Operations Management

1. Operations Management Unit-1 Introduction to Operations Management

2. Outline • What Is Operations Management? • Organizing to Produce Goods and Services • Why Study OM? • What Operations Managers Do • The Heritage of Operations Management • Operations in the Service Sector • Differences between Goods and Services • New Trends in Operations Management • The Productivity Challenge • Productivity Measurement • Productivity Variables

3. What Is Operations Management? Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs Production is the creation of goods and services

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

5. Operations Teller Scheduling Check Clearing Collection Transaction procbessing Facilities design/layout Vault operations Maintenance Security Finance Investments Security Real estate Marketing Loans Commercial Industrial Financial Personal Mortgage Accounting Auditing Trust Department Organizational Charts Commercial Bank Figure 1.1(A)

6. Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising Organizational Charts Airline Figure 1.1(B)

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

8. 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

9. What Operations Managers Do Basic Management Functions Planning Organizing Staffing Leading Controlling

10. Where are the OM Jobs? • Technology/methods • Facilities/space utilization • Strategic issues • Response time • People/team development • Customer service • Quality • Cost reduction • Inventory reduction • Productivity improvement

11. The Heritage of OM • Division of labor (Adam Smith 1776; Charles Babbage 1852) • Standardized parts (Whitney 1800) • Scientific Management (Taylor 1881) • Coordinated assembly line (Ford/ Sorenson 1913) • Gantt charts (Gantt 1916) • Motion study (Frank and Lillian Gilbreth 1922) • Quality control (Shewhart 1924; Deming 1950)

12. The Heritage of OM • Computer (Atanasoff 1938) • CPM/PERT (DuPont 1957) • Material requirements planning (Orlicky 1960) • Computer aided design (CAD 1970) • Flexible manufacturing system (FMS 1975) • Baldrige Quality Awards (1980) • Computer integrated manufacturing (1990) • Globalization (1992) • Internet (1995)

13. Contributions From • Human factors • Industrial engineering • Management science • Biological science • Physical sciences • Information technology

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

15. Characteristics of Goods • Tangible product • Consistent product definition • Production usually separate from consumption • Can be inventoried • Low customer interaction

16. Characteristics of Service • Intangible product • Produced and consumed at same time • Often unique • High customer interaction • Inconsistent product definition • Often knowledge-based • Frequently dispersed

17. Attributes of Goods (Tangible Product) Attributes of Services (Intangible Product) Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service Provider, not product, isoften transportable Site of facility important forcustomer contact Often difficult to automate Revenue generated primarily from the intangible service Goods Versus Services Table 1.3

18. Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency

19. Processes Outputs Inputs The U.S. economic system transforms inputs to outputs at about an annual 2.5% increase in productivity per year. The productivity increase is the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%), and management (52% of 2.5%). Goods andservices Labor,capital,management Feedbackloop The Economic System Figure 1.7

20. Units produced Input used Productivity = Productivity • Measure of process improvement • Represents output relative to input • Only through productivity increases can our standard of living improve

21. Units produced Labor-hours used Productivity = 1,000 250 = = 4 units/labor-hour Productivity Calculations Labor Productivity One resource input  single-factor productivity

22. Output Labor + Material + Energy + Capital + Miscellaneous Productivity = Multi-Factor Productivity • Also known as total factor productivity • Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity

23. Productivity Variables • Labor - contributes about 10% of the annual increase • Capital- contributes about 38% of the annual increase • Management - contributes about 52% of the annual increase

24. Project Management • Project management is the discipline of planning, organizing, motivating, and controlling resources to achieve specific goals. • A project is a temporary endeavour with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables), undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value.

25. The primary constraints are scope, time, quality and budget. The secondary —and more ambitious— challenge is to optimize the allocation of necessary inputs and integrate them to meet pre-defined objectives.

26. PROJECT MANAGEMENT PROCESS PHASES INITIATING THE PROJECT PLANNING THE PROJECT EXECUTING THE PROJECT CLOSING DOWN THE PROJECT

27. PROGRAM EVALUATION REVIEW TECHNIQUE (PERT) • One of the most difficult and most error prone activities when constructing a Project Schedule is the determination of the TIME DURATION for each task within a Work Breakdown Structure (WBS), specially when there is a high degree of complexity and uncertainty about a task. • PERT is a technique used to calculate the Expected Time for a tasks. • PERT is a technique that uses Optimistic time (O), Pessimistic time (P) and Realistic Time (R) estimates to calculate the EXPECTED TIME (ET) or a particular task.

28. PROGRAM EVALUATION REVIEW TECHNIQUE (PERT) • PERT is a technique that uses Optimistic time (o), Pessimistic time (p) and Realistic Time (r) estimates to calculate the EXPECTED TIME (ET) or a particular task. • The Optimistic time (o) and Pessimistic time (p) reflects the minimum and maximum possible periods of time for an activity to be completed. • The Realistic time (r) or the Most likely time , reflects the Project manager’s “Best Guess” of the amount of time required for a task completion.

29. HOW TO CONSTRUCT A NETWORK DIAGRAM (PERT / CPM) DEVELOPING A NETWORK DOAGRAM IS A FOUR STEP PROCESS:- • Identify each Project Activity to be completed • Determine Time estimates and calculate Expected Completion Time for each Activity • For each Activity, identify the immediate predecessor Activities • Enter the Activities with connecting arrows based on Dependencies and calculate Start and End times based on Duration and Resources.

30. PERT CHART SYMBOLS PERT Chart is consisted of TASKS and EVENTS.An EVENT is called a Milestone, representing a point in time, such as the Start or Completion of a Task. A circle or a Rectangle shape NODE is used to represent an EVENT. Every PERT Chart has one Beginning and one End NODE that represents the Start and Finish of a Project. The Earliest and Latest Time is both Zero in Starting Event. A TASK also called Activity, is depicted by an ARROW Connecting Events. A Dashed Arrow represents a DUMMY TASK which is the dependancty between two events without requiring ant resource.