OPERATIONS

MANAGEMENT
COURSE OVERVIEW
 INSTRUCTOR: Sagar Bhattarai
 COURSE BOOK: HEIZER, J, RENDER, B, 2017.
Operations Management Sustainability and Supply
Chain Management. Pearson
 EVALUATION METHODS:
 ASSIGNMENTS
 GROUP PROJECT
 MID-TERM EXAMINATIONS / CLASS TEST
 FINAL EXAMINATIONS

 50% THEORY & 50 % NUMERIAL

CONTRIBUTION
 CALCULATORS ARE MUST DURING CLASSES
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 PRE READING OF EXERCISES MENTIONED IN
MODULE DESCRIPTOR IS REQUIRED FOR
COURSE BREAKDOWN
 Introduction to Operations Management
 Productivity Variables
 Forecasting
 Designing Operations
 Design of Good and Services
 Process Strategy / Capacity Planning
 Location Strategy
 Layout Strategy
 Managing Operations
 Supply Chain Management
 Inventory Management
 Aggregate Planning
 Business Analytics

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OPERATIONS
MANAGEMENT
OPERATIONS AND PRODUCTIVITY
ORGANIZATIONAL FUNCTIONS
 Marketing
 Gets customers

 Operations
 Creates product or service

 Finance/Accounting
 Tracks how well the organization is doing,
 Pays bills/collects the money

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FUNCTIONS - BANK

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FUNCTIONS - AIRLINES

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 WHAT IS OPERATIONS?
 Operations: is the process of transforming inputs
into outputs.

Value-added
Environment

Environment
Inputs Transformation Outputs

Monitoring/Control

 Key here is efficiency

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WHAT IS OPERATIONS?
▶ Example: Food processing company

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WHAT IS OPERATIONS?
 Example: Healthcare services

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WHAT IS OPERATIONS?

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 WHAT IS OPERATIONS MANAGEMENT?

 Production Management: To produce right quality goods in right

quantity at right time and at least cost.
 Operation Management: To utilize resources, to the extent possible
so as to satisfy customer wants.

 Operations Management - management of the set of activities that

creates value in the form of goods and services by transforming
inputs into outputs

 Applies to both manufacturing and service organizations

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SIGNIFICANT EVENTS IN OPERATIONS
MANAGEMENT

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SIGNIFICANCE OF SUPPLY
CHAIN
A global network of organizations and activities
that supply a firm with goods and services

 Members of the supply chain collaborate to

achieve high levels of customer satisfaction,
efficiency and competitive advantage.

Farmer Syrup Bottler Distributor

Retailer
producer
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WHY STUDY 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 15
WHY STUDY 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 16
WHAT OPERATIONS MANAGERS DO ?

 Plan - Organize - Staff - Lead - Control

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TEN CRITICAL DECISIONS
 Service, product design
 Quality Management

 Process, capacity design

 Location

 Layout design

 Human resources, job design

 Supply-chain management

 Inventory management

 Scheduling

 Maintenance 18
TEN CRITICAL DECISIONS
 Service and product design
 What product or service should we offer?
 How should we design these products and services?
 Quality management
 How do we define quality?
 Who is responsible for quality?

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TEN CRITICAL DECISIONS - CONTINUED
 Process and capacity design
 What processes will these products require and in what order?
 What equipment and technology is necessary for these
processes?
 Location
 Whereshould we put the facility
 On what criteria should we base this location decision?

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TEN CRITICAL DECISIONS - CONTINUED
 Layout design
 How should we arrange the facility?
 How large a facility is required?

 Human resources and job design

 How do we provide a reasonable work environment?
 How much can we expect our employees to produce?

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TEN CRITICAL DECISIONS - CONTINUED
 Supply chain management
 Shouldwe make or buy this item?
 Who are our good suppliers and how many should we have?

 Inventory, material requirements planning,

 How much inventory of each item should we have?
 When do we re-order?

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TEN CRITICAL DECISIONS - CONTINUED
 Intermediate, short term, and project scheduling
 Is subcontracting production a good idea?
 Are we better off keeping people on the payroll during
slowdowns?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?

