Operations Management Lesson 1 Fundamentals of Operations Management Prepared by Sudarsan Jayasingh

Learning Objectives What you will learn in this unit: Define Operations Management? The role and activities of operation management The input-transformation-output model Difference between goods and services What is Operations strategy Performance objectives of operations strategy Productivity Measurement

What is Operations Management? “ Operation Management is the set of activities that create goods and services through the transformation of inputs into outputs.” (Slack, 2001)

Typical Organization Chart Source: Reid and Sanders, 2005.

Activities of Operations manager Understand the operation’s strategic objectives Developing an operation’s strategy for the organization Designing the operation’s products, services and processes Planning and controlling the operation Improving the performance of the operation.

Some Activities of Ikea Operations Manager Design elegant products which can be flat packed efficiently Storage Quality Design Store Layout Site Location

OM’s Transformation Role Source: Reid and Sanders, 2005.

The input-transformation-output model ransformed resources Materials Information Customers Goods Transformation Input Out put and process services T ransforming resources Facilities Staff Source: Slack, 2001 Reid & Sanders, Operations management, c Wiley 2003

Inputs Transformed resources – the resources that are treated, transformed or converted in some way. The transformed resources which operations take in are usually a mixture of materials, information and customers. Transforming resources – the resources that act upon the transformed resources. Facilities and staff are the two types of transforming resources. Facilities include building, equipment, plant and process technology etc., Staff includes all those who operate, maintain, plan and manage the operation.

The output from most operations is a mixture of goods and services PURE GOODS Tangible Can be stored Production precedes consumption CRUDE OIL PRODUCTION Low customer contact Can be transported ALUMINIUM SMELTING Quality is evident SPECIALIST MACHINE TOOL MANUFACTURER RESTAURANT COMPUTER SYSTEMS SERVICES Intangible MANAGEMENT CONSULTANCY Cannot be stored Production and consumption are simultaneous PSYCHOTHERAPY CLINIC High customer contact Cannot be transported Quality difficult to judge PURE SERVICES Source: Slack, 2001

Similarities-Service/Manufacturers 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

Historical Development of OM Industrial revolution Late 1700s Scientific management Early 1900’s Human relations movement 1930s to 1960s Management science Mid-1900s Computer age 1970s Just-in-Time Systems (JIT) 1980s Total quality management (TQM) 1980’s Reengineering 1990s Flexibility 1990s Time-Based Competition 1990s Supply chain Management 1990’s Global Competition 1990s Environmental Issues 1990s Electronic Commerce Late 1990s

Today’s OM Environment Customers demand better quality, faster deliveries, and lower costs Increased cross-functional decision making Recognized need to better manage information using ERP and CRM systems

The activities of operations management ENVIRONMENT INPUT TRANSFORMED RESOURCES MATERIALS INFROMATION CUSTOMERS OPERATIONS STRATEGY IMPROVEMENT DESIGN GOODS AND SERVICES INPUT OUTPUT PLANNING AND CONTROL FACILITIES STAFF INPUT TRASNFORMED RESOURCES ENVIRONMENT

Highlights OM is function that manages the resources that add value Its role is to transform inputs into products or services Key differences between mfg. and service companies are tangibility of product and degree of customer contact Historical milestones range from 1700s Industrial Revolution to the modern Electronic Commerce age OM must understand and implement major process changes like JIT, TQM, supply chain management, and environmental changes OM works closely with all other business functions

Operations Strategy Operations strategy is the total patterns of decisions and actions which set the role, objectives and activities of the operation so that they contribute to, and support, the organisation’s business strategy

Operations Strategy – Designing the Operations Function

The Wal-Mart Strategy and Operations Structure Corporate Strategy (Gain competitive advantage by) providing customers access to quality goods, when and where needed, at competitive prices Operations Strategy – Short cycle times Low inventory levels Operations Structure EDI Fast transportation system Focused locations Communication between retail stores

Competitive Advantage Competitive advantage is term as the extra edge that a firm has over their industry peers (Reid and Sanders, 2005). The capability of a firm in managing their operation can be transform into their competitive advantage if there can identify and tap into their intangible resources.

Competitive Priorities- The Edge Four Important Operations Questions: Will you compete on – Cost? Quality? Time? Flexibility? All of the above? Some? Tradeoffs? Source: Reid and Sanders, 2005.

Competitive Priorities- The Edge 0r Performance Objectives Quality Time (Speed and Dependability) Flexibility Cost

Speed Cost Depend-ability Flexibility Quality Lower prices (or higher profits) Faster customer response Error-free products and services Wider variety More customisation More innovation Cope with volume fluctuations On-time deliveries

Are There Priority Tradeoffs? Which priorities are “Order Qualifiers”? e.g. Must have excellent quality since everyone expects it Which priorities are “Order Winners”? e.g. Dell competes on all four priorities Southwest Airlines competes on cost McDonald’s competes on consistency FedEx competes on speed Custom tailors compete on flexibility Can you have both high quality and low cost? e.g. Yes, Coke and Pepsi are good examples Can you offer design flexibility and short delivery? e.g. Yes, modular housing manufacturers do it

Measuring Productivity Productivity is a measure of how efficiently inputs are converted to outputs Productivity = output/input Total Productivity Measure Total Productivity = $sales/inputs $ Partial Productivity Measure Partial Productivity = cars/employee Multifactor Productivity Measure Multi-factor Productivity = sales/total $costs Source: Reid and Sanders, 2005.

Highlights Business Strategy is a long range plan. Functions develop supporting plans Strategy must address mission, environment, and core competencies Business strategy provides a guide for designing operations strategy Operations strategy must consider which competitive priorities are essential to meet business objectives Competitive priorities are cost, quality, time, and flexibility Productivity measures how effectively a firm is using resources Productivity is computed as a ratio of outputs divided by inputs

References Reid R.D., and Sanders N. R., (2005) Operations Management, 2nd Edition, Wiley Publication. Slacks Nigel and Lewis Mike, (2002) Operations Management, Prentice Hall.