Introduction To OP

INTRODUCTION TO
OPERATIONS MANAGEMENT
WHY STUDY OPERATION
MANAGEMENT?
1. We study how people organize themselves for productive
enterprises.
2. To know how goods and services are produced.
3. To understand what operations managers do.
4. We study because it is such a costly part of an organization.
OPERATIONS – part of a business organization that is
responsible for producing goods and services
MANAGEMENT – process of planning, decision

making, organizing, leading, motivation and
controlling the human resources, financial, physical
and information resources of an organization to
reach its goals in an efficient and effective manner.
The business function responsible for

planning, coordinating, and controlling
the resources needed to produce
products and services for a company
• A Management Function
• An Organization’s Core Function
• Exists in every organization whether Service
or Manufacturing, profit or non-profit
THREE BASIC FUNCTION OF ORGANIZATION
1. FINANCE – responsible for securing financial resources
- budgeting
- analyzing investment proposals
- providing funds for operation
2. MARKETING – responsible for assessing consumer wants and needs

- selling and promoting organizations goods and services
3. OPERATIONS – responsible for producing the goods and providing

services offered by organization.
WHAT IS ROLE OF OM?
• OM Transforms inputs to outputs

– Inputs are resources such as
• People, Material, and Money
– Outputs are goods and services
PROCESS
OPERATIONS
INPUTS TRANSFORMATI
OUTPUTS
ON
PROCESS
RESOURCES GOODS AND
SERVICES
TRANSFORMATION OF A
CANNED FOOD PROCESSOR
INPUTS PROCESS OUTPUTS

Raw Meat Cleaning Canned Meat
Metal Sheets Making Cans
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
OM’S TRANSFORMATION ROLE
- TO ADD VALUE
- PROVIDE EFFICIENT
TRANSFORMATION
SUPPLY CHAIN
SUPPLY CHAIN - the sequence of organizations that are

involved in producing and delivering a product or service.
TYPES OF TRANSFORMATION
PROCESS
• PHYSICAL – manufacturing of goods
• LOCATIONAL – transportation (e.g. Trucking, buses)
• EXCHANGE - retailing
• STORAGE - warehousing
• PHYSIOLOGICAL – health care
• INFORMATIONAL – telecommunications, media
• PSYCHOLOGICAL - entertainment
DECISIONS
STRATEGIC TACTICAL
DECISIONS DECISIONS
Broad in Scope, Narrow in Scope,
Long Term, Short Term,
All encompassing Concerning a small group
of issues
OPERATION OBJECTIVES
1. Cost
2. Speed
3. Dependability
4. Quality
5. Flexibility
6. Innovation
EXAMINING THE OPTIONS FOR
INCREASING CONTRIBUTION
Fisher Technologies is a small firm that must double its dollar contribution
to fixed cost and profit in order to be profitable enough to purchase the
next generation of production equipment. Management has determined
that if the firms fails to increase contribution, its bank will not make the
loan and the equipment cannot be purchased. If the firm cannot purchase
the equipment, the limitations of the old equipment will force Fisher to go
out of business and, in doing so, put its employees out of work and
discontinue producing goods and services for its customers.
TABLE 1.1 OPTIONS FOR INCREASING CONTRIBUTION
MARKETING FINANCE
OPTION OPTION OM OPTION
REDUCE REDUCE
INCREASE SALES FINANCE PRODUCTION
CURRENT REVENUE 50% COSTS 50% COST 20%
Sales 100,000
Cost of goods -80,000
Gross margin 20,000
Finance costs -6,000
Subtotal 14,000
Taxes at 25% -3,500
Contribution 10,500
MARKETING FINANCE
REDUCE REDUCE
INCREASE SALES FINANCE PRODUCTION
Sales 100,000 150,000
Cost of goods -80,000 -120,000
Gross margin 20,000 30,000
Finance costs -6,000 -6,000
Subtotal 14,000 24,000
Taxes at 25% -3,500 -6,000
Contribution 10,500 18,000
MARKETING FINANCE
INCREASE REDUCE REDUCE

SALES FINANCE PRODUCTION
Sales 100,000 150,000 100,000
Cost of goods -80,000 -120,000 -80,000
Gross margin 20,000 30,000 20,000
Finance costs -6,000 -6,000 -3,000
Subtotal 14,000 24,000 17,000
Taxes at 25% -3,500 -6,000 -4,250
Contribution 10,500 18,000 12,750
MARKETING FINANCE
INCREASE REDUCE REDUCE

