CHAPTER_1 Introduction to Operations Mangement.ppt

Arab Academy for Science and
Technology
Graduate School of Business
OPERATIONS MANAGEMENT
1-1

1-2
1. Introduction to operations management
2. Demand Forecasting
3. Location Planning
4. Strategic Capacity Planning
5. Aggregate planning
6. Scheduling
7. MRP
8. Inventory Management
9. Quality control
10.Linear programming

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
1
Introduction to
Operations
Management

1-4
Learning Objectives
 Define the term operations management
 Identify the three major functional areas of
organizations and describe how they
interrelate
 Compare and contrast service and
manufacturing operations
 Describe the operations function and the
nature of the operations manager’s job

1-5
Learning Objectives
 Differentiate between design and operation
of production systems
 Describe the key aspects of operations
management decision making
 Briefly describe the historical evolution of
operations management
 Identify current trends that impact operations
management

1-6
Raw materials
and natural
resources
production
economy
Production and Economy

PRODUCTION
IS
Converting raw materials and
natural resources to useful products
IS
Initiate, improve and renew the
wealth
IS The measure of the ability to
achieve progress

Productio
n from
System
Approach
perspecti
ve
Product
ion
Raw
materi
als
Produ
ct

1-9
The Organization
The Three Basic Functions
Organization
Finance Operations Marketing
Figure 1.1

1-10
FINANCE IS RESPONSIBLE FOR :
Securing financial resources at
favorable prices and allocating
those resources throughout
the organization

1-11
OPERATIONS IS RESPONSIBLE FOR :
Producing the goods or providing
the services offered by the
organization

1-12
MARKETING IS RESPONSIBLE FOR:
Assessing consumers wants
and needs and promoting
and selling the organization
goods and services

1-13
It is the management of that part
of an organization that is
responsible for producing
goods and/or providing services

1-14
Business Operations Overlap
Operations
Finance
Figure 1.5
Marketing
1 2
3
4

1-15
Operations Interfaces
Public
Relations
Accounting
Industrial
Engineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Legal

The Transformation Process
Inputs
•Land
•Labor
•Capital
•Information
Outputs
•Goods
•Services
Transformation/
Conversion
Process
Control
Measurement
and Feedback
Measurement
and Feedback
Measurement
and Feedback
Value-Added
Feedback = measurements taken at various points in the transformation process
Control = The comparison of feedback against previously established standards
to determine if corrective action is needed.
Instructor Slides 1-16

1-17
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.

1-18
Value-Added
 The essence of the operation function is to
add value during the transformation process
 The value added in a for-profit organization
is the difference between cost of inputs and
price of outputs
 Value added could be applied in a non-profit
organization and as their value to society
 value added used in firm for research,
improvement, salaries and investment and
so on.

1-19
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
• Goods and Services often occurs jointly
•The Goods-Services combination is a continuum (chain)
•There are relatively few pure goods and few pure services

1-20
Example
Food Processor: Goods Oriented
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
vegetables
Metal Sheets Making cans
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

1-21
Example
Hospital Process: Service Oriented
Inputs Processing Outputs
Doctors, nurses Examination Healthy
patients
Hospital Surgery
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

1-22
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

Tangible Act-Oriented
Goods Services
Manufacturing and Service Organizations differ chiefly because
manufacturing is goods-oriented and service is act-oriented.
Manufacturing vs. Service?

1-24
Production of Goods vs. Delivery of
Services
 Production of goods – tangible output
 Delivery of services – an act (intangible output)
 Service job categories
 Government
 Wholesale/retail
 Financial services
 Healthcare
 Personal services
 Business services
 Education, etc.,………….

