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Operations Management
The business function responsible for
planning, coordinating, and controlling the
resources needed to produce products and
services for a company

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Operations Management is:
A management function
An organizations core function
In every organization whether Service or
Manufacturing, profit or Not for profit
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Typical Organization Chart
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What is Role of OM?
OM Transforms inputs to outputs
Inputs are resources such as Men, Material, and
Money
Outputs are goods and services.
Helps to minimize wastage
Helps in value creation..


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OMs Transformation Process
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OMs Transformation Role
To add value
Increase product value at each stage
Value added is the net increase between output product
value and input material value
Provide an efficient transformation
Efficiency means performing activities well for least
possible cost
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Operations are everywhere !
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Operations Examples
Goods producing Farming, mining, construction
Storage/transportation Warehousing, trucking, mail, taxis, buses, hotels
Exchange Trade, retailing, wholesaling, renting, leasing, loans
Entertainment Radio, movies, TV, concerts, recording
Communication Newspapers, journals, radio, TV, telephones, satellite
OM at the core of Businesses
Three basic functions
Operations/Production
Goods oriented (manufacturing and assembly)
Service oriented (health care, transportation and retailing)
Value-added (the essence of the operations functions)
Finance-Accounting
Budgets (plan financial requirements)
Provision of funds (the necessary funding of the operations)
Marketing
Selling, Promoting
Assessing customer wants and needs
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Organization
Finance Operations Marketing


Manufacturing vs. Service Operations


Production of goods
Tangible products
Automobiles, Refrigerators, Aircrafts, Coats, Books
Services
Repairs, Improvements, Transportation, Regulation
Regulatory bodies: Government, Judicial system
Entertainment services: Theaters, Sport activities
Exchange services: Wholesale/retail
Appraisal services: Valuation, House appraisal
Security services: Police force, Army
Financial services: Banks
Education: Universities
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Manufacturing vs. Service Operations
Differences with respect to
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
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On the other hand
Both use technology
Both have quality, productivity, & response issues
Both must forecast demand
Both will have capacity, layout, and location issues
Both have customers, suppliers, scheduling and
staffing issues
Manufacturing often provides services
Services often provides tangible goods
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Responsibilities of Operations Management
Planning
Capacity, utilization
Location
Choosing products or
services
Make or buy
Layout
Projects
Scheduling
Market share
Plan for risk reduction
Forecasting
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SUPPLY SIDE DEMAND SIDE
Controlling
Inventory
Quality
Costs
Organization
Degree of standardization
Subcontracting
Process selection
Staffing
Hiring/lay off
Use of overtime
Incentive plans
In a nutshell, the
challenge is
Matching the Supply
with Demand
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Supply Does Not Naturally Match
Demand
Inventory results from a mismatch between supply and demand
Mismatch can take one of the following two forms
Supply waits for Demand
Inventory = Finished goods and resources
Demand waits for Supply
Inventory is negative or said to be backordered in manufacturing
Inventory = Waiting customers in services
Mismatch happens because
the demand varies
the capacity is rigid and finite.
If the capacity is infinite, products (or services) can be provided at an infinite rate
and instantaneously as the demand happens. Then there is no mismatch.

Scope of Operations Management
Product and service design
Process selection
Selection and management of technology
Design of work systems
Location planning
Facilities planning
Quality improvement of the organizations products or
services.
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees

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Types of Models
Physical models (prototypes)
Schematic models (Graphs, charts, pictures)
Mathematical models, by application area
Statistical models
Linear regression
Linear programming
Queuing techniques
Inventory models
EOQ model
Project management models
Networks
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Types of Mathematical Models

Simulation models : to test a proposed idea
Monte Carlo Simulation
Optimization models : to create an optimal idea
Linear programming
Pattern recognition models : to recognize a
pattern
Statistics, Forecasting, data mining

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OM Decisions
All organizations make decisions and follow a
similar path
1. Strategic decisions
Strategic Decisions set the direction for
the entire company; they are broad in
scope and long-term in nature

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OM Decisions
2. Tactical decision
Tactical decisions: focus on specific day-
to-day issues like resource needs,
schedules, & quantities to produce
They are very frequent
Strategic decisions are less frequent
Tactical and Strategic decisions must align
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OM Decisions
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Historical Development of OM
Industrial revolution Late 1700s
Scientific management Early 1900s
Hawthorne Effect 1930s
Human relations movement 1930s-
Management science 1940s-
Computer age 1960s-
Environmental Issues 1970s-
JIT & TQM* 1980s-



*JIT= Just in Time, TQM= Total Quality Management
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Historical Development cont
Reengineering 1990-
Global competition 1980-
Flexibility 1990-
Time-Based Competition 1990-
Supply chain Management 1990-
Electronic Commerce 2000-
Outsourcing & flattening of world 2000-

For long-run success, companies must place much importance on their operations
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OM in Practice
OM has the most diverse organizational function
Manages the transformation process
OM has many names such as;
V. P. operations, Director of supply chains, Manufacturing
manager
Plant manger, Quality specialists, etc.
All business functions need information from OM in
order to perform their tasks
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Business Information Flow


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OM Across the Organization
Most businesses are supported by the functions
of operations, marketing, and finance
The major functional areas must interact to
achieve the organization goals

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OM Across the
Organization cont
Marketing is not fully able to meet customer needs if they do not
understand what operations can produce
Finance cannot judge the need for capital investments if they do not
understand operations concepts and needs
Information systems enables the information flow throughout the
organization
Human resources must understand job requirements and worker
skills
Accounting needs to consider inventory management, capacity
information, and labor standards

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Chapter 1 Highlights
OM is the business function that is responsible for managing
and coordinating the resources needed to produce a companys
products and services.

The role of OM is to transform organizational inputs into
companys products or services outputs

OM is responsible for a wide range of decisions, ranging from
strategic to tactical.

Organizations can be divided into manufacturing and service
organizations, which differ in the tangibility of the product or
service
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Chapter 1 Highlights cont
Many historical milestones have shaped OM. Some of these
are the Industrial Revolution, scientific management, the
human relations movement, management science, and the
computer age

OM is highly important function in todays dynamic business
environment. Among the trends with significant impact are
just-in-time, TQM, reengineering, flexibility, time-based
competition, SCM, global marketplace, and environmental
issues

OM works closely with all other business functions
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