OPERATIONS &

PRODUCTION
MANAGEMENT
Lecture 1
 Manufacturing Organization

 Manufacturing can be defined as:

1. The process of converting material into a more useable form
2. The process of “adding value” to an existing product
3. Products may be discrete or continuous
4. A complex activity involving a wide variety of resources and
activities
 Manufacturing Organization

5. Production quantity – number of units of a given part that are

produced annually:
 Low
 Medium
 High
6. Product Variety – different type of products that are produced at a
facility
 Characteristics of a Manufacturing
System
• It is an organized activity, so every manufacturing system has an
objective
• The system transforms the various inputs into useful outputs
• It does not operate in isolation from the other organization system
• There exists a feedback about the activities which is essential to
control and improve system performance
 Components of a Manufacturing System

• Production machines, tools, fixtures and other related hardware

• Material handling system
• Computer systems to coordinate and/or control the components
• Human Workers
 Service Organization

 An economic activity that typically produce an intangible product

such as:
1. Education
2. Entertainment
3. Lodging
4. Government
5. Financial Services
6. Health Services
 Characteristics of Service
Organization
• It is an organized activity related to identifying the customer specific
to the service being provided
• The effective communication and provision of the service in terms of
its utility and quality
• There exists a feedback about the changes/ improvements which are
needed to satisfy the customers
Operations Management is about
Competitive Advantage
“It involves understanding the needs of our
customers, managing the processes that
deliver the services, ensuring our
objectives are met, while also paying
attention to the continual improvements of
our services.” [Johnston & Clark, 2008:3]
Conceptualising Operations Management …

• Operations management is “the effective and

efficient management of the
transformation process” [Melnyk &
Denzler, 1996:5].
• “..operations are processes that take in a set
of input resources which are used to
transform something, or are transformed
themselves, into outputs of products and
services.” (Slack, 2010:11).
Definitions of Operations
Management
• “The ongoing activities of designing, reviewing and using the
operating system, to achieve service outputs as determined by the
organization for customers”.
• It is the business function that plans, organizes, co-ordinates, and
controls the resources needed to produce a company’s goods and
services.
Definitions of Operations
Management
 Who practices OM?

• Purchasing managers
• Supply chain and logistics managers
• Customer service managers
• Project managers
• Quality managers
• Restaurant, hotel, retail, & airport managers
• Health centre managers, hospital managers
• Head teachers, etc., etc..

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Operations management is important in all
types of organization
Automobile assembly factory – Operations
management uses machines to efficiently
assemble products that satisfy current
customer demands
Physician (general practitioner) – Operations
management uses knowledge to effectively
diagnose conditions in order to treat real
and perceived patient concerns

Management consultant – Operations

management uses people to effectively
create the services that will address current
and potential client needs
Operations management is important
in all types of organization
Disaster relief charity – Operations
management uses our and our partners’
resources to speedily provide the supplies and
services that relieve community suffering

Advertising agency – Operations

management uses our staff ’s knowledge and
experience to creatively present ideas that
delight clients and address their real needs
1. Operations management is the activity of managing the
resources which produce and deliver products and services. The
operations function is the part of the organization that is
responsible for this activity.
2. Every organization has an operations function because every
organization produces some type of products and/or services.
However, not all types of organization will necessarily call the
operations function by this name. (Note that we also use the
shorter terms ‘the operation’ and ‘operations’ interchangeably
with the ‘operations function’).
3. Operations managers are the people who have particular
responsibility for managing some, or all, of the resources which
compose the operations function. Again, in some organizations
the operations manager could be called by some other name. For
example, he or she might be called the ‘fleet manager’ in a
distribution company, the ‘administrative manager’ in a hospital,
or the ‘store manager’ in a supermarket.
Operations in the organization
 Operations management in the smaller
organization
• Operations management is just as important in small organizations as it is in
large ones. Irrespective of their size, all companies need to produce and deliver
their products and services efficiently and effectively.
• In practice, managing operations in a small or medium-size organization has its
own set of problems. Large companies may have the resources to dedicate
individuals to specialized tasks but smaller companies often cannot, so people
may have to do different jobs as the need arises.
Such an informal structure can allow the company to
respond quickly as opportunities or problems present
themselves. But decision making can also become
confused as individuals’ roles overlap.
Small companies may have exactly the same
operations management issues as large ones but they
can be more difficult to separate from the mass of other
issues in the organization. However, small operations
can also have significant advantages;
Operations management in not-for-
profit organizations
• Terms such as competitive advantage, markets and business are
usually associated with companies in the for-profit sector.
• Yet operations management is also relevant to organizations
whose purpose is not primarily to earn profits. Managing the
operations in an animal welfare charity, hospital, research
organization or government department is essentially the same
as in commercial organizations.
• Operations have to take the same decisions – how to
produce products and services, invest in technology,
contract out some of their activities, devise performance
measures, and improve their operations performance and so on.
Strategic objectives of not-for-profit
organizations
• More complex and involve a mixture of
• political,
• economic,
• social and
• environmental objectives
• a greater chance of operations decisions being made under
conditions of conflicting objectives. So, for example, it is the
operations staff in a children’s welfare department who have to
face the conflict between the cost of providing extra social
workers and the risk of a child not receiving adequate
protection.
 Responsibilities of an Operations Manager

