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Introduction to Operations Management

Operations ManagementSession 1

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ObjectivesThe student will be able to:

– Define Operations Management – Describe the nature and role of the operations

function – Construct and use transformation models – Appreciate that operations produce both products and

services – Understand the difference between micro and macro

operations – Understand the importance of internal supplier-

customer chains – Build a Typology of Operations based on the Four V’s – Appreciate how operations fit in with Operations

Strategy

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Topics

• What is Operations?• What do Operations Managers do?• Operations Management in Goods and

Services• Transformation Model• Business Process Analysis• Typology of Operations• Missions and Strategies

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Definition

• Operations Management (OM)management of activities that lead to the creation of goods and services through the transformation of inputs to outputs

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Functions - Airline

OperationsFinance/

AccountingMarketing

Ground

Support

Flight

Operations

Facility

MaintenanceCatering

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OM - Critical Decisions1. Managing quality2. Design of goods and services3. Process and capacity design4. Layout design5. Human resources6. Location strategies7. Supply-chain management8. Inventory management9. Scheduling10. Maintenance

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The Critical Decisions - 1

• Quality management– Who is responsible for quality?– How do we define quality?

• Goods and services design– What product or service should we offer?– How should we design these products and

services?

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The Critical Decisions - 2

• Process and Capacity design– What processes will these products require

and in what order?– What equipment and technology is

necessary for these processes?

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The Critical Decisions - 3

• Layout design– How should we arrange the facility?– How large a facility is required?

• Human resources and job design– How do we provide a reasonable work

environment?– How much can we expect our employees

to produce?

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The Critical Decisions - 4

• Supply chain management and JIT “Just-in-time” Inventory, Material Requirements Planning– Should we make or buy this item?– Who are our good suppliers and how many

should we have?– How much inventory of each item should we

have?– When do we re-order?

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The Critical Decisions - 5

• Immediate, short term, and project scheduling– Is subcontracting production a good idea?– Are we better off keeping people on the payroll during

slowdowns?

• Maintenance– Who is responsible for maintenance?

• Location– Where should we put the facility– On what criteria should we base this location

decision?

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PURE GOODSTangible

Can be storedProduction precedes

consumptionLow customer

contactCan be transported

Quality is evident

PURE SERVICESQuality difficult to judge

Cannot be transported

High customer contact

Production and consumption are simultaneous

Cannot be storedIntangible

Output of most Operations a Mixture of Goods and Services

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Goods Versus Services - 1

Can be resold Can be inventoried Some aspects of

quality measurable Selling is distinct

from production

Reselling unusual Difficult to inventory Quality difficult to

measure Selling is part of

service

Good Service

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Goods Versus Services - 2

• Product is transportable

• Site of facility important for cost

• Often easy to automate

• Revenue generated primarily from tangible product

• Provider, not product is transportable

• Site of facility important for customer contact

• Often difficult to automate

• Revenue generated primarily from intangible service.

Good Service

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The Transformation Model

Input Transformed Resources

Input Transforming Resources

MaterialsInformationCustomers

FacilitiesStaff

TransformationProcess Customers

Input Resources Output Services+ Products

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Economic System Transforms Inputs to Outputs

Economic system transforms inputs to outputs at about an annual 1% increase in productivity:- capital 1/6 of 1%- labour 1/6 of 1%- management 2/3 of 1%

Land, Labour, Capital, Management

Goods and Services

Feedback Loop

Inputs Process Outputs

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Macro and Micro Operations

• Micro– An operation or process that can not be split

up into smaller operations and processes

• Macro– An operation or process that can be split up

into smaller operations and processes

• All Macro operations are made up of many Micro operations

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Internal Customer Concept

• To treat internal suppliers and customers as if they were independent external organisations

• Each micro-operation should identify its internal customers and internal suppliers

• Discuss with them what they need and what they can offer

• Related to Business Process Re-engineering (BPR)

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The Four V’s• Volume of demand

– How many the organisation makes– Service vs. Mass Production

• Variety in operations– The ability to adapt the transformation process to meet needs of

the customer– Taxi vs. Train

• Variation in demand– Adapting to changing demand

• Visibility of transformation– How much of the operations functions are visible to the customer– Some operations have mixed high/low visibility

eg Restaurant Front and Kitchen

Often they are in conflict

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Variation

in DemandHigh Low

Television plant

Fast food restaurant

Routine surgery

Mass rapid transport

Electricity generator factoryGourmet restaurantPioneering surgeryTaxi service

Bespoke tailor

University tutorials

Corporate tax advice

Department store

Off-the-peg suit plant

University lectures

Financial audits

Jeans shop

Electricity utility

Financial audits

Emergency service

London underground

Bread bakery

Consultancy advice

Shopping mall security

Trucking operation

Health care "Cook at your table" restaurantDentistMusic teacher

Most manufacturingPrepackaged sandwichmakerDental techniciansDistance learning

High LowVisibility

VarietyHigh Low

VolumeLow High

A Typology of Operations

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The Most Important Conflict

Volume vs Variety

  Project Job Batch Mass Continuous

Product UniqueUnique

aspect to each

product

Made to order

Made to stock

Commodity

Volume Very lowVery low

to lowLow to med

High Very high

Variety InfiniteVery high

to highMedium to high

Low Very low

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Process Types - Products

Project

Job

Batch

Mass

Continuous

Volume

Var

iety

Low

Hig

h

Low High

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Process Types - Services

Professional

Service (e.g shops)

Mass Services

Volume

Var

iety

Low

Hig

h

Low High

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Organisation Mission Statement

• Mission – the purpose or rationale for an organisation’s existence

• Example Mission Statement –“To manufacture and service a growing and profitable worldwide microwave communications business that exceeds our customers’ expectations”

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Operations Management Mission Statement

• General –To produce products consistent with the company’s mission as the worldwide low-cost manufacturer

• Specific – To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production and field service opportunities

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Strategies

• Strategy – How an organisation expects to achieve its missions and goals

• Generic Strategies – – Competing on price– Competing on differentiation– Competing on response