Transcript Introduction to Operations Management

Operations Management
Lesson 1
Fundamentals of Operations
Management
Prepared by Sudarsan Jayasingh
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Learning Objectives
What you will learn in this unit:
 Define Operations Management?
 The role and activities of operation management
 The input-transformation-output model
 Difference between goods and services
 What is Operations strategy
 Performance objectives of operations strategy
 Productivity Measurement
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What is Operations Management?
“ Operation Management is the set of
activities that create goods and services
through the transformation of inputs into
outputs.”
(Slack, 2001)
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Typical Organization Chart
Source: Reid and Sanders, 2005.
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Activities of Operations manager
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Understand the operation’s strategic objectives
Developing an operation’s strategy for the
organization
Designing the operation’s products, services and
processes
Planning and controlling the operation
Improving the performance of the operation.
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Some Activities of Ikea Operations Manager
Design elegant products
which can be flat packed
efficiently
Storage
Quality
Design Store Layout
Site Location
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OM’s Transformation Role
Source: Reid and Sanders, 2005.
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The input-transformation-output model
Transformed
resources
Materials
Information
Customers
Input
Transforming
resources
Facilities
Staff
Source: Slack, 2001
Transformation
process
Output
Goods
and
services
Inputs
Transformed resources – the resources that are treated,
transformed or converted in some way. The transformed
resources which operations take in are usually a mixture of
materials, information and customers.
Transforming resources – the resources that act upon the
transformed resources. Facilities and staff are the two types
of transforming resources. Facilities include building,
equipment, plant and process technology etc., Staff includes
all those who operate, maintain, plan and manage the
operation.
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The output from most operations is a mixture of
goods and services
PSYCHOTHERAPY CLINIC
MANAGEMENT
CONSULTANCY
COMPUTER SYSTEMS
SERVICES
Tangible
Can be stored
Production precedes
consumption
Low customer
contact
Can be transported
Quality is evident
RESTAURANT
SPECIALIST MACHINE TOOL
MANUFACTURER
ALUMINIUM SMELTING
CRUDE OIL PRODUCTION
PURE GOODS
Intangible
Cannot be stored
Production and
consumption are
simultaneous
High customer contact
Cannot be transported
Quality difficult to judge
PURE SERVICES
Source: Slack, 2001
Similarities-Service/Manufacturers
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All use technology
Both have quality, productivity, & response
issues
All must forecast demand
Each will have capacity, layout, and location
issues
All have customers and suppliers
All have scheduling and staffing issues
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Historical Development of OM
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Industrial revolution
Scientific management
Human relations movement
Management science
Computer age
Just-in-Time Systems (JIT)1980s
Total quality management (TQM)
Reengineering
Flexibility
Time-Based Competition
Supply chain Management
Global Competition
Environmental Issues
Electronic Commerce
Late 1700s
Early 1900’s
1930s to 1960s
Mid-1900s
1970s
1980’s
1990s
1990s
1990s
1990’s
1990s
1990s
Late 1990s
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Today’s OM Environment
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Customers demand better quality, faster
deliveries, and lower costs
Increased cross-functional decision
making
Recognized need to better manage
information using ERP and CRM
systems
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The activities of operations
management
ENVIRONMENT
INPUT
TRANSFORMED
RESOURCES
MATERIALS
INFROMATION
CUSTOMERS
INPUT
FACILITIES
STAFF
INPUT
TRASNFORMED
RESOURCES
OPERATIONS
STRATEGY
IMPROVEMENT
DESIGN
PLANNING AND
CONTROL
GOODS
OUTPUT
AND
SERVICES
ENVIRONMENT
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Highlights
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OM is function that manages the resources that add value
Its role is to transform inputs into products or services
Key differences between mfg. and service companies are
tangibility of product and degree of customer contact
Historical milestones range from 1700s Industrial Revolution to
the modern Electronic Commerce age
OM must understand and implement major process changes like
JIT, TQM, supply chain management, and environmental
changes
OM works closely with all other business functions
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Operations Strategy
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Operations strategy is the total
patterns of decisions and actions
which set the role, objectives and
activities of the operation so that
they contribute to, and support, the
organisation’s business strategy
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Operations Strategy – Designing
the Operations Function
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The Wal-Mart Strategy and Operations
Structure
Corporate Strategy
(Gain competitive advantage by) providing customers access to quality
goods, when and where needed, at competitive prices
Operations Structure
Operations Strategy
– Short cycle times
– Low inventory levels
–
–
–
–
EDI
Fast transportation system
Focused locations
Communication between
retail stores
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Competitive Advantage
Competitive advantage is term as the extra
edge that a firm has over their industry peers
(Reid and Sanders, 2005).
The capability of a firm in managing their
operation can be transform into their
competitive advantage if there can identify and
tap into their intangible resources.
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Competitive Priorities- The Edge
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Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
All of the above? Some? Tradeoffs?
Source: Reid and Sanders, 2005.
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Competitive Priorities- The Edge
0r Performance Objectives
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Quality
Time (Speed and Dependability)
Flexibility
Cost
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Lower prices
(or higher profits)
Faster customer
response
Cost
Speed
Quality
Error-free products
and services
Dependability
On-time
deliveries
Flexibility
Wider variety
More customisation
More innovation
Cope with volume
fluctuations
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Are There Priority Tradeoffs?
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Which priorities are “Order Qualifiers”?
e.g. Must have excellent quality since everyone expects it
Which priorities are “Order Winners”?
e.g. Dell competes on all four priorities
Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility
Can you have both high quality and low cost?
e.g. Yes, Coke and Pepsi are good examples
Can you offer design flexibility and short delivery?
e.g. Yes, modular housing manufacturers do it
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Measuring Productivity
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Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input
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Total Productivity Measure
Total Productivity = $sales/inputs $
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Partial Productivity Measure
Partial Productivity = cars/employee
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Multifactor Productivity Measure
Multi-factor Productivity = sales/total $costs
Source: Reid and Sanders, 2005.
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Highlights
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Business Strategy is a long
range plan. Functions
develop supporting plans
Strategy must address
mission, environment, and
core competencies
Business strategy provides a
guide for designing
operations strategy
Operations strategy must
consider which competitive
priorities are essential to
meet business objectives
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Competitive priorities are
cost, quality, time, and
flexibility
Productivity measures how
effectively a firm is using
resources
Productivity is computed as
a ratio of outputs divided by
inputs
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References
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Reid R.D., and Sanders N. R., (2005) Operations
Management, 2nd Edition, Wiley Publication.
Slacks Nigel and Lewis Mike, (2002) Operations
Management, Prentice Hall.
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