566064486-Operation-Management-Lecture-1.pdf

Operations Management
Lect. 1 “Introduction of Operation Management and
Decisions Analysis”
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Dr: Aly Hassan Elbatran
Head of Mechanical Engineering
Faculty of Engineering, Arab Academy for Science
and Technology and Maritime Transport, Egypt
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Course Outlines
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Introduction of Operation Management
Decisions Analysis
Operations Strategy
Product Design and Process Selection
Supply Chain Management
Total Quality Management
Just-in-Time and Lean Systems
Forecasting
Facility Layout
Inventory Planning
Aggregate planning
Scheduling
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Evaluation
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Class Participation 10%
Mid Term 30%
Project 20%
Final Exam 40%
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Introduction
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 Today companies are competing in a very different environment
than they were only a few years ago.
 To survive, they must focus on quality, time-based competition,
efficiency, international perspectives, and customer relationships.
 Global competition, e-business, the Internet, and advances in
technology require flexibility and responsiveness.
 Consider some of today’s most successful companies, such as
Wal-Mart, Southwest
 Airlines, General Electric, Starbucks, Apple Computer, Toyota,
FedEx have achieved world-class status in large part due to a
strong focus on operations management.
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Introduction
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 The purpose of studying OM is to help prepare companies to be
successful in this new business environment.
 Operations management will give you an understanding of how to
help your organization gain a competitive advantage in the
marketplace.
 Regardless of whether your area of expertise is marketing,
finance, MIS, or operations, the techniques and concepts
 How The companies or organizations can offer goods and services
cheaper, better, and faster.
 Operations management concepts are far-reaching, affecting
every aspect of the organization and even everyday life.
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Business Functions
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 Business is managed through three major functions: finance, marketing, and
operations management.
 Other business functions such as accounting, purchasing, human resources, and
engineering support these three major functions
Business Functions
Finance manages:-
- Cash flow,
- current assets, and
- capital investments
Marketing manages:-
- customer demand,
- understanding customer wants and
needs
To generate
- Sales for goods and services
Operation Management manages:-
- Resources (people- equipment-
technology- material and information
To produce:
Goods and services
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Marketing
Operations
Finance
Business Overlap
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Operations
 Goods Production
 Storage / Transportation
 Exchange
 Entertainment
 Communication
Examples
 Farming, Mining, Construction,
Manufacturing, Power Generation
 Warehousing, Trucking, Mail Service,
Taxis, Buses, Hotels, Airlines
 Retailing, Wholesaling, Banking,
Renting, Leasing, Library, Loans
 Films, Radio, Television, Concerts,
Recordings
 Newspapers, Radio and Television,
Newscasts, Telephone, Satellites
Operations Examples
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Operations Management Definitions
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 Operations management (OM) is the administration of business
practices to create the highest level of efficiency possible within an
organization. It is concerned with converting materials and labor into
goods and services as efficiently as possible to maximize the profit of an
organization.
 Operations management is concerned with the design, planning,
control and improvement of an organization's resources and processes
to produce goods or services for customers.
 Operations management teams attempt to balance costs with revenue
to achieve the highest net profit possible.
 Operations managers will have been involved in the design, creation
and delivery of those products or services.
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Operation Management Definitions
10 Shutterstock
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Role of Operations Management
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 is to transform a company’s inputs into the finished goods or services.
 The output, products and byproducts, result from the type of processes used
to change the system inputs. The feedback loop is used to control the
process so the desired outputs are achieved.
Process
Work activities
Management activities
Operations Methods
Outputs
Goods
Services
Inputs
Human Resources
Facilities
Technologies
Materials
Customer Feedbacks
Performance Feedbacks
Control
Measurement and
Feedback
Value added
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Raw Materials
Ex. Plastic
Transformation
Process
Products
(Toys)
Passenger and
luggage
Location (A)
Transformation
Process
Passenger and
luggage
Location (B)
Sick People
By organizing
Resources
Transformation
Process
Healthy People
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 Measurement systems in operations collect data about the
transformation process, the inputs, and the outputs
 Feedback is the use of data to improve the
transformation process and the inputs, thereby
improving the outputs.
