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Introduction to
Operations
Management
John
What is Operations What is Operations
Management?Management?
John
3 Basic Functions of Business Organizations
Ensure and allocating financial
resources
Produce goods or services
Assess consumer needs, and sell /
promote goods or services
John
Operations: A Transformation Process
Workers
Managers
Equipment
Facility
Materials
Land
Energy
Information
Goods
Services
IInputsnputs OutputsOutputs
Operations and
processes
Feedback
Performance
Lead time The time between ordering a good or service and receiving it.Dr Felton Lean
Operations Management
The management of systems or processes
that create goods and/or provide services.
Planning
Coordinating
Executing
OVERVIEW OF OPERATIONS MANAGEMENT MODEL
TransformationTransformation ProcessProcess
OutputOutput
Goods orGoods orServicesServices
ControlControl
Input: resourcesInput: resources raw materialsraw materials machinesmachines personnelpersonnel capitalcapital land/buildingsland/buildings utilitiesutilities informationinformation etc.etc.
Operations management is Operations management is the process of obtaining and the process of obtaining and utilizing resources to utilizing resources to produce useful goods and produce useful goods and services so as to meet the services so as to meet the goals of the organization.goals of the organization.
• The difference between the cost of inputsand the value or price of outputs.
Inputs Material Labor
Capital
Transformation/Conversion
process
Outputs Goods Services
Control
Feedback
FeedbackFeedback
Value added
Value added
Value of the output or price of the output as accepted by the customers, not just enforced by the supplier.
Land
Operations management considers Operations management considers howhow the input are transformed into the input are transformed into goods or services.goods or services.
Control is when something is Control is when something is learned about the goods or learned about the goods or services that is used to more services that is used to more effectively transform future goods effectively transform future goods or services.or services.
• The difference between the cost of inputsand the value or price of outputs.
Inputs Material Labor
Capital
Transformation/Conversion
process
Outputs Goods Services
Control
Feedback
FeedbackFeedback
Value added
Value added
Value of the output or price of the output as accepted by the customers, not just enforced by the supplier.
Land
Dr Felton Lean
Feedback and Control
Measurements taken at various points in the transformation process for control purposes are called feedback.
The process of comparing outputs to previously established standards to determine if corrective action is needed is called controlling
Physical Flow Information Flow
Dr Felton Lean
Operations = Transformation Process
InputsInputs5 MsManagement, Methods, Material, Machines, Maintenance
Also: Personnel , information & energy
Transformation/conversion processTransformation/conversion process Cutting, machining, storing, transporting,
investing, analyzing
OutputOutput Goods/services
Value-added The difference between the cost of inputs and the value or price of outputs.
Dr Felton Lean
EXAMPLE OF OPERATIONS MANAGEMENT PROCESS
Automobile factoryAutomobile factory Input Output
steel, plastic Car glass, paint
tools Transformationequipment processmachinespersonnel, buildingsutilities, etc.
Dr Felton Lean
Example: Hospital
Inputs Processing Outputs
Table 1.2
Healthy
patients
Doctors, nurses
Hospital
Medical Supplies
Equipment
Laboratories
Examination
Surgery
Monitoring
Medication
Therapy
Improvement of patients health condition
Dr Felton Lean
Example: MBA
Inputs Processing Outputs
Table 1.2
Knowledge
• Text Book
• Lecture Notes
• Handouts
• Course CD
• ……
Lecturing
Tutoring
Assignment
Exam
Future
operations
managers
Teaching Evaluation
Dr Felton Lean
Manufacture or Manufacture or
Service Operations?Service Operations?
Dr Felton Lean
• Degree of standardization• Type of Operation
• Manufacturing or Service
Major characteristics of operational systems
Dr Felton Lean
Manufacturing or Service?
Tangible Act
Production of goods
Delivery of services
“perceptible by the senses especially the sense of touch”WordNet ® 2.0, © 2003 Princeton University
Dr Felton Lean
– Standardized , high degree of uniformity Radio, canned food, automatic car washes
– Customized Eyeglasses, tailoring
Degree of standardization
Dr Felton Lean
– Project– Job shop– Repetitive production– Continuous processing
Types of operations
Dr Felton Lean
Production management is Production management is concerned with the concerned with the manufacturing of goods:manufacturing of goods:
Examples of goods:Examples of goods:carscarsbooksbookschairschairscomputerscomputershouseshousesetc.etc.
Dr Felton Lean
Manufacturing vs. Service
Characteristic Manufacturing ServiceOutput
Uniformity of output
Uniformity of input
Labor content
Measurement of productivity
Customer contact
Opportunity to correct quality problems before delivery
Evaluation
Patentable
Table 1.3
Tangible
High
High
Low
Easy
Low
High
Easy
Usually
Intangible
Low
Low
High
Difficult
High
Low
Difficult
Not Usually
Dr Felton Lean
Operations management is Operations management is also concerned with the also concerned with the management of service management of service industries as well as the industries as well as the manufacturing of goods.manufacturing of goods.
