Operations management plays an important role in society by contributing to higher standards of living, better quality goods and services, environmental concern, and improved working conditions. It raises standards of living by increasing productivity and efficiency, which lowers costs and provides more income. It improves quality through initiatives like Six Sigma. It addresses environmental concerns through recycling and pollution reduction. It enhances working conditions by empowering workers and improving job design.

1. IntroductionIntroduction
toto OperationsOperations
ManagementManagement

2. ContentsContents
1- What is Operations Management (OM)?1- What is Operations Management (OM)?
2- Importance of OM .2- Importance of OM .
3- OM decisions.3- OM decisions.
4- OM's contributions to society.4- OM's contributions to society.
5- OM of service & manufacturing organizations5- OM of service & manufacturing organizations
6- The ever-changing world of OM6- The ever-changing world of OM
7- Make or buy decision7- Make or buy decision
8- Historical development of OM.8- Historical development of OM.

3. 1- What is operations management (OM)?1- What is operations management (OM)?
OM definitionOM definition
Responsibilities of operations managersResponsibilities of operations managers
Difference between OM and PMDifference between OM and PM

4. What is operations management ?What is operations management ?
1-The collection of people, technology, and systems
within a company that has primary responsibility forresponsibility for
providing the organization’s products or services.providing the organization’s products or services.
2-The management of the direct recourses that are
required to produce and deliver an organization's goods
and services .
3- A discipline and profession that studies and
practices the process of planning, designing, and
operating production systems and subsystems to
achieve the goals of the organization.
4- The business function responsible for planning,planning,
coordinating, and controllingcoordinating, and controlling the resources needed
to produce a company’s products and services.
5- The management of the5- The management of the conversion processconversion process thatthat
transforms inputs into outputs in the form of finishedtransforms inputs into outputs in the form of finished
goods and services.goods and services.

5. INPUTS
•Material
•Machines
•Labor
•Management
•Capital
- Customer
TRANSFORMATION
PROCESS
OUTPUTS
•Goods
•Services
FeedbacFeedbac
kk
Operations as a transformation processOperations as a transformation process

6. Inputs and Outputs of a production systemInputs and Outputs of a production system
InputsInputs
External:External:
 Legal, Economic, Social, Technological
Market:Market:
 Competition, Customer Desires, Product Info.
Primary Resources:Primary Resources:
 Materials, Personnel, Capital, Utilities
OutputsOutputs
DirectDirect
 Products
 Services
IndirectIndirect
 Waste
 Pollution
 Technological Advances

7. The transformation process withinThe transformation process within
OMOM

8. Input-transformation-output relationships for typical systemsInput-transformation-output relationships for typical systems

9. What is operations management ?What is operations management ?
 Operations management is the set of activities that createcreate
valuevalue in the form of goods and services by transforming inputs
into outputs
 Value addedValue added is theis the net increase between output product value andnet increase between output product value and
input material valueinput material value ((The value of the outputs is greater than theoutputs is greater than the
value of the inputsvalue of the inputs, resulting in the profitprofit or the benefitbenefit for
government or non-profit organizations)
 All types of organizationsAll types of organizations, manufacturing or service, large or
small, transform inputs into outputstransform inputs into outputs.
 Every organization has OM functionEvery organization has OM function, since all organizations
provide products or servicesprovide products or services, but the function may be formal orformal or
informalinformal (In manyIn many smallersmaller organizations operations managementorganizations operations management
may be done by people who perform many other types of taskmay be done by people who perform many other types of task
such assuch as marketing and accountingmarketing and accounting))

10. What's the difference between PM andWhat's the difference between PM and
OM?OM?
 Some thinks that they are really one and the
same by different names.
 others think that production management is
just a subset of operationssubset of operations
management because operationsmanagement because operations
involve more than just production.involve more than just production.
 ifif servicesservices conceptconcept addedadded to theto the
production management it can beproduction management it can be calledcalled
operations management.operations management.

