1. DOM 511 :Operations Management Practice 1- Overview
By: Munyao-mulwa
UoN School of Business
2016

2. What is Operation Management?
Typical Operations
Manufacturing: Getting the products a company makes to an agreed specification, in due time
Transport: Ensuring the transport runs to an agreed schedule
Retailing: Pushing the merchandise through the store to the consumer
Service: Providing satisfactory, according to an agreed schedule, the service to the customer
Operations Manager:
The supplier of products or services required by the market place
Utilises the organization resources to meet the product or service specifications efficiently & effectively

3. Operations Management Definition
Applying analytical tools and frameworks to improve business processes that cross internal functional boundaries 4 4

4. Operations Management Definition
OM is the science & art of ensuring that goods & services are created & delivered successfully to customers.
Applying the principles of OM entails a solid understanding of people, processes, & how they are integrated within a business to create value 4 4

5. From General Management To Operations Management
Traditional Management paradigm revolves around planning, organizing, directing & controlling
OM is the only means by which managers can directly affect the value provided to all stakeholders – customers, employees, investors & society hence OM is a more diverse discipline & spans multiple functional areas 4 4

6. Activities of OM Discipline
Layout planning - to give smooth and effective flow of customers, work in process etc ( process design)
Making sure that all staff can contribute to the company’s success (job design);
Avoiding running out of products for sale (inventory management);
Monitoring and enhancing quality of service to customers (Quality management); 4 4

7. Activities of OM Discipline
Locating stores of an appropriate size in the most effective place (supply network design);
Arranging for the delivery of products to stores (Supply chain management)
Coping with fluctuations in demand (Capacity management)
Maintaining cleanliness and safety of storage area ( failure prevention); 4 4

8. Activities for OM discipline
Understanding the needs of customers, measuring customer satisfaction & using the information to develop new & improved goods & services
Using information about customers, goods/services, operations, suppliers, employees etc to make better decisions 4 4

9. Activities for OM discipline
Exploiting technology to design goods & services that respond rapidly & flexibly to customer requirements & improve productivity (product Design)
Continually learning from co-workers, competitors & customers & adapting the organization to global & environmental changes (Operations Improvement) 4 4

10. OM Discipline
OM principles are not complicated for they constitute the “basics” of everyday life eg
Respect for customer experience
Focus on the dynamics of demand
Recognition that experience is delivered by people etc
>>The fundamental purpose of OM is to deliver ever-improving value to customers through the continuous improvement of overall company performance & capabilities 4 4

11. Operations Decision Making
Marketplace
Corporate Strategy
Operations Strategy
Operations Management
Marketing Strategy
Finance Strategy
People
Plants
Parts
Processes
Planning and Control
Production System
Materials &
Customers
Input
Products &
Services
Output 5 5

12. OM Involves Managing Transformations
Process
(Value Adding)
Input
Output
Transformation is
enabled by The 5 Ps of OM:
People
Plants
Parts
Processes
Planning and Control 6 6

13. Why Do customers buy products /Services?
Value = quality / price
How can an organization increase customer value? 4 4

14. OM’s Transformation Role
To add value
Increase product value at each stage
Value added is the net increase between output product value and input material value
Provide an efficient transformation
Efficiency – perform activities well at lowest possible cost 7 7

15. Transformations Physical--manufacturing Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications 7 7

16. Greater value than inputs
Systemic Approach
Greater value than inputs
Requirements
Inputs
Material
Machines
Labor
Management
Capital
Outputs
Goods
Services
Transformation
Process
Feedback
Feedback
Push or Pull?

17. SIPOC Model Inputs Outputs Process Suppliers Clients (+ Owner)
Interfaces Management
Inputs
Outputs
Process
(+ Owner)
Suppliers
Clients
Responsible for
“smooth” operation
The output has higher
value than the input:
VALUE CHAIN

18. Operations Function & its Environment
Product / Services
Suppliers
Other functions
(Purchasing, Distribution, R&D…)
Production Technical Core
Resources
Human
Marketing
Sales
Order
Labor
Force
Physical
Transformation
Activity
Finance
Investments in Equipment