Dr Felton Lean
What does What does
Operations Manger Operations Manger
Do?Do?
Dr Felton Lean
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .
Scope of Operations Management
Dr Felton Lean
Example: Airline Company
Forecasting:Forecasting: Weather, landing conditions, seat
demands for flights.
Capacity Planning:Capacity Planning: How many number of planes
in each route?
Scheduling:Scheduling: Scheduling of planes for flights and
for routine maintenance, scheduling of pilots and
flights attendants.
Quality:Quality: Quality of the services, Safety.
Dr Felton Lean
Example: Automobile Factory
Forecasting:Forecasting: Demands for cars.
Capacity Planning :Capacity Planning : Number of shifts, level of
workforce.
Inventory:Inventory: Various component, parts.
Scheduling:Scheduling: Scheduling of various types of cars,
Scheduling of workforce.
Quality:Quality: Quality of products, services.
Dr Felton Lean
Responsibilities of Operations Manager
Products & services
Planning
– Capacity
– Location
–– Make or buy
– Layout
– Projects
– SchedulingControlling/Improving
– Inventory
– Quality
Organizing
–Degree of centralization
– Process selection
Staffing
–Hiring/laying off
–Use of OvertimeDirecting
– Incentive plans
–Issuance of work orders
– Job assignments
– Costs
– Productivity
Table 1.6
Dr Felton Lean
Why is Operations Why is Operations
Management Management
Important?Important?
Dr Felton Lean
Reasons to Study Operations Management
50% or more of the jobs in industry are operations management-related:
Customer ServiceQuality AssuranceProduction PlanningSchedulingInventory ManagementLogistics
Operations Management activities are at the core of all business organizations.
All Other Functional Areas are interrelated with Operations Management
Dr Felton Lean
Operations as Technical Core
Operations
Finance
Capital Markets, Stockholders
Marketing
Customers
Work
ers
Sup
plie
rs
Pu
rchasi
ng
Pers
on
nel
Dr Felton Lean
IMPORTANCE OF OPERATIONS MANAGEMENT
Improves productivity:
* Effective control of the conversion process of inputs into
outputs (e.g., fewer defect output, less wastage of material
inputs, effective allocation of staff, will lead to more output
per unit time).
** Higher productivity leads to higher profits – How?
Improves our ability to meet customer needs:
* Ensure provision of high quality products and services at
reasonable prices (not just cheap output)
* Enables us to provide service to our target customers better
than our competitors
* Meeting customer needs is crucial to long term survival of
the firm – Why?
Dr Felton Lean
IMPORTANCE OF OPERATIONS MANAGEMENT
Central to the building of a brand name/reputation of the company/firm, as a competitive weapon:
* High-quality product/service provider
* Low cost/good value producer/service provider (e.g.,
Woolworths, Sony & Panasonic)
* Fast delivery or response/lead time (e.g., Hong Kong –
for 2 hrs suit tailoring
Improves the living standards of citizens and wealth of nations:
* Has impact on GDP per capital – high output per unit
time
* High-value added vs. skills needed to manufacture
Dr Felton Lean
The Overlapping of Three Major Functions
Figure 1.5
Operations
FinanceMarketing
• Budgeting• Economic
analysis of investment proposals
• Provision of funds
……• Financial
indicators
• Competitor• Customer
preference• Trend of
technology …… • Judgment of
manufacturability
• Fulfillment lead time
Dr Felton Lean
OPERATIONAL-BASED COMPETITIVE ADVANTAGE
Operational based competitive advantage can be achieved by:
* Doing things right the first time - Quality advantage;
- defect free output, lower costs, improved competitiveness, can even lead to higher prices (e.g., Sony, Toyota, etc).
* Doing things cost effectively - Cost advantage;
- cost efficiency leads to price competitiveness and decent
profits
- Lack of cost competitiveness can lead to large-scale
retrenchments
* Do things fast: Speed advantage; can lose sales if slow
- Reputation for speed is important
Dr Felton Lean
OPERATIONAL-BASED COMPETITIVE ADVANTAGE
* Change things quickly: Adaptability-advantage (ability to
change from making Tea, Coffee, etc)
- Change operations to meet customer demand for variety
- SME Furniture manufacturer (beds, chairs, tables, sofa)
* Do things right every time: Reliability-advantage
- offer error-free products or services to customers EVERY
time
* Do things better: Service-advantage and continuous
improvement (e.g., TQM – all aspects of business important
in delivering quality service to customer).
Dr Felton Lean
Types of Manufacturing Processes
(subset of OM Transformations).
Conversion - iron ore to iron, mixtures to steel, crude oil to gas, etc.
Fabrication - blue beads to pen tops.
Assembly - parts to assemblies.
Testing - in-house or on-site testing.