11. What responsibilities do operations managersWhat responsibilities do operations managers
have?have?
 Direct responsibilitiesDirect responsibilities :
 the activities which are directly related to
producing and delivering products and services.producing and delivering products and services.
 Indirect responsibilitiesIndirect responsibilities :
 the activities involved in interfacing with otherinterfacing with other
parts of the organisationparts of the organisation.
 Broad responsibilitiesBroad responsibilities :
 a wider set of tasks that involve scanning thescanning the
business, social and political environmentbusiness, social and political environment in
which the organisation exists in order to understand
its context.

12. Responsibilities of OM
Products & servicesProducts & services
PlanningPlanning
– CapacityCapacity
– LocationLocation
–
– Make or buyMake or buy
– LayoutLayout
– ProjectsProjects
– SchedulingScheduling
Controlling/ImprovingControlling/Improving
– InventoryInventory
– QualityQuality
OrganizingOrganizing
– Degree of centralizationDegree of centralization
– ProcessProcess selectionselection
StaffingStaffing
– Hiring/laying offHiring/laying off
– Use of OvertimeUse of Overtime
DirectingDirecting
– Incentive plansIncentive plans
– Issuance of work ordersIssuance of work orders
– Job assignmentsJob assignments
– CostsCosts
– ProductivityProductivity

13. (2) Importance of OM(2) Importance of OM

14. Importance of OMImportance of OM
1-1- Operations is an importantOperations is an important part ofpart of every organizationevery organization
2- We should2- We should know howknow how goods and services are produced (goods and services are produced (All managersAll managers
should have an understanding the main principles and tools of OM)should have an understanding the main principles and tools of OM)
3-3- It is responsible for the customer fulfillment aspects of an organization.It is responsible for the customer fulfillment aspects of an organization.
Thus,Thus, it manages customer satisfactionit manages customer satisfaction ..
4- OM is such a4- OM is such a costly part of an organizationcostly part of an organization .. (For most organizations it(For most organizations it
absorbs a huge percentage of required capital )absorbs a huge percentage of required capital )
Companies need to haveCompanies need to have efficient operations to surviveefficient operations to survive .. ToTo
succeed, a firm must havesucceed, a firm must have a strong operations functiona strong operations function
teaming with the other organization functionsteaming with the other organization functions..
5-5- OMOM responsible to increase productivity and profitabilityresponsible to increase productivity and profitability ..
Increasing overall productivity leads to economic growth and a higherIncreasing overall productivity leads to economic growth and a higher
standard of living.standard of living.
6- Operational decision-making6- Operational decision-making requires a long-term perspectiverequires a long-term perspective andand
requiresrequires inputs from all business functionsinputs from all business functions ..
OM Decisions tend to be costly and difficult to reverseOM Decisions tend to be costly and difficult to reverse

15. Strategic options managers use to gain competitive advantageStrategic options managers use to gain competitive advantage
 28% -28% - Operations Management (+quality?)Operations Management (+quality?)
 18% - Marketing/distribution18% - Marketing/distribution
 17% - Momentum/name recognition17% - Momentum/name recognition
 16% - Quality/service16% - Quality/service
 14% - Good management14% - Good management
 4% - Financial resources4% - Financial resources
 3% - Other3% - Other

16. In briefIn brief…..…..
 OM plays an important, although not always
obvious, role in societies in which we live.

It is responsible forIt is responsible for the food we eatfood we eat and even
the tabletable on eat it; it provides us with the
clothinclothing we wear, with vehiclesvehicles we use for
transportation, and with the "toys""toys" we use
for recreation, from baseballs and bats to
computer games.
 In other words, operations management affectsIn other words, operations management affects
nearly all aspects of our day-to-day activities.nearly all aspects of our day-to-day activities.