19. Operations as the Technical Core
Finance/Accounting
Human Resources
Marketing
Suppliers
Production and
Inventory data
Capital budgeting requests
Capacity expansion and
Technology plans
Budgets
Cost analysis
Capital investments
Stockholder
requirements
Orders for materials
Production and delivery
Schedules Quality
Requirements Design/
Performance specs
Material availability
Quality data
Delivery schedules
Designs
Product/Service
Availability
Lead-time estimates
Status of order
Sales forecasts
Customer orders
Customer feedback
Promotions
Personnel needs
Skill sets
Performance evaluations
Job design/work
measurement
Hiring/firing
Training
Legal requirements
Union contract negotiations

20. Trends in OM Service sector growing to 50-80% Global competitiveness
Demands for higher quality
Huge technology changes
Time based competition
Work force diversity

21. Why OM?
For long-run success companies must place much importance on their operations
The era was the U.S. golden era where primary opportunities were marketing
The U.S. companies experienced a large decline in productivity growth – international firms began to challenge in many markets
The era saw U. S. firms lagging behind in methods and processes
The resurgence of American business in the 1990’s capitalized on improved operations

22. Today’s OM Environment
Customers demand better quality, greater speed, and lower costs
Companies implementing lean systems concepts – a total systems approach to efficient operations
Recognized need to better manage information using ERP and CRM systems
Increased cross-functional decision making

23. OM in Practice OM is the most diverse organizational function
Manages the transformation process
OM has many faces and names such as;
Chief Operating Officer, V. P. operations, Director of supply chain, Manufacturing manager
Plant manger, Quality specialist, etc.
All business functions need information from OM in order to perform their tasks

24. Historical Events in OM
Industrial Revolution
Scientific Management
Human Relations
Management Science
Quality Revolution
Globalization
Information Age/Internet Revolution

25. Historical Events in OM
Industrial Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam Smith
Interchangeable parts 1790 Eli Whitney
Scientific Management
Principles 1911 Frederick W. Taylor
Time and motion studies 1911 Frank & Lillian Gilbreth
Activity scheduling chart 1912 Henry Gant
Moving assembly line 1913 Henry Ford

26. Historical Events in OM
Human Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories 1940s Abraham Maslow
1950s Frederick Hertzberg
1960s Douglas McGregor
Management Science
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, PERT/CPM, 1950s Operations research
Waiting line theory groups
MRP 1960s Joseph Orlicky, IBM

27. Historical Events in OM
Quality Revolution
JIT 1970s Taiichi Ohno, Toyota
TQM 1980s W. Edwards Deming,
Joseph Juran, et. al.
Strategy and operations 1990s Skinner, Hayes
Reengineering Hammer, Champy
World Trade Organization 1990s Numerous countries
and companies
Globalization
European Union and 1970s IBM and others
other trade agreements
EDI, EFT, CIM 1980s

28. Historical Events in OM
Information Age/
Internet Revolution
Internet, WWW, ERP 1990s
Supply chain Berners-Lee, SAP,
management, ORACLE,
E-commerce PeopleSoft,

29. Development Summary Time-Based Competition 1990s
Supply chain Management s
Electronic Commerce s
Offshoring, Outsourcing & flattening of the world- 2000s
Talent Age Now

30. Offshoring
Building, acquiring or moving of process capabilities from a domestic location to another location while maintaining ownership & control
Categories of foreign factories
Offshore factories – established to gain access to low wages & reduce costs like trade tariffs. Most common
Outpost factories – established to gain access to local employee skills & knowledge eg software engineering
Server factories - established to supply specific national or regional markets eg coca cola bottling plants
Source factories – established to gain access to low-cost production but have expertise to design & produce a component part

31. Offshoring Categories of foreign factories
Contributor factories – established to serve a local market and conduct activities like product design & customization
Lead factories – to innovate & create new processes, products & technologies eg HP established an offshore factory in 1970 in singapore

32. Issues to Consider in Offshoring Dcns
Labour talent pool
Low labor costs
Lower import duties & fees
Lower capital costs
Grow global market share
Avoid national currency fluctuations
Preempt competitors from entering global market(s)
Hire worldwide skills & knowledge workers
Build relationships with suppliers
Learn foreign markets & cultures
Develop secure sources of supply & reduce risks

33. Current Issues in OM
Coordinating the relationships between mutually supportive but separate organizations.  
 Dramatic surge in the outsourcing of parts and services that had previously been produced internally.
New breed of contract manufacturers that specialize in performing focused manufacturing activities now exists
Companies considering outsourcing other major corporate functions such as information systems, product development and design, engineering services, packaging, testing, and distribution..