Dr Felton Lean
Process Flow StructuresFlow of Product or Service
Job shop/ Unit Production
Batch/ Process Departments
Assembly Line/ Product Departments
Continuous Flow/ Process Industries
Dr Felton Lean
Process selectionDeciding on the way production of goods or services will be organized
Major implicationsCapacity planningLayout of facilitiesEquipmentDesign of work systems
Introduction
Dr Felton Lean
Forecasting
Product andService Design
TechnologicalChange
CapacityPlanning
ProcessSelection
Facilities andEquipment
Layout
WorkDesign
Figure 6.1
Process Selection and System Design
Dr Felton Lean
VarietyHow much
FlexibilityWhat degree
Volume Expected output
Job Shop
Batch
Repetitive
Continuous
Process Selection
Dr Felton Lean
Job shopSmall scale
BatchModerate volume
Repetitive/assembly lineHigh volumes of standardized goods or services
ContinuousVery high volumes of non-discrete goods
Process Types
Dr Felton Lean
Process Type
Job Shop Appliance repairEmergency room
Not feasible
Batch Commercialbakery
ClassroomLecture
Repetitive Automotiveassembly
Automaticcarwash
Continuous(flow)
Notfeasible
Oil refineryWater purification
Figure 6.2
Product – Process Matrix
Dr Felton Lean
Dimension
Job variety Very High Moderate Low Very low
Process flexibility
Very High Moderate Low Very low
Unit cost Very High Moderate Low Very low
Volume of output
Very High Low High Very low
Figure 6.2 (cont’d)
Product – Process Matrix
Dr Felton Lean
Automation: Machinery that has sensing and control devices that enables it to operate
Fixed automationProgrammable automation
Automation
Dr Felton Lean
• Computer-aided design and manufacturing systems (CAD/CAM)
• Numerically controlled (NC) machines
• Robot
• Manufacturing cell
• Flexible manufacturing systems(FMS)
• Computer-integrated manufacturing (CIM)
Automation
Dr Felton Lean
PROCESS FLOW CONT’D
UNIT/JOB SHOP – One of a Kind, Custom Tools, Buildings, Software, Research Projects, Exclusive Restaurants
BATCH – Furniture, Clothes, Most Plastic Parts, Many Photo Shops
MASS – Autos, BIC pens, Consumer Electronics, One-Hour Photos, Fast Food Restaurants
CONTINUOUS PROCESS – Chemicals, Primary Materials, Petroleum, Lumber
Dr Felton Lean
INTERMITTENT & CONTINUOUS
INTERMITTENT PROCESSESUNIT BATCH
CONTINUOUSE PROCESSESMASS ASSEMBLY LINECONTINUOUS PROCESS
Dr Felton Lean
IV.Continuous
Flow
III.Assembly
Line
II.Batch
I.Job
Shop
LowVolumeOne of a
Kind
MultipleProducts,
LowVolume
FewMajor
Products,HigherVolume
HighVolume,
HighStandard-
ization
CommercialPrinter
French Restaurant
HeavyEquipment
Coffee Shop
AutomobileAssembly
Burger King
SugarRefinery
Flexibility (High)Unit Cost (High)
Flexibility (Low)Unit Cost (Low)
Source: Modified from Robert Hayes and Steven Wheelwright, Restoring Our Competitive Edge: Competing through Manufacturing (New York: John Wiley & Sons, 1984). p. 209.
Exhibit 5.9Exhibit 5.9
13
Dr Felton Lean
ABOVE THE DIAGONAL
Flexibility/Variety is HigherCosts are HigherOK with low volume marketsOK when high customization is necessaryThreats:A competitor can undercut youRisky when high volume can be stimulated through price competition
Dr Felton Lean
BELOW THE DIAGONAL
Costs are lowerAutomation is higherGreater investment Threats:Greater market risk – what do you do with an automated highly specialized plant when demand decreases?Competition may match costs with greater product variety.
Dr Felton Lean
Service Operations
Types of Service Operations
Service
Capital Intensive Labor Intensive
Monitored by Unskilled Operators
Automatic Operated by Skilled Operators
Unskilled Labor
Skilled Labor
Professionals
Vending machines, automated car washes
Movie theaters, taxis, dry cleaners
Airlines, medical testing, excavating
Lawn care, janitorial, guards
Appliance repair, banks, catering
Doctors, lawyers, consultants
Dr Felton Lean
Service Operations
Defining Services - Types of Processes
Project
Job Shop
Flow Shop
Continuous Process
Construction,
Shipbuilding
Sign-making
Tailoring
Automobiles
Appliance Shop
Oil Refinery
Cereal Plant
Consulting,
Software Devel.
Auto Repair
Restaurant
Fast Food Rest.
Car Wash
ATMs
Police / Fire Svc
Type Mfg. Example Service Example
Dr Felton Lean
Service Operations
The Transformation Process - Services
Service Primary Conversion Desired System Input Process Output
College Students Knowledge Educated . Transmission People
Hospital Patient Health Care Healthy . People
Restaurant Customers Food Satisfied . Preparation Customers
Video Store Customers Fill Requests Satisfied . Customers
Dr Felton Lean
Production Cycle
Dr Felton Lean
New Product Development
Dr Felton Lean