OPERATION MANAGEMENTBY JAMES B. DIL WORTH

Operations Management

What Is Operations Management? Why Operations Management? What operation Managers Do?

WHAT IS OPERATIONS MANAGEMENT?

Production is the creation of goods and services

Operations management (OM) is the set of activities that creates value in the

form of goods and services by transforming inputs into outputs

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Three major function of an organization

Essential functions: Marketing – generates demand Production/operations – creates the

product Finance/accounting – tracks how well

the organization is doing, pays bills, collects the money

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Why Study OM?

OM is one of three major functions (marketing, finance, and operations) of any organization

We want (need) to know how goods and services are produced

We want to understand what operations managers do

OM is such a costly part of an organization

Options for Increasing Contribution

Sales $100,000 $150,000 $100,000 $100,000Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000Gross Margin 20,000 30,000 20,000 36,000Finance Costs – 6,000 – 6,000 – 3,000 – 6,000Subtotal 14,000 24,000 17,000 30,000Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

Finance/Marketing Accounting OM

Option Option Option

Increase Reduce ReduceSales Finance Production

Current Revenue 50%Costs 50% Costs 20%

Operations Providing goods and services

The purpose of operations is to provide goods and services to customers

Operation Function can be sub devided into: Manfacturing: generally transform some

tangible input into some tangible output Service Operation: customers some time

seek for some time intangible services like advice or instruction

Characteristics of goods

Tangible product

Production usually separate from

consumption

Can be inventoried/stocked

Low customer interaction

Characteristics of services

Intangible product

Produced & consumed at same time

Often unique

High customer interaction

Often knowledge-based

Types of Manfacturing Operations

Job Shop

Batch Manfacturing

Repetitive Manfacturing

Job Shop1. A job shop manfacturing business contracts to

make to order to custom products in accordance with designs supplied by customer

2. The volume of each product is low so these companies must contract to make a wide variety of products in order to achieve sufficient level of sales

3. These are high variety and low volume shops, flexibility is more important in operations

4. The production equipemnt must be general purpose with the capacity to handle objectsof various sizes and shapes.

5. Large inventories of WIP due to sporadic material flow

Repititive Manfacturing1. That type of manfacturing used for

mass production, high volume same product

2. The procducts are normally made to stock and items can not be indentified

3. Material handelling equipment can also be spesifically designed to handel spesific shapes on fixed path

4. Materials may be held to ensure supply

Batch Manfacturing1. Many manfacturing operations some

where fall between two regions and these are batch manfacturing

2. The volume of any item is sufficient to justify to dedicating a set of equipment to its prodution run or batch

3. After completion of batch a new production run may start

Types of NonManfacturing operatipons

1. Like manfacturing operations non manfacturing operations can be subdevided according to standardization of their outputs whether standard service or custom service

2. Examples of non manfacturing operations can be a software packege or a training program

3. Some nonmanfacturing operations deal with tangible outputs even though they dont manfacture goods

4. we should reognize an facilitating service may be provided with goods and facilitating goods may be provided with services..

Challenges of service industry

1. Productivity; productivity easily measured in manfacturing operastions

2. Quality; quality standards are more difficult to establish and more difficult to measure

3. Direct contact with customer; so cutomers are more responsive to service provider than Goods supplier

4. Stocks ; services can not be stored for peak timings that’s why they discount packeges are offered by phone companies to shift calls that can be delayed.

Importance of operation function Companies compete to gain and retain market share, customers want greatest level of satisfaction for each Rupee they spend, called “value ratio’’ companies must work to improve

desiribility of product

cost of product The ratio can be improved by improving

measures as given

Importance of operation function Company must be flexible/ innovative and responsive

Survival of the fittest Stay in touch stay informed Look for demand Improve safety and jobs better

Company must provide Quality goods and Services

Meet the requirement intended for Product reliable with reasonable life time Userfriendly

The company must make its service available at convenient times and dependable

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Manager’s role in operations Skills required Technical competence

Basic understanding of technology with which production system works and adequate knowledge of work they are to manage

Behaviorical competence; ability to work with other people, Management must recognize social as well as physical aspects of workers and workers

WHAT OPERATION MANAGERS DO?Planning-Goods/ Capacity/ Method/ Location/ labour

Organizing-Work centers/ responsibility/ decentralizationControlling-Budget/ Standards / Quality / Schedule/ Targets

Directing-Supervision/ policy making

Motivating-Leadership/challenges/ rewards

Basic Management Functions

What Op. Managers Do?

Key activities;

Helping organizations to do more with less Exploiting technology to improve

productivity Building quality into goods, services, and

processes Determining Schedules Creating a high-performance workplace Continually learning and adapting the

organization to global and environmental changes

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Operations Strategy Companies spend a great percentage

of their income and employee hours carrying out activities that stem from various parts in the company; these activities shape the destiny of the entire company

The accomplishments of the company can be outstanding if all its parts work together toward carefully established appropriate goals

The decision that have long range impact are called strategic decisions

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Operations Strategy

Broadest expression in which a company apply its efforts is called its mission; a long range purpose that changed infrequently

The company’s intended mission will identify the parts of the environment that are most relevant to the company’s decisions

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Strategy provides focus Top managers formulate strategy to

provide more definitive direction and guidance to the organization

Strategy is a long term master plan, how the company will pursue its mission Product line company will choose to offer Geographical scope try to serve Amount of resources that will be

committed Competitive action it will employ

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Strategy provides focus Policies are official statement, that guide

decisions and action of the company in consistent and general direction

Some time written policy circulated to lower level managers for unified direction

Each sub unit such as operations develop its own strategies to accomplish the objectives assigned to them

Each part of the organization translate these objectives into actions, and develop it s tactics (short term plan)

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Strategy Formulation

As strategy deals with long range plans, strategy formulation is multifaceted activity

Managers must evaluate information about many diverse elements of the company; external and internal environment

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External condition1. Economic Conditions

1. Capital spending\2. GNP3. Business cycle4. Interest rate

2. Political conditions1. War/peace2. Tariff3. Political stability4. Budget 5. Labor policy6. Environment policy

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External condition3. Social Conditions

1. Lifestyle2. Changes in status of women and minorities

4. Technological conditions1. New formulation2. New product3. New process

5. Market Conditions1. Needs of customer2. Competitors3. Cost structure4. Product life cycle

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Internal condition There must an adequate match

between the key requirements of the company in which a company competes and the capabilities of the company

The purpose of internal review ids to assess the capability to move forward, especially when there are external threat

identify internal weaknesses and threats

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Internal condition Marketing understanding Existing products and services Existing distributions Existing Suppliers Human resources Ownership of natural resources Current facilities equipment process

and location Financial strength

Mission

Corporate strategy

Social Condition

s

Political Conditions

Economic Conditions

Market Conditions

Internal strengths

and weaknesses

Policies & SB Objectives

Functional strategies &Operating Plans

Day to day activities

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Assignment Chapter 11. What are the three primary functions that

must be performed in all organizations, define each one and how they are interrelated?

2. Define standardized and customer service, in what ways they are related to job shop and repetitive manufacturing?

3. List and brief four major differences in Manufacturing and non manufacturing operations?

4. Why quality and productivity is more difficult to measure in nonmanufacturing operations?

5. Briefly describe some of the ways to imrove productivity