 Data from operations measurements systems
 Cost data from accounting systems
 Customer information: returned products, complaints,
 customer surveys, focus groups
Measurement and Feedback
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 Operations management is responsible for organizing
the needed resources to produce the final product,
this includes :-
 designing the product;
 deciding what resources are needed;
 arranging schedules, equipment, and facilities;
 managing inventory;
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 controlling quality;
 designing the jobs to make the product;
 designing work methods.
 Basically, operations management is responsible for all
aspects of the process of transforming inputs into
outputs.
 Improving operations management is often the fastest
way to reduce costs and increase profits.
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Successful Operation Management
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Value added
- describe the net increase between the
final value of a product and the value of all
the inputs.
- The greater the value added, the more
business productivity.
- reducing the cost of activities in the
transformation process.
- Activities that do not add value are
considered a waste; these include certain
jobs, equipment, and processes.
- In addition to value added, operations
must be efficient
Efficiency
- Efficiency means being able to perform
activities well and at the lowest possible
cost.
- An important role of operations is to
analyze all activities,
- eliminate those that do not add value,
and restructure processes and jobs to
achieve greater efficiency.
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DIFFERENCES BETWEEN MANUFACTURING AND
SERVICE ORGANIZATIONS
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Service organizations
Organizations that primarily
produce an intangible
product, such as ideas,
assistance, or information,
and typically have high
customer contact.
 Intangible product
 Product cannot be inventoried
 High customer contact
 Short response time
 Labor intensive
Manufacturing organizations
Organizations that primarily produce a
tangible product and typically have low
customer contact
 Tangible product
 Product can be
inventoried
 Low customer contact
 Longer response time
 Capital intensive
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Some organizations may be considered as hybrid.
Example :Restaurant.
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Operations Management Decisions
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Decision making, both strategic and tactical, is an essential aspect of all
management activities, including operation management. The types of Operating
Management decisions can be divided into 5 main categories:-
1.Strategic choice
Operation management helps to determine the company’s global strategies and
competing priorities and how best to design processes that fit with its competitive
priorities.
2.Process
A Process is fundamental to all activities that produce goods and services. Ex:
Operation Management make process decisions about the types of work to be
done in house, the amount of automation to use and methods of improving
existing processes.
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3.Quality
Quality issues underlie all processes and work activities. Operations
management helps to establish quality objectives and seek ways to improve the
quality of the products and services.
4.Capacity, Location, and Layout
Operation managers help to determine the system’s capacity, the location of
new facilities, and the organizations of departments and a facility’s physical
layout.
5.Operating Decisions
At this stage, operation management takes the decision regarding supply chain
management, inventory management, aggregate planning, resource planning,
lean systems, and schedules,
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Operations Management Decisions Examples
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General Decision Specific Decision Operations
Management Term
McDonald’s goal in this strategic decision
area of operations management is to provide
affordable products
Operation Strategy
The serving sizes and prices of its products
are based on the most popular consumer
expectations
Product Design
McDonald’s process is centered on efficiency for cost-
minimization that supports the strategy. This focuses on
maintaining process efficiency and adequate capacity to fulfill
market demand.
Process selection
The firm’s global supply chain supports its various locations
around the world. McDonald’s has a strategy of supply chain
diversification for this decision area of operations
management. Such strategy involves getting more suppliers
from different regions to reduce McDonald’s supply chain risks.
Supply chain
management
The company aims to maximize product quality within
constraints, such as costs and price limits. McDonald’s uses a
production line method to maintain product quality consistency.
Consistency satisfies consumers’ expectations about
McDonald’s
Quality
Management
Expected sales for day and week
at different regions
Forecasting
McDonald’s
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Operations Management Decisions Examples
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McDonald’s goal in this strategic decision area of operations management is
to establish locations for maximum market reach. Marketing includes
restaurants, kiosks, and the company’s website and mobile app as venues.
Through these locations/venues, McDonald’s reaches customers in
traditional and online ways.
Location
Criteria
This strategic decision area of operations management focuses on
maintaining process efficiency and adequate capacity to fulfill market
demand. At McDonald’s, the production line method maximizes efficiency
and capacity utilization.
