Operations management

1. OPERATION MANAGEMENT
BY JAMES B. DIL WORTH

2. Operations Management
 What Is Operations Management?
 Why Operations Management?
 What operation Managers Do?

3. WHAT IS OPERATIONS MANAGEMENT?
Production is the creation of goods and
services
Operations management (OM) is the set of
activities that creates value in the form of goods
and services by transforming inputs into outputs

4. Three major function of an
organization
 Essential functions:
 Marketing – generates demand
 Production/operations – creates the product
 Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
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5. Why Study OM?
 OM is one of three major functions
(marketing, finance, and operations) of any
organization
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 We want (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

6. Options for Increasing
Contribution
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Finance/
Marketing Accounting OM
Option Option Option
Increase Reduce Reduce
Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%

7. Operations Providing goods and services
 The purpose of operations is to provide goods
and services to customers
 Operation Function can be sub devided into:
 Manfacturing: generally transform some tangible
input into some tangible output
 Service Operation: customers some time seek for
some time intangible services like advice or
instruction

8. Characteristics of goods
 Tangible product
 Production usually separate from consumption
 Can be inventoried/stocked
 Low customer interaction

9. Characteristics of services
 Intangible product
 Produced & consumed at same time
 Often unique
 High customer interaction
 Often knowledge-based

10. Types of Manfacturing
Operations
 Job Shop
 Batch Manfacturing
 Repetitive Manfacturing

11. Job Shop
1. A job shop manfacturing business contracts to
make to order to custom products in accordance
with designs supplied by customer
2. The volume of each product is low so these
companies must contract to make a wide variety
of products in order to achieve sufficient level of
sales
3. These are high variety and low volume shops,
flexibility is more important in operations
4. The production equipemnt must be general
purpose with the capacity to handle objectsof
various sizes and shapes.
5. Large inventories of WIP due to sporadic material
flow

12. Repititive Manfacturing
1. That type of manfacturing used for mass
production, high volume same product
2. The procducts are normally made to stock and
items can not be indentified
3. Material handelling equipment can also be
spesifically designed to handel spesific shapes
on fixed path
4. Materials may be held to ensure supply

13. Batch Manfacturing
1. Many manfacturing operations some where
fall between two regions and these are batch
manfacturing
2. The volume of any item is sufficient to justify
to dedicating a set of equipment to its
prodution run or batch
3. After completion of batch a new production
run may start

14. Types of NonManfacturing
operatipons1. Like manfacturing operations non
manfacturing operations can be subdevided
according to standardization of their outputs
whether standard service or custom service
2. Examples of non manfacturing operations can
be a software packege or a training program
3. Some nonmanfacturing operations deal with
tangible outputs even though they dont
manfacture goods
4. we should reognize an facilitating service may
be provided with goods and facilitating goods
may be provided with services..

15. Challenges of service industry
1. Productivity; productivity easily measured in
manfacturing operastions
2. Quality; quality standards are more difficult to
establish and more difficult to measure
3. Direct contact with customer; so cutomers are
more responsive to service provider than
Goods supplier
4. Stocks ; services can not be stored for peak
timings that’s why they discount packeges are
offered by phone companies to shift calls that
can be delayed.

16. Importance of operation
function
 Companies compete to gain and retain market
share, customers want greatest level of
satisfaction for each Rupee they spend, called
“value ratio’’ companies must work to improve
desiribility of product
cost of product
 The ratio can be improved by improving
measures as given

17. Importance of operation
function Company must be flexible/ innovative and
responsive
 Survival of the fittest
 Stay in touch stay informed
 Look for demand
 Improve safety and jobs better
 Company must provide Quality goods and
Services
 Meet the requirement intended for
 Product reliable with reasonable life time
 Userfriendly
 The company must make its service available at
convenient times and dependable

18. Manager’s role in operations
 Skills required
 Technical competence
 Basic understanding of technology with which
production system works and adequate knowledge
of work they are to manage
 Behaviorical competence; ability to work with
other people, Management must recognize
social as well as physical aspects of workers and
workers
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19. WHAT OPERATION MANAGERS DO?
Planning-Goods/ Capacity/
Method/ Location/ labour
Organizing-Work centers/
responsibility/ decentralization
Controlling-Budget/ Standards
/ Quality / Schedule/Targets
Directing-Supervision/ policy
making
Motivating-
Leadership/challenges/ rewards
Basic Management Functions

20. What Op. Managers Do?
 Key activities;
 Helping organizations to do more with less
 Exploiting technology to improve productivity
 Building quality into goods, services, and processes
 Determining Schedules
 Creating a high-performance workplace
 Continually learning and adapting the organization
to global and environmental changes

21. Operations Strategy
 Companies spend a great percentage of their
income and employee hours carrying out
activities that stem from various parts in the
company; these activities shape the destiny of
the entire company
 The accomplishments of the company can be
outstanding if all its parts work together toward
carefully established appropriate goals
 The decision that have long range impact are
called strategic decisions
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22. Operations Strategy
 Broadest expression in which a company apply
its efforts is called its mission; a long range
purpose that changed infrequently
 The company’s intended mission will identify
the parts of the environment that are most
relevant to the company’s decisions
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23. Strategy provides focus
 Top managers formulate strategy to provide
more definitive direction and guidance to the
organization
 Strategy is a long term master plan, how the
company will pursue its mission
 Product line company will choose to offer
 Geographical scope try to serve
 Amount of resources that will be committed
 Competitive action it will employ
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24. Strategy provides focus
 Policies are official statement, that guide
decisions and action of the company in
consistent and general direction
 Some time written policy circulated to lower
level managers for unified direction
 Each sub unit such as operations develop its
own strategies to accomplish the objectives
assigned to them
 Each part of the organization translate these
objectives into actions, and develop it s tactics
(short term plan)
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25. Strategy Formulation
 As strategy deals with long range plans,
strategy formulation is multifaceted activity
 Managers must evaluate information about
many diverse elements of the company;
external and internal environment
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26. External condition
1. Economic Conditions
1. Capital spending
2. GNP
3. Business cycle
4. Interest rate
2. Political conditions
1. War/peace
2. Tariff
3. Political stability
4. Budget
5. Labor policy
6. Environment policy
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27. External condition
3. Social Conditions
1. Lifestyle
2. Changes in status of women and minorities
4. Technological conditions
1. New formulation
2. New product
3. New process
5. Market Conditions
1. Needs of customer
2. Competitors
3. Cost structure
4. Product life cycle
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28. Internal condition
 There must an adequate match between the
key requirements of the company in which a
company competes and the capabilities of the
company
 The purpose of internal review ids to assess the
capability to move forward, especially when
there are external threat
 identify internal weaknesses and threats
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29. Internal condition
 Marketing understanding
 Existing products and services
 Existing distributions
 Existing Suppliers
 Human resources
 Ownership of natural resources
 Current facilities equipment process and
location
 Financial strength
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30. Mission
Corporate
strategy
Social
Conditions
Political
Conditions
Economic
Conditions
Market
Conditions
Internal
strengths and
weaknesses
Policies & SB Objectives
Functional strategies
&Operating Plans
Day to day activities

31. Assignment Chapter 1
1. What are the three primary functions that must
be performed in all organizations, define each
one and how they are interrelated?
2. Define standardized and customer service, in
what ways they are related to job shop and
repetitive manufacturing?
3. List and brief four major differences in
Manufacturing and non manufacturing
operations?
4. Why quality and productivity is more difficult to
measure in nonmanufacturing operations?
5. Briefly describe some of the ways to imrove
productivity
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