Operation

Management
MGT2100
Session Introduction

to Operations
Management

Learning Objectives
Define and explain OM
Explain the role of OM in business
Describe the differences between service and
manufacturing operations
Identify major historical developments in OM
Identify current trends in OM

What is Operations
Management
The business function
responsible for planning,
coordinating, and
controlling the
resources needed to
produce products and
services for a company
Reid & Sanders, 2010

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
Heizer & Render, 2008

OMs Transformation Process

Customer Feedback

INPUTS
Human
Resources
Facilities &
Processes
Technology

OUTPUTS
THE
TRANSFORMATIO
N PROCESS

Materials

Performance Information

Goods
Services

Typical Organization Chart

President or CEO

Marketing

Operations

Finance

VP of Marketing

VP of Operations

VP of Finance

Manages : customer
demands
Generates : sales for
goods and services

Manages : people,
equipment,
technology,
materials, and
information
To produce : goods
and/or services

Manages : cash flow,

current assets and
capital investments

Organization Chart
-Commercial Bank

Organization Chart Commercial Bank

Commercial
Bank
Operations

Finance

Marketing

Investments
Security
Real estate

Loans
o Commercial
o Industrial
o Financial
o Personal
o Mortgage

Teller Scheduling
Check Clearing
Collection
Transaction
processing
Facilities
design/layout
Vault operations
Maintenance
Security

Accounting

Auditing
Trust Department

Organization Chart - Airline

Organization Chart - Airline

Airline
Operations
Ground support
equipment
Maintenance
Ground Operations
o Facility maintenance
o Catering
Flight Operations
o Crew scheduling
o Flying
o Communications
o Dispatching
Management science

Finance/
Accounting
Accounting
o Payables
o Receivables
o General Ledger
Finance
o Cash control
o International
exchange

Marketing
Traffic
administration
o Reservations
o Schedules
o Tariffs (pricing)
Sales
Advertising

Organization Chart Manufacturing

Organization Chart Manufacturing

Manufacturing
Operations
Facilities
o Construction; maintenance

Production and inventory control

o Scheduling; materials control

Quality assurance and control

Supply chain management
Manufacturing
o Tooling; fabrication; assembly

Design
o Product development and design
o Detailed product specifications

Industrial engineering
o Efficient use of machines, space,
and personnel

Process analysis
Development and installation of
production tools and equipment

Finance/
Accounting

Marketin
g

Disbursements/
credits
o Receivables
o Payables
o General ledger
Funds Management
o Money market
o International
exchange
Capital requirements
o Stock issue
o Bond issue and
recall

Sales
promotion
Advertising
Sales
Market
research

Tangible Product
Intangible Product

DEGREE OF TANGIBILITY OF PRODUCT OFFERING

Manufacturers vs Service
Organizations
Manufactu
* Tangible product
ring
* Product is inventoried
Organizati
* Low customer contact
on
* Longer response time
* Capital intensive
* Intangible product
* Product cannot be
inventoried
* High customer contact
* Short response time
* Labor intensive
Low

Service
Organizati
on

DEGREE OF CUSTOMER CONTACT

High

Similarities for
Service/Manufacturers
Both
use technology

Both have quality, productivity, & response

issues
Both must forecast demand
Both can have capacity, layout, and location
issues
Both have customers, suppliers, scheduling and
staffing issues

Service vs Manufacturing
Manufacturing often provides services
Services often provides tangible goods
Some organizations are a blend of service /
manufacturing / Quasi-Manufacturing (QM)
organizations
QM characteristics include
Low customer contact & Capital Intensive

Why OM?
For long-run success companies must place
much important on their operations
The 1950-1960 era was the U.S. golden era
where primary opportunities were
marketing
The 1970-1980 U.S. companies
experienced a large decline in productivity
growth international firms began to
challenge in many markets
The 1970-1980 era saw U. S. firms lagging
behind in methods and processes
The resurgence of American business in the
1990s capitalized on improved operations

Historical Development of OM

Industrial revolution
Late 1700s
Scientific management
Early 1900s
Human relations movement
1930s-60s
Management science
1940s-60s
Computer age
1960s
Environmental Issues
1970s
JIT & TQM*
1980s

*JIT= Just in Time, TQM= Total Quality Management

Historical Development of OM

Reengineering
1990s
Global competition
1980s
Flexibility
1990s
Time-Based Competition
1990s
Supply chain Management
1990s
Electronic Commerce
2000s
Outsourcing & flattening of world
2000s

For long-run success, companies must place much importance on their

operations

Todays OM Environment
Customers demand better quality, greater
speed, and lower costs
Companies implementing lean system
concepts a total systems approach to
efficient operations
Recognized need to better manage information
using ERP and CRM systems
Increased cross-functional decision making

New Trends In OM
Global focus
Just-in-time performance
Supply chain partnering
Rapid product development
Mass customization
Empowered employees
Environmentally sensitive production
Ethics

New Trends In OM
Past

Causes

Future

Local or
national
focus

Reliable worldwide
communication and
transportation networks

Global focus,
moving
production
offshore

Batch (large)
shipments

Short product life cycles

and cost of capital put
pressure on reducing
inventory

Just-in-time
performance

Low-bid
purchasing

Supply chain competition

requires that suppliers be
engaged in a focus on the
end customer

Supply chain
partners,
collaboration,
alliances,
outsourcing

New Trends In OM
Past

Causes

Future

Lengthy
product
development

Shorter life cycles,

Internet, rapid international
communication, computeraided design, and
international collaboration

Rapid product
development,
alliances,
collaborative
designs

Standardized
products

Affluence and worldwide

markets; increasingly
flexible production
processes

Mass
customization
with added
emphasis on
quality

Job
specialization

Changing socioculture
milieu; increasingly a
knowledge and information
society

Empowered
employees,
teams, and lean
production

New Trends In OM
Past

Causes

Future

Low-cost
focus

Environmental issues, ISO

14000, increasing disposal
costs

Environmentally
sensitive
production, green
manufacturing,
recycled
materials,
remanufacturing

Ethics not
at forefront

Businesses operate more

openly; public and global
review of ethics; opposition
to child labor, bribery,
pollution

High ethical
standards and
social
responsibility
expected

Where Are The OM Jobs?

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