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Operations Management GPO 300
October 7, 2013
What is OM ? (Reminder)
• Operations (function) : The arrangement of resources that are devoted to the production and delivery of products and services.
• Operations Management : The activities, decisions
and responsibilities of managing (planning, coordinating, and controlling…) the production and delivery of products and services.
The activities of Operations Management
Planning and controlling the operation: the activity of deciding what the operations resources should be doing, then making sure that they really are doing it.
Improving the performance of the operation: to improve the performance of the operations.
The social responsibilities of operations management: The general term for these aspects of business responsibility is ‘corporate social responsibility’ or CSR. It should be of particular interest to operations managers, because their activities can have a direct and significant effect on society and environment.
What Operations Managers do ?
Operations Management has the most diverse organizational function and has many faces.
Operations Managers haves different names such as :
– Vice manager
– President of operations
– Director of supply chains
– Manufacturing
– Plant manger
– Quality specialists, etc.
Products & services
• Planning : – Capacity – Location –
– Make or buy – Layout – Projects – Scheduling
• Controlling – Inventory – Quality
• Organizing – Degree of centralization – Subcontracting
• Staffing – Hiring/laying off – Use of Overtime
• Directing – Incentive plans
– Job assignments
Responsibilities of Operations Managers
Exercise
The company WIZA achieves a sales revenue of $100 000 for a total cost of production
of $ 80 000. The finance costs attain $ 6000. Taxes are fixed at a constant rate of 25%.
Admitting that WIZA has 3 options to increase its profit:
• Marketing option : Increase sales revenue by 50%
• Finance option : Reduce finance costs by 50%
• Operations option : Reduce production costs by 20 %
Which option provides the most important contribution?
Indication : To answer this question , you will need to calculate for each of these three options : The gross
margin and the net profit
Solution
Solution
Marketing Option
Finance Option OM Option
Current
situation Increase Sales revenu by 50%
Reduce finance costs by 50%
Reduce Production costs by 20 %
Sales 100000 150000 100000 100000 Production
cost - 80000 - 120000 - 80000 - 64000
Gross Margin 20000 30000 20000 36000 Finance costs - 6000 - 6000 - 3000 - 6000
Subtotal 14000 24000 17000 30000 Taxes (25%) - 3500 - 6000 - 4250 - 7500
Contribution 10500 18000 12750 22500
Historical Development of OM
Many historical milestones have shaped OM. Some of these are the Industrial Revolution, scientific management, the human relations movement, management science, and the computer age.
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Historical Development of OM
OM is highly important function in today’s dynamic business environment. Among
the trends with significant impact are just-in-time, TQM, reengineering, flexibility,
time-based competition, SCM, global marketplace, and environmental issues
Wrap Up
Operations management uses resources to appropriately create outputs that fulfill defined market requirements
Sce : Slack, Chambers and Johnston, Operations Management 5th Edition
Products Vs Services
Services
• Intangibility of products
• Simultaneity (of production and Consumption) . Products cannot be inventoried
• High customer contact
• Short response time
• Labor intensive
Manufacturing
• Tangible product
• Product can be inventoried
• Low customer contact
• Longer response time
• Capital intensive
The output from most operations is a mixture of products and services
Pure products – Outputs that are
exclusively tangible
Pure services – Outputs that are
exclusively intangible
Mixture of products and services – Outputs that are a mixture of the
tangible and the intangible
Products Vs Services
Labor force by occupation in the worlds (Manufacturing and services)
Sce: Safalra (Stephen Morley)
Transformation model
Feedback loop
Outputs
Goods
and
services
Processes
Transformation
process
Inputs
Labor,
capital
information…
Transformation Process
• Increase product value at each stage : Value added is the net
increase between output product value and input material value
• Provide an efficient transformation : performing activities well for
least possible cost
For long-run success, companies must place much importance on their operations
OM’s function focuses on adding value through the transformation process of converting inputs into outputs.
OM in Practice
Case study
Video :Emirates Flight Catering Operations
Transforming and transformed resources
• Transformed resources : Resources that are treated, transformed or converted in the process.
• Transforming resources : Resources which act upon the transformed resources. 2 types of Transforming resources : Facilities : the buildings, equipment, plant and process technology of the operation; Staff involved in all the levels of the operation : people who operate, maintain, plan and manage the operation.
Levels of operations Analysis 1. Supply Chain
OM
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Supply Chain :
Sequential system of suppliers and customers that begins with basic sources of inputs and ends with final customers of the system. Operations and supply chain are interdependent.
Assignment
Reading Operations Management, William J. Stevenson, 11th edition Chapter 1 (Page 4 to 38) Review questions 1. Explain how each of these personalities contributed the evolution of operations management? - Adam Smith - Eli Whitney - Frederick W. Taylor - Taylor’s Principles - Henry Ford - W. Edwards Deming
2. What are the similarities between all operations?
3. List five differences between goods production and service operations then list five similarities.
