Introduction In life, there are universal laws that govern everything we do. These laws are so perfect that if you were to align yourself with them, you could have so much prosperity that it would be coming out of your ears. This is because God created the universe in the image and likeness of him. It is failure to follow the universal laws that causes one to fail. The laws that were created consisted of the following: · Law of Gratitude: The Law of Gratitude states that you must show gratitude for what you have. By having gratitude, you speed your growth and success faster than you normally would. This is because if you appreciate the things you have, even if they are small things, you are open to receiving more. Law of Attraction: The Law of Attraction states that if you focus your attention on something long enough you will get it. It all starts in the mind. You think of something and when you think of it, you manifest that in your life. This could be a mental picture of a check or actual cash, but you think about it with an image. Law of Karma: the Law of Karma states that if you go out and do something bad, it will come back to you with something bad. If you do well for others, good things happen to you. The principle here is to know you can create good or bad through your actions. There will always be an effect no matter what. Law of Love: the Law of Love states that love is more than emotion or feeling; it is energy. It has substance and can be felt. Love is also considered acceptance of oneself or others. This means that no matter what you do in life if you do not approach or leave the situation out of love, it won't work. Law of Allowing: The Law of Allowing states that for us to get what we want, we must be receptive to it. We can't merely say to the Universe that we want something if we don't allow ourselves to receive it. This will defeat our purpose for wanting it in the first place. Law of Vibration: the Law of Vibration states that if you wish on something and use your thoughts to visualize it, you are halfway there to get it. To complete the cycle you must use the Law of Vibration to feel part of what you want. Do this and you'll have anything you want in life. For everything to function properly there has to be structure. Without structure, our world, or universe, would be in utter chaos. Successful people understand universal laws and apply them daily. They may not acknowledge that to you, but they do follow the laws. There is a higher power and this higher power controls the universe and what we get out of it. People who know this, but wish to direct their own lives, follow the reasons. Successful people don't sit around and say "I'll try," they say yes and act on it. Chapter - 1 The Law of Attraction The law of attraction is the most powerful force in the universe. If you work against it, it can only bring you pain and misery. Successful people know this but have kept it hidden from the lower class for centuries because th

1. Introduction/Nature of
Operations Management
UNIT ONE
1-1

2. 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

3. Why do we study OM?
Some of the reasons are:
a) To provide modern approaches of managing
operations e.g. BPR, JIT, TQM, etc…
b) Provides systematic way of thinking at
organizational process
c) Presents attractive career opportunities
d) Its concept is widely used in managing other
functions of business, etc…

4. The Organization
The Three Basic Functions
Organization
Finance Operations Marketing

5. Value-Added Process
The operations function involves the conversion of
inputs into outputs
Inputs
Land
Labor
Capital
Transformation/
Conversion
process
Outputs
Goods
Services
Control
Feedback
Feedback
Feedback
Value added

6. Value-Added & Product Packages
• Value-added is the difference between the
cost of inputs and the value or price of
outputs.
• Product packages are a combination of goods
and services.
• Product packages can make a company more
competitive.

7. Automobile assembly, steel making
Home remodeling, retail sales
Automobile Repair, fast food
Goods-service Continuum
Computer repair, restaurant meal
Song writing, software development
Goods Service
Surgery, teaching

8. Example: Food Processor
What are the inputs, processes and
outputs of food processing company in
order to produce a canned vegetable?

9. Food Processor
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
vegetables
Metal Sheets Making cans
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

10. Example: Hospital Process
What are the inputs, processes and
outputs of hospitalizing?

11. Hospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy
patients
Hospital Surgery
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

12. Manufacturing or Service?
Tangible Act

13. Production of Goods vs. Delivery of
Services
• Production of goods – tangible output
• Delivery of services – an act
• Service job categories
– Government
– Wholesale/retail
– Financial services
– Healthcare
– Personal services
– Business services
– Education

14. Goods vs Service: High or Low
Characteristic Goods Service
Customer contact
Uniformity of input
Labor content
Uniformity of output
Output
Measurement of productivity
Opportunity to correct problems
Inventory
Evaluation
Patentable

15. Goods vs Service
Characteristic 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

16. 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 Management

17. Types of Operations
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/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 television
newscasts, telephone, satellites

18. Year Mfg. Service
45 79 21
50 72 28
55 72 28
60 68 32
65 64 36
70 64 36
75 58 42
80 44 46
85 43 57
90 35 65
95 25 75
00 30 70
02 25 75
U.S. Manufacturing vs. Service Employment
0
10
20
30
40
50
60
70
80
90
45 50 55 60 65 70 75 80 85 90 95 00 02 05
Year
Percent
Mfg.
Service

19. Challenges of Managing Services
• Service jobs are often less structured than
manufacturing jobs
• Customer contact is higher
• Worker skill levels are lower
• Employee turnover is higher
• Input variability is higher
• Service performance can be affected by worker’s
personal factors

