PRODUCTION

- is the creation of goods & services

OPERATIONS MANAGEMENT (OM)

-is the management of systems or processes that create
goods and/or services through the transformation of inputs
to outputs
INPUT

PROCESS

OUTPUT

Why Study OM?

1.
2.
3.
4.

Study how people organize themselves

for productive enterprise
Know how goods and services are
produced
Understand what operations managers
do
Because OM is such a costly part of an
organization

What Operations Managers Do?

The management process is the application of
planning, organizing, staffing, leading and controlling
to the achievement of objectives.

10 OM Strategy Decisions:

Design of Goods &

Services
Managing Quality
Process Strategy
Location Strategies
Layout Strategies

Human Resources
Supply Chain
Management
Inventory
Management
Scheduling
Maintenance

Where are the OM Jobs?

*OM activities are at the core of all business organizations.
*40% or more of all jobs are in OM.
*Activities in all other areas of business organizations are all
interrelated with OM.

Organizing to produce goods & services

Organization

Finance

Operations

Marketing

3 Basic Functions of
Business Organizations
Perform
different but
related
activities

Operations

Finance

Marketing

Must interact
to achieve
organizations
goals &
objectives

Organizational Success = Interface

Finance Function
securing resources at
favorable prices

allocating resources
throughout the organization

Finance and Operations Management

personnel cooperate by exchanging
information and expertise in such
activities as:
1.
2.
3.

Budgeting
Economic Analysis of
Investment Proposals
Provision of Funds

Marketing Function
Focus is on selling and/or promoting goods or
services of the organization
Responsible for assessing customer wants &
needs
Communicates to Operations:

Demand Information
Competitor Information

Consumer Preferences

(purchase matls, schedule

work)
(new product design, quality
improvement, process
enhancement)
(lead time, capacity info,
manufacturability of design
for new product devt)

Operations Function

goods oriented

service oriented

Types of Operations
Goods Producing

Examples

Farming, Mining,
Manufacturing
Storage/Transportation Warehousing,
Trucking, Mail
Service, Airline
Exchange.
Retailing, Banking,
Leasing, Library
Entertainment.. Films, radio & TV
Communications. Newspapers,
Telephone, Internet

Essence of Operations Function

Value - Added
Transformation/
Conversion

INPUTS
Land

PROCESS

Human
Raw Materials
Equipment

Cutting, Drilling
Transportation / Storage
Canning, Construction

Facilities
Information

OUTPUTS
- Goods
- Services

Farming, Mining
Mixing, Packing
Consulting

Feedback
Feedback

Control

Feedback

VALUE-ADDED is the term used to describe the

difference between the cost of inputs and the
value or price of outputs.
Non- Profit Organizations
-the value of outputs is their value to the society.
-the greater the value added , the greater the
effectiveness of these operations.
Profit Organizations
-The value of outputs is measured by the prices
that customers are willing to pay for those goods or
services.
-The greater the value added the greater the
amount of funds available for these purposes.

Scope of Operations Management

SYSTEM DESIGN involves decisions

relating to the system capacity,
geographic locations of facilities,
arrangement of departments, layout of
equipment, product or service planning,
and acquisition of equipment.
SYSTEM OPERATION involves
management of personnel, inventory
planning & control, scheduling, project
management, and quality assurance

Responsibilities of the
Operations Manager

Is responsible for the creation of goods and/or

services
Plans, coordinates and controls the elements that
make up the process (4Ms of Production Man,
Machine, Materials & Method)
Is more involved in day-to-day operating decisions
than with decisions relating to system design.
Has a vital stake in system design because system
design essentially determines many of the
parameters of system operations, such as cost,
space, capacities and quality.

DIFFERENTIATING FEATURES
of OPERATING SYSTEMS
1.

Degree of Standardization

2.

Type of Operation

3.

Production of Goods versus

Service Operations

Degree of Standardization

Standardized Output

high degree of uniformity in goods (ex.

computers, canned goods) or services (ex.
carwash, commercial airline service)

Customized Output

product or service is designed for a specific

case or individual (ex. cut-to-order glass
windows, tailor-fitted suits)

Degree of Standardization
Systems with
Standardized
Output
Standardized
methods
Less skilled
workers
Uniform Materials
Mechanization

Custom Systems

Different jobs
More skilled
workers
Work moves
slower
Work is less
susceptible to
mechanization

Type of Operation
SINGLE,
LARGE
SCALE
PRODUCT
or
SERVICE
CUSTOMIZED
INDIVIDUAL
UNITS of
OUTPUT

BATCHES

CONTINOUS
PROCESS

MASS
PRODUCTION

PRODUCTION of GOODS
versus
SERVICE OPERATIONS
manufacturing :
service
:

goods oriented
act oriented

Differences involve the ff:

1.
2.
3.
4.
5.
6.
7.

Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Simultaneous production & delivery
Quality assurance

Characteristic

Goods vs Services

Output.. Tangible Intangible

Uniformity of Output. High Low
Uniformity of Input. High
Low
Labor Content. Low High
Measuring Productivity Easy Difficult
Customer Contact Low High
Opportunity to correct quality problems before
delivery to customer High Low
Evaluation..
Easier More
Difficult
Patentable.. Usually Not usually

Attributes
of Goods
Product can be resold.
Product can be inventoried.
Some aspects of quality are
measurable.
Selling is distinct from
production.
Product is transportable.
Site of facility is important for
cost.
Often easy to automate.
Revenue is generated primarily
from the tangible product

Attributes of
Services
Reselling a service is unusual.
Many services cannot be
inventoried.
Many aspects of quality are
difficult to measure.
Selling is often part of the
service.
Provider, not product, is often
transportable.
Site of Facility is important for
customer contact.
Service is often difficult to
automate.
Revenue is generated primarily
from the intangible services.