• “As the Operations Manager … you will be a key

member of the management team, supporting the
General Manager to ensure that the centre runs
smoothly and efficiently by improving
profitability
• Specific responsibilities include:
• stock management, customer service, financial
performance, health and safety, facilities and HR.
• You will directly manage and develop a small
team which will include general assistants, a
stock controller and a goods inwards assistant.
Responsibilities of an Operations Manager

Main responsibilities:
• Delivering efficient stock & product management
& leading and managing staff efficiently whilst
adhering to LEAN Management Principles
• Setting and reviewing staff targets, to deliver
continual improvement.
• Fleet Management and the organization of the
delivery drivers’ routes in line with the LEAN
Management Principles
• Managing couriers efficiently to the benefit of the
Company
 Different Functional Areas of Operations
Management in Business Organizations
• Finance: This area is responsible for securing financial resources at favorable
prices and allocating those resources throughout the organization.
• Marketing: This area is responsible for assessing consumer wants and needs,
and selling and promoting the organization’s goods or services.
• Operations: This area is responsible for producing the goods or providing the
services offered by the organization. In other words the role of operations
management is to transform a company’s inputs into the finished goods or
services.
Different Functional Areas of Business
Organization

ORGANIZATION

Finance Operations Marketing

The transformation Process----
Creation of Goods and Services
It involves:
• Inputs: That is capital, labor, land and information
• Transformational Processes: That is storing, transporting, cutting etc.
• Outputs: That is goods and services.
The Transformation Process
The Essence of Operations Function

• The essence of the operations function is to add value during the

transformation process.
• Value Added: It is the term used to describe the difference between
the cost of inputs and the value or price of outputs.
or
• The net increase created during the transformation of inputs into
final outputs.
 The Usage of Value-Added
Firms use the money generated by value-added for
• Research and development,
• Investment in new facilities and equipment,
• Worker salaries, and,
• Profits.
 Operations Processes Have
Different Characteristics
• The volume of their output;
• The variety of their output;
• The variation in the demand for their output;
• The degree of visibility which customers have of the production of
their output.
 The volume dimension
• The essence of high-volume burger production is McDonald’s, which
serves millions of burgers around the world every day.
• The first thing you notice is
• the repeatability of the tasks people are doing and the
systematization of the work where
• standard procedures are set down specifying how each part of the
job should be carried out.
• Also, because tasks are systematized and repeated, it is
worthwhile developing specialized fryers and ovens.
• All this gives low unit costs.
 The volume dimension
• Now consider a small local cafeteria serving a few ‘short-order’
dishes.
• The range of items on the menu may be similar
• the volume will be far lower,
• so the repetition will also be far lower and
• the number of staff will be lower (possibly only one person) and
therefore individual staff are likely to perform a wider range of
tasks.
• This may be more rewarding for the staff, but less open to
systematization.
• Also it is less feasible to invest in specialized equipment.
• So the cost per burger served is likely to be higher (even if the
price is comparable).
The variety dimension
 A taxi company offers a high-variety service. It is prepared to pick you
up from almost anywhere and drop you off almost anywhere.
◦ To offer this variety it must be relatively flexible.
◦ Drivers must have a good knowledge of the area, and communication between
the base and the taxis must be effective.
◦ However, the cost per kilometre travelled will be higher for a taxi than for a less
customized form of transport such as a bus service.
◦ Although both provide the same basic service (transportation), the taxi service
has a high variety of routes and times to offer its customers, while the bus
service has a few well-defined routes, with a set schedule. If all goes to
schedule, little, if any, flexibility is required from the operation.
 All is standardized and regular, which results in relatively low
costs compared with using a taxi for the same journey.
The variation dimension
 Consider the demand pattern for a successful summer holiday resort
hotel.
◦ At the height of ‘the season’ the hotel could be full to its capacity.
◦ Off-season demand, however, could be a small fraction of its capacity. Such a
marked variation in demand means that the operation must change its capacity
in some way.
 Compared with a hotel of a similar standard with level demand.
◦ A hotel which has relatively level demand can plan its activities well in advance.
Staff can be scheduled, food can be bought and rooms can be cleaned in a
routine and predictable manner. This results in a high utilization of resources
and unit costs which are likely to be lower than those in hotels with a highly
variable demand pattern.
 The visibility dimension
 Visibility is a slightly more difficult dimension of operations to envisage.
◦ how much of the operation’s activities its customers experience, or
◦ how much the operation is exposed to its customers.
 Generally, customer-processing operations are more exposed to their
customers than material- or information-processing operations. But even
customer processing operations have some choice as to how visible they
wish their operations to be.
 For example, a retailer could operate
◦ high-visibility ‘bricks and mortar’. In the ‘bricks
and mortar’, high-visibility operation, customers will directly experience most of its
‘value-adding’ activities. Customers will have a relatively short waiting tolerance,
and may walk out if not served in a reasonable time.
◦ Customers’ perceptions, rather than objective criteria, will also be important.
◦ If they perceive that a member of the operation’s staff is discourteous to them, they
are likely to be dissatisfied (even if the staff member meant no discourtesy), so high-
visibility operations require staff with good customer contact skills.
◦ Customers could also request goods which clearly would not be sold in such a shop,
but because the customers are actually in the operation they can ask what they like!
This is called high received variety.
◦ This makes it difficult for high-visibility operations to achieve high productivity of
resources, so they tend to be relatively high-cost operations.
The visibility dimension

