Introduction to Operations

1 Management

PowerPoint presentation to accompany

Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e

© 2011 Pearson Education, Inc. publishing as Prentice Hall 1-1

 Outline
 What Is Operations Management?
 Organizing to Produce Goods and Services
 Why Study OM?
 What Operations Managers Do
 Operations in the Service Sector
 Differences between Goods and Services
 Exciting New Trends in Operations Management
 Productivity

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 Learning Objectives
When you complete this chapter you should be:
1. Able to identify, define and describe the following terms:
i. Operations management
ii. Production
iii. Management process
iv. Service
v. Productivity

2. Able to determine the objectives of operations management

3. Able to identify, explain and distinguish the characterisctics between
goods and servies
4. Able to explain an operation system
5. Able to relate the relationship of operation function and other functions in
organization

6. Able to point out the global issues in operations management

1-3
 What Is Operations
Management?
Production is the creation of
goods and services

Operations management (OM) is

the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs

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 Organizing to Produce
Goods and Services
 Essential functions:
1. Marketing – generates demand
2. Production/operations – creates
the product
3. Finance/accounting – tracks how
well the organization is doing,
pays bills, collects the money

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 Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Accounting Personal
processing
Facilities Mortgage
design/layout
Auditing
Vault operations
Trust Department
Maintenance
Security
Figure 1.1(A)
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 Organizational Charts
Manufacturing

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply-chain management research
Funds Management
Manufacturing
Tooling; fabrication; assembly Money market
International
Design exchange
Product development and design
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment Figure 1.1(C)
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 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science Figure 1.1(B)
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 Why Study OM?
1. OM is one of three major functions of
any organization, we want to study
how people organize themselves for
productive enterprise
2. We want (and need) to know how
goods and services are produced
3. We want to understand what
operations managers do
4. OM is such a costly part of an
organization
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 Options for Increasing
Contribution
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Table 1.1
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 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
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 Ten Critical Decisions
Ten Decision Areas Chapter(s)
1. Design of goods and services 5
2. Managing quality 6, Supplement 6
3. Process and capacity 7, Supplement 7
design
4. Location strategy 8
5. Layout strategy 9
6. Human resources and 10
job design
7. Supply-chain 11, Supplement 11
management
8. Inventory, MRP, JIT 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17 Table 1.2
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 The Critical Decisions
1. Design of goods and services
 What good or service should we
offer?
 How should we design these
products and services?
2. Managing quality
 How do we define quality?
 Who is responsible for quality?

Table 1.2 (cont.)

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 The Critical Decisions
3. Process and capacity design
 What process and what capacity will
these products require?
 What equipment and technology is
necessary for these processes?
4. Location strategy
 Where should we put the facility?
 On what criteria should we base the
location decision?

Table 1.2 (cont.)

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 The Critical Decisions
5. Layout strategy
 How should we arrange the facility?
 How large must the facility be to meet
our plan?
6. Human resources and job design
 How do we provide a reasonable
work environment?
 How much can we expect our
employees to produce?

Table 1.2 (cont.)

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 The Critical Decisions
7. Supply-chain management
 Should we make or buy this
component?
 Who should be our suppliers and how
can we integrate them into our strategy?
8. Inventory, material requirements
planning, and JIT
 How much inventory of each item
should we have?
 When do we re-order?
Table 1.2 (cont.)
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 The Critical Decisions
9. Intermediate and short–term
scheduling
 Are we better off keeping people on
the payroll during slowdowns?
 Which jobs do we perform next?
10. Maintenance
 How do we build reliability into our
processes?
 Who is responsible for maintenance?

Table 1.2 (cont.)

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 The Operation System
Inputs Transformation Outputs

Labor, Goods
capital, Conversion process and
management services

Feedback loop

Figure 1.6

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 The Transformation Process
INPUTS OUTPUT

•LABOUR
•RAW MATERIALS SERVICES
•MACHINES TRANSFORMATION OR
•TECHNOLOGY PROCESS PRODUCTS
•CAPITAL

Feedback loop

Input Wait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time

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 Objectives of OM
 To remain competitive and survive at local,
national and global business
 To sustain and increase market share in the
business.
 To maintain profitability in business.
 To achieve customer satisfaction by producing
goods and services at competitive cost,
affordable prices and within reasonable time
schedule.
 To deliver high quality product and services.
 To be an effective producer.

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 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply-chain
partnering
 Lengthy product  Rapid product
development development,
alliances
 Standard products  Mass
customization
 Job specialization  Empowered
employees, teams
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 Differentiate the
characteristics between:

GOODS SERVICES

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 Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

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 Manufacturing and Service
Employment
120 –

Employment (millions) 100 –

80 – Service

60 –

40 –

Manufacturing
20 –

0– | | | | | | |
1950 1970 1990 2010 (est)
1960 1980 2000
Figure 1.4 (A)
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 New Trends in OM
 Ethics
 Global focus
 Environmentally sensitive production
 Rapid product development
 Mass customization
 Empowered employees
 Supply-chain partnering
 Just-in-time performance

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 Ethics and
Social Responsibility
Challenges facing
operations managers:
 Developing and producing safe,
quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring stakeholder commitments

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