1. Lecture 1. Operation Management
Introduction
Lecture 1. Operation Management

2. Operations Management: Introduction
Definition
Operations Functions and environment
Operations Objectives
Operations Systems
The life cycle approach
Historical development of OM
Productivity and competitiveness

3. What is Operation Management?
Operation management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs.

4. Why OM?
OM is one of three major functions (marketing, finance, and operations) of any organization
To know how goods and services are produced
To understand what operations managers do
OM is a costly part of an organization
OM presents interesting career opportunities e.g. SCM, QA, Process Re-engineering, etc

5. Historical Development of OM
1910s - Principles of scientific management (time study & work study concepts- FW Taylor) Industrial psychology (motion study), Moving assembly line (activity scheduling chart- Henry ford), EOQ (inventory control- FW Haris)
1930s- Quality control (sampling inspection and statistical tables for QC), Hawthorne studies of worker motivation (activity sampling for work analysis)
1940s-Multidisciplinary team approaches to complex system problems (Simplex method for liner programming- OR groups, Dantzig)
1950/60s- Extensive development operations research tools (simulation, waiting line theory, PERT,CPM)
1970s -Widespread use of computers in business (shop scheduling, inventory ontrol, MRP) service quality and productivity (mass production in service sector- MCDonalds)

6. Historical Development of OM
 1980s- Manufacturing strategy paradigm JIT, TQC and factory automation (kanban) synchronous manufacturing (bottleneck analysis)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
1990s- Total quality management (Baldrige quality award, ISO 9000,quality function deployment etc.), business process reengineering, electronic enterprises, supply chain management
2000s-E commerce (Internet, World Wide Web)

7. Organizational Functions
Marketing
Gets customers
Operations
creates product or service
Here is the point at which you can add to your discussion of the three business functions. In an effort to encourage student participation, you might allow students to lead the discussion as to the nature of each function, while you lead the discussion as to the relationship of the individual functions to the larger business.
Initiate a class discussion about how these functions expand as the firm grows and how new activities have become important (i.e., MIS and Human Resources)
Finance/Accounting
Obtains funds
Tracks money

8. Functions - Bank Finance/ Marketing Operations Accounting Transactions
Commercial Bank
Finance/
Marketing
Operations
Accounting
Transactions
Teller
Check
Security
Scheduling
Clearing
Processing

9. Functions - Airlines Finance/ Marketing Operations Accounting Airlines
Flight
Ground
Facility
Catering
Operations
Support
Maintenance

10. Functions - Manufacturing
Finance/
Marketing
Operations
Accounting
Production
Quality
Manufacturing
Purchasing
Control
Control

11. Examining the options for increasing contribution
A firm manager faces with three choices to three strategies.
Strategy 1 (Marketing Option): Increase sales revenue by 50%. By increasing sales by 50%, contribution will turn increase 71%.
Strategy2 (Financial Option): Reduce finance cost by 50% increases contribution by 21%
Strategy 3 (OM option) Reduce production cost by 20%. It increase contribution by 114%

12. Options for increasing contribution

13. Operation Strategy
Operation Strategy is concerned with setting broad policies and plans for using the resources of a firm to best support its long term competitive strategy.
Operation strategy mist be designed to anticipate future needs.

14. Competitive dimensions of Operation
Cost factor
Product differentiation
Rapid Response- “Delivery Speed”
Coping with changes in demand
Flexibility and New Product Introduction

15. Operations Function and its environment

16. Operation Objectives
Create product and services of the organization with a best suited conversion process, minimizing cost
Efficiency measurement criteria
Effective process design
Cost control of the material
Cost control on factor of production
Cost control on facility utilization
Production as per expected demand
Efficient process design
Product or service quality

17. Expectations of Management
Consistent quality
Deliver the product at cost that can generate adequate revenue at reasonable sales price
Producing goods that have sufficient market demand in time

18. Production Management Process
Planning
Organizing
Models Behavior
Controlling

19. Planning
Planning is setting a course of action that determines future decision making.
Planning defines operational policy, program, forecasting, capacity planning, and scheduling.
Product planning and designing,
Facility planning and layout design for conversion process of inputs into desired outputs.

20. Organizing
Setting authority
Establish a structure of roles and flow of information within the operation system.
Determines tasks and authorities of each individual as well as work center
Organizing to Achieve operation goals and objectives.