17. Some definitionsSome definitions
 Productivity:Productivity:
 The ration of what is produced by an operation or process to what
is required to produced it, that is ,the output from the operations
divided by the input to the input operation (ratio of output to input)
 Efficiency:Efficiency:
 producing something at theproducing something at the lowest possible costlowest possible cost
 Effectiveness:Effectiveness:
 doing the right things to create the most value for the firm
 ValueValue
 quality divided by price
 Competitive advantage:Competitive advantage:
competitive advantage is an advantage over competitors gained by
offering consumers greater value, either by means of lower prices
or by providing greater benefits and service that justifies higher
prices

18. 3- OM decisions3- OM decisions
StrategicStrategic
TacticalTactical
operationaloperational

19.  Where should we locate our facilitylocate our facility
 How much capacitycapacity do we need
 What should we make,make, what should we buybuy
 What technologyechnology should we use
 How do we insure appropriate qualityquality
 Who should we use as vendorsvendors
 How much inventoryinventory do we need
 How should we scheduleschedule our resources
Main operational decisionsMain operational decisions

20. Critical decisions of OMCritical decisions of OM
 Product & service design.Product & service design.
 Quality management.Quality management.
 Process design.Process design.
 Capacity & location of facilities.Capacity & location of facilities.
 Layout of facilities.Layout of facilities.
 Human resource & Job design.Human resource & Job design.
 Supply-chain management.Supply-chain management.
 Inventory management.Inventory management.
 Scheduling.Scheduling.
 Maintenance.Maintenance.

21. OM decisionsOM decisions
Operations managers must make decisions on three levels:Operations managers must make decisions on three levels:

22. Strategic decisionsStrategic decisions
 senior management responsibilitysenior management responsibility
 MoreMore broadbroad in naturein nature
 Determine the success of an organization's strategyDetermine the success of an organization's strategy,,
 Very risky and hard toVery risky and hard to reversereverse
 Have significantHave significant long - termlong - term impact, ,andimpact, ,and
 less frequent.less frequent.
 Examples:Examples:
 How will we make the product?
 Where do we locate the facility?
 How much capacity do we need?
 When should we add more capacity?

23. Tactical decisionsTactical decisions
 Medium-Medium- range decisions focus on resource needs,range decisions focus on resource needs,
schedules, & quantities to produceschedules, & quantities to produce
 Tactical decisions areTactical decisions are frequentfrequent, must align with, must align with
strategic decisions.strategic decisions.
 Involves resource allocation and utilization.Involves resource allocation and utilization.
 Involves aInvolves a moderate degree of uncertainty and riskmoderate degree of uncertainty and risk....
 They are the link between lower and high levelThey are the link between lower and high level
managementmanagement
 Examples:Examples:
 How many workers do we need?How many workers do we need?
 When do we need them?When do we need them?
 Should we work overtime or put on a second sift?Should we work overtime or put on a second sift?
 When should we have material delivered?When should we have material delivered?
 Should we have a finished goods inventory?Should we have a finished goods inventory?

24. Operational decisionsOperational decisions
 Involves a short time horizonshort time horizon.
 Involves very little uncertainty and risk.
 Examples :Examples :
 What jobs do we work on today or this week?
 To whom do we assign what task?
 What jobs have priority?

25. OM decisionsOM decisions
Strategic Tactical Operating
Characteristics
Longer term
decisions
Medium term
decisions
Shorter term
decisions
Responsibility of
the senior
management
Responsibility of
middle and
senior managers
Responsibility of
middle and lower
management levels
High capital
investment
Broad in nature Narrow in scope These decisions
concern the day-to-
day activities of
workers

26. 4- OM's contributions to society4- OM's contributions to society
Higher Standard of LivingHigher Standard of Living
Better Quality Goods and ServicesBetter Quality Goods and Services
Concern for the EnvironmentConcern for the Environment
Improved Working ConditionsImproved Working Conditions

27. Operations management's contributions to societyOperations management's contributions to society
OM's contributions to society:-OM's contributions to society:-
((A)- Higher Standard of LivingA)- Higher Standard of Living
(B) - Better Quality Goods and Services(B) - Better Quality Goods and Services
(C)- Concern for the Environment(C)- Concern for the Environment
(D)- Improved Working Conditions(D)- Improved Working Conditions

28. (A)- Higher standard of living
 A major factor in raising the standard of living in a society is the
ability to increase its productivityability to increase its productivity.
 Higher productivity is the result of increased efficiency inHigher productivity is the result of increased efficiency in
operationsoperations, which in turn translates into lower cost goodswhich in turn translates into lower cost goods
and servicesand services.

