Operations Management Definition

Operations management is defined

as the design, operation, and
improvement of the systems that
create and deliver the firm’s primary
products and services.

2
 Transformations

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

5
 Examples of Production Systems
System Inputs Conversion Output
(desired)
Hospital Patients Health Care Healthy
MDs, Nurses Individuals
Medical Supplies
Equipment
Restaurant Hungry Customers Prepare Food Satisfied
Food, Chef Serve Food Customers
Servers
Atmosphere
Automobile Sheet Steel Fabrication High Quality
Plant Engine Parts and Assembly Automobiles
Tools, Equipment of Cars
Workers
University High School Grads Transferring Educated
Teachers, Books of Knowledge Individuals
Classroom and Skills

6
 Operations and
1 Productivity

PowerPoint presentation to accompany

Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e

PowerPoint slides by Jeff Heyl

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 What Is Operations
Management?
Production is the creation of goods
and services
Operations management (OM) is the
set of activities that create value in
the form of goods and services by
transforming inputs into outputs

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 Organizing to Produce Goods and
Services
• Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the
product
3. Finance/accounting – tracks how well
the organization is doing, pays bills,
collects the money
4. Human Resources – provides labor, wage
and salary administration and job
evaluation

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Organizational Charts

© 2011 Pearson Education, Inc. publishing

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Organizational Charts

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 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling

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 Ten Critical Decisions
Ten Decision Areas Chapter(s)

1. Design of goods and services 5

2. Managing quality 6, Supplement 6
3. Process and capacity 7, Supplement 7
design
4. Location strategy 8
5. Layout strategy 9
6. Human resources and 10
job design
7. Supply-chain 11, Supplement 11
management
8. Inventory, MRP, JIT 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17

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 The Critical Decisions
1. Design of goods and services
– What good or service should we offer?
– How should we design these products and
services?
2. Managing quality
– How do we define quality?
– Who is responsible for quality?

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 The Critical Decisions
3. Process and capacity design
– What process and what capacity will these
products require?
– What equipment and technology is
necessary for these processes?
4. Location strategy
– Where should we put the facility?
– On what criteria should we base the
location decision?

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 The Critical Decisions
5. Layout strategy
– How should we arrange the facility?
– How large must the facility be to meet our
plan?
6. 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
7. Supply-chain management
– Should we make or buy this component?
– Who should be our suppliers and how can we
integrate them into our strategy?
8. Inventory, material requirements planning,
and JIT
– How much inventory of each item should we
have?
– When do we re-order?

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 The Critical Decisions
9. Intermediate and short–term scheduling
– Are we better off keeping people on the
payroll during slowdowns?
– Which jobs do we perform next?
10. Maintenance
– How do we build reliability into our
processes?
– Who is responsible for maintenance?

© 2011 Pearson Education, Inc. publishing Table 1.2 (cont.)

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 New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply-chain partnering
 Rapid product development,
 Lengthy product development alliances
 Mass customization
 Standard products  Empowered employees,
teams
 Job specialization

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 Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction

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Characteristics of Service
 Intangible product
 Produced and consumed at
same time
 Often unique
 High customer interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed

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 Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

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 New Trends in OM
• Ethics
• Global focus
• Environmentally sensitive production
• Rapid product development
• Mass customization
• Empowered employees
• Supply-chain partnering
• Just-in-time performance

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 Productivity Challenge
Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources such
as labor and capital)

The objective is to improve productivity!

Important Note!
Production is a measure of output only and not a
measure of efficiency

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 Efficiency Versus Effectiveness
• The difference between efficient and effective is that
efficiency refers to how well you do something, whereas
effectiveness refers to how useful it is.
• “Efficiency is doing things right; effectiveness is doing the right
things.”
• Doing the Right Things is More Important than
Doing Things Right
 Efficiency Versus Effectivenes
• For example, if a company is not doing well
and they decide to train their workforce on a
new technology. The training goes really well -
they train all their employees in avery short
time and tests show they have absorbed the
training well. But overall productivity doesn't
improve. In this case the company's strategy
was efficient but not effective.
 The Economic System
Inputs Transformation Outputs

Labor, Economic system transforms Goods

capital, inputs to outputs and
management /CONVERSITION PROCESS services

Feedback loop

Figure 1.6

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 Productivity
Units produced
Productivity =
Input used

 Measure of process improvement

 Represents output relative to input
 Only through productivity increases can
our standard of living improve

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 Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

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 Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as total factor productivity
 Output and inputs are often expressed in
dollars

Multiple resource inputs  multi-factor productivity

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