21. Controlling
Control all the activities
Comparing actual performance with the standards for corrective action.
Measuring actual performance in accordance with planned performance
Determine present status and future course of action.
Controlling concern with cost, quality and scheduling.

22. Understand the behavior of workers and employees.
Behavior of workers and employees are affected by planning, scheduling and controlling activities of operation managers.
Behavior is affected by leadership, motivation, communication, inter/intra personal relationship and finally by their attitude.

23. Models Desired outcome has deviated from the planned process.
Deploy Mathematical and quantitative techniques in decision making such as network analysis, linear programming, queuing theory etc.
Types of the model depends upon types of the problem and affecting variables. As example, Linear programming technique is used when there are multiple variable and constraints. Assignment technique is used for assigning resources to activities to the particular machine or person. Similarly, transportation model is used for minimization of the transportation cost for delivery of goods and equipments.

24. Product/operation Management function

25. Transformation Process
Production Systems
Production is creation of goods and services
Production system uses resources to transform inputs into some desired output
Transformation Process Inputs Outputs
Labor Goods and services
Raw materials
Customer
Transformation Process

26. Manufacturing Vs Service
Manufacturing Operations
It yields tangible input from conversion process.
Output can be store as inventory
Operations are capital intensive as they use less labor and more machine.
No customer contact during conversion process.
Complex and interrelated processes are followed in manufacturing operations

27. Manufacturing Vs Service
Service Operations
Service Operations produce intangible outputs
Service cannot be inventoried and consume as soon as produced
Service operation are labor intensive.
High degree of customer participation in service generation.
Simple service process is applied in service operations.

28. Life cycle Approach

29. Product Life Cycle
Predictable pattern of demand for the product throughout the product life.
Life of products may vary from product to product and industry to industry.
Time span of each stage varies from one stage to another.
Determines facilities, labor, capital, management system required for producing at each stage.
Determine the pattern and process of each stage

30. Operation Issues of Product Life Cycle
Product life cycle is concerned with the pattern of demand for product, its introduction to market to the point where the product faces the decision of the customer choice and preference.
The study of the pattern and process of product life cycle helps in determining facilities, labor, capital and management system etc.
The concern for the operation manager is to determine the pattern of the product life cycle and then forecast the resources required for producing the product.

31. When various states of product life cycle occur for our product?
CONCERNS for Operation manager for Product Life Cycle
When various states of product life cycle occur for our product?
What management, facilities and resources are needed on various stages of life cycle?
What should be done with existing facilities and conversion process, when product proceeds through these various stages?
What and when new product should be introduced to sustain the existing system?

32. Product Life Cycle Growth Maturity Decline Introduction Sales
Touch screen
Dial pad phones
CRT monitors
8D cinema
Time

33. Product Life Cycle, Sales, Cost, and Profit
Cost of
Development
& Manufacture
Sales Revenue
Sales, Cost & Profit .
Profit
Cash flow
Loss
Time
Introduction
Growth
Maturity
Decline

34. Product Life Cycle Introduction
Low volume production
Research
Industry structure is small
process modification and enhancement
Product verities

35. Introduction Phase strategy
Research for development
Focus product development
Process modification and enhancement
Supplier development

36. Product Life Cycle Growth
Product design begins to stabilize
Effective forecasting of capacity becomes necessary, as competition increase
Adding or enhancing capacity may be necessary
Focus on standardization

37. Growth phase strategies
Product design stabilize
Increasing standardization
Effective forecasting
Increase in production volume
Enhancing capacity may be necessary
Quality and availability

38. Product Life Cycle Maturity
Competitors now established
High volume, innovative production may be needed
Emergence of dominant design
Improved cost control, reduction in options, paring down of product line

39. Maturity phase strategy
Competitors established
High production
Innovative production
Dominant design
Cost control, paring down of product line

40. Commodity product category
Decline phase strategy
Commodity product category
Terminate offerings that doesn’t provide revenue

41. Product Life Cycle Decline
Unless product makes a special contribution, must plan to terminate offering

42. Exciting New Trends In operation Management
Operation manager are confronted with ever changing world. These dynamics are the result of a variety of forces, from globalization of world trade to the transfer of ideas, products, and money at electronic speeds.