Thus, higher productivity providesThus, higher productivity provides
consumers with more discretionaryconsumers with more discretionary
income, which contributes to theirincome, which contributes to their
higher standard of living.higher standard of living.

29. 1-Improve productivity1-Improve productivity
3- Lower cost of goods & services3- Lower cost of goods & services
5-Higher standard of living5-Higher standard of living
Higher standard of livingHigher standard of living
2- Result of increased2- Result of increased
efficiency in operationsefficiency in operations
4- More income4- More income

30. (B) - Better quality of goods and services(B) - Better quality of goods and services
 One of the manyOne of the many consumer benefitsconsumer benefits of increasedof increased
competition is the higher-quality products that arecompetition is the higher-quality products that are
available today.available today.
 Quality standards are continually increasingQuality standards are continually increasing..
 Many companies today have establishedMany companies today have established Six-SigmaSix-Sigma
quality standardsquality standards (pioneered by Motorola in the late(pioneered by Motorola in the late
1980s), resulting in no more than1980s), resulting in no more than 3.4 defects per3.4 defects per
millionmillion opportunities.opportunities.
 Such high quality standards wereSuch high quality standards were onceonce considered notconsidered not
only prohibitively expensive but also virtuallyonly prohibitively expensive but also virtually
impossible to achieve even if cost wasn't aimpossible to achieve even if cost wasn't a
consideration.consideration.
 Today we know that such high quality is not only veryToday we know that such high quality is not only very
possible, but also results in lower costs, becausepossible, but also results in lower costs, because
firms can reduce their waste and rework.firms can reduce their waste and rework.

31. (C)- Concern for the environment(C)- Concern for the environment
Many companies today are taking up theMany companies today are taking up the
challenge tochallenge to produce environmentallyproduce environmentally
friendly products with environmentallyfriendly products with environmentally
friendly processesfriendly processes, all of which falls, all of which falls
under the purview of operationsunder the purview of operations
management.management.
 Recycling and concern for air and waterRecycling and concern for air and water
qualityquality

32. (D)-Improved working conditions
 Managers recognize the benefits of providing workers withbenefits of providing workers with
better working conditions.better working conditions.
 This includes not only the work environmentwork environment but also the
design of the jobs themselvesdesign of the jobs themselves.
 Workers are now encouraged to participate in improvingparticipate in improving
operations through suggestionsoperations through suggestions.
 After all, who would know betterwho would know better how to do a particular
operation than that person who does it every daythan that person who does it every day.
 Managers also have learned that there is a very clearvery clear
relationship between satisfied workers and satisfiedrelationship between satisfied workers and satisfied
customers, especially in service operations.customers, especially in service operations.
 ((EmpowermentEmpowerment :The concept of encouraging and
authorizing workers to take the initiative to improve
operations, reduce costs, and improve product quality
and customer service.)

33. 5- OM of service and manufacturing organizations5- OM of service and manufacturing organizations
Importance of service nowImportance of service now
Service natureService nature
The affect of service nature on OM activitiesThe affect of service nature on OM activities

34. OM of service and manufacturing organizationsOM of service and manufacturing organizations
 Initially, operations management concepts
focused almost entirely on manufacturingfocused almost entirely on manufacturing.
 As countries become more developedmore developed,
services continue to represent a largerlarger
percentage of their economies.percentage of their economies.
 Now Less than 20%Now Less than 20% of all jobs are in
manufacturing (and they are declining)and they are declining)
 Almost 80% of jobs are in the service sector
(and they are increasing)
 Nearly half of all jobs are in POM

