OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

Operations Management

Transformation of Inputs to Outputs:

Inputs Corporation Outputs

Raw Matierials
Sales & Marketing
Design
Manufacture Finished
Energy Assemble Product or Service
Organize

Purchased Parts

• a company thrives by successfully managing three principal areas:

1. Marketing: selling product.

2. Production/Operations: making product.
3. Finance/Accounting: collecting data, managing accounts payable/
receivable, measuring performance.

• the purpose of production is to transform raw materials into a saleable product, or to

transform the inputs to a company into its outputs.
• a company’s “operations” are primarily the resources/processes which are directly
associated with the transformation or production of the product.
• operations management is the control of these resources/processes.

Andrew Campbell & John Hufnagel Page 1 of 1

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

Examples of Operations Management Activities

From Heizer J. et al Operations

Management 8th Ed.

From Heizer J. et al Operations

Management 8th Ed.

Andrew Campbell & John Hufnagel Page 2 of 2

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

From Heizer J. et al Operations

Management 8th Ed.

Ten Decision Areas of Operations Management

From Heizer J. et al Operations

Management 8th Ed.

Andrew Campbell & John Hufnagel Page 3 of 3

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

• within the operations area, operations managers carry out basic management
functions:

1. Planning/Organizing/Controlling.
2. Filling staffing requirements.
3. Providing leadership.

• Operations management can make decisions which can be classed as:

1. Strategic.
2. Tactical.
3. Operational planning and control.

Strategic Decisions
• Long range (usually over several years).
• Broad in nature:
o ie. How will product be made?
o Where will facilities be?
o How much capacity do we design for?
o When should we increase capacity?
• Strategic decisions effect tactical and operational decisions.
• Must be closely tied to overall corporate strategic plan.

Tactical Decisions
• Effected by strategic decisions.
• Medium range.
• Concerned primarily with how to schedule labour and material efficiently.
o ie. How many workers required and when?
o Work overtime or add a second/third shift?
o When should material be delivered (affects A/P).

Operational Planning and Control Decisions

• Effected by tactical decisions.
• Short range.
o What are production tasks for the week?
o Who will carry them out?
o Which are more important?

Operations Management in the Service Sector

• OM has traditionally been applied in the manufacturing sector.
• OM is easily applicable to service-oriented products.

Andrew Campbell & John Hufnagel Page 4 of 4

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

Differences between Goods and Services

Goods Services
Product and its raw materials are tangible Finished good and its raw materials are
ie. car. intangible ie. provision of information.
Products are often information/knowledge
based.
Can be held in inventory. Inventory generally not possible.
Production and consumption of service are
simultaneous.
Interaction with customer is minimal. More contact with customer required.
Products are often not unique (not Services are often unique (customer
customer specific). Product is well defined. specific). Product is less well defined.
Production processes require physical Production processes require interpretation
transformation of raw materials. of raw materials (data etc.).
Can be resold. Reselling is not straightforward.
Quality of product can be measured. Quality of product difficult to measure.
Production process can be automated. Difficult to automate.

Integration of Goods and Services

• when a “good” carries out its function effectively it is much less noticeable then when
it malfunctions.
• customer loyalty is easily “soured” when products malfunction and the manufacturer
support is weak.
• customer loyalty can be increased in case of malfunction and good manufacturer
support.
• there is a strong trend for companies that produce goods to also offer services which
support their manufactured product.
• the purchase of many goods also includes a service portion:

Andrew Campbell & John Hufnagel Page 5 of 5

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

From Heizer J. et al Operations

Management 8th Ed.

Productivity

• recall that OM focuses on production and conversion of inputs to outputs.

• measuring how efficiently inputs are converted to outputs will help operations
managers gauge how well the operations side of the company is functioning.

Units Produced
Productivity =
Inputs Used

Example
Calculate productivity if the forming of 10,000 automotive trunk lids requires 170 tons of
galvalume steel:

10,000
Productivity = = 58.83 units per ton
170 tons
• productivity improvements indicate more efficient production.
• improvements come about by:
o reducing inputs while maintaining outputs at a constant level.
o increasing output while maintaining inputs at a constant level.
• increasing productivity is the only way to increase profit without raising prices.
• the U.S. typically increases productivity by about 2.5% per year.
• OM is strongly focused toward increasing productivity.

