OPSM 301 Operations Management

Class 1:

Introduction: What is operations management?

Chapter 1

Koç University

Zeynep Aksinzaksin@ku.edu.tr

What is the OPSM301 course about?

The role of the operations function may be

defined as the design, operation, and

improvement of the production system that

creates the firm’s primary products and services

We will study how organisations “actually do

things” 

Operations as a Competitive Weapon

Dell Computers

Innovative Supply Chain Strategy (direct model) Southwest Airlines

Leader in lowfare flights, by elimination of all waste Zara

Can deliver new styles in 3-6 weeks (compared to 5-12 months for competitors)

Tansas Markets (now part of Migros)

Inventory Control system cuts stock-outs to 7.2% from 19% Vestel Durable Goods

Distribution optimization leads to increased customer satisfaction as well as lower costs

Supply Chain of a TypicalOriginal Equipment Manufacturer

Management Decisions

Strategic (long-term) decisions Tactical (intermediate-term) decisions Operational planning and control (short-term)

decisions

A Process Management Perspective

We all manage processes...

Inputs Outputs

GoodsServices

Labor & CapitalResources

Informationstructure

Network ofActivities and Buffers

Flow units(customers, data,

material, cash, etc.)

ProcessManagement

Process Management

A business process is a network of

activities performed by resources that

transforms inputs into outputs…

Process Management is a set of

managerial policies specifying how a

process should be operated over time...

Products

Products are the desired set of process outputs Product Types

– Goods versus Services

Product Attributes– Cost– Delivery response time– Variety– Quality

Inputs-Outputs

Tangible Inputs– People– Raw material

Intangible Inputs– Information– Time

Tangible Outputs– Buildings– Cars

Intangible Outputs– Outgoing patient (hospital)– Delivered message (advertising company)

Transformations

Physical--manufacturing

Locational--transportation

Exchange--retailing

Storage--warehousing

Physiological--health care

Informational--telecommunications

All Managers are Ops Managers!

All managers must transform inputs into outputs Example: Accounting Manager

– Inputs: data, information, labor– Transformation: application of accounting principles and

knowledge– Outputs: accounting reports, knowledge of performance, ...

Therefore, all managers are in some sense Operations managers

All managers have an “operation” to run

Value Proposition System Design Planning & Control

Operations StrategyOperation Priorities

CostQualityDeliveryFlexibilityInnovationService

Product/

Service DesignProcess

SelectionTQMFacility

locationFacility LayoutJIT

Aggregate PlanningInventory SystemsProject ManagementSchedulingMRP Statistical Process Control

Operations Management

Characteristics of Goods

Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction© 1995 Corel Corp.

Characteristics of Service

Intangible product Produced & consumed at

same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed

© 1995 Corel Corp.

Goods Contain Services / Services Contain Goods

0 25 50 75 100255075100

AutomobileComputerInstalled Carpeting

Fast-food MealRestaurant Meal

Auto RepairHospital Care

Advertising AgencyInvestment Management

Consulting ServiceCounseling

Percent of Product that is a Good Percent of Product that is a Service

1850 75 1900 25 50 75 2000 40 50 60 70 1970 75 80 85 90 95 2000Percent

United States

Canada

France

Italy

Britain

Japan

W Germany19702000

Services

Industry

Farming

250

200

150

100

50

0

80

%70

60

50

40

30

20

10

0

U.S. Employment, % Share Services as a Percent of GDP U.S. Exports of ServicesIn Billions of Dollars

Year 2000 data is estimated

Development of the Service Economy

Measure of process improvement Represents output relative to input

Only through productivity increases can our standard of living improve

Productivity

ProductivityProductivityProductivityProductivity UnitsUnits producedproducedUnitsUnits producedproducedInput usedInput usedInput usedInput used= = = =

Multi-Product (Total Factor) Productivity

Productivity =

Output

Labor + material + energy + capital + miscellaneous

Example 1

Mis Hali cleaned 65 rugs in October, consuming the following resources:– Labor: 520 hours at 13 YTL per hour– Solvent: 100 liters at 5 YTL per liter– Machine rental: 20 days at 50 YTL per day

a. What is the labor productivity per dollar? (0.0096 )

b. What is the total factor productivity? (0.00787)

Example 2

Because of its excellent location and products, a bakery in Sariyer experienced a 25% increase in demand in the last year. Customers are unable to find the product of their choice on many occasions. Space limitations preclude the possibility of adding another oven. A new process is proposed by an employee which allows several loaves to be baked simultaneously, however requires additional manpower. If the bakery made 1500 loaves this time last year with a labor productivity of 2.344 loaves per labor hour, how many workers will the bakery need to add, assuming each worker works 160 hours per month.

(1 worker)

Significant Events in Operations Management