COURSE NAME:

OPERATIONS
MANAGEMENT

YARDSTICK INTERNATIONAL
COLLEGE
DEPARTMENT OF BUSINESS
ADMINISTRATION
MBA PROGRAM

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Course Contents
Group Assignment Topic

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 General concept of Operation
Management
Operation is where the organizations goods &
services produced.
Management is the process of planning, organizing,
leading, and controlling an organization’s human and
capital resources in order to accomplish its objectives.
Operations management (OM) is the set of activities
that creates value in the form of goods and services by
transforming inputs into outputs
OM defined as the design, operation and improvement
of the systems that create and deliver the firm’s
primary products and services.
 Objective of
OM
The objective of OM is to produce goods and/or
service in required quantities and quality as per
the schedule and at a minimum cost to
maximize the value created.
 Management
1. Location of facilities: where our main operations should be
based?’
2. Plant layouts and material handling: refers to the physical
arrangement of facilities. It is the configuration of departments,
work centers and equipment in the conversion process.
3. Product design: deals with conversion of ideas into reality.
4. Process design: decisions encompass the selection of a
process, choice of technology, process flow analysis and layout
of the facilities.
5. Production planning and control: determining amount of
production and evaluate its progress
6. Quality control: maintain a desired level of quality in a product
or service’
7. Materials management: the acquisition, control & use of
materials needed
8. Maintenance management: To keep the machines and other
facilities in a good condition.
 Why Study OM?
 OM is one of three major functions
(marketing, finance, and operations) of
any organization
 We want (and need) to know how goods
and services are produced
 We want to understand what operations
managers do
 It provides a major opportunity for an
organization to improve its profitability
and enhance its services to society.
 OM Vs PM
Production Management Operations Management
Meaning: Meaning:
Managing production-related Managing routine business
activities of an organization activities of an organization related
Scope: to creation of products as well as
Limited to the production of goods; to the delivery of services.
taking decisions on quality, Scope:
quantity, design and pricing of the Wider scope; management of
product being developed routine business activities, such
Focus: as product quality, design,
Offering the right quality of quantity, storage, workforce
products at the right time, in the requirement, etc.
right quantity and at the right price. Focus:
Organization it applicable: Efficient and effective use of
Organizations where products are organizational resources
created Organization it applicable:
All types of organizations, such as
service-oriented firms, banks,
manufacturing companies,
 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
 OM decision making
areas
Three broad types of
decisions

Strategic (long Operational (short Controlling

term) decisions: term) decisions: decisions:
Product Production planning, Monitor the
selection and scheduling and control actual
design Inventory planning performance by
Process and control measuring the
selection and actual output
Quality assurance
planning
Facilities Work and job design
location Maintenance and
Facilities lay out replacement
and materials Cost reduction and
handling control
Capacity
planning
 Strategic (long term)
decisions
 Product selection and design
What good or service should we offer?
How should we design these products and services?
 Process and capacity design
What process and what capacity will these products
require?
What equipment and technology is necessary for these
processes?
 Facilities location, lay out and materials handling
Where should we put the facility?
On what criteria should we base the location decision?
How should we arrange the facility and material flow?
 Operational (short term)
decisions
 Production planning, scheduling and control
How much should we produce?
When we produce the desired product & services
How to follow up the production system
 Inventory planning and control
When to reorder, how much to keep on hand
 Quality assurance, Maintenance and replacement
Who is responsible for quality?
When do we do maintenance?
 Work and job design & Cost reduction and control
How do we provide a reasonable work environment?
How do restructuring of work or job
How do we use cost effective production techniques
 Similarity of Manufacturing and
Service operation
 Both of has processes (transform input in to
output)
 Both of are concerned about quality, productivity,
and the timely response to customers.
 Both of make choices about the capacity,
location, and lay out of its facility.
 Both of deals with suppliers of outside services
and materials, as well as scheduling problems.
Manufacturing Vs Service operation
Attributes of Manufacturing Attributes of Services

 Tangible, durable product  Intangible perishable product

 Can be inventoried  Difficult to inventory
 Low customer contact  High customer contact
 Long response time  Short response time
 Regional, national or  Local market
international market  Small facilities
 Large facilities  Labor intensive
 Capital intensive  Quality and productivity is
 Quality and productivity easy difficult to measure
to measure  High degree of variety of input
 High degree of uniformity of  Difficult to automate
input& output
 Ease to automate
 System concepts in
OM
 A system is “a purpose of full collection of people,
objects and procedures for operating within an
environment”.
 Every organization can be represented as a system
consisting of interacting sub systems.
 The basic process of the system converts
(transforms) the resource inputs (such as people,
plant, part processes, planning and controlling
systems) in to some useful form of outputs.

