1. Introduction

What is Operations Management? Management of the conversion process

which transforms inputs such as raw material and labor into outputs in the form of finished goods and services

Operations ManagementOperations Management

InputsInputs(customers(customers

and/orand/ormaterials)materials)

OutputsOutputs(goods(goods

andandservices)services)

Position of Operations Management

Management

Industrial Engineering

Operations Management

Role of OM within an Organization

Marketing Operations Finance/ Accounting

Functional Area Missions

Organization’s Mission

MarketingSales promotionAdvertisingSalesMarket research

OperationsFacilities Construction; maintenance

Production and inventory control Scheduling; materials control

Quality assurance and controlSupply chain managementManufacturing Tooling; fabrication; assembly

Design Product development and design Detailed product specifications

Industrial engineering Efficient use of machines, space, and personnel

Process analysis Development and installation of production tools and equipment

Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall

Manufacturing

OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science

Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange

Airline

MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising

OperationsTeller SchedulingCheck ClearingCollectionTransaction processingFacilities design/layoutVault operationsMaintenanceSecurity

FinanceInvestmentsSecurityReal estate

Accounting

Auditing

MarketingLoans Commercial Industrial Financial Personal Mortgage

Trust Department

Commercial Bank

Important Topics in OM Forecasting--determining what the future

holds in terms of product demand, raw material prices, etc.

Quality Management/Quality Control--making certain that the products and services provided are of the highest possible integrity

Important Topics in OM (Continued) Just-In-Time Production (JIT)--minimizing

waste, in-process inventories and maximizing flexibility

Material Requirements Planning (MRP)--getting the right parts to the right place at the right time

Important Topics in OM (Continued) Scheduling--planning the production of

goods and services in the most efficient possible way

Technology--exploring uses of technology and automation in manufacturing and providing of services

Supply Chain Management / Logistics

Characteristics of Products Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction

Characteristics of Service Intangible product Produced and consumed

at same time Often unique High customer interaction Inconsistent product

definition Often knowledge-based Frequently dispersed

Products and Services

Attribute Products Services

Resource Intensity Capital Labor

Physicality Tangible Intangible

Inventoriability? Yes No

Customer Contact Low High

Lead Times Long Short

Quality Determination Objective Subjective

A Mix of Goods and Services

New Trends in OM

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

PastPast CausesCauses FutureFuture

Lengthy product development

Shorter life cycles, Internet, rapid international communication, computer-aided 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

PastPast CausesCauses FutureFuture

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

PastPast CausesCauses FutureFuture

Measuring Improvement - Productivity• Productivity is the ratio of outputs (goods

and services) divided by the inputs (resources such as labor and capital)

OutputOutput

Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous

Productivity =Productivity =

Example

Staff of 4 works 8 hrs/day 8 items/dayPayroll cost = $640/day Overhead = $400/day

8 items/day

32 labor-hrs=

labor productivity = .25 items/labor-hr

8 items/day

$640 + 400=

multifactor productivity = .0077 items/dollar

Productivity at Starbucks

Stop requiring signatures on credit card purchases under $25

Saved 8 seconds per transaction

Change the size of the ice scoop

Saved 14 seconds per drink

New espresso machines Saved 12 seconds per shot

A team of 10 analysts continually look for ways to save time. Some improvements:

Starbucks Operations improvements have helped

Starbucks increase yearly revenue per outlet by $200,000 to $940,000 in six years.

Productivity has improved by 27%, or about 4.5% per year.

Productivity at Taco Bell Revised the menu Designed meals for easy preparation Shifted some preparation to suppliers Efficient layout and automation Training and employee empowerment

Preparation time cut to 8 seconds Stores handle twice the volume with half

the labor

Video Case Study Identify how OM decisions are applied at Hard

Rock Cafe. Design of goods and services Managing quality Process and capacity design Location strategy Layout strategy Human resources and job design Supply chain management Inventory management Scheduling Maintenance

How would you determine the productivity of the kitchen staff?