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

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Presentation on theme: "1 Operations Management Lesson 1 Fundamentals of Operations Management Prepared by Sudarsan Jayasingh."— Presentation transcript:

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

2 2 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

3 3 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)

4 4 Typical Organization Chart Source: Reid and Sanders, 2005.

5 5 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.

6 6 Design elegant products which can be flat packed efficiently Design Store Layout Site Location Storage Quality Some Activities of Ikea Operations Manager

7 7 OM’s Transformation Role Source: Reid and Sanders, 2005.

8 The input-transformation-output model Transformation process InputOutput Goods and services Transformed resources Materials Information Customers Transforming resources Facilities Staff Source: Slack, 2001

9 9 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.

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

11 11 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

12 12 Historical Development of OM Industrial revolutionLate 1700s Scientific managementEarly 1900’s Human relations movement1930s to 1960s Management scienceMid-1900s Computer age1970s Just-in-Time Systems (JIT)1980s Total quality management (TQM)1980’s Reengineering 1990s Flexibility1990s Time-Based Competition1990s Supply chain Management1990’s Global Competition1990s Environmental Issues1990s Electronic CommerceLate 1990s

13 13 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

14 14 The activities of operations management ENVIRONMENT INPUTOUTPUT GOODS AND SERVICES INPUT TRANSFORMED RESOURCES MATERIALS INFROMATION CUSTOMERS FACILITIES STAFF INPUT TRASNFORMED RESOURCES OPERATIONS STRATEGY DESIGN PLANNING AND CONTROL IMPROVEMENT

15 15 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

16 16 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

17 17 Operations Strategy – Designing the Operations Function

18 18 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

19 19 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.

20 20 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.

21 21 Competitive Priorities- The Edge 0r Performance Objectives Quality Time (Speed and Dependability) Flexibility Cost

22 22 Speed Cost Depend- ability FlexibilityQuality 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

23 23 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

24 24 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.

25 25 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

26 26 References Reid R.D., and Sanders N. R., (2005) Operations Management, 2 nd Edition, Wiley Publication. Slacks Nigel and Lewis Mike, (2002) Operations Management, Prentice Hall.


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