20. Operations function and its
environment
The Environment of Operations
• EXTERNAL ENVIRONMENT
– Economic environment: Interest rate, tax regulation, inflation, etc…
– Political environment: Gov’t regulations, pollution,
– Competition
– Technology
• INTERNAL ENVIRONMENT
– Finance: sources of finance, investment proposals, allocation of funds,
etc..
– Accounting: cost, financial statements
– Marketing: sales forecast, sales order, customer needs, feedback, etc..
– Engineering: method analysis, layout, maintenance, etc…
– HR
– R&D, etc

21. Operations Management Decision Making
tools
• Models
• Quantitative approaches
• Analysis of trade-offs
• Systems approach
• Establishing priorities
• Ethics

22. Key Decisions of Operations
Managers
• What
What resources/what amounts
• When
Needed/scheduled/ordered
• Where
Work to be done
• How
Designed
• Who
To do the work

23. Decision Making
System Design
– capacity
– location
– arrangement of departments
– product and service planning
– acquisition and placement of
equipment

24. Decision Making
System operation
– personnel
– inventory
– scheduling
– project
management
– quality assurance

25. Models
A model is an abstraction of reality.
– Physical
– Schematic
– Mathematical
What are the pros and cons of models?
Tradeoffs

26. Models Are Beneficial
• Easy to use, less expensive
• Require users to organize
• Increase understanding of the problem
• Enable “what if” questions
• Consistent tool for evaluation and standardized
format
• Power of mathematics

27. Limitations of Models
• Quantitative information may be emphasized
over qualitative
• Models may be incorrectly applied and results
misinterpreted
• Nonqualified users may not comprehend the
rules on how to use the model
• Use of models does not guarantee good
decisions

28. Quantitative Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models

29. Analysis of Trade-Offs
• Decision on the amount of inventory to stock
– Increased cost of holding inventory
Vs.
– Level of customer service

30. Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization

31. Establishing priorities (Pareto Rule)
• 80/20 Rule - 80% of problems are caused
by 20% of the activities.
How do we identify the vital few?

32. Suppliers’
Suppliers
Direct
Suppliers Producer Distributor Final
Consumer
Simple Product Supply Chain
Supply Chain: A sequence of activities
And organizations involved in producing
And delivering a good or service

33. Stage of
Production
Value
Added
Valu
e of
Prod
uct
Farmer produces and
harvests wheat
$0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery
store
$0.08 $1.08
Grocery store displays and
sells bread
$0.21 $1.29
Total Value-Added $1.29
A Supply Chain for Bread

34. Operations Strategy and
Competitiveness
UNIT TWO
1-34

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

36. Businesses Compete Using Marketing
• Identifying consumer wants and needs
• Pricing
• Advertising and promotion

37. Businesses Compete Using Operations
• Product and service design
• Cost
• Location
• Quality
• Quick response
• Flexibility
• Inventory management
• Supply chain management
• Service and service quality
• Managers and workers

38. Why Some Organizations Fail
• Too much emphasis on short-term financial
performance
• Failing to take advantage of strengths and
opportunities
• Neglecting operations strategy
• Failing to recognize competitive threats

39. Why Some Organizations Fail
• Too much emphasis in product and service
design and not enough on improvement
• Neglecting investments in capital and human
resources
• Failing to establish good internal
communications
• Failing to consider customer wants and
needs

40. Mission/Strategy/Tactics
How does mission, strategies and tactics relate to
decision making and distinctive competencies?
Strategy Tactics
Mission

41. Strategy
• Mission
– The reason for existence for an organization
• Goals & Objectives
– Provide detail and scope of mission
• Strategies
–Plans for achieving organizational goals and objectives
• Tactics
– The methods and actions taken to accomplish strategies

42. Planning and Decision Making
Mission
Goals
Organizational Strategies
Functional Goals
Finance
Strategies
Marketing
Strategies
Operations
Strategies
Tactics Tactics Tactics
Operating
procedures
Operating
procedures
Operating
procedures

43. Strategy Example
Rita is a high school student. She would like
to have a career in business, have a good
job, and earn enough income to live
comfortably.
What are the mission, Goal, Strategy,
Tactics, and Operations of Rita?