Manufacturing vs. Service
1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

U.S. Manufacturing vs. Service Employment

Supply & Demand
Supply Demand
>
Supply Demand
<
Supply Demand
=
Wasteful
Costly
Opportunity Loss
Customer
Dissatisfaction
Ideal
Operations &
Supply Chains Sales & Marketing

1-28
 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

1-29
Decision Making
A primary function of operations
manager is to guide the system by
decision making
Decision either affect design of the system
or
affect the operation of the system

1-30
– capacity
– location
– arrangement of departments
– product and service planning
– acquisition and placement of
equipment
Decision Making
System design

1-31
Decision Making
– personnel
– inventory
– scheduling
– project management
– quality control
System operation

1-32
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
The chief role of the operations
manager is that of planner and
decision maker

1-33
Decision Making tools
 Models
 Quantitative approaches
 Analysis of trade-offs
 Systems approach
 Establishing priorities

1-34
Models
– Physical
– Schematic
– Mathematical
What are the pros and cons of models?
an abstraction of reality, a simplified
representation of the system.

 Types of Models:
 Physical Models
 Look like their real-life counterparts
 Schematic Models
 Look less like their real-life counterparts than physical
models
 Mathematical Models
 Do not look at all like their real-life counterparts
Models

1. Models are generally easier to use and less expensive than dealing
with the real system
2. Require users to organize and sometimes quantify information
3. Increase understanding of the problem
4. Enable managers to analyze “What if?” questions
5. Serve as a consistent tool for evaluation and provide a standardized
format for analyzing a problem
6. Enable users to bring the power of mathematics to solve a problem.
Benefits of Models

1-37
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

1-38
Quantitative Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models, etc.,…..
An attempt to obtain
mathematically optimal solution to
managerial problems

1-39
Analysis of Trade-Offs
 Decision on the amount of inventory to stock
Increased cost of holding inventory Vs Level of customer service
What are the pros and cons of models?
What are the advantage and disadvantage of
models?

Systems Approach
 System - a set of interrelated parts that must work together
 The business organization is a system composed of subsystems
 marketing subsystem
 operations subsystem
 finance subsystem
 The systems approach
 Emphasizes interrelationships among subsystems
 Main theme is that the whole is greater than the sum of its parts
 The output and objectives of the organization take precedence over
those of any one subsystem

1-41
“The whole is greater than
the sum of the parts.”
Systems Approach
The objectives of the
organization as a whole take
precedence over those of
any one subsystems
Sub optimization

1-42
Establishing
Priority
Certain few factors are more important than
the others, recognizing this enables the
managers to direct their efforts to where
they will do good and avoid wasting time
and energy on insignificant factors
How do we identify the vital few?

1-43
Pareto Phenomenon
• A few factors account for a high
percentage of the occurrence of
some event(s).
• 80/20 Rule - 80% of problems are
caused by 20% of the activities.
How do we identify the vital few?

1-44
Pareto Phenomenon
1.Search for the few factors that will
have the greatest impact
2.Give them the highest priority
3.Use them for achieving the objective
or solving the problem

1-45
Suppliers’
Suppliers
Direct
Suppliers Producer Distributor Final
Consumer
Supply Chain
Figure 1.7
Supply Chain: A sequence of activities
And organizations involved in producing
And delivering a good or service

The Need for Supply Chain Management
 In the past, organizations did little to
manage the supply chain beyond their
own operations and immediate suppliers
which led to numerous problems:
 Oscillating inventory levels
 Inventory stockouts
 Late deliveries
 Quality problems

Supply Chain Issues
1. The need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-business
7. The complexity of supply chains
8. The need to manage inventories

Elements of Supply Chain Management
 Customers – what products/services do customers want
 Forecasting – predicting timing and volume of customer demand
 Design – incorporating customer wants, manufacturability, and time to
market
 Capacity planning – matching supply and demand
 Processing – controlling quality, scheduling work
 Inventory – meeting demand requirements while managing costs
 Purchasing – evaluating potential suppliers, supporting the needs of
operations on purchased goods and services
 Suppliers – monitoring supplier quality, on-time delivery, and flexibility;
maintaining supplier relations
 Location – determining the location of facilities
 Logistics – deciding how to best move information and materials

Supply Chain for Bread

1-50
Stage of Production Value
Added
Value of
Product
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

CHAPTER_1 Introduction to Operations Mangement.ppt

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