Chapter 1:

OVERVIEW OF OPERATIONS MANAGEMENT

In this chapter:

I. Introduction

II. Definition and characteristics of OPM (operations and

production management)

III. Production management and operations management

IV. Production Manager

V. Concept of productivity

VI. Input-Output Analysis

VII. Some key future trends for OPM

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I/ Introduction

An organization consists mainly of four functional

subsystems:
1. Marketing
2. Production
3. Finance
4. Human resource management.

 Marketing function: promote its products among

customers, which help it to obtain sales orders.

 Production function: management of physical resources

for production of an item or provision of services. It needs
to organize its resources (raw material, equipment labor
and working capacity) according to predetermined
production plans.

 Finance function: provides authorization and to control to

all other subsystems to utilize money more effectively
through a well-defined finance plan.

 Human resource function: plans and provides manpower

to all other subsystems of the organization by proper
recruitment and training programs. It also monitors the
performance of the employees by proper motivation for
targeted results.

II/ Definition and characteristics of OPM

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1. Definition of OPM

Operations and Production Management (OPM) is :

 A crucial field that deals with the efficient

transformation of resources into goods and services,
so that the resulting goods and services
are produced in accordance with the
quantitative specifications and demand
schedule with minimum cost.

 The science-combination of techniques and systems – that

guarantee production of goods and services of the right
quality, in the right quantities and at right time with the
minimum cost within shortest possible time.

 Production and operation management provides the means

to explore and implement initiatives on how to avoid
waste, how to create value and how the organization can
differentiate itself from its competitors. This
differentiation has become the means to survive in this
brutal world of competition.

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2. Key aspects of OPM

4 key aspects:

1) Planning: This involves forecasting demand, designing

products and services, and developing strategies to meet
customer needs.

Examples:

 Forecasting demand
 Product design
 Capacity Planning
 Supply Chain Planning

2) Organizing: This includes structuring the production

process, allocating resources effectively, and establishing
clear lines of authority and responsibility.

Examples:

 Departmentalization
 Team formation
 Work Flow Design

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 3) Controlling: This focuses on monitoring production
processes, ensuring quality standards are met, and
identifying and resolving any issues that may arise.

Examples:

 Quality control inspections

 Inventory management
 Budget Control
 Performance Monitoring

4) Improving: This involves continuous improvement efforts

to enhance efficiency, reduce waste, and increase
productivity.

Examples:

 Lean manufacturing
 Process Reengineering
 Kaizen Events

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III/ Production management and operations management

 Operations Management is a broader term that

encompasses all aspects of managing business operations,
including production, service delivery, and supply chain
management.

 Production Management is a more specific term that

focuses on the management of the production process
itself.

1. Production Management is a subset of OPM that

specifically focuses on the manufacturing process. It deals with
activities such as:

(i) Production planning and scheduling: Determining

production schedules, allocating resources, and managing
inventory.

(ii) Quality control: Ensuring that products meet specified

quality standards.

(iii) Process improvement: Identifying and implementing

improvements to production processes to enhance efficiency and
reduce costs.

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2. Operations Processes

2.1 Definition

Operations Processes are the series of steps and activities that

an organization undertakes to produce goods or services.
They define how resources are transformed into outputs that
meet customer needs.

Effective operations processes are crucial for:

 Meeting customer needs

 Improving efficiency
 Reducing costs
 Gaining a competitive advantage
 Ensuring sustainability

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2.2 Key Components of Operations Processes

1. Inputs: These are the resources that go into the process,

such as:
o Materials
o Labor
o Equipment
o Information
o Energy

2. Transformation Processes: These are the activities that

convert inputs into outputs. They can include:
o Manufacturing
o Service Delivery
o Logistics
o Information Processing

3. Outputs: These are the products or services that result

from the process. They should meet customer
requirements and specifications.

4. Feedback Mechanisms: These are systems for monitoring

and controlling the process. They provide information
about the performance of the process and allow for
adjustments to be made as needed.

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Exercises by group (4 groups):

1. Consider a fast-food restaurant.

(i) The inputs:

(ii) The transformation process:

(iii) The outputs:

(iv) Feedback mechanisms include:

2. E-commerce

(i) Inputs:

(ii) Transformation Process:

(iii) Outputs:

(iv) Feedback Mechanisms:

3. Healthcare

(i) Inputs:

(ii) Transformation Process:

(iii) Outputs:

(iv) Feedback Mechanisms:

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4. Software Development

(i) Inputs:

(ii) Transformation Process:

(iii) Outputs:

(iv) Feedback Mechanisms:

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IV/ Production Manager

 Crucial role in ensuring the smooth and efficient operation

of a manufacturing or production facility.

 Overseeing the entire production process, from planning

and scheduling to quality control and continuous
improvement.

 Responsible for its overall efficiency, effectiveness, and

safety. He plays a critical role in achieving production
targets, maintaining product quality, and ensuring the
overall success of the manufacturing operation.

