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

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

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

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

8. 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

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. 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

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. 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 s
Just-in-Time Systems (JIT) 1980s
Total quality management (TQM) 1980’s
Reengineering s
Flexibility s
Time-Based Competition 1990s
Supply chain Management 1990’s
Global Competition 1990s
Environmental Issues 1990s
Electronic Commerce Late 1990s

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. 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

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. 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. Operations Strategy – Designing the Operations Function

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

22. 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

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. 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. 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. 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.