Inputs Transformation process Output

Major ways of transformations
 Alter: - this refers to change in the form or state of
the inputs like change may be physical as in
manufacturing
 Transport: - the input gets value added through
transport because it may have more value if located
somewhere other than where it currently is.
 Store: - the value is enhanced if the entity is kept in a
protected environment for some period of time
 Inspect: - the value of an input may be enriched
through an inspection as we better understand its
properties
 OM and its environment
 Economic factor  Government regulation
 Interest rate  Government regulation on
 Availability of capital pollution controls
 General economic  Environmental impacts
conditions  impact on production
 Tax regulation
 Economies of scale.
 Competition
 Technology  The nature of competition
 The impact of new  Market share
 Competitive strategies
technology on product
design and production
methods.
Cont’d
 Operations Decision Framework
• All organizations are based on decisions
• Decisions follow a similar path
– First decisions very broad – Strategic decisions
• Strategic Decisions – set the direction for the entire company;
they are broad in scope and long-term in nature
• Tactical decisions focus on
– Specific day-to-day issues
• Resource needs, schedules, & quantities to produce
– Tactical decisions are very frequent
– Strategic decisions less frequent
– Tactical decisions must align with strategic decisions
Cont’d
 areas

 Marketing:  Finance:  Accounting:

 Generating and  Obtaining funds  keeps records on
maintaining demand for  Controlling their cost and price
the firm’s products that relates to
uses such factors as
 Insuring customer  Analyzing financial
satisfaction investment decisions,
 Developing new markets opportunities purchasing and
and product potentials. payroll.

 Engineering:  Personnel and labor  Purchasing

 Determine guidelines for relation and traffic:
product quality  Recruit and train  Acquisition
 Determine production employees of materials
 Responsible for and supplies
methods
employees morale  Distribution
 Determine other
 Wage administration of the
technical specifications. finished
 Union negotiation goods
 New Challenges in
OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain
 Lengthy product partnering
development  Rapid product
 Standard products development,
(absence of variety in a alliances
product, service or  Mass customization
process )  Empowered
 Job specialization employees, teams
 New Trends in OM
Past Causes Future
Local or Low-cost, reliable Global focus
national worldwide communication
focus and transportation
networks
Batch (large) Short product life cycles Just-in-time
shipments and cost of capital put shipments
pressure on reducing
inventory
Low-bid Quality emphasis requires Supply-
purchasing that suppliers be engaged chain
in product improvement partners,
Enterprise
Resource
Planning,
e-commerce
 New Trends in OM
Past Causes Future
Lengthy Shorter life cycles, Rapid product
product Internet, rapid international development,
development communication, computer- alliances,
aided design, and collaborative
international collaboration designs
Standardized Affluence and worldwide Mass
products markets; increasingly customization
flexible production with added
processes emphasis on
quality
Job Changing sociocultural Empowered
specialization milieu; increasingly a employees,
knowledge and information teams, and
society lean
production
 New Trends in OM
Past Causes Future
Low-cost Environmental issues, ISO Environmentally
focus 14000, increasing disposal sensitive
costs production,
green
manufacturing,
recycled
materials,
remanufacturing
 The Strategic Role of
Operations
 Effective operations processes increase quality, meet
customer demands, provide new products, and
lower the cost of production.
 Is a vital function necessary for generating money to
pay employees, lenders, and stockholders.
 Effective production and operations management
can:
 Lower a firm’s costs of production.
o Boost the quality of its goods and services.
 Enable it to renew itself by providing new products.
 Allow it to respond dependably to customer demands.
 Strategies For Competitive
Advantage
Competitive priorities are capabilities that
give a company a competitive advantage in
the market. It includes the following:
Cost
Quality
Flexibility
Time
 Productivity
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labor and capital)
Productivity is a measure of how
efficiently inputs are converted to outputs