Capacity
Planning
The strategy involves maximizing space utilization in restaurants and kiosks,
rather than focusing on comfort and spaciousness. Facility
Layout
McDonald’s human resource strategies involve training for skills
needed in the production line in restaurant kitchens or
production areas.
Job design
McDonald’s goal for this strategic decision area of operations
management is to minimize inventory costs while supporting
restaurant operations. The company does not directly sell
products and ingredients to its restaurants. Instead, local and
regional intermediaries and distributors coordinate with
McDonald’s restaurant managers to manage their inventory.
Inventory
Management
McDonald’s uses corporate conventions for scheduling, based
on local market conditions and laws, as well as supply chain
needs. For example, the company’s strategy involves regular
and seasonal schedules to address fluctuations in local market
demand. Thus, in this decision area of operations management,
McDonald’s is flexible and adapts to local market conditions.
Scheduling
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Strategic decisions
Decisions that set the direction
for the entire company; they are
broad in scope and long-term in
nature.
Tactical decisions
Decisions that are specific and
short-term in nature and are
bound by strategic decisions.
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Modes of Operations in International Business
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 Operations Strategy
 Product Design and Process Selection
 Supply Chain Management
 Total Quality Management
 Just-in-Time and Lean Systems
 Forecasting
 Capacity Planning and Location Analysis
 Facility Layout
 Work System Design
 Inventory and Resource Planning
 Scheduling Issues
Strategic decisions
Tactical decisions
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 Adam Smith in 1776 published “The Wealth of Nations”, introduced the concept
of division of labor.
 In 1790, Eli Whitney introduced the concept of interchangeable parts.
 “Scientific management” was an approach to management promoted by
Frederick W. Taylor. An approach to management that focused on improving
output by redesigning job and determining acceptable levels of worker output.
 The scientific management approach was popularized by Henry Ford, who used
the techniques in his factories. Combining technology with scientific
management, Ford introduced the moving assembly line to produce Ford cars.
 Ford also combined scientific management with the division of labor and
interchangeable parts to develop the concept of “mass production”.
 Hawthorne studies (1930):- The studies responsible for creating the human
relations movement, which focused on giving more consideration to workers’
needs.
Historical Development
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 Human relations movement: A philosophy based on the recognition that factors
other than money can contribute to worker productivity.
 Management science focused on developing quantitative techniques for solving
operations problems. The first mathematical model for inventory management
was developed by F.W. Harris in 1913.
 The Computer Age: In the 1970s the use of computers in business became
widespread. With computers, many of the quantitative models developed by
management science could be employed on a larger scale.
 Just-in-time (JIT) is a major operations management philosophy, developed in
Japan in the 1980s, that is designed to achieve high-volume production using
minimal amounts of inventory.
 Total quality management (TQM) (1980s-1990s): Philosophy that seeks to
improve quality by eliminating causes of product defects and by making quality
the responsibility of everyone in the organization.
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 Business process reengineering means redesigning a company’s processes
to increase efficiency, improve quality, and reduce costs.
 Flexibility: An organizational strategy in which the company attempts to offer a
greater variety of product choices to its customers.
 Time-based competition: An organizational strategy focusing on efforts to
develop new products and deliver them to customers faster than competitors.
 Supply chain management (SCM) involves managing the flow of materials
and information from suppliers and buyers of raw materials all the way to the
final customer.
 Global marketplace: A trend in business focusing on customers, suppliers,
and competitors from a global perspective.
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 Electronic commerce (e-commerce) is the use of the Internet for conducting
business activities, such as communication, business transactions, and data
transfer. The Internet, developed from a government network called ARPANET
created in 1969 by the U.S. Defense Department, has become an essential
business medium since the late 1990s, enabling efficient communication between
manufacturers, suppliers, distributors, and customers.
 Outsourcing is obtaining goods or services from an outside provider. This can
range from outsourcing of one aspect of the operation, such as shipping, to
outsourcing an entire part of the manufacturing process.
 Nowadays, many companies are implementing a concept called lean systems
which take a total system approach to creating an efficient operation and pull
together best practice concepts, including JIT, TQM, continuous improvement,
resource planning, and (SCM). The need for efficiency has also led many
companies to implement large information systems called enterprise resource
planning (ERP).
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Operations Management across organization
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Operations Management across organization
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