Andrew Campbell & John Hufnagel Page 6 of 6

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

Single-Factor Productivity
• ratio of output to one input.
o above example is an example of single-factor productivity

Multi-factor Productivity
• ratio of output to all inputs (also called total factor productivity).
o to add all inputs together, convert to common units (usually dollars).

Example: Problem 1.6 Heizer

Solution

Andrew Campbell & John Hufnagel Page 7 of 7

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

Example: Heizer Problem 1.11

Calculate the multi-factor productivity for the following company which modifies cars:

Item Base Year Amount Unit Cost

Output 375 cars modified
Labor 10,000 hours $20.
Suspension and Engine Kits 500 $1,000.
Energy 100,000 kWh $3.

Disadvantages of Productivity Measurement

• multi-factor productivity can mask changes to individual productivity factors.
• improvements in quality are hidden (comparing a car of today to a car of the 1970’s).
• external factor may cause change in productivity (dramatic price increase/decrease).
o gives the impression that change may be due to change in OM policy.
• difficult to apply in service sector (hard to quantify end product).
• does not measure more intangible outputs such as improved customer satisfaction,
safety etc.

Productivity Variables
• productivity improvement depends heavily on:
1. Labour.
2. Capital.
3. Management.

Labour
• improvements in labour productivity have typically accounted for 10% of annual
productivity increases.
• historical improvements in labour productivity due primarily to:
1. Improvements in education level.
2. Improved diet.
3. Improved social support network.
• future improvements may come from:
o better education.

Andrew Campbell & John Hufnagel Page 8 of 8

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

o familiarity with technology.

o stronger commitment, teamwork.
• improvements in labour are possible but will become more difficult and more
expensive (diminishing returns).

Capital
• historically, annual improvements in productivity are 38% due to capital investment.
• capital allows better tools to be purchased.
• inflation/taxes increase cost of capital.

Management
• annual improvements in productivity are 52% due to management.
• management makes sure that labour and capital are used with effectiveness to
improve productivity.
• applying knowledge and technology is required by management.
• it is the responsibility of operations managers to choose new capital investments and
to improve productivity of existing capital equipment.

Linking Operations Management to Customers and Suppliers

• long-standing business model has been to hold customers and suppliers at arms length
from operations functions.
• suppliers (in particular) and customers were/are treated as outside entities.
o buffering between company and suppliers required because of slow lead
times, compared to production time.
o suppliers/customers in production area an unwelcome, disturbing presence.
o different skills required for managing suppliers/customers then operations.
o less concern for customer satisfaction.
o benefit not seen to supplier loyalty.

• “open” approach is becoming more common.

Customers
• giving customers direct contract with operations employees has two-way benefits:
o customers speak to someone who is knowledgeable which increases customer
satisfaction.
o operations employees (company) benefit from dealing directly with problems
which:

decreases likelihood of problem occurring again.
o having direct contact with product failure issues.
o customers often have ideas for new products or improvements.

Suppliers
• giving suppliers direct contact/access to manufacturing also has two-way benefits.
o suppliers deliver directly to shop floor, so inventory is reduced or eliminated.

Andrew Campbell & John Hufnagel Page 9 of 9

OPER2110 Advanced Operations Management Unit 1 Intro to Operations Management

o suppliers may carry out production operations inside plant which eliminates
need for internal expertise.
o suppliers are in frequent contact so are aware of possible issues.
o etc.

Value Chain
• all steps in the production of a product which add value.
• value added can come from a production operation or a less tangible function such as
sales and marketing.
• goal of determining value chain is to minimize non-value added processes/time.

From Collier D. et al
Operations Management
Goods, Services and Value
Chains 2nd Ed.

Supply Chain
• in the production of a product, the supply chain is the collection of companies who
supply raw materials, transport, manufacture, distribute and retail the finished
product.
• example: a company manufactures steel garden chairs with plastic seats and backs.
The product is sold in North America. The supply chain could be:
o garden furniture retailers.
o transport company.
o Canadian distributor.
o U.S. distributor.
o transport company.
o chair sub-frame manufacturer.
o powder coater.
o injection moulding company.
o tubing supplier.
o hardware supplier.
o various transportation companies.

Andrew Campbell & John Hufnagel Page 10 of 10