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

Operations Management
Systematic direction, control, and
evaluation of the entire range of processes
that transform inputs into finished goods or
services.
Environmental factors-culture, political, and
market influences
Inputs-HR, capital, materials, land, energy,
information, customer
Transformations-convert inputs into outputs

O.M. (cont)
Outputs-goods or services, and waste
Customer Contact-customers actively
participate in transformation
processes, self-service
Performance Feedback-repair
records, customer comments

What Operations
Managers Do
Basic Management Functions

Planning
Organizing
Staffing
Leading
Controlling
2011 Pearson Education, Inc.
publishing as Prentice Hall

Operations Management
Refers to the management of the
production system that transforms inputs
into finished goods and services.
Production system: the way a firm acquires
inputs then converts and disposes outputs.
Operations managers: responsible for the
transformation process from inputs to
outputs.

Operations management seeks to

increase the quality, efficiency, and
responsiveness of the firm.
Seeks to provide a competitive advantage.

Operations Management Concepts

Quality: goods and services that are reliable
and perform correctly.
Quality allows customers to receive the
performance that they expect.

Efficiency: the amount of input to produce a

given output.
Less input required lowers cost and waste.

Responsiveness to customers: actions

taken to respond to customer needs.
Firm can react quickly and correctly to customer
needs as they arise.

What are the changing challenges for the

Operations Managers?

Scope of Operations Management

The scope of operations management ranges

The scope of operations management ranges
across the organization.
across the organization.
The operations function includes many interrelated
activities such as:
Forecasting
Capacity planning
Facilities and layout
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .

Relationship of OM with other

Functional Areas
Every aspect of business affects or is affected by
operations
Many service jobs are closely related to
operations

Financial services
Marketing services
Accounting services
Information services

There is a significant amount of interaction and

collaboration amongst the functional areas
It provides an excellent vehicle for understanding
the world in which we live

Operations Interfaces
Industrial
Engineering
Maintenance

Distribution

Purchasing

Operations

Public
Relations

Legal
Personnel
Accounting
1-10

MIS

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
4. Human Resources provides
labor, wage and salary
administration and job
evaluation

Organizational Charts
Operations
Teller Scheduling
Check Clearing
Collection

Commercial
Bank
Marketing
Finance
Investments
Security

Loans
Commercial
Industrial

Real estate
Transaction processing
Financial
Accounting
Facilities design/layout
Personal
Auditing
Vault operations
Mortgage
Maintenance

Human Resources
Recruitment
Job evaluation
Performance evaluation
Wage and Salary Adm.
Personnel records

Organizational Charts
Manufacturing
Human Resources
Recruitment

Finance/ accounting
aintenance
Marketing Job evaluation
Disbursements/ credits
ontrol Scheduling; materials control
Sales ledger
promotion
Receivables Payables General
rol
Advertising Performance evaluation
Funds Management
Sales exchange
Money market International
abrication; assembly
Market research
Wage and Salary Adm.
Capital requirements
ent and design Detailed product specifications
Stock issue Bond issue
and recall
icient use of machines, space,
and personnel
Personnel records
ment and installation of production tools and equipment

Significant Events in OM

Evolution of Operations
Management (or) History of OM

The Industrial Revolution

Division of Labor
Scientific Management
Mass Production
Lean Production

The Industrial Revolution

Operations management did not begin
until the Industrial Revolution in the 1700s
Prior to that time only craft production
Mechanically powered machines replaced
the laborer as the primary factor of
production and brought workers to a
central location called Factory.
The revolution first took hold in textile
mills, grain mills, metalworking, and
machine-making facilities

Division of Labor
Adam Smiths Wealth of Nations
(1776) proposed the division of
labour.
Production process was broken down
into a series of small tasks, each
performed by a different worker.
Allowed him or her to become very
proficient at those tasks

Scientific Management
In the early 1900s F.W. Taylor approached
the management of work as a science.
Based on observation, measurement, and
analysis, he identified the best method for
performing each job
The methods were standardized for all
workers, and economic incentives were
established to encourage workers to follow
the standards

Mass Production
American manufacturers became adept at
mass production over the next 50 years and
easily dominated manufacturing worldwide.
Elton Mayo and Hawthorne studies,
introduced the idea of workers
motivation and Productivity
Theories of motivation were developed by
Hertzberg, Maslow, McGregor, and others
Computers and automation led still another
upsurge in technological advancements

Lean Production/ JIT

production:
Japanese manufacturers changed the
rules of production from mass
production to lean production
Lean production prizes flexibility
(rather than efficiency) and quality
(rather than quantity)

Operations Strategy

Linking
Corporate
strategy
with
operation
s strategy
Bus 241

28

Elements of Operations
Strategy

Positioning the production system

Product/service plans
Outsourcing plans
Process and technology plans
Strategic allocation of resources
Facility plans: capacity, location, and
layout

Positioning the Production

System
Select the type of product design
Standard
Custom

Select the type of production processing

system
Product focused
Process focused

Select the type of finished-goods inventory

policy
Produce-to-stock
Produce-to-order

Product/Service Plans
As a product is designed, all the detailed
characteristics of the product are established.
Each product characteristic directly
affects how the product can be made.
How the product is made determines
the design of the production system.

Stages in a Products Life

Cycle
Introduction- Sales begin, production and
marketing are developing, profits are negative.
Growth - sales grow dramatically, marketing
efforts intensify, capacity is expanded, profits
begin.
Maturity - production focuses on high-volume,
efficiency, low costs; marketing focuses on
competitive sales promotion; profits are at peak.
Decline - declining sales and profit; product might
be dropped or replaced.

Stages of a Products Life

Cycle
Automobile

Dot-Matrix
Fax Machine
Printer
Cell Phone
Video Recorder
Internet Radio

Color Copier

Introduction

Growth

CD Player

Maturity

B&W TV

Decline

Outsourcing Plans
Outsourcing refers to hiring out or subcontracting
some of the work that a company needs to do.
This strategy is being used more and more as
companies strive to operate more efficiently.
Outsourcing has many advantages and
disadvantages.
Companies try to determine the best level of outsourcing to achieve their operations & business
goals.
More outsourcing requires a company to have
less equipment, fewer employees, and a smaller
facility.

Outsourcing Plans
A company might outsource any of
the following manufacturing related
functions:
Designing the product
Purchasing the basic raw materials
Processing the subcomponents,
subassemblies, major assemblies, and
finished product
Distributing the product

Outsourcing Plans
Many companies even outsource
some service functions such as:
Payroll
Billing
Order processing
Developing/maintaining a website
Employee recruitment
Facility maintenance

Process and Technology

Plans
An essential part of operations
strategy is the determination of how
products/services will be produced.
The range of technologies available
to produce products/services is great
and is continually changing.

Strategic Allocation of
Resources
For most companies, the vast
majority of the firms resources are
used in production/operations.
Some or all of these resources are
limited.
The resources must be allocated to
products, services, projects, or profit
opportunities in ways that maximize
the achievement of the operations
objectives.

Facility Plans
How to provide the long-range capacity to
produce the firms products/services is a
critical strategic decision.
The location of a new facility may need to
be decided.
The internal arrangement (layout) of
workers, equipment, and functional areas
within a facility affects the ability to
provide the desired volume, quality, and
cost of products/services.