35. Services as a percent of Gross Domestic Product (GDP) for different countriesServices as a percent of Gross Domestic Product (GDP) for different countries

36. 1850
Services
Industry
Farming
80%
40%
0
U.S. Employment, % Share
Development of the service economyDevelopment of the service economy
19501900 2000

37. U.S. manufacturing vs serviceU.S. manufacturing vs service employmentemployment
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 32 68
00 30 70

38. Growth in services in the United StatesGrowth in services in the United States

39. Service and manufacturing similaritiesService and manufacturing similarities
 All use technology
 Both have quality, productivity, &
response issues
 All must forecast demand
 Each will have capacity, layout, and
location issues
 All have customers and suppliers
 All have scheduling and staffing issues

40. Manufacturing vs. serviceManufacturing vs. service
Characteristic Manufacturing Service
Output
Customer contact
Uniformity of input
Labor content
Uniformity of output
Measurement of productivity
Opportunity to correct
Tangible
Low
High
Low
High
Easy
High
Intangible
High
Low
High
Low
Difficult
Low
quality problemsHigh

41. Manufacturing vs. serviceManufacturing vs. service
1- Customer contact:1- Customer contact:
Service, by natureService, by nature, involves a much high degree of customer contactinvolves a much high degree of customer contact thanthan
manufacturing.manufacturing.
The performance of service often occurs at theThe performance of service often occurs at the point of consumptionpoint of consumption..
Manufacturing allows aManufacturing allows a separation between production and consumptionseparation between production and consumption, so, so
that manufacturing can occur away from the consumer.that manufacturing can occur away from the consumer.
Customer are sometimes apart of the system (self-service operations-shoppingCustomer are sometimes apart of the system (self-service operations-shopping
+gas stations)+gas stations) so tight control on process is impossibleso tight control on process is impossible
2- Uniformity of input:2- Uniformity of input:
 Service operations are subject toService operations are subject to greater variability of inputgreater variability of input than typicalthan typical
manufacturing operations.manufacturing operations.
 Each patient, each client and each auto repairEach patient, each client and each auto repair presents a specificpresents a specific
problemproblem that often must be diagnosed before it can be remediedthat often must be diagnosed before it can be remedied
 Manufacturing operations oftenManufacturing operations often have the ability to carefully control thehave the ability to carefully control the
amount of variability of inputamount of variability of input and thus achieve low variability in outputs.and thus achieve low variability in outputs.
 Job requirements for manufacturing are generally more uniform than those forJob requirements for manufacturing are generally more uniform than those for
serviceservice

42. Manufacturing vs. serviceManufacturing vs. service
3-3- Labor content of jobs:Labor content of jobs:
Many services involve a higher labor content than manufacturing
operations
4-4- Uniformity of outputUniformity of output
Because high mechanization generates products with lowBecause high mechanization generates products with low
variability , manufacturing tends to be smooth and efficient ,variability , manufacturing tends to be smooth and efficient ,
service activities sometimes appear to be slow and awkwardslow and awkward and
output is more variable. Automated services are exception to thisAutomated services are exception to this
5-5- Measurement of productivityMeasurement of productivity
Measurement of productivity is more straightforwardstraightforward in
manufacturing due to the high degree of uniformity of mostuniformity of most
manufacturing items.manufacturing items.
In service operations , variations in demand intensity and invariations in demand intensity and in
requirements from job to job make productivity measurementrequirements from job to job make productivity measurement
more difficultmore difficult

43. Colegio de San Juan de Letran
Management/HumanResourceArea
•Attributes ofAttributes of
GOODSGOODS
Tangible productTangible product
- Product can be inventoried.inventoried.
- Some aspect of qualityquality are
measurable.
- Selling is distinct from
production.
- SiteSite of facility is important for
cost.cost.
- Often easy to automateautomate.
- Revenue is generated
primarily from the tangibletangible
product.product.
CapitalCapital intensive
Goods vs. servicesGoods vs. services
•Attributes of SERVICESAttributes of SERVICES
• Intangible ProductsIntangible Products
- Many services cannot be inventoried.
- Many aspects of quality are difficult to
measure.
- Selling is often a part of the servicepart of the service.
Provider, not product, is often
transportable.
SiteSite of facility is important for customercustomer
contact.contact.
Service is often difficult to automateautomate.
Revenue is generated primarily from the
intangible serviceintangible service.
LaborLabor intensiveintensive