• Lower-visibility web-based operation

• Conversely, a web-based retailer, while not a pure low-contact operation, has far lower
visibility.
• Time lag between the order being placed and the items ordered by the customer being
retrieved and dispatched does not have to be minutes as in the shop, but can be hours or
even days.
• This allows the tasks of finding the items, packing and dispatching them to be
standardized by staff who need few customer contact skills. Also, there can be
relatively high staff utilization.
 The activities of operations
management
• ● Understanding the operation’s strategic performance objectives.
The first responsibility of any operations management team is to understand what
it is trying to achieve. This means understanding how to judge the performance of
the operation at different levels, from broad and strategic to more operational
performance objectives.
• ● Developing an operations strategy for the organization.
Operations management involves hundreds of minute-by-minute decisions, so it is
vital that there is a set of general principles which can guide decision-making
towards the organization’s longer-term goals. This is an operations strategy.
• ● Designing the operation’s products, services and processes.
Design is the activity of determining the physical form, shape and composition of
products, services and processes. It is a crucial part of operations managers’
activities.
 The activities of operations
management
• ● Planning and controlling the operation.
Planning and control is the activity of deciding what the operations resources
should be doing, then making sure that they really are doing it.
• ● Improving the performance of the operation.
The continuing responsibility of all operations managers is to improve the
performance of their operation.
• ● The social responsibilities of operations management.
It is increasingly recognized by many businesses that operations managers have a
set of broad societal responsibilities and concerns beyond their direct activities. The
general term for these aspects of business responsibility is ‘corporate social
responsibility’ or CSR. It should be of particular interest to operations managers,
because their activities can have a direct and significant effect on society.
 TYPE OF OPERATIONS
Type of Operations Examples
 Goods Producing  Farming, mining, construction,
manufacturing, power generating.
 Storage/ Transportation  Warehousing, Trucking, mail service,
moving, taxis, buses, hotels, airlines
 Exchange  Retailing, Wholesaling, financial
advising, renting, leasing, library loans,
stock exchanges.

 Entertainment  Films, radios, television plays, concerts

 Communication  Newspapers, TV newscasts telephone,

satellites, the internet
 The Operations Function

• The operations function include all the activities directly related to

producing goods or providing services
• Goods-Oriented: It exists both in manufacturing and assembly
operations.
• Service-Oriented: Include areas such as health care, transportation,
food handling, and retailing
 System Design
System design involves decisions that relate to:
• System capacity
• The geographic location of facilities
• Arrangement of departments
• Placement of equipment within physical structure
• Product and service planning
• Acquisition of equipment
 The Basic Issues Involved in Design and Operating
Decisions -----Design

Decision Area Basic Issues

• Product and service design • Customer demands,
improvement of products

• Capacity • Capacity needed and how the

organization best meet capacity
requirements.

• What process should the

• Process Selection organization use?
• What is the best arrangement
• Process Layout for departments, equipment?
 The Basic Issues Involved in Design and Operating
Decisions -----Design

Decision Area Basic Issues

• Design of work systems • What is the best way to
motivate employees? How can
productivity be improved?