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WHY STUDY 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 24
OPTIONS FOR INCREASING
CONTRIBUTION

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WHY STUDY 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 26
OPERATION MANAGEMENT JOBS
 Operations Analyst
 Quality Manager
 Plant Manager
 Supply-Chain Manager and Planner
 Procurement Specialist
 Process Improvement Consultants

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CERTIFICATIONS
o APICS, the Association for Operations
Management
o American Society for Quality (ASQ)
o Institute for Supply Management (ISM)
o Project Management Institute (PMI)
o Council of Supply Chain Management
Professionals
o Charter Institute of Purchasing and Supply
(CIPS)
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GOOD VS SERVICE

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WORKFORCE DISTRIBUTION

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GOOD VS SERVICE: DISCUSSION
 Characteristics of Goods
 Characteristics of Service

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CHARACTERISTICS OF GOODS
 Tangible product
 Product often has residual
value
 Can be inventoried
 Limited customer
involvement in production
 Standardization
 Production and
Consumption may not happen 32
at the same time
CHARACTERISTICS OF SERVICE
 Intangible product
 Produced & consumed at same
time
 Inconsistent product definition
 High customer interaction
 Often unique
 Often knowledge-based
 Frequently dispersed at various
location 33
GOODS VERSUS SERVICES

GOODS SERVICES
 Can be resold  Reselling unusual
 Can be inventoried  Difficult to inventory
 Some aspects of quality  Quality difficult to
measurable measure
 Selling is distinct from  Selling is part of service
production

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 GOODS VERSUS SERVICES -
CONTINUED

GOODS SERVICES
 Product is transportable  Provider is transportable
 Site of facility important for  Site of facility important for
cost customer contact
 Often easy to automate  Often difficult to automate
 Revenue generated  Revenue generated primarily
primarily from tangible from intangible service.
product
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GOODS CONTAIN SERVICES / SERVICES
CONTAIN GOODS
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
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Percent of Product that is a Good Percent of Product that is a Service
THE PRODUCTION SYSTEM
TRANSFORMS INPUTS TO OUTPUTS

Inputs Process Outputs

Land, Labor, Goods and

Capital, Services
Management The Production System

Feedback loop

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PRODUCTIVITY

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PRODUCTIVITY

Productivity is the ratio of outputs (goods

and services) divided by the inputs
(resources such as labour and capital)

The objective is to improve productivity!

Outputs
Productivity =
Inputs
IMPROVING PRODUCTIVITY AT
STARBUCKS

A team of 10 analysts
continually look for ways
to shave time. Some
improvements:
Stop requiring signatures Saved 8 seconds
on credit card purchases per transaction
under $25
Change the size of the ice Saved 14 seconds
scoop per drink
New espresso machines Saved 12 seconds
per shot
HOW TO INCREASE PRODUCTIVITY IN
BHATBHATENI ?
ACTIVE LEARNING
 If ABC company produces 1000 units and labor-hours
used is 250, then find the productivity of the firm?

Units produced
Productivity =
Input used

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WAYS TO MEASURE PRODUCTIVITY
 Single Factor Productivity
 Multifactor Productivity

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PRODUCTIVITY
 Single Factor Productivity
 Indicates the ratio of one resources (input) to the goods and
services produced (outputs)

Single-factor Output Output Output Output

productivity Labor Material Capital Energy

 Examples of resources (inputs) in any organizations

 Labor
 Material
 Energy
 Capital
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 Miscellaneous
SINGLE FACTOR PRODUCTIVITY
 Example 1.1: 4 workers installed 720 square yards of
carpeting in 8 hours, What is the labor productivity in square
yards per hour?

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 Example 1.2: A machine produced 68 usable pieces in two
hours, What is the single-factor productivity of machine in
pieces per hour?