The objective is to improve this

measure of efficiency
Important Note!
Production is a measure of output
only and not a measure of efficiency
Measuring productivity
 Total factor productivity measure:- is the ratio of all
output to all input i.e. total outputs/total inputs.
 Multi factor productivity: - measures only a sub set of
these inputs. I.e. output/ (labor + capital), output/
(labor+ capital + materials), output/ (materials +
energy).
 Single factor (partial productivity) measure:- i s the
ratio of output to a single resource (inputs). I.e.
output/labor, output/capital, output/material,
output/energy

Units produced
Productivity =
Input used
 Productivity Calculations
Labor Productivity

Units produced
Productivity =
Labor-hours used
Example: Two workers paint tables in a furniture shop. If
the workers paint 22 tables in 8 hours, what is their
productivity?
Output 22 tables
PPM = =
2 workers x 8 hours =
Labor input
1.375 tables/hour
 Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous
Example: Let’s say that output is worth of 382 birr and
labor and materials costs are 168 and 98 birr, respectively.
A multifactor productivity measure of our use of labor and
materials would be:
382 birr
MFPM = Output = 168 birr + 98 birr = 1.436 birr
Labor + Capital
 Total Factor
Productivity
Output
Productivity =
Labor + Material + Energy
+ Capital + Miscellaneous
Example: Suppose the weekly dollar value of a company X
output, such as finished goods and work in progress, is
10,200 birr and that the value of its inputs, such as labor,
materials, and capital, is 8600 birr. The company’s total
weekly productivity would be computed as follows:

Output 10,200 birr

TPM = = 8,600 birr = 1.186 birr
Input
 Factors that affect productivity
 External factors: which affect productivity includes
government regulation, government investment
policy, competition from other firms, suppliers
capacity, and customers demand etc. External
elements may cause an increase or decrease in
productivity

 Internal factors: that affect productivity includes

product, process, capacity and inventory, and work
force.
 Productivity Variables

 Labor- contributes about

10% of the annual increase
 Capital- contributes about
38% of the annual increase
 Management- contributes
about 52% of the annual
increase
 Concept of Production and
System
 Production is defined as “the step-by-step conversion
of one form of material into another form through
chemical or mechanical process to create or enhance
the utility of the product to the user.”
 According to Edwood Buffa defines production as ‘a
process by which goods and services are created’.
 Production System is that activity whereby resources,
flowing within a defined system, are combined and
transformed in a controlled manner to add value in
accordance with the policies communicated by
management.
 Classification of Production
System
 Production systems can be classified as Job Shop,
Batch, Mass and Continuous Production systems.

Production Continues
volume Production
Mass
Production
Batch
Production
Job shop
Production

Output/Product Variety
1. Job Shop Production:
 It is production on a very small scale. With this method individual requirements of
consumers can be met.
 Each job order stands alone and may not be repeated. For handling different types of
jobs, only workers with multiple skills are needed
 Some of the examples include manufacturing of aircrafts, ships, bridge and dam
construction
2. Batch Production:
 As in this system, two or more than two types of products are manufactured in lots or
batches based on customer orders or product specifications.
 It needs general purpose machine having high production rate.
 Example the needs of the patients interims of medicine at hospital
3. Mass Production:
 In this type, a large number of identical items is produced, however, the equipment
need not be designed to produce only this type of items.
 Both plant and equipment are flexible enough to deal with other products needing the
same production processes
 Example, produce different types of components or products of steel metal without the
need of major changes.
4. Continuous Production:
 In this type, the plant, its equipment, and layout have been chiefly designed to produce
a particular type of product.
 Flexibility is limited to minor modifications in layout or design of models.

 Production Management
Production management is a process of
planning, organizing, directing and controlling
the activities of the production function.
According to E.S. Buffa, “Production
management deals with decision making related
to production processes so that the resulting
goods or services are produced according to
specifications, in the amount and by the schedule
demanded and out of minimum cost.”
 Objectives of Production
Management
The objective of the production
management is ‘to produce goods and
services of right quality and quantity at
the right time and right manufacturing
cost’.
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