Introduction to Operation Management

Pertemuan 01

Mata kuliah : J0444 - Manajemen OperasionalTahun : 2010

Multi Channel Learning Self Study Face to Face (On Class) eLearning “Binus Maya” GSLC (Off)

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Binus Maya (wajib dikerjakan) Lainnya (dosen bersangkutan)

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Learning Objectives

• Define the term operations management• Identify the three major functional areas of

organizations and describe how they interrelate• Compare and contrast service and manufacturing

operations• Describe the operations function and the nature of

the operations manager’s job• Identify and define productivity

Operations Management

• Operations Management is:The management of systems or processes

that create goods and/or provide services

• Operations Management affects:– Companies’ ability to compete– Nation’s ability to compete internationally

The Economic System Transforms Inputs to Outputs

The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%)

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

1-7

Automobile assembly, steel making

Home remodeling, retail sales

Automobile Repair, fast food

Goods-service ContinuumGoods-service Continuum

Computer repair, restaurant meal

Song writing, software development

Goods Service

Surgery, teaching

Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment

Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy

Manufacturing or Service?Manufacturing or Service?

Tangible Act

Characteristics of Goods

Tangible product Consistent

product definition Production usually

separate from consumption

Can be inventoried

Low customer interaction

© 1995 Corel Corp.

Characteristics of Service

Intangible product Produced & consumed at

same time Often unique High customer interaction Inconsistent product

definition Often knowledge-based Frequently dispersed

© 1995 Corel Corp.

Key Differences1. Customer contact2. Uniformity of input3. Labor content of jobs4. Uniformity of output5. Measurement of productivity6. Production and delivery7. Quality assurance8. Amount of inventory9. Evaluation of work10. Ability to patent design

Goods vs ServiceCharacteristic Goods Service

Customer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High Low

Inventory Much Little

Evaluation Easier Difficult

Patentable Usually Not usual

• Operations Management includes:– Forecasting– Capacity planning– Scheduling– Managing inventories– Assuring quality– Motivating employees– Deciding where to locate facilities– Supply chain management

– And more . . .

Scope of Operations ManagementScope of Operations Management

Types of OperationsTypes of Operations

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/Transportation Warehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, banking,renting, leasing, library, loans

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and televisionnewscasts, telephone, satellites

Key Decisions of Operations Managers

• WhatWhat resources/what amounts

• WhenNeeded/scheduled/ordered

• WhereWork to be done

• HowDesigned

• WhoTo do the work

Organizational Functions

• Marketing– Gets customers

Operations creates product or service

Finance/Accounting Obtains funds Tracks money

© 1995 Corel Corp.

Functions - Bank

Operations Finance/Accounting

Marketing

CheckClearing

TellerScheduling

Transactions

ProcessingSecurity

Commercial Bank

© 1984-1994 T/Maker Co.

Functions - Manufacturer

Operations Finance/Accounting

Marketing

ProductionControl

Manufacturing QualityControl

Purchasing

Manufacturing

Business Operations OverlapBusiness Operations Overlap

Operations

FinanceMarketing

Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal

Trends in Business

• Major trends– The Internet, e-commerce, e-business– Management technology– Globalization– Management of supply chains– Outsourcing– Agility– Ethical behavior

Other Important Trends

• Ethical behavior• Operations strategy• Working with fewer resources• Revenue management• Process analysis and improvement• Increased regulation and product liability• Lean production

Why Study OM?

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

• We want (and 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.

What Operations Managers Do

Plan - Organize - Staff - Lead - Control

The Critical Decisions

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

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

services?

The Critical Decisions

• Process and capacity design– What processes will these products require and in

what order?– What equipment and technology is necessary for

these processes?

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

decision?

The Critical Decisions

• 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?

The Critical Decisions

• Supply chain management– Should we make or buy this item?– Who are our good suppliers and how many

should we have?

• Inventory, material requirements planning, – How much inventory of each item should we

have?– When do we re-order?

The Critical Decisions

• Intermediate, 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?– When do we do maintenance?

New Challenges in OM

• Local or national focus

• Batch shipments• Low bid

purchasing• Lengthy product

development• Standard products• Job specialization

Global focus Just-in-time

Supply chain partnering

Rapid product development, alliances

Mass customization Empowered

employees, teams

FromFrom To

The Challenge of Social Responsibility

Increasing emphasis on business and social responsibility

Where are the OM Jobs

Competitiveness:Competitiveness:

How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services

Businesses Compete Using Marketing

• Identifying consumer wants and needs• Pricing• Advertising and promotion

Businesses Compete Using Operations

• Product and service design• Cost• Location• Quality• Quick response

Businesses Compete Using Operations

• Flexibility• Inventory management• Supply chain management• Service and service quality• Managers and workers

Productivity

• Productivity– A measure of the effective use of resources,

usually expressed as the ratio of output to input

• Productivity ratios are used for– Planning workforce requirements– Scheduling equipment– Financial analysis

• Partial measures– output/(single input)

• Multi-factor measures– output/(multiple inputs)

• Total measure– output/(total inputs)

Productivity = Outputs

Inputs

Productivity GrowthProductivity Growth

Current Period Productivity – Previous Period ProductivityPrevious Period Productivity

Productivity Growth =

Measures of ProductivityMeasures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

Example :

7040 Units Produced

Cost of labor of $1,000

Cost of materials: $520

Cost of overhead: $2000

What is the multifactor productivity?

Solution :

MFP = OutputLabor + Materials + Overhead

MFP = (7040 units)$1000 + $520 + $2000

MFP = 2.0 units per dollar of input

Measurement Problems

• Quality may change while the quantity of inputs and outputs remains constant

• External elements may cause an increase or decrease in productivity

• Precise units of measure may be lacking

Productivity Variables

• Labor - contributes about 10% of the annual increase

• Capital - contributes about 32% of the annual increase

• Management - contributes about 52% of the annual increase

Key Variables for Improved Labor Productivity

• Basic education appropriate for the labor force• Diet of the labor force• Social overhead that makes labor available• Maintaining and enhancing skills in the midst of

rapidly changing technology and knowledge

Service Productivity

• Typically labor intensive• Frequently individually processed• Often an intellectual task performed by

professionals• Often difficult to mechanize• Often difficult to evaluate for quality

The End