44. 6- The ever - changing world of OM6- The ever - changing world of OM
Increased global competitionIncreased global competition
Advances in technologyAdvances in technology
Linking OM to customers and suppliersLinking OM to customers and suppliers

45. The ever-changing world of OMThe ever-changing world of OM
 Operations management is continuouslyOperations management is continuously
changing to meet the new and excitingchanging to meet the new and exciting
challenges of today's business world.challenges of today's business world.
 This ever-changing world isThis ever-changing world is characterized bycharacterized by
increasing global competition and advances inincreasing global competition and advances in
technology. Emphasis is also shifting within thetechnology. Emphasis is also shifting within the
operations function to link it more closely with bothoperations function to link it more closely with both
customers and suppliers.customers and suppliers.
 Here we will consider these issuesHere we will consider these issues:

46. (A)- Increased global competition(A)- Increased global competition
 Global (economy, village, and landscape): are terms used to describe
how the world is becoming smaller, and countrieshow the world is becoming smaller, and countries
are becoming more dependent on each other.are becoming more dependent on each other.
 The world is rapidly transforming itself into a single global economy,The world is rapidly transforming itself into a single global economy,
which referred to as a global village or global landscape.which referred to as a global village or global landscape.
 Markets once dominated by local or national companies are nowMarkets once dominated by local or national companies are now
vulnerable tovulnerable to competitioncompetition from literally all corners of the world.from literally all corners of the world.
For example, in theFor example, in the 1960s,1960s, only 7only 7 percentpercent of the firms in the Unitedof the firms in the United
States exposed to foreign competition; by the lateStates exposed to foreign competition; by the late 1980s,1980s,
 This figure exceededThis figure exceeded 70 percent70 percent, and that percentage has, and that percentage has
continued to grow.continued to grow.
 Consequently, as companiesConsequently, as companies expand their business to includeexpand their business to include
foreign markets, so too must the operations managementforeign markets, so too must the operations management functionfunction
take a more global perspective in order for companiestake a more global perspective in order for companies
to remain competitive.to remain competitive.
 To s prosper in such a global marketplace companiesTo s prosper in such a global marketplace companies must excelmust excel
in more than one dimensionin more than one dimension, which previously was the norm., which previously was the norm.

47. Ford’s Global Network to Support the Manufacturing of the EscortFord’s Global Network to Support the Manufacturing of the Escort

48. ((B)- Advances in technologyB)- Advances in technology
 Advance in technology in recent years have had a
significant effect on the OM function:
 IT+ automation + Internet
 Competition
 Product life cycle
 New jobs
 Robots
 E-???

49. (C )- Linking OM to customers and suppliers(C )- Linking OM to customers and suppliers
 In the pastIn the past, most manufacturing organizations viewed
operations strictly as an internal function that hadinternal function that had to be
buffered from the external environment by otherbuffered from the external environment by other
organizational functions.organizational functions.
 Orders were generated by the marketing functionmarketing function; supplies and
raw materials were obtained through the purchasing functionpurchasing function;
capital for equipment purchases came from the finance
function; the labor force was obtained through the humanhuman
resources functionresources function; and the product was delivered by the
distribution functiondistribution function
 Now more and more firms are recognizing the competitive
advantage achieved when the transformation process is notis not
isolatedisolated, as when customers are invited to view theiras when customers are invited to view their
operating facilities firsthandoperating facilities firsthand

