Operations Management includes all of the activities managers engage in to produce goods (products) and services.
Planning takes place before anything is produced and during the production process.
What is Production?
What is Production? (continued)
Product: Lexus IS 300
Manufacturer: Toyota
• Marketing research must determine if customers are willing to pay $30,000 and what special features they want.
• Operations Manager turns the ‘concept’ into reality and must make sure the organization’s goal is achieved.
• For the IS300 such things as: product quality, performance standards, inventory of both raw materials and finished product, and production costs.
Competition in the Global Marketplace
Successful companies must focus on the following:• Reduce production costs by selecting suppliers that
offer higher-quality raw materials and components at reasonable prices.
• Use state-of-the-art manufacturing equipment.• Use computer-aided and flexible manufacturing
systems that allow more customization.• Improve control procedures to help cut manufacturing
costs.• Build new manufacturing facilities in foreign countries
where labor costs are lower.
Manufacturing Processes
Analytical Process – a process in operations management in which raw materials are broken down into different parts (milk, oil, etc)
Synthetic Process – a process in operations management in which raw materials or components are combined to create a finished product. (cars, electronic equipment, etc)
The Conversion Process
To have something to sell, a business must convert resources into goods and services.
The purpose of this conversion of resources is to provide ‘utility’ to customers.
The Conversion Process (continued)
Utility is the ability of a good (product) or service to satisfy a human need.
Operations Management focuses primarily on Form Utility which is created by converting raw materials, people, finances and information into finished products.
The Conversion Process (continued)
The Nature of Conversion:
• The focus or major resource used in the conversion process.
• Its magnitude of change
• The number of production processes employed.
The Conversion Process (continued)
Focus – the resource or resources that make up the major or most important input.
NBB – financial resources are major resource
BAPCO – material resources
UoB – information resources
ABCO or Bayt.com – human resources
The Conversion Process (continued)
Magnitude of Change – degree to which the resources are physically changed.
Glad Cling Wrap – various chemicals in liquid or powder from are combined to form long, thin sheets of plastic.
Gulf Air – produces no physical change in its original resources; simply provides a service and transports people from one place to another.
The Conversion Process (continued)
Number of Production Processes:
A single firm may employ one process or many.
In general, larger firms that make a variety of products use multiple production processes.
Increased Importance of Services
Service Economy is one in which more effort is devoted to the production of services than to the production of goods (products).
1900’s – only 28% of US workers were employed in the service industry.
2001 – over 80% of US workers were employed in the service industry.
Goods Production vs Services Production
Services are consumed immediately and cannot be stored.
Services are provided where and when the customer desires the service. Customers may not travel as far to obtain a service as they would to purchase a product.
Services are usually labor intensive because the human resource is often the most important resource used in the production of services.
Services are intangible so it is more difficult to measure customer satisfaction.
Goods Production vs Services Production
Service firms often listen more carefully to customers and respond more quickly to the market’s changing needs.
Manufacturing companies are responding to customers’ needs for better service by doing customer surveys and providing ‘800’ numbers.
They are also providing better after-sale service to those who buy their products.
Planning for Production
Only a few of the many ideas for new products, refinements and extensions ever reach the production stage.
Planning for Production involves three (3) major phases: Design planning Facilities planning and site selection Operational planning
Planning for Production. . .(continued)
1. Design Planning – the development of a plan for converting a product idea into an actual product. Major decisions deal with:
o Product Lineo Required Capacityo Use of Technology
Planning for Production. . .(continued)
• Product Line – a group of similar products that differ only in relatively minor characteristics. Management must decide how many different
product variations there will be.Must balance customers’ preferences with
production requirements.Product design is the process of creating a set of
specifications from which the product may be produced.
Planning for Production. . .(continued)
• Capacity – the amount of products and services that an organization can produce in a given period of time.A decision about capacity will determine the
size of the production facility.Capacity is critical for manufacturing firms
and service businesses.
Planning for Production. . .(continued)
• Use of Technology – the degree to which automation will be used to produce a product or service.Labor-intensive technology is a process in which
people must do most of the work. (housecleaning, haircutting,
etc.)
Capital-intensive technology is a process in which machines and equipment do most of the work. (dairy,
car manufacturers, assembly plants for TVs and other electronic equipment, etc.)
Planning for Production. . .(continued)
2. Facilities Planning and Site Selection Management must decide whether to build
a new plant or refurbish an existing one. Generally, decision to build a new plant
will depend on whether the existing plant has extra capacity to produce a new product or the cost of updating the old plant is less than building a new one.
Planning for Production. . .(continued)
Where to Locate Production Facilities?• Location of major customers• Transportation costs to deliver finished products to customers• Geographic locations of suppliers of parts or raw materials• Availability and cost of skilled and unskilled labor (HR function)
• Quality of life for employees and management in the proposed location
• The cost of both land and construction required to build a new production facility
• Environmental regulations and zoning laws• Financial support, if any, offered by local and state governments• Special requirements used in the production process (i.e., great
amounts of water or energy used in the production process)
Planning for Production. . .(continued)
• Plant Layout is the arrangement of machinery, equipment and personnel within a production facility
• Three designs of plant layout include:• Process Layout – body work in a garage
• Product Layout – assembly line in car production
• Fixed-Position Layout – large products - ASRY
Planning for Production. . .(continued)
3. Operational Planning – deciding on the amount of products or services each facility will produce during a specific period of time.
Step 1 – selecting a Planning Horizon – the time period during which a plan will be in effect.Step 2 – estimating Market Demand – the quantity customers will purchase at the going price. (usually sales projections prepared by Marketing Managers)
Planning for Production. . .(continued)
Step 3 – Comparing Market Demand with Capacity of the Plant
• Three possible outcomes: Demand may exceed capacity Capacity may exceed demand Capacity and demand may be equal – operate at full
capacity
If market demand and capacity are not equal, adjustments may have to be necessary.
Planning for Production. . .(continued)
4. Adjusting Products or Services to Meet Demand Biggest reason for changes to a firm’s production schedule
is a change in the amount of products or services that a company sells to its customers.
When market demand exceeds capacity, production or services may be increased by operating overtime shifts with existing personnel or adding a second or third shift; subcontracting to other manufacturers, or if the demand is permanent, expanding the plant facilities.
When capacity exceeds market demand, a decision may be made to reduce output temporarily, lay off workers, shut down part of the plant, shift to production of other products or services, or selling unused facilities.
