 1 7
Ten Strategic Decisions
DECISION CHAPTER(S)
1. Design of goods and services 5, Supplement 5
2. Managing quality 6, Supplement 6
3. Process and capacity design 7, Supplement 7
4. Location strategy 8
5. Layout strategy 9
6. Human resources and job design 10
7. Supply-chain management 11, Supplement 11
8. Inventory management 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17
Adzlina/UiTMK/Chapter 1 8
The Strategic Decisions
1. Design of goods and services
Defines what is required of operations
Product design determines quality,
sustainability and human resources
2. Managing quality
Determine the customer’s quality
expectations
Establish policies and procedures to
identify and achieve that quality
Adzlina/UiTMK/Chapter 1 9
The Strategic Decisions
3. Process and capacity design
How is a good or service produced?
Commits management to specific
technology, quality, resources, and
investment.
4. Location strategy
Nearness to customers, suppliers, and
talent.
Considering costs, infrastructure, logistics,
and government.
Adzlina/UiTMK/Chapter 1 10
The Strategic Decisions
5. Layout strategy
Integrate capacity needs, personnel levels,
technology, and inventory
Determine the efficient flow of materials,
people, and information.
6. Human resources and job design
Recruit, motivate, and retain personnel with
the required talent and skills.
Integral and expensive part of the total
system design.
Adzlina/UiTMK/Chapter 1 11
The Strategic Decisions
7. Supply-chain management
Integrate supply chain into the firm’s strategy.
Determine what is to be purchased, from
whom, and under what conditions.
8. Inventory management
Inventory ordering and holding decisions.
Optimize considering customer satisfaction,
supplier capability, and production schedules.
Adzlina/UiTMK/Chapter 1 12
The Strategic Decisions
9. Scheduling
Determine and implement intermediate-
and short-term schedules.
Utilize personnel and facilities while
meeting customer demands.
10. Maintenance
Consider facility capacity, production
demands, and personnel.
Maintain a reliable and stable process.
Adzlina/UiTMK/Chapter 1 13
Characteristics of Goods
Tangible product
- Can be seen and touched and must be
delivered to customers.
Production usually separate from consumption
- Goods are produced in advance, sale and
consumption comes later
Can be inventoried
- Product can be produced in advance and held
as inventories until customer needs them
Adzlina/UiTMK/Chapter 1 14
Cont…
Low customer interaction
- Customers are not involved in the production process.
Long lead times
- It may takes several days or weeks to manufacture
goods.
Consistent product definition
Adzlina/UiTMK/Chapter 1 15
Characteristics of Service
Intangible product
- Cannot be seen, touched or displayed (airlines
services, hotel services)
Produced & consumed at same time
- there is no stored inventory. (beauty salon
produces hair cut, the doctor produces an
operation)
Often unique
- Mix of financial coverage such as investments
and insurance policies, may be not the same as
anyone else
Adzlina/UiTMK/Chapter 1 16
Cont…
High customer interaction
- Services are often difficult to standardize,
automate and make as efficient as we would
like because customer interaction demands
uniqueness
Inconsistent product definition
- Product definition may be rigorous, as in the
case of an auto insurance policy, but
inconsistent because policyholders change
cars and mature
Adzlina/UiTMK/Chapter 1 17
Cont…
Often knowledge-based
- As in the case of educational, medical and
legal services and therefore hard to automate.
Frequently dispersed
- Dispersion occurs because services are
frequently brought to the client/customer via a
local office or a retail outlet
Short lead times
- services may need to be delivered immediately
when customer wants the service
Adzlina/UiTMK/Chapter 1 18
Differences between Goods & Services
TABLE 1.3
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty Product can usually be kept in inventory (beauty
salon produces a haircut that is consumed as it is care products)
produced
Unique: Your investments and medical care are Similar products produced (iPods)
unique
High customer interaction: Often what the Limited customer involvement in production
customer is paying for (consulting, education)
Inconsistent product definition: Auto Insurance Product standardized (iPhone)
changes with age and type of car
Often knowledge based: Legal, education, and Standard tangible product tends to make
medical services are hard to automate automation feasible
Services dispersed: Service may occur at retail Product typically produced at a fixed facility
store, local office, house call, or via internet.
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products are
education, and medical services easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical Product often has some residual value
care
Adzlina/UiTMK/Chapter 1 19
Operations/Production System
Model
Feedback
Adzlina/UiTMK/Chapter 1 20
Features of Production System
Inputs
- consist of all resources that are necessary for
production to take place, consist of manpower,
machine, material, money, equipment.
Transformation Process
- during this process, the less valuable input
resources are transformed into valuable form of
output through a series of value added processes.
Ex: surgical procedures in a hospital, assembly parts
in a automobile factory
- Factors affecting are capacity, efficiency,
effectiveness, flexibility
Adzlina/UiTMK/Chapter 1 21
Cont…
Outputs
- End result of a production either good or
services
Feedback (actual vs expected)
- A control mechanism for operations systems. It
includes measuring the operations system actual
performance against the expected performance
- Feedback loop – enables management to decide
whether or not adjustments in the organizational
activities are needed
Adzlina/UiTMK/Chapter 1 22
Productivity – the ratio of outputs (G&S)
divided by the inputs (recourses such as
land, labor, capital and management)
Measure of process improvement
Represents output relative to input
Single factor Units produced/output
Productivity = Input used
Only through productivity increases can our
standard of living improve
Adzlina/UiTMK/Chapter 1 23
Cont…
The measurement of productivity can be
quite direct.
Labor hours is a common measure of
input
Other measures such as capital, material
or energy can be used
Adzlina/UiTMK/Chapter 1 24
Multi-factor Productivity
- Indicates the ratio of many or all
resources (inputs) to the goods and
services produced (outputs)
Multi-factor
Productivity = Unit produced/Output
Labor + material + energy +
capital + miscellaneous
Adzlina/UiTMK/Chapter 1 25
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
Adzlina/UiTMK/Chapter 1 26
Productivity Variables
Labor – improvement in the contribution of labor
to productivity is the result of healthier, better
educated and better nourished labor forced
Capital – inflation and taxes increases the cost
of capital, making capital investment increasingly
expensive.
Management – responsible for ensuring that
labor and capital are effectively used to increase
productivity
Adzlina/UiTMK/Chapter 1 27
Current Challenges in OM
Globalization
Supply-chain partnering
Sustainability
Rapid product development
Mass customization
Lean operations
Adzlina/UiTMK/Chapter 1 28
Ethics, Social Responsibility,
and Sustainability
Challenges facing operations
managers:
Develop and produce safe, high-quality green
products
Train, retrain, and motivate employees in a safe
workplace
Honor stakeholder commitments
Adzlina/UiTMK/Chapter 1 29