44. Strategy Example
Rita is a high school student. She would like to have a
career in business, have a good job, and earn enough
income to live comfortably
• Mission: Live a good life
• Goal: Successful career, good income
• Strategy: Obtain a college education
• Tactics: Select a college and a major
• Operations: Register, buy books, take
courses, study, graduate, get job

45. Examples of Strategies
• Low cost/Price: Outsource operations to third world
countries that have low labor cost
• Scale-based strategies: Use capital intensive methods
to achieve high output volume and low units cost
• Specialization: Focus on narrow product lines to achieve
higher quality
• Flexible operations: Focus on quick response and/or
customization
• High quality: Focus on achieving higher quality than
competitors
• Service: Helpful courteous, reliable, etc…

46. Examples of Operations Strategies
Banks, ATMs
Convenience
Location
Disneyland
Nordstroms
Superior customer
service
Service
Burger King
Supermarkets
Variety
Volume
Flexibility
Express Mail, FedEx,
One-hour photo, UPS
Rapid delivery
On-time delivery
Time
Sony TV
Lexus, Cadillac
Pepsi, Kodak, Motorola
High-performance design
or high quality Consistent
quality
Quality
U.S. first-class postage
Motel-6, Red Roof Inns
Low Cost
Price

47. Global Strategy
• Strategic decisions must be made with respect
to globalization
• What works in one country may not work in
another
• Strategies must be changed to account for
these differences
• Other issues
– Political, social, cultural, and economic differences

48. Strategy Formulation
• Distinctive competencies
• Environmental scanning
• SWOT
• Order qualifiers
• Order winners

49. Strategy Formulation
• Order qualifiers
– Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential purchase
• Order winners
– Characteristics of an organization’s goods or
services that cause it to be perceived as better
than the competition

50. Key External Factors
• Economic conditions
• Political conditions
• Legal environment
• Technology
• Competition
• Markets

51. Key Internal Factors
• Human Resources
• Facilities and equipment
• Financial resources
• Customers
• Products and services
• Technology
• Suppliers

52. Operations Strategy
• Operations strategy – The approach,
consistent with organization strategy, that
is used to guide the operations function.

53. Strategic OM Decisions
Decision Area Affects
Product and service design Costs, quality liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, capacity
Work design Quality of work life, employee safety, productivity
Location Costs, visibility
Quality Ability to meet or exceed customer expectations
Inventory Costs, shortages
Maintenance Costs, equipment reliability, productivity
Scheduling Flexibility, efficiency
Supply chains Costs, quality, agility, shortages, vendor relations
Projects Costs, new products, services, or operating systems

54. 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

55. Productivity
• Partial measures
– output/(single input)
• Multi-factor measures
– output/(multiple inputs)
• Total measure
– output/(total inputs)
Productivity =
Outputs
Inputs

56. Measures 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

57. Units of output per kilowatt-hour
Dollar value of output per kilowatt-hour
Energy
Productivity
Units of output per dollar input
Dollar value of output per dollar input
Capital
Productivity
Units of output per machine hour
Machine
Productivity
Units of output per labor hour
Units of output per shift
Value-added per labor hour
Labor
Productivity
Examples of Partial Productivity Measures

58. Example
7040 Units Produced
Cost of labor of $1,000
Cost of materials: $520
Cost of overhead: $2000
What is the multifactor productivity?

59. Example 3 Solution
MFP = Output
Labor + Materials + Overhead
MFP = (7040 units)
$1000 + $520 + $2000
MFP = 2.0 units per dollar of input

60. Exercise
Compute the multifactor productivity measure for each
of the weeks shown. What do the productivity
figures suggest? Assume 40 hour weeks and an
hourly wage of $12, overhead cost is 1.5 times
weekly labor cost; material cost is $6 per pound.
Week Output (units) Workers Material (lbs)
1 30,000 6 450
2 33,600 7 470
3 32,200 7 460
4 35,400 8 480

61. Solution
Week Output
(units)
Labor cost Overhead Cost Material Cost
1 30,000 6*40*12 = $2,880 $2,880*1.5 =$4,320 450*6 = $2,700
2 33,600 7*40*12 = $3,360 $3,360*1.5 =$5,040 470*6 = $2,820
3 32,200 7*40*12 = $3,360 $3,360*1.5 =$5,040 460*6 = $2,760
4 35,400 8*40*12 = $3,840 $3,840*1.5 =$5,760 480*6 = $2,880
Multifactor Productivity
•Week 1: 30,000/(2,880+4,320+2,700) = 3.03 units/dollar
•Week 2: 33,600/(3360+5,040+2,820) = 2.99 units/dollar
•Week 1: 32,200/(3,360+5,040+2,760) = 2.89 units/dollar
•Week 1: 35,400/(3,840+5,760+2,880) = 2.84 units/dollar

62. Factors Affecting Productivity
Capital Quality
Technology Management

63. Other Factors Affecting Productivity
• Standardization
• Quality
• Use of Internet
• Computer viruses
• Searching for lost or misplaced items
• Scrap rates
• New workers

64. Other Factors Affecting Productivity
• Safety
• Shortage of IT workers
• Layoffs
• Labor turnover
• Design of the workspace
• Incentive plans that reward productivity

65. Outsourcing
• Higher productivity in another company is a
key reason organizations outsource work
• Improving productivity may reduce the need
for outsourcing

66. Improving Productivity
• Develop productivity measures
• Determine critical (bottleneck) operations
• Develop methods for productivity
improvements
• Establish reasonable goals
• Get management support
• Measure and publicize improvements
• Don’t confuse productivity with efficiency