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CLASS WORK
 A company that processes fruits and vegetables is able to produce
400 cases of canned peaches in one-half hour with four workers.
What is labor productivity? = 200 cases per labor hour

 A firm cleans chemical tank cars in the St. Louis bay area. With
standard equipment, the firm typically cleaned 70 chemical tank
cars per month. They utilized 10 gallons of solvent, and two
employees worked 20 days per month, 8 hours a day. The company
decided to switch to a larger cleaning machine. Last April, they
cleaned 60 tank cars in only 15 days. They utilized 12 gallons of
solvent, and the two employees worked 6 hours a day.
 (a) What was their raw material and their labor productivity with the
standard equipment? 7 & 0.22
 (b) What is their raw material and their labor productivity with the 47
larger machine? 5 & 0.33
 (c) What is the change in each productivity measure? -28% 50%
WAYS TO MEASURE PRODUCTIVITY
 Single Factor Productivity
 Multifactor Productivity

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 Multifactor Productivity
 Indicatesthe ratio of many or all resources (inputs) to the
goods and services produced (outputs)

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 MULTIFACTOR PRODUCTIVITY: EXAMPLE
 Example 1.3 Collins Title Insurance Ltd. The company has a staff
of four, each working 8 hours per day (for a payroll cost of
$640/day) and overhead expenses of $400 per day. Collins processes
and closes on 8 titles each day. The new computerized title-search
system will allow the processing of 14 titles per day. Although the
staff, their work hours, and pay are the same, the overhead expenses
are now $800 per day.

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Single Factor Productivity increase for labour hour ? 75%
MULTIFACTOR PRODUCTIVITY:
EXAMPLE
 Example 1.4 Compute the multifactor productivity measure for an
eight-hour day in which the usable output was 300 units, produced
by three workers who used 600 pounds of materials. Workers have
an hourly wage of $20, and material cost is $1 per pound. Overhead
is 1.5 times labor cost.

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CLASS WORK
 A health club has two employees who work on lead generation.
Each employee works 40 hours a week, and is paid $20 an hour.
Each employee identifies an average of 400 possible leads a week
from a list of 8,000 names. Approximately 10 percent of the leads
become members and pay a onetime fee of $100. Material costs are
$130 per week, and overhead costs are $1,000 per week. Calculate
the multifactor productivity for this operation in fees generated per
dollar of input.

2.93

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MEASUREMENT PROBLEMS OF
PRODUCTIVITY

 Quality may change while the quantity of inputs and

outputs remains constant
 HDTV vs CRT

 External elements may cause an increase or decrease in

productivity
 End of Load-shedding in Nepal

 Precise units of measure may be lacking

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 Automobile
 SERVICE PRODUCTIVITY
Reasons for low productivity in services
 Typically labor intensive
 Frequently individually processed
 Often an intellectual task performed by professionals
 Often difficult to mechanize
 Often difficult to evaluate for quality
 Growth of low productivity activities e.g. food
preparation, laundry, house cleaning
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DEVELOPING MISSIONS AND
STRATEGIES
 Mission statements tell an organization where it is going

 The Strategy tells the organization how to get there

 An effective operations management effort must have a

mission so it knows where it is going and a strategy so
it knows how to get there.

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HARD ROCK CAFÉ
 Our Mission: To spread the spirit of Rock ‘n’ Roll
by delivering an exceptional entertainment and
dining experience. We are committed to being an
important, contributing member of our community
and offering the Hard Rock family a fun, healthy,
and nurturing work environment while ensuring
our long-term success.

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STRATEGIC PROCESS

Organization’s
Mission

Functional Area
Missions

Marketing Operations Finance/

Accounting
COMPETITIVE ADVANTAGE THROUGH
OPERATIONS
 Differentiation – better, or at least different
 Cost leadership – cheaper
 Quick response – faster ormore responsive

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COMPETITIVE ADVANTAGE THROUGH
OPERATIONS

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 CHANGING CHALLENGES FOR THE
OPERATIONS MANAGER
Past Causes Future
Local or Low-cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just-in-time
shipments reducing investment in shipments
inventory
Low-bid Quality emphasis requires that SC partners, ERP
purchasing suppliers be engaged in product
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
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THANK YOU

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