• Location
• What is the satisfactory location
of the facility/store, etc.?
 The Primary Function of An Operations
Manager
• Tactical/Operational Decisions: Such decisions are specific and short-
term in nature and are bound by strategic decisions.
• Such decisions typically pertain to the system operation.
 System Operations
System operations involve decisions that relate to:
• Management of personnel
• Inventory planning and control
• Scheduling
• Project management
• Quality assurance
 The Basic Issues Involved in Design and Operating
Decisions ----- Operations
Decision Area Basic Issues
 Quality  How is quality defined? How are
quality goods achieved and
improved?
 Quality Control  Are processes performing
adequately? What standards
should be used?
 How to achieve effective flows of
 Supply Chain Management
information and goods throughout
the chain?
 How much to order? When to
 Inventory Management reorder? Which items should get the
most attention?
 How much capacity will be needed
over the intermediate range?
 Aggregate Planning
 The Relationship Between Strategic and
Tactical Decisions

Strategic Decisions Tactical/Operational Decisions

•Broad in scope •Narrow in scope

•Long-term in nature •Short-term in nature
•All-encompassing •Concerning a small group of issues

e.g., What are the unique features e.g., Who will work the 2nd Shift
of our product that make us tomorrow?
competitive?
 In what kind of decisions the operations
manager is involved?
 The operations manager is more involved in day-to-day operating
decisions than with decisions relating to system design.
 However, the operations manager has a vital stake in system design
because system design essentially determines many of the parameters of
system operation.
 Other Areas That Are Part Of The Operations
Function
1. It has the responsibility for procurement of
Purchasing:
materials, supplies, and equipment.
 Close contact with operations is necessary to ensure
correct quantities and timing of purchases.
 The purchasing department is often called on to evaluate
vendors for quality, reliability, service, price, and ability
to adjust to changing demand.
 Purchasing is also involved in receiving and inspecting
the purchased goods. Contd.
 Other Areas That Are Part Of The Operations
Function
2. Industrial Engineering: It is often concerned with scheduling,
performance standards, work methods, quality control, and material
handling.
3. Distribution: It involves the shipping of goods to warehouses, retail
outlets, or final customers.
4. Maintenance: It is responsible for general upkeep and repair of equipment,
buildings and grounds, heating and air-conditioning, removing toxic
wastes, parking and perhaps security.
 The Importance of Operations Management
Organization and Society
Organization:
 Operations is the core function of an organization.
 Provide primarily services or create goods.
 Responsible for creating those goods or providing services.
 Major portion of the assets in most business organizations.
The Importance of Operations Management
Society
• Society:
• More than half of all employed people in most countries have jobs in
operations.
 Providing services and, the consumption of these goods and services
is an integral part of our society.
 The Scope of
Operations Management
The Interrelated Activities:
o Forecasting
o Capacity planning
o Scheduling
o Managing inventories
o Assuring quality
o Motivating and training employees
Example of a Service Industry--
Airline Company
Forecasting
• Weather and landing conditions
• Seat demand for flights
• Growth in air travel
Example of a Service Industry---
Airline Company
Capacity Planning
• Ensuring the maintenance of cash flow and generating reasonable
profit.
• The adjustment of flight timings and destinations that could
maximize profits.
Example of a Service Industry--
Airline Company
Scheduling
• Maintenance of flight schedule
• Schedules of on duty pilots and flight attendants
• Scheduling of ground crews, counter staff, and baggage handlers.
Example of a Service Industry---
Airline Company
Managing Inventories
• Managing inventories such as:
Foods and beverages
First-aid equipment
In-flight magazines
Pillows and blankets
Life preservers
Example of a Service Industry--
Airline Company
Assuring Quality
• Quality Assurance: It is essential in flying and maintenance
operations.
• Emphasis
• safety
• dealing with customers at ticket counters,
• check-in,
• telephone,
• electronic reservations and
• taxi service where the emphasis is on efficiency and courtesy.
Example of a Service Industry---
Airline Company
Motivating and Training Employees
• Employee motivation and training in all phases of operations.
Example of a Service Industry--
Airline Company
Locating Facilities
Locating facilities according to manager’s decisions on which cities to
provide service for, where to locate major and minor hubs.
Activities Involved in Operations
Function
• The operations function consists of all activities directly related to
producing goods or providing services. Such activities include:
1. Development of idea for a product or service
2. Product verification and funding
3. Product Development
4. Product Production
5. Product Distribution
Contd.
 Summary
Operations Management involves:
• Product and Service design
• Process selection
• Selection and management of technology
• Design of work systems
• Location planning
• Facilities planning
• Quality improvement of the organization’s products and services
 So…. What is the Aim of the Course?

• to develop your knowledge and understanding key

principles, concepts & processes associated with
• operational planning, control and improvement of
‘efficiency’ of business operations.
• to deepen your understanding of the strategic
importance of operations management for
competitive success in a global economy.
 Recommended Journals: Do you
know how to access them??
• Journal of Operations Management
• International Journal of Operations & Production Mgt
• International Journal of Quality and Reliability Mgt
• International Journal of Productivity & Performance Mgt
• Managing Service Quality
• Total Quality Management
• Total Quality Management and Business Excellence
• The Service Industries Journal
• The TQM Magazine

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IKEA CASE STUDY Questions
1. What major issues were faced by management during
operation of business?
2. What major changes been introduced to solve these
operations problems?