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Their primary responsibilities: 4

1. Planning & Scheduling:

o Production Planning: Determining production

schedules, allocating resources (labor, materials,
equipment), and forecasting demand to ensure timely
production.

o Capacity Planning: Assessing production capacity and

identifying potential bottlenecks to ensure the facility
can meet production targets.

o Inventory Management: Overseeing inventory levels

of raw materials, work-in-progress, and finished
goods to minimize costs and prevent stockouts.

2. Production Control:

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 o Monitoring Production Processes: Continuously
monitoring production lines to identify and resolve
any issues that may arise, such as equipment
malfunctions, material shortages, or quality
problems.

o Ensuring Quality Control: Implementing and

overseeing quality control measures to ensure that
products meet established standards and customer
specifications.

o Supervising Production Teams: Leading and

motivating production teams, providing guidance and
support, and addressing employee concerns.

3. Process Improvement:

o Identifying and Implementing Improvements:

Continuously seeking ways to improve production
efficiency, reduce costs, and enhance product
quality.

o Analyzing Production Data: Collecting and analyzing

production data to identify areas for improvement
and track progress towards production goals.

4. Safety and Compliance:

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 o Ensuring Workplace Safety: Maintaining a safe and
healthy work environment for all employees by
implementing and enforcing safety regulations and
procedures.

o Compliance with Regulations: Ensuring compliance

with all relevant industry regulations, environmental
regulations, and quality standards.

V. Concept of productivity

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5.1 Definition

Productivity is a measure of output per unit of input. In

simpler terms, it's how effectively resources are used to produce
goods or services.

Productivity = Output / Input

Measuring Productivity:

There are several ways to measure productivity:

 Labor Productivity: This measures output per unit of

labor input. Common measures include:
o Output per worker-hour
o Output per employee

Labor productivity = Output / Labor

 Multifactor Productivity: This measures output per unit

of multiple inputs, such as labor, capital, and materials.

Multifactor productivity = Output / Combined inputs

 Partial Productivity: This measures output per unit of a

specific input, such as labor or energy.

Energy productivity = Output / Quantity of energy used

Example

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Let's say a factory produces 100 cars per day with 50 workers. If
they can increase production to 120 cars per day with the same
number of workers, their labor productivity has increased.

Calculate labor productivity and measure its increase in

productivity

By regularly measuring and analyzing productivity, businesses

can identify areas for improvement and implement strategies to
enhance their efficiency and competitiveness.

Exercise 1

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1. Labor Productivity

 Scenario: A bakery produces 100 loaves of bread in a day

with 5 bakers working 8 hours each.

 Calculation:
o Total labor hours =
o Labor productivity =

Scenario 2: The bakery implements a new oven, allowing

them to produce 120 loaves of bread with the same 5 bakers.

 Calculation:
o Labor productivity =

 Interpretation:

Exercise 2

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2. Multifactor Productivity

 Scenario: A manufacturing plant produces 1000 units of a

product.
o Labor input: 100 workers, 8 hours/worker, 20$/hour
o Capital input: $10,000 worth of machinery
o Materials input: $5,000 worth of raw materials

 Calculation:
o Multifactor productivity =

 Scenario 2: The plant invests in new technology that

reduces labor hours to 700 while maintaining the same
output.
 Calculation:
o Multifactor productivity =

 Interpretation:

Exercise 3

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  Scenario: A construction crew lays 100 square meters of
concrete in a day with 4 workers.
 Calculation:
o Labor productivity =

 Scenario 2: The crew implements a new technique that

allows them to lay 120 square meters with the same
number of workers.
 Calculation:
o Labor productivity =

 Interpretation:

Key Considerations

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 1. Choose the appropriate productivity measure based on
the specific situation and the resources you want to
analyze.

2. Collect accurate and consistent data to ensure reliable

productivity calculations.

3. Use productivity measures to identify areas for

improvement and track the effectiveness of improvement
initiatives.

4. Consider factors beyond simple output measures, such

as quality, customer satisfaction, and employee morale,
when assessing overall productivity.

5.2 Factors affecting productivity

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4 major classes:
• Technological
• Labor
• Managerial
• External factors

1. Technological factors: technology employed, tools and

raw material used.

2. Labor factors: degree of skills of the works force, health,

and attitude towards management, training and discipline.

3. Managerial factors: organizational structure, scheduling of

work, financial management, layout innovation, personnel
policies and practice work environment, material
management etc.

4. External factors in the environment which an organization

has to interact e.g., the power and transport facilities,
tariffs and taxes...etc. have important bearing on the levels
of productivity.

Some of these factors are controllable and some are

uncontrollable and demarcation should be made between the
two.

5.3 Ways of increasing productivity

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Productivity can be increased in a number of ways. It can be
increased either by:
1. Reducing the input for the same level of output
2. Increasing the output with the level of input
3. Combination of both.