50. (C )- Linking OM to customers and suppliers(C )- Linking OM to customers and suppliers
companies are workingcompanies are working more closely with suppliersmore closely with suppliers..
 Firms like Toyota, have suppliersFirms like Toyota, have suppliers deliver product directly todeliver product directly to
the factory floor, eliminating need for a stockroom.the factory floor, eliminating need for a stockroom.
 The relationship between the transformation processes of suppliersThe relationship between the transformation processes of suppliers
and customer often referred to as aand customer often referred to as a product's value chain.product's value chain.
 ( steps an organization requires to produce a good or service, regardless of( steps an organization requires to produce a good or service, regardless of
where the are performed)where the are performed)
 A value chain consists of all the stepsA value chain consists of all the steps actually add value toactually add value to
the productthe product. This concept helps managers to eliminate all non. This concept helps managers to eliminate all non
added steps (suchadded steps (such as inspections and inventoryas inspections and inventory ) and) and
consequently results in a higher of dependence among the value-consequently results in a higher of dependence among the value-
added functions within the chain.added functions within the chain.
 This integration of both suppliers and customers into theThis integration of both suppliers and customers into the
transformation process to blur the boundaries between what weretransformation process to blur the boundaries between what were
previously totally independent organizations (previously totally independent organizations (Virtual enterprises)Virtual enterprises)
 (company whose boundaries are not clearly defined due to the integration of(company whose boundaries are not clearly defined due to the integration of
customers and suppliers)customers and suppliers)

51. 7- Make or buy?7- Make or buy?
CapacityCapacity
ExpertiseExpertise
QualityQuality
DemandDemand
CostCost
RiskRisk

52. Make or buy?Make or buy?
 Many organizations buy parts or contract out services,Many organizations buy parts or contract out services,
for a variety of reasons. Among those factors are:for a variety of reasons. Among those factors are:
1- Available capacity:1- Available capacity:
 If an organization has available the equipment,equipment,
necessary skills, and timenecessary skills, and time, it often make sense to
produce an item or perform a service in-house.
 The additional costs would be relatively small compared
with required to buy items or subcontract services.
2- Expertise:2- Expertise:
 If a firm lacks the expertiselacks the expertise to do a job satisfactorily,
buyingbuying might be a reasonable alternative.

53. Make or buy?Make or buy?
3- Quality consideration:3- Quality consideration:
Firms that specialize can usually offer high qualityspecialize can usually offer high quality than an
organization can attain itself.
Conversely, unique quality requirements or the desire to closelyclosely
monitormonitor quality may cause an organization to perform a job itself.
4- The nature of demand:4- The nature of demand:
When demand for an item is high and steadyhigh and steady, the organization is
often better off doing the work itselfdoing the work itself.
However, wide fluctuations in demand or small ordersfluctuations in demand or small orders are
usually better handled by specializations who are able to combinecombine
orders from multiple sources, which results in a higherorders from multiple sources, which results in a higher
volumevolume and tends to offset individual buyer fluctuations.

54. Make or buy?Make or buy?
5- Cost:5- Cost:
any cost savings achieved from buying or making must be weightedany cost savings achieved from buying or making must be weighted
against the preceding factorsagainst the preceding factors.
Cost saving might come from the item itself or from transportation cost savings.
If there are fixed costs associated with making an item that cannot be reallocated if thecannot be reallocated if the
service or product is outsourcedservice or product is outsourced , that has to be recognized in the analysis.
Conversely, outsourcing may help a firm avoid incurring fixed costs.
6- Risk:6- Risk:
Outsourcing may involve certain risks. one isOutsourcing may involve certain risks. one is loss of control operations.loss of control operations.
Another is the need to disclose propriety information.Another is the need to disclose propriety information.
In some cases , a firm might choose to performIn some cases , a firm might choose to perform part of the jobpart of the job
itselfitself and let others handle the rest in order to maintain flexibilityand let others handle the rest in order to maintain flexibility
and to hedge againstand to hedge against loss of a subcontractorloss of a subcontractor ..
If part or all the work will be done “ in-house”, capacity alternativesIf part or all the work will be done “ in-house”, capacity alternatives
will need to developedwill need to developed

