2. 1-2
CHAPTER OUTLINE
Definition of Operations Management
Operations Decisions - A Framework
Cross-Functional Decision Making
Operations as a System
Kahsu Mebrahtu , MU, CBE , MBA
Programm
3. 1-3
DEFINITION OF OPERATIONS MANAGEMENT
Operations is responsible for supplying the
product or service of the organization.
Managers are involved in planning, organizing
and controlling; and Operation Manager has
direct responsibility of “getting the job done”
Operation Manager’s job is to manage the
process of converting inputs into desired
outputs
Operations managers make decisions regarding
the operations function and its connection
with other functions.
Kahsu Mebrahtu , MU, CBE , MBA Programm
4. DEFINITION OF OPERATIONS MANAGEMENT
Operations managers plan, organize and control the
production process and its interfaces within the
organization and with the external environment.
Operation management is about getting the day-to-day
work done quickly, efficiently, without error, and
at low cost. OM creates dramatic improvements in
customers services and reduction in cost
OM defined as the design, operation and improvement
of the systems that create and deliver the firm’s
primary products and services
OM Is concerned with the management of entire system
(from input to output) that produces goods or
deliver products. (deals with effective and efficient
transformation process) 1-4
Kahsu Mebrahtu , MU, CBE , MBA Programm
5. 1-5
KEY POINTS IN OM DEFINITION
Operation Management is the field of study that
tries to understand, explain, predict and change
organizational and strategic effects of the
transformation process.
Hence, OM deals with the effective and efficient
management of the transformation process
Decisions : the operations manager must make
Decisions (process, quality, capacity, and inventory)
Functions : Operation is the main functions in the
organization. (manufacturing, Production dept)
Process: Plan and control Process for producing
goods and services
Kahsu Mebrahtu , MU, CBE , MBA
Programm
6. 1-6
MAJOR DECISIONS FRAMEWORK FOR OM
Process
How to produce & deliver
Quality
Criteria, measurement & process for achieving
Capacity
Physical facilities & labor
Inventory
What, when & how much?
Kahsu Mebrahtu , MU, CBE , MBA
Programm
7. 1-7
EXAMPLES OF IMPORTANT POLICIES IN OPERATIONS
Policy Type Policy Area Strategic Choices
Process Span of process
Automation
Process flow
Job specialization
Supervision
Make or buy
Handmade or machine–made
Flexible or specialized
Project, batch, line, or continuous
Centralized or empowered workers
Quality
Systems
Approach
Training
Suppliers
Prevention or inspection
Technical or managerial training
Selected on quality or cost
Capacity Facility size
Location
Investment
One large or several small facilities
Near markets, labor, or materials
Permanent or temporary
Inventory Amount
Distribution
Control Systems
High or low levels of inventory
Centralized or decentralized
warehouses
Control in great detail or less detail
Kahsu Mebrahtu , MU, CBE , MBA
Programm
8. 1-8
CROSS-FUNCTIONAL DECISION MAKING
Operations as the primary function: OM is a
functional field of business with clear line
management responsibilities
Uses decision making tools
Considers facility automation
Other primary functions:
Marketing
Finance
Other supporting functions may exist
Kahsu Mebrahtu , MU, CBE , MBA
Programm
9. Copyright 2006 John Wiley & Sons, Inc.
1-9
OPERATIONS FUNCTION
Operations
Marketing
Finance and
Accounting
Human
Resources
Outside
Suppliers
10. 1-10
OPERATIONS AS A SYSTEM
(PROCESS)
Transformation
(Conversion)
Process
Input Output
Kahsu Mebrahtu , MU, CBE , MBA Programm
11. 1-11
OPERATIONS AS A PROCESS
Transformation
Fabrication
Input Output
Transformation
Assembly
Fabrication: making the parts
Assembly: putting the parts together
Kahsu Mebrahtu , MU, CBE , MBA Programm
12. 1-12
OPERATIONS AS A PROCESS
Transformation
(Conversion)
Process
Energy
Materials
Labor
Capital
Information
Goods or
Services
Feedback information for
control of process inputs
and process technology
Kahsu Mebrahtu , MU, CBE , MBA Programm
13. 1-13
RELATION OF OPERATIONS TO ITS ENVIRONMENT
Operations transformation system
Suppliers
Human
Resources
Marketing
Accounting Finance MIS
Engineering
SOCIETY
GOVERNMENT
External
Environment
CUSTOMERS
COMPETITORS
Kahsu Mebrahtu , MU, CBE , MBA Programm
14. DISTINGUISHING BETWEEN MANUFACTURING
AND SERVICE OPERATION
Tangible/intangible nature of output
Can be inventoried/ can not be inventoried
Consumption of outputs (consume over time,
consumes immediately Simultaneous consumption and production)
Nature of the work (less labor and more equipment,
high labor and less equipment)
Degree of customer contact
little consumer contact, Extensive consumer contact
Customer participation in conversion
distinguish between output (generated service,
medical service) and throughput(going through the
processes )
Measurement of performance/quality easy to assess/ difficulty to assess
1-14
Kahsu Mebrahtu , MU, CBE , MBA Programm
15. KEY ELEMENT OF OPERATION MANAGMENT
Product selection and design
Process selection and planning
Facilities (plant) location, Facilities layout
and material handling
Capacity planning
Production planning and control (PPC)
Inventory control
Quality assurance and control
Work study and job design
Cost reduction and cost control 1-15
Kahsu Mebrahtu , MU, CBE , MBA Programm
16. 1-16
CONTEMPORARY AND CORE ISSUES
OPERATIONS THEMES
Service and Manufacturing (differences and
implications)
Customer-Directed Operations
Time Reduction (Lean Operations)
Integration of Operations and Other Functions
Environmental Concerns
Supply Chain Management
Globalization of Operations
Kahsu Mebrahtu , MU, CBE , MBA
Programm
18. TOTAL MEASURE PRODUCTIVITY
Total measure Productivity = Outputs
Inputs
or
= Goods and services produced
All resources used
18
Kahsu Mebrahtu , MU, CBE , MBA
Programm
19. PARTIAL MEASURE PRODUCTIVITY
Partial measures of productivity =
Output or Output or Output or Output
Labor Capital Materials Energy
19
Kahsu Mebrahtu , MU, CBE , MBA
Programm
20. MULTIFACTOR MEASURE PRODUCTIVITY
Multifactor measures of productivity =
Output .
Labor + Capital + Energy
or
Output .
Labor + Capital + Materials
20
Kahsu Mebrahtu , MU, CBE , MBA
Programm
21. EXAMPLE OF PRODUCTIVITY MEASUREMENT
MIE is compiling the monthly productivity report for
its BOD. The average labor rate is Birr 15 an hour,
and the average machine usage rate is Birr 10 an
hour.
21
Kahsu Mebrahtu , MU, CBE , MBA
Programm
Units produced
Labor hours
Machine hours
Cost of materials
Cost of energy
100,000
10,000
5,000
Birr 35,000
Birr 15,000
22. CON…
Solution
(a) Labor productivity=output/labor hour =
100,000/10,000 =10 units /hours
(b) Machine productivity=output/machine
hours=100,000/5,000 =20 units /hour
(c) Multifactor Productivity=Output/ labor costs+ Machine
costs+ Material costs +Energy costs
=100,000/(10,000xBr.15)+(5,000xBr10)+Br35,000+Br.15,00
0 =100,000/Br250,000 =0.4 unit per a Birr spent
Kahsu Mebrahtu , MU, CBE , MBA
Programm
22
