OPERATIONS MANAGEMENT Production
Creation of goods and services
OM is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
TransformationInput Process output
Food Processor
Inputs ProcessingOutputs
Raw VegetablesCleaning Canned vegetables
Metal Sheets Making cansWater CuttingEnergy CookingLabor PackingBuilding LabelingEquipment
Hospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy patientsHospital Surgery
Medical SuppliesMonitoringEquipment MedicationLaboratories Therapy
MANAGEMENT
FUNCTIONS TO PRODUCE (G/S) Finance
InvestmentCostsRevenueAnything related to money
MarketingMarketing researchSalesAdvertisementPromotion
FUNCTIONS TO PRODUCE (G/S) Operations/Production
ProductionActivities related to productionInventoryDesignQuality control
IMPORTANCE OF OM One of the three major functions of
production We need to know how goods and
services are produced Job of operations managers Costly part of organization
Operations Management
The management of systems or processes that create goods and/or provide services
Sales $100,000 $150,000 $100,000 $100,000Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000Gross Margin 20,000 30,000 20,000 36,000Finance Costs – 6,000 – 6,000 – 3,000 – 6,000Subtotal 14,000 24,000 17,000 30,000Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Finance/Marketing Accounting OM
Option Option Option
Increase Reduce ReduceSales Finance Production
Current Revenue 50% Costs 50% Costs 20%
FUNCTIONS OF OM Planning Organizing Staffing Leading Controlling
CRITICAL DECISIONS Design of goods and services
What goods should offerHow should design
Managing qualityWhat is qualityQuality control
Process and capacity What process and capacity will be
requiredWhat technology and equipment is
needed
CRITICAL DECISIONS Location strategy
Where should be the facilitySelection of location
Layout strategyArrangement of facilitySize of facility
Human resources and job designBetter work environmentBenchmark for employees
CRITICAL DECISIONS
Supply chain managementOutsource or produce the componentDecision about suppliers
Inventory managementHow much inventory we should keepWhen to reorder
MaintenanceWhen maintenance is requiredWho is responsible for maintenance
HISTORY OF OM Eli Whitney (1765 - 1825)
Interchangeable partsShowed that machines can produce
standardized parts to exact specifications
Frederick W Taylor (1856 - 1915)Father of scientific managementChief engineer of Midvale SteelStudied how tasks were doneMotion and time studies
HISTORY OF OMSeek the best way to produceMatching employees to right jobProvide proper trainingProvide proper work methods and
toolsIncentives for work done
Henry Ford (1863 - 1947)Concept of moving assembly linesUnfinished products moves and men
stood
HISTORY OF OM W Edwards Deming (1900 - 1993)
Quality control methodsQuality can be improvedBetter working environment for workersUsed statistics to analyze process
CHALLENGES IN OM Global focus Just in time Supply chain management Rapid product development Mass customization Empowered employees and teams
CHARACTERISTICS OF GOODS
Tangible product Consistent product definition Production usually separate from
consumption Can be inventoried Low customer interaction
CHARACTERISTICS OF SERVICES Intangible product Produced and consumed at same
time Often unique High customer interaction Inconsistent product definition Often knowledge-based
NEW TRENDS IN OM Global focus Just in time Supply chain Rapid product development Mass customization Empowered employees Environmentally sensitive production Ethics
PRODUCTIVITY The ratio of outputs divided by one or
more inputs Productivity = units produced
input usedUnit produced 1000Labor hours 250
Productivity = 1000/250 = 4 units per lh
PRODUCTIVITY Single factor
The use of just one input to measure productivity is single factor productivity
MultifactorMultifactor includes all inputsoutput / labor + material + energy +
capital
MEASUREMENT PROBLEMS Quality
May change while inputs and outputs are constant
External environmentMay cause increase or decrease in
productivity Units of measure
May be lacking
SERVICE PRODUCTIVITY Typically labor intensive Frequently individually processed Often an intellectual task performed
by professionals Often difficult to evaluate for quality
ETHICS/SOCIAL RESPONSIBILITY Developing and producing safe,
quality products Maintaining a clean environment Providing a safe workplace Community commitments
