1GE303 Operations

Management

Introduction to Production Systems

Introduction
Operations Management

What is Operations Management?

Why Study Operations Management?

Transformation Processes Defined

Operations as a Service

The Importance of Operations Management

Historical Development of OM

Current Issues in OM

Operations Management
Operations management (OM)
is defined as the design, operation, and
improvement of the systems that create and

deliver the firms primary products and services

Operations Management
OM is concerned with the management of the entire

system that produces a good or delivers a service

Ex: producing a cell phone:

Suppliers purchase raw materials and produce parts

The plant takes these parts and assembles the models

Orders are received (internet, distributor, dealer, etc.)

Retailers work directly with costumers setting up and managing

cell phone accounts

OM is concerned with managing all these

individual processes
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OM: types of decisions

Strategical (long-term) effectiveness of

addressing customers needs

How to make the product?; Number and location of

facilities?

Tactical (intermediate-term) efficiently schedule

material and labor

How many workers and when?; Overtime; Which types of

inventory?

Operational planning and control (short-term)

What jobs today/this week?; Labor/tasks assignment?

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Examples

Taken from Operations Management for Competitive Advantage"

Taken from Operations and Supply Chains Management

Transformation Process
A transformation process uses resources to
transform inputs into some desired outputs
Inputs may be raw material, products,

human and financial resources

Outputs may be products or services

Transformation Process

Taken from Operations Management for Competitive Advantage"

Transformations
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications

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Services and Goods

A service is an intangible process and a

good is a physical output of a process.

In a service, the location of the service

facility and the customer involvement are

usually essential.

If you drop it on your foot, it wont hurt

you. (Good or service?)

Services never include goods and goods

never include services. (True or false?)
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Organization Chart

Taken from Operations Management for Competitive Advantage"

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Organization Chart

Taken from Operations Management for Competitive Advantage"

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Organization Chart

Tariffs are now OM

Taken from Operations Management for Competitive Advantage"

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Operations as services
The new model in industry is that every

organization is in the service industry.

Regardless of the product (big/small)

Regardless of the customer

(internal/external)

Services can be divided into core or value-

added

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Types of services
Core services products correctly made,

customized, timely delivered at

competitive prices
Value added services make customers life

easier and are divided into 4 categories:

Information (performance, parameters,)

Problem Solving (quality-out to check)

Sales Support (demonstrations)

Field Support (replace/repair/parts quickly)

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The Importance of OM
Many times neglected

No glamour in redesign procurement, process

enhancement, product development,

Company and CEO names are made through

acquisitions, mergers, buying divisions,

But operations account for 60-80% of the

direct expenses that burden a firms profit.

Synergies must exist with other functional

areas of the organization.

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Historical Development OM
1980s Jut-in-time (JIT) and Total Quality Control (TQC)

JIT high volume of production with minimum inventory

TQC elimination of production defects

Late 1970 and early 1980s Manufacturing Strategy Paradigm

Factories as strategic competitive weapons

Factory focused on a limited set of tasks extremely well

performed

Trade-offs among measures as low cost, high quality, and high

flexibility
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Historical Development OM
Service Quality and Productivity

Deliver high volumes of standardize services

Late 1980s and 1990s Total Quality Management and Quality

Certification

The ISSO 9000 certification standards, created by the

International Standard Organization for Standardization, plays a
major role in setting quality standards for global manufactures
(most EU companies require their vendors to meet these
standards).

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Historical Development OM
1990 Business Process Reengineering pushed by the

economic recession

Revolutionary rather than evolutionary changes, by eliminating

non-value-added activities and computerizing

Supply Chain Management

Apply a total system approach to managing the flow of

information, materials, and services from suppliers and
warehouses to the end customer.

1990s Electronic Commerce

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Current Issues in OM
Coordinate the relationships between mutually supportive but

separate organizations.

Outsourcing of major corporate functions, such us information

systems, product development and design, packaging, testing,

distribution, etc. (encouraged by fast and inexpensive
communications)
Optimizing global supplier, production, and distribution

networks.

Global enterprise resource planning: control versus autonomy

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Current Issues in OM
Increased co-production of goods and services

Customer interaction as elimination of some customer oriented

functions (order monitoring, etc.)

Managing the customers experience during the service

encounter

Trade-off between staff cost and customer satisfaction/loss.

Raising the awareness of operations as a significant competitive

weapon

Many senior executives come from finance, strategy, or marketing

and take operations for granted. This can be a critical mistake!

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Operations Strategy
Sets broad policies and plans for using the resources of a

company to best support its long-term competitive strategy

and must be integrated with the corporate strategy
Involves decisions related to the design of a process and

the infrastructure needed to support the process

Selection of appropriate technology

Process location and sizing over time

The role of inventory in the process

Quality assurance and Control approaches

Work payment structures

Organization of the operations function

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Operations Strategy
Strategy Process

Example

Customer Needs

More Product

Corporate Strategy

Operations Strategy

Decisions on Processes
and Infrastructure

Increase Org. Size

Increase Production Capacity

Build New Factory

Taken from Operations Management for Competitive Advantage"

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Operations Strategy
competitive dimensions
Cost or Price - Make the Product or Deliver the Service Cheap
Quality - Make a Great Product or Deliver a Great Service

Delivery Speed - Make the Product or Deliver the Service Quickly

Delivery Reliability - Deliver It When Promised

Coping with Changes in Demand - Change Its Volume

Flexibility and New Product Introduction Speed Change It
Other Product-Specific Criteria - Support It
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Operations Strategy
trade-offs
Reduce costs by
Cost

reducing product quality

inspections, might
reduce product quality

Flexibility

Delivery
Quality

Improve customer service problem

solving by cross-training personnel to deal with wider-

range of problems, might lead to less efficiency at

dealing with commonly occurring problems.

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Order Qualifiers and

Order Winners
Order qualifiers are the basic criteria that

permit the firms products to be considered as

candidates for purchase by customers

Brand name (car)

Order winners are the criteria that

differentiates the products and services of one

firm from another

Repair services (Warranty, Roadside Assistance)

Fitting Operational
Activities to Strategy
Company activities relate one another.

Making them efficient

Making them effective

minimizing the total cost

set of activities combined support

the companys strategy

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Southwest
Southwest

Position: low cost and high convenience

Obtained from rapid gate turnaround, frequent departures, greater

use of aircrafts

Due to well paid gate and ground crews and flexible union rules

HOW SOUTHWEST PERFORMS AND AVOIDS OTHER ACTIVITIES

No meals, no seat assignment, no baggage transfer

Careful airport and routes selection (avoid congestion)

Limits the type and length of routes, using Boeing 737s only

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OM Strategy Framework

Taken from Operations Management for Competitive Advantage"

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Review Questions
1. Can a factory be fast, dependable, and flexible; produce high-

quality products; and still provide poor service from a

customers point of view?
2.

What was the order-winner(s) for your last major purchase or

a product/service?
3. What are the typical performance measures for quality, speed

of delivery, and flexibility?

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