SALES REVENUE FINANCE PRODUCTION
CURRENT 50% COSTS 50% COST 20%
Sales 100,000 150,000 100,000 100,000
Cost of goods -80,000 -120,000 -80,000 -64,000
Gross margin 20,000 30,000 20,000 36,000
Finance costs -6,000 -6,000 -3,000 -6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% -3,500 -6,000 -4,250 -7,500
Contribution 10,500 18,000 12,750 22,500
• Increase Sales 50% - 7,500 or 51%
• Reduce Cost 50% - 2,500 or 21%
• Reduce PC 20% - 12,000 or 114%
REVIEW PAST LESSONS
1. What is OM?
2. What are the three Basic Functions in Business Org.?
3. What are the OM decisions?
TEN OM CRITICAL DECISIONS
1. Design of goods and services
• Defines what is required of operations
• Product design determines quality, sustainability and human resources
2. Managing quality
• Determine the costumer’s quality expectations
• Establish policies and procedures to identify and achieve that quality
3. Process and capacity design
• How is a good or service produced
• Commits management to specific technology, quality, resources and investment.
4. Location strategy
• Nearness to customers, suppliers, and talent
• Considering cost, infrastructure, logistics, and government
5. Layout strategy
• Integrate capacity needs, personnel level, technology, and inventory
• Determine the efficient flow of materials, people, and information.
6. Human resources and job design
• Recruit, motivate, and retain personnel with the required talent and skills.
• Integral and expensive part of the total system design
7. Supply-chain management
• Integrate supply chain into the firm’s strategy
• Determine what is to be purchased, from whom, and under what conditions.
8. Inventory management
• Inventory ordering and holding decisions.
• Optimize considering customer satisfaction, supplier capability and production
schedules.
9. Scheduling
• Determine and implement intermediate-and short-term schedules.
• Utilize personnel and facilities while meeting customer demands.
10. Maintenance
• Consider facility capacity, production demands, and personnel.
• Maintain a reliable and stable process.
OPERATIONS MANAGEMENT POSITIONS
1.Plant Manager
2.Operations Analyst
3.Quality Manager
4.Supply-Chain Manager and Planner
5.Process Improvement Consultants
PRODUCTIVITY CHALLENGE
1. What is Productivity?
2. Why is productivity important?
3. Difference between production and productivity
PRODUCTIVITY
 The ratio of outputs divided by the inputs

WHY IS PRODUCTIVITY
IMPORTANT?
 It determines the standard of living
 The level of productivity is the most fundamental and crucial

determinant of a standard of living. Increased productivity allows people
to get what they want faster, or to get more of what they want in the
same amount of time. Supply rises with productivity, dropping real
prices and increasing real wages; it lifts people out of poverty and allows
them to focus on efforts beyond mere survival.
DIFFERENCE BETWEEN PRODUCTION
AND PRODUCTIVITY
Production Productivity
Production is an organized activity, Productivity is an indicator of efficiency in the
wherein step by step conversion of raw production in terms of optimum utilization of
1 materials into useful output takes place. firm’s resources in the creation of desired
output.
Production is a process of value addition, Productivity is a measure of efficiency.

wherein at each level, some value is
2 added to the product.
Production exhibits the number of units Productivity highlights the ratio of output to
3 produced by the firm in a given period. input consumed
Production is always expressed in Productivity is denoted in relative terms,

absolute terms, i.e. the volume of output meaning that it determines the quantitative
4 produced relationship between output generated and
resources consumed.
Production ascertains the value of output Productivity determines the how well the
generated resources are utilized by the firm in the
5 generation of output.
PRODUCTIVITY MEASUREMENT
• Single-Factor Productivity
 It indicates the ratio of one resource (input) to the goods and services produced
(outputs)
Unit Produced
Productivity = ------------------------------------
Labor –hours used
PRODUCTIVITY MEASUREMENT
• Multifactor Productivity/Total Factor Productivity
 It indicates the ratio of many or all resource (input) to the goods and services
produced (outputs)
Output
Productivity = -----------------------------------------------------------------
Labor + Material + Energy + Capital + Miscellaneous
PRODUCTIVITY VARIABLES
Productivity variables are the three factors critical to productivity improvement.
1. labor
2. capital
3. management
NEW CHALLENGES IN OM
1. Global focus
2. Supply-chain partnering
3. Sustainability
4. Rapid product development
5. Mass customization
6. Just-in-time performance
7. Empowered employees

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INTRODUCTION TO

MANAGEMENT – process of planning, decision

The business function responsible for

2. MARKETING – responsible for assessing consumer wants and needs

3. OPERATIONS – responsible for producing the goods and providing

• OM Transforms inputs to outputs

INPUTS PROCESS OUTPUTS

SUPPLY CHAIN - the sequence of organizations that are

INCREASE REDUCE REDUCE

INCREASE REDUCE REDUCE

 The ratio of outputs divided by the inputs

 It determines the standard of living

 The level of productivity is the most fundamental and crucial

Production is a process of value addition, Productivity is a measure of efficiency.

Production is always expressed in Productivity is denoted in relative terms,

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