Chapter 1 :

Basic Concepts of Operation Management

WEEK 1
M A N U FA C T U R I N G , D E S I G N & I N N O VAT I O N
SCHOOL OF MECHANICAL ENGINEERING
 Learning Outcome

At the end of this lesson students should be able to :

1. Introduction to Operation Management
2. Compare and contrast the differences between goods and services
operation’s management
3. Identify the current trends and issues in production/operations management
4. Recognize the technology pillars under IR4.0
5. Introduce software and application tools for Operation Management
 Operation Management
Definition
•
Operations Management is:
“The management of systems/processes that create goods and/or
provide services”
or
“Operations management is the set of activities that creates value in the
form of goods and services by transforming inputs into outputs”

Operations Management affects:

 Companies’ ability to compete
 Nation’s ability to compete internationally

Production is the creation of

• Goods
• Service
 Type of operation

Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, financial
advising, renting or leasing
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and TV
newscasts, telephone, satellites
 Operation Managers
functions
Basic Management Functions:
1. Planning
2. Organizing
3. Staffing
4. Leading
5. Controlling
Operation Management
(OM) Model
 Value Added Processes
Value added
Inputs
Transformation/ Outputs
WHAT IS VALUE Land
Conversion Goods
ADDED PROCESS? Labor
process Services
Capital
Feedback

Control
Feedback Feedback
 Value Added Elements &
Product Package

• Value-added elements make the difference between the cost of inputs

and the value or price of outputs.
• Product packages are a combination of goods and services.
• Product packages can make a company more competitive.
 Example of OM process
(product)
Apple Juice

Inputs Processing Outputs

Apples Cleaning Apple juice

Bottles Washing bottles
Water Cutting
Energy Blending
Labor Quality Inspection
Building Puoring into bottles
Equipment Labeling
 Example of OM process
Canned vegetable soup
Inputs Processing Outputs

Raw vegetables Cleaning Canned

Metal sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Example of OM process
(service)
Hospital

Inputs Processing Outputs

Doctors, nurses Examination Treated

Hospital Surgery patients
Medical supplies Monitoring
Equipment Medication
Laboratories Therapy
 OM Organization
Operation creates the product

Marketing Finance
generates demand tracks how well the organization
is doing, pays bills, collects
the money
Organization
 OM Organization
Manufacturing

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables Market
Supply chain management General ledger research
Manufacturing Funds Management
Tooling; fabrication; assembly Money market
Design International
Product development and design
exchange
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel and recall
Process analysis
Development and installation of
production tools and equipment
 OM Organization
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Personal
processing Accounting
Mortgage
Facilities
design/layout
Vault operations Auditing
Maintenance Trust Department
Security
 OM Organization
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs
Facility (pricing)
maintenance Finance
Catering Sales
Cash control
Flight Operations International Advertising
Crew scheduling exchange
Flying
Communications
Dispatching
Management science
 Manufacturing Goods/
Products or Providing
Service?

Tangible Act
 Manufacturing Goods/
Products or Providing
Service?