55. 8- Historical development of OM8- Historical development of OM
Prior to 1900Prior to 1900
Scientific ManagementScientific Management
Other Management Pioneers (Gilbreth + Gantt)Other Management Pioneers (Gilbreth + Gantt)
Moving Assembly LineMoving Assembly Line
Hawthorne StudiesHawthorne Studies
Operations ResearchOperations Research
OM Emerges as a FieldOM Emerges as a Field
The Marriage of OM and ITThe Marriage of OM and IT
OM in ServicesOM in Services
Integration of Manufacturing and ServicesIntegration of Manufacturing and Services

56. Historical development of OMHistorical development of OM
Prior to 1900:Prior to 1900:
 Cottage industry produced custom-made goods.
 Watt’s steam engine in 1785.
 Whitney’s standardized gun parts in 1801.
 Industrial Revolution began at mid-century.
Scientific Management (Frederick W. Taylor):Scientific Management (Frederick W. Taylor):
 Systematic approach to increasing worker productivity through time study,
standardization of work, and incentives.
 Viewed workers as an interchangeable asset.
Other Management Pioneers:Other Management Pioneers:
 Frank and Lillian Gilbreth
 Motion study and industrial psychology
 Henry L. Gantt
 Scheduling and the Gantt chart

57. Historical development of OMHistorical development of OM
Moving Assembly Line (1913):Moving Assembly Line (1913):
 Labor specialization reduced assembly time.
Hawthorne Studies:Hawthorne Studies:
 Yielded unexpected results in the productivity of Western Electric plant
workers after changes in their production environment.
 Led to recognition of the importance of work design and employee
motivation.
Operations Research (Management Science):Operations Research (Management Science):
 Outgrowth of WWII needs for logistics control and weapons-systems design.
 Seeks to obtain mathematically optimal (quantitative) solutions to complex
problems.
OM Emerges as a Field:OM Emerges as a Field:
 1950–1960, OM moved beyond industrial engineering and operations
research to the view of the production operation as a system.
 1950–1960, OM moved beyond industrial engineering and operations
research to the view of the production operation as a system

58. Historical development of OMHistorical development of OM
The Marriage of OM and IT:The Marriage of OM and IT:
 Integrated solutions approaches
 Business process reengineering
 Supply chain management
 Systems integration (SAP)
Operations Management in Services:Operations Management in Services:
 OM concepts can apply to both manufacturing and service
operations.
Integration of Manufacturing and Services:Integration of Manufacturing and Services:
 Conducting world class operations requires compatible
manufacturing and service operations

59. Last wordLast word
 Shifts from cost and efficiencycost and efficiency to valuevalue, from mass production to leanlean
productionproduction, from manufacturing technology to informationinformation
technologytechnology, and from national economy to world economyworld economy have made
OM critically important in modern businessOM critically important in modern business.
 Workers are differentWorkers are different; they demand increasing levels of
empowerment and more meaningful work.
 Customers are differentCustomers are different, their demands and expectations are much
higher.
 Technology is differentTechnology is different; computers & automation have dramatically
changed the nature of work, requiring constant learning and more
abstract thinking.
 Finally the environment is differentenvironment is different, we live in a global business
environment without boundaries .
 Such changes in business are occurring at an increasingly rapid pace,
and we can expect them to continue in the future. OperationsOperations
managers clearly face important challenges in preparing for thismanagers clearly face important challenges in preparing for this
century.century.

60. Last word?Last word?
 “Paying attention to customers and knowing what they
want is a fundamental and important beginning.fundamental and important beginning.
 However, given that several competing companies pay
attention to what customers want, the key tothe key to
competitiveness then becomescompetitiveness then becomes productionproduction
capabilitycapability. What differentiates winners from
losers is that winners are better able to consistently
provide products and services that areprovide products and services that are
competitive with regard to quality,competitive with regard to quality,
price, time and agilityprice, time and agility