The Basics Of Operations Management

The Basics Of Operations ManagementOperations ManagementThe process of managing the resources that are needed to produce an organizations goods and services.Operations managers focus on managing the five Ps of the firms operations:People, plants, parts, processes, and planning and control systems.

InputA resource required for the manufacture of a product or service.Conversion SystemA production system that converts inputs (material and human resources) into outputs (products or services); also the production process or technology.OutputA direct outcome (actual product or service) or indirect outcome (taxes, wages, salaries) of a production system.

The Production SystemThe Basic Production System

Why to study OMCost and profit breakdown at a typical manufacturing companyHow to make more profit?Cost cutting.Which costs affect the revenue?Management of operations is critical to create and maintain competitive advantages

Operations management: The management of the efficient transformation of inputs into outputs to effectively satisfy customers.The active role of operations: Inputs become Outputs after some Transformation (Process or Operation)Food processing example:

Operations in services: Health care

InputsProcessesOutputsOperations are everywhere !OperationsExamplesGoods producingFarming, mining, constructionStorage/transportationWarehousing, trucking, mail, taxis, buses, hotelsExchangeTrade, retailing, wholesaling, renting, leasing, loansEntertainmentRadio, movies, TV, concerts, recordingCommunicationNewspapers, journals, radio, TV, telephones, satelliteThree basic functionsOperations/Production Goods oriented (manufacturing and assembly)Service oriented (health care, transportation and retailing)Value-added (the essence of the operations functions)Finance-AccountingBudgets (plan financial requirements)Provision of funds (the necessary funding of the operations)MarketingSelling, PromotingAssessing customer wants and needs

OM at the core of BusinessesFinanceOperationsMarketingProduction of goodsTangible products Automobiles, Refrigerators, Aircrafts, Coats, Books, SodasServicesRepairs, Improvements, Transportation, RegulationRegulatory bodies: Government, Judicial system, FAA, FDAEntertainment services: Theaters, Sport activitiesExchange services: Wholesale/retailAppraisal services: Valuation, House appraisalSecurity services: Police force, ArmyFinancial services: BanksEducation: Universities, K-12 schools

Manufacturing vs. Service OperationsDifferences with respect toCustomer contactUniformity of inputLabor content of jobsUniformity of outputMeasurement of productivityProduction and deliveryQuality assuranceAmount of inventory

Manufacturing vs. Service Operations

Manufacturing vs. ServicesFollowing decisions focus on specifics - Tactical decisionTactical decisions: focus on specific day-to-day issues like resource needs, schedules, & quantities to produceare frequentStrategic decisions less frequentTactical and Strategic decisions must align

OM Decisions Industrial revolutionLate 1700sScientific managementEarly 1900s Hawthorne Effect 1930sHuman relations movement1930s-Management science1940s-Computer age1960s-Environmental Issues1970s-JIT & TQM* 1980s-

Reengineering1990-Global competition1980-Flexibility1990-Time-Based Competition1990-Supply chain Management1990-Electronic Commerce2000-Outsourcing & flattening of world2000-

Historical Development of OMCustomers demand better quality, greater speed, and lower costsCompanies implementing lean system concepts a total systems approach to efficient operationsRecognized need to better manage information using ERP and CRM systemsIncreased cross-functional decision making

Todays OM EnvironmentOM has the most diverse organizational functionManages the transformation processOM has many faces and names such as;V. P. operations, Director of supply chains, Manufacturing managerPlant manger, Quality specialists, etc.All business functions need information from OM in order to perform their tasks

OM in PracticeBusiness Information Flow

Operations StrategyIt is a plan specifying how an organization will allocate resources in order to support infrastructure and production. Operational strategy looks at the long term issues on how to manage the resources which produce products and services.Operations strategy is the means by which operations implements the firms corporate strategy and helps to build a customer-driven firm.

It links long-term and short-term operations decisions to corporate strategy.

It is the core of managing processes and value chains.

Operations Strategy Model Consistent pattern of decisions InternalanalysisExternalanalysisMissionDistinctiveCompetenceObjectives(cost, quality, flexibility, delivery)Policies(process, quality, capacity, and inventory)Operations StrategyBusiness strategyFunctional strategies inmarketing, finance,engineering, humanresources, andinformation systemsResultsCorporate strategyOperations Strategy

Developing an Operations StrategyOperations Strategy is a plan for the design and management of operations functions Operation Strategy developed after the business strategyOperations Strategy focuses on specific capabilities which give it a competitive edge competitive prioritiesOperations Strategy Designing the Operations Function

Competitive Priorities- The EdgeFour Important Operations Questions: Will you compete on Cost? Quality? Time? Flexibility?

Competing on Cost?Offering products/services at a low price relative to competitors.Typically high volume productsOften limit product range & offer little customizationMay invest in automation to reduce unit costsCan use lower skill laborProbably use product focused layoutsLow cost should not mean low quality

Competing on Quality?Quality is sometimes subjectiveQuality may be defined differently by customers versus employeesQuality dimensions:High performance design:Superior features, high durability, & excellent customer serviceProduct & service consistency:Meets design specificationsClose tolerancesError free deliveryQuality issues to address:Product design quality products/services must meet requirementsProcess quality will produce error-free products/services

Competing on Time?Time is one of the most important competitive prioritiesBeing first-to-deliver often wins the raceTime related issues:Fast delivery:Focused on shorter time between order placement and deliveryOn-time delivery:Deliver product exactly when needed every timeRapid development speedUsing concurrent processes to shorten product development time

Competing on Flexibility?The companys environment often changes rapidlyFlexibility is needed to accommodate these changesProduct flexibility:Easily switch production from one item to anotherEasily customize product/service to meet specific requirements of a customerVolume flexibility:Ability to ramp production up and down to match market demands

Elements of Operational StrategiesDesigning of Production System.Facilities for production and services.Product or Service design and development.Technology development and process development.Allocation of resources.Facility and Capacity Planning.