43. Exciting New Trends In operation Management
The challenges of the Operation Management in this era are as follow;
Global Focus
Just in time Performance
Supply chain partnering
Rapid Product Development
Mass Customization
Empowered Employees
Environmentally sensitive production
Business Ethics

44. Productivity and Competitiveness
The creation of goods and services requires changing resources into goods and services.
Productivity is the ration of outputs (goods and services) divided by the inputs (resources, such as labor and capital) .
Operation Manager’s job is to enhance (improve) this outputs to inputs . Improving productivity means improving efficiency.

45. Productivity Measurement
Productivity is a common measure of how well a country, industry or business unit is using its resources (or factor of production).
Productivity is a relative measure. In other words, to be meaningful, it needs to be compared with something else.
Productivity comparison can be done in two ways. First a company can compare itself with similar operations within its industry, or it can use industry data when such data are available (e.g comparing productivity among different stores in a franchise)
Another approach is to measure productivity over time within the same operation.

46. Productivity Measurement
Productivity can be expressed as partial measures, multifactor measures or total measures.
The use of just one resource input to measure productivity is known as single factor productivity or Partial productivity. E.g
A broader view of productivity is multifactor productivity. It is also term as total factor productivity. Multifactor productivity is calculated as follow;

47. Example 1
A light bulb production company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expense of $400 per day. The company processes a closes on 8 Led bulbs each day. The company recently purchased a computerized system for Led bulb-search system that will allow the processing of 14 Led bulbs per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.
Based on above data, calculate
Labor productivity with old system (Ans bulbs per labor-hour)
Labor producitvity with the new system (Ans bulbs per labor-hour)
Multifactor productivity with the old system (Ans bulbs per dollar)
Multifactor productivity with the new system (Ans bulbs per dollar)
Labor productivity of old system = 8/4*8= 8/32=0.25 bulbs per labor hour
Labor productivity with new system=14/32=0.4375
Multifactor prod. With old system= 8/ ( )=0.0074
Multifacotr with new system=14/ =14/1440=0.0097

48. Calculate the productivity for the following operations
Three Employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Calculate their productivity. (Ans. 5 Policies/hr)
A team of workers makes 400 units of a product, which is valued by its standard cost of $10 each (before markeups for other expense and profit). The accounting department reports that for this job the actual costs are $400 for labor, $1000 for materials, and $300 for overhead. Calculate multifactor productivity. (Ans. 2.35)
Output= 600 insurance policy
Input=3 employeesX 8hours X 5days per week =120 lobor hour
Productivity= 600 /120 = 5 policies / hour
b. Output (Quantity at standard cost)= 400 units X $10 each = $4000
Input= labor cost + material cost + overhead cost = $400 +$1000+$300 = $1700
Productivity = $4000/ $1700 = 2.35

49. Apple new Iphone 4S are produced on an automated assembly line process
Apple new Iphone 4S are produced on an automated assembly line process. The standard cost of Iphone 4S is $150 ( labor, $30; materials,$70; and overhead, $50). The sales price is $300 per unit.
To achieve a 10% multifactor productivity improvement by reducing material cost only, by what percentage must those costs be reduced? (19.4%)
To achieve a 10 % multifactor productivity improvement by reducing labor costs only, by what percentage must those costs be reduced? (45.43%)
Output=sales price= 300
Input= 150 which include labor (30), materials (70) and overhead (50)
Initial productivity= 300/150 =2
Improve productivity by 10% i.e new productivity should be 2.2
Achieve 10% multifactor productivity improvement by reducing material cost only, by what percentage must those costs be reduced?
or, 2.2 = 300 / 30 +(70-x) + 50
X= 13.6
i.E reduced material cost by = 13.6/70)*100 = 19.4

50. Define Operation Management and discuss its relationship with various management functions. Explain the role of operation management in an organization to achieve competitive advantage. (15) PU2007
Define operation management? Why is operation Management important to any orgnanization? (7)
What are the objectives of operation Management? Discuss the various environments under which production operation manager has to work.
Define productivity. What is the relationship between production and productivity?
What is operation management? How can operations be used as a competitive weapon?
Describe the recent trends in operation management.
Define operation. Why do you think it is necessary for management students to study operation management?
How are service organizations different from manufacturing organizations? Explain with suitable expample.
Define operation function with two suitable examples? Why study of operation management is important for business students?
Define operation management.Explain the importance of operation management. How can manager benefit from it?

51. End of Lecture