Some solutions:
 Elimination of waste
 Using improved technology
 Better production design
 Management efforts
 Reducing down time of maintenance
 Reduction in material inputs
 Better quality of goods
 Improved utilization of resources
 Reduction in inventory size
 Improvement in man power skills through training
 Better leadership management (when employees are better
motivated, decision making, better decisions, information
system)

Importance of Productivity:

1. Increased Profits
2. Economic Growth
3. Competitive Advantage
4. Improved Efficiency

VI/ Input-Output Analysis

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Key steps:

1. Identify Interdependencies: the firm focuses on the

interdependencies between different departments or
production stages within its own operations.

2. Create an Internal Input-Output Table: This table

would map the flow of goods, services, and information
between different departments or production units within
the firm.

3. Analyze Interdependencies: By analyzing the table, the

firm can identify:

o Bottlenecks: Departments that are heavily reliant on

inputs from other departments, potentially causing
delays.

o Redundancies: Duplication of efforts or resources

across different departments.

o Opportunities for Improvement: Areas where

streamlining processes or improving communication
between departments can enhance efficiency.

Example: A Restaurant

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  Departments:
o Kitchen: Prepares and cooks food.
o Bar: Mixes and serves drinks.
o Waitstaff: Serves food and drinks to customers.
o Management: Oversees operations, manages staff,
and handles customer relations.

 Simplified Input-Output Table

Department Inputs Inputs Inputs Total

from from Bar from Output
Kitchen Waitstaff
Kitchen 0 10% of 90% of 100
Bar's waitstaff's meals
output orders
(garnishes)
Bar 5% of 0 95% of 80
Kitchen's Waitstaff's drinks
output orders
(garnishes)
Waitstaff 0 0 0 150
orders
Management 5% of 5% of Bar's 10% of -
Kitchen's output Waitstaff's
output (quality orders
(quality control) (customer
control) feedback)

 Analysis:

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 o Kitchen: Produces 100 meals.
 10% of Bar's output (garnishes) is used by the
Kitchen.
 90% of waitstaff's orders originate from the
Kitchen.
o Bar: Produces 80 drinks.
 5% of Kitchen's output (garnishes) is used by
the Bar.
 95% of Waitstaff's orders originate from the
Bar.
o Waitstaff: Serves 150 orders.
 10% of Waitstaff's orders are used by
Management for customer feedback and service
quality assessment.

Impact on productivity:

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Input-output analysis can indirectly help improve productivity
by (previous example):

1. Identifying and Eliminating Waste

2. Optimizing Resource Allocation

3. Improving Communication and Coordination

4. Benchmarking

Productivity Implications:

1. Identifying Bottlenecks

2. Optimizing Workflow

3. Improving Resource Allocation

Limitations:

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 1. Data Collection

2. Complexity

3. Dynamic Nature of Production

Example: A Manufacturing Company

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Let's consider a simplified manufacturing company with three
departments:

 Department A: Raw Materials Processing

 Department B: Assembly
 Department C: Packaging and Shipping

Simplified Input-Output Table

Department Inputs Inputs Inputs Total

from A from B from C Output
A (Raw 0 50 units 10 units 100 units
Materials)
B (Assembly) 80 units 0 20 units 150 units
C (Packaging & 20 units 30 units 0 80 units
Shipping)

Analysis:

 Department A:

 Department B:

 Department C:

Productivity Implications:

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  Bottleneck Identification:

 Resource Allocation:

 Waste Reduction:

Example: A Small College

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 Departments:
o Admissions: Handles student recruitment and
enrollment.
o Academics: Provides instruction (faculty, courses,
curriculum).
o Student Services: Offers support services
(counseling, career services, student life).
o Administration: Handles finances, human
resources, and facilities management.

Simplified Input-Output Table (Hypothetical Data)

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Department Inputs Inputs Inputs Total
from from from Output
Admission Academi Student
s cs Services
Admissions 0 10% of 5% of 100 new
Academic Student enrollmen
s' output Services' ts
(course output
catalogs, (student
faculty support
expertise)informatio
n)
Academics 20% of 0 20% of 500
Admission Student course
s' output Services' offerings
(student output
data) (student
support
services)
Student 10% of 15% of 0 200
Services Admission Academic student
s' output s' output support
(student (student services
informatio academic
n) data)
Administrati 5% of 10% of 15% of -
on Admission Academic Student
s' output s' output Services'
(budgeting (payroll) output
) (payroll)

 Analysis:

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 o Admissions:

o Academics:

o Student Services:

 Productivity Implications:
o Identifying Bottlenecks:

o Improving Coordination

o Resource Allocation:

VII/ Some key future trends for OPM

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1. Artificial Intelligence (AI) and Machine Learning (ML)

 Predictive Maintenance
 Demand Forecasting
 Process Optimization
 Quality Control

2. Automation and Robotics

 Increased Automation
 Autonomous Systems

3. 3D Printing

 On-Demand Manufacturing
 Supply Chain Disruption Mitigation

4. Sustainability and Circular Economy

 Sustainable Operations
 Circular Economy Principles

5. Blockchain Technology

 Supply Chain Transparency

 Improved Collaboration

6. The Rise of the Gig Economy

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  Flexible Workforce
 On-Demand Services

7. Focus on Customer Experience

 Customer-Centric Operations
 Personalization

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