34. Current Issues in OM
Optimizing global supplier, production, and distribution networks.   
The implementation of global enterprise resource planning systems, now common in large companies, has challenged managers to use all of this information.
Requires a careful understanding of where centralized control and autonomy should be to optimally control such resources as inventory, transportation, and production equipment

35. Current Issues in OM Increased co-production of goods and services.
 The Internet has opened new ways for the customer to interact directly with a firm.
Simple direct entry and monitoring of orders is now possible
Intelligent use of information technology will allow the shedding of entire layers of inefficient customer-oriented functions within a firm, resulting in dramatic reductions in cost while actually improving service to the customer

36. Current Issues in OM Managing customer touch points
 As companies strive to become superefficient, they often scrimp on customer support personnel (and training) required to effectively staff service departments, help lines, and checkout counters
Making resource utilization decisions must capture the implicit costs of lost customers as well as the direct costs of staffing

37. Current Issues in OM
Raising senior management awareness of operations as a significant competitive weapon
Many senior executives entered many organizations through finance, strategy, or marketing and built their reputations on work in these areas, and as a result often take operations for granted.
Executives of profitable companies such as Toyota, Dell, Taco Bell, and Southwest Airlines have creatively used operations management for competitive advantage

38. Objectives of Productive Systems
Volume of output
Cost (materials, labor, delivery, scrap…)
Utilization (labor & equipment)
Quality & product reliability
On-time delivery
Investments (ROI)
Flexibility for product change
Flexibility for Volume change

39. The Lifecycle of a Productive System
Birth of the System
Product Design & Process Selection
Design of the System
Start-up of the System
The System in steady state
Termination of the System

40. Key Decisions in the life of a Productive system
Birth of the System
What are the goals of the firm?
What product or service will be offered?
Product Design & Process Selection
Design of the System
Start-up of the System
The System in steady state
Termination of the System

41. Key Decisions in the life of a Productive system
Birth of the System
Product Design & Process Selection
Form & Appearance of Product?
Technologically, how should the product be made?
Design of the System
Start-up of the System
The System in steady state
Termination of the System

42. Key Decisions in the life of a Productive system
Birth of the System
Product Design & Process Selection
Design of the System
Capacity?
Location?
Lay-out?
How to maintain quality?
How to determine forecast for demand?
What job is each worker to perform?
How will the job be performed & measured?
How will the workers be rewarded?
Start-up of the System
The System in steady state
Termination of the System

43. Key Decisions in the life of a Productive system
Birth of the System
Product Design & Process Selection
Design of the System
Start-up of the System
How do you get the system in operation?
How long will it take to reach desired level of output?
The System in steady state
Termination of the System

44. Key Decisions in the life of a Productive system
Birth of the System
Product Design & Process Selection
Design of the System
Start-up of the System
The System in steady state
How do you manage the day to day activities?
How do you maintain the system?
How can you improve the system?
How do you revise the system in light of changes in corporate strategy?
Termination of the System

45. Key Decisions in the life of a Productive system
Birth of the System
Product Design & Process Selection
Design of the System
Start-up of the System
The System in steady state
Termination of the System
How does the system die?
What can be done to salvage resources?

46. Productivity improves when firms ;
Output
Input
Productivity improves when firms ;
Become more efficient
Downsize
Expand
Retrench
Achieve breakthroughs

47. Productivity Partial measures Multi-factor measures Total measure
output/(single input)
Multi-factor measures
output/(multiple inputs)
Total measure
output/(total inputs) 17 17

48. Productivity Productivity Analysis
Trend analysis: Studying productivity changes for the firm over a period of time.
Horizontal analysis: Studying productivity in comparison with other firms of same size and engaged in similar business.
Vertical analysis: Studying productivity in comparison with other industries and other firms of different sizes in the same industry. 17 17

49. Measures of Productivity
Single-factor Output Output Output Output measures Labor Machine Capital Energy
All-factors Output
measure All inputs

50. Example 10,000 Units Produced Sold for $10/unit 500 labor hours
Labor rate: $9/hr
Cost of raw material: $5,000
Cost of purchased material: $25,000
What is the
labor productivity? 18 18

51. What are the factors that affect productivity?
Training
Methods
Technology
Management

52. Example--Labor Productivity
10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure (10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22 19 19