Operations Management

1. Lesson 1 Fundamentals of Operations Management Operations Management Prepared by Sudarsan Jayasingh

2. Learning Objectives What you will learn in this unit: • Define Operations Management? • The role and activities of operation management • The input-transformation-output model • Difference between goods and services • What is Operations strategy • Performance objectives of operations strategy • Productivity Measurement

3. What is Operations Management? “ Operation Management is the set of activities that create goods and services through the transformation of inputs into outputs.” (Slack, 2001)

4. Typical Organization Chart Source: Reid and Sanders, 2005.

5. Activities of Operations manager Understand the operation’s strategic objectives Developing an operation’s strategy for the organization Designing the operation’s products, services and processes Planning and controlling the operation Improving the performance of the operation.

6. Some Activities of Ikea Operations Manager Design elegant products which can be flat packed efficiently Storage Quality Design Store Layout Site Location

7. OM’s Transformation Role Source: Reid and Sanders, 2005.

8. The input-transformation-output model T ransformed resources Materials Information Customers Goods Transformation Input Out put and process services T ransforming resources Facilities Staff Source: Slack, 2001

9. Inputs Transformed resources – the resources that are treated, transformed or converted in some way. The transformed resources which operations take in are usually a mixture of materials, information and customers. Transforming resources – the resources that act upon the transformed resources. Facilities and staff are the two types of transforming resources. Facilities include building, equipment, plant and process technology etc., Staff includes all those who operate, maintain, plan and manage the operation.

10. The output from most operations is a mixture of goods and services PURE GOODS Tangible Can be stored Production precedes consumption Low customer contact CRUDE OIL PRODUCTION Can be transported ALUMINIUM SMELTING Quality is evident SPECIALIST MACHINE TOOL MANUFACTURER RESTAURANT COMPUTER SYSTEMS SERVICES Intangible Cannot be stored MANAGEMENT CONSULTANCY Production and consumption are simultaneous PSYCHOTHERAPY CLINIC High customer contact Cannot be transported Quality difficult to judge PURE SERVICES Source: Slack, 2001

11. Similarities-Service/Manufacturers • All use technology • Both have quality, productivity, & response issues • All must forecast demand • Each will have capacity, layout, and location issues • All have customers and suppliers • All have scheduling and staffing issues

12. Historical Development of OM • 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

13. Today’s OM Environment • Customers demand better quality, faster deliveries, and lower costs • Increased cross-functional decision making • Recognized need to better manage information using ERP and CRM systems

14. INPUT TRANSFORMED RESOURCES OPERATIONS STRATEGY MATERIALS INFROMATION CUSTOMERS IMPROVEMENT DESIGN PLANNING AND CONTROL FACILITIES STAFF INPUT TRASNFORMED RESOURCES The activities of operations management ENVIRONMENT GOODS AND SERVICES INPUT OUTPUT ENVIRONMENT

15. Highlights • OM is function that manages the resources that add value • Its role is to transform inputs into products or services • Key differences between mfg. and service companies are tangibility of product and degree of customer contact • Historical milestones range from 1700s Industrial Revolution to the modern Electronic Commerce age • OM must understand and implement major process changes like JIT, TQM, supply chain management, and environmental changes • OM works closely with all other business functions

16. Operations Strategy • Operations strategy is the total patterns of decisions and actions which set the role, objectives and activities of the operation so that they contribute to, and support, the organisation’s business strategy

17. Operations Strategy – Designing the Operations Function

18. Corporate Strategy (Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices Operations Structure Operations Strategy EDI – Short cycle times – Fast transportation system – Low inventory levels – Focused locations – Communication between – retail stores The Wal-Mart Strategy and Operations Structure

19. Competitive Advantage Competitive advantage is term as the extra edge that a firm has over their industry peers (Reid and Sanders, 2005). The capability of a firm in managing their operation can be transform into their competitive advantage if there can identify and tap into their intangible resources.

20. Competitive Priorities- The Edge • Four Important Operations Questions: Will you compete on – Cost? Quality? Time? Flexibility? • All of the above? Some? Tradeoffs? Source: Reid and Sanders, 2005.

21. Competitive Priorities- The Edge0r Performance Objectives • Quality • Time (Speed and Dependability) • Flexibility • Cost

22. Lower prices (or higher profits) Cost Faster customer response On-time deliveries Depend-ability Speed Quality Flexibility Error-free products and services Wider variety More customisation More innovation Cope with volume fluctuations

23. Are There Priority Tradeoffs? • Which priorities are “Order Qualifiers”? e.g. Must have excellent quality since everyone expects it • Which priorities are “Order Winners”? e.g. Dell competes on all four priorities Southwest Airlines competes on cost McDonald’s competes on consistency FedEx competes on speed Custom tailors compete on flexibility • Can you have both high quality and low cost? e.g. Yes, Coke and Pepsi are good examples • Can you offer design flexibility and short delivery? e.g. Yes, modular housing manufacturers do it

24. Productivity is a measure of how efficiently inputs are converted to outputs Productivity = output/input Total Productivity Measure Total Productivity = $sales/inputs $ Partial Productivity Measure Partial Productivity = cars/employee Multifactor Productivity Measure Multi-factor Productivity = sales/total $costs Measuring Productivity Source: Reid and Sanders, 2005.

25. Business Strategy is a long range plan. Functions develop supporting plans Strategy must address mission, environment, and core competencies Business strategy provides a guide for designing operations strategy Operations strategy must consider which competitive priorities are essential to meet business objectives Competitive priorities are cost, quality, time, and flexibility Productivity measures how effectively a firm is using resources Productivity is computed as a ratio of outputs divided by inputs Highlights

26. References • Reid R.D., and Sanders N. R., (2005) Operations Management, 2nd Edition, Wiley Publication. • Slacks Nigel and Lewis Mike, (2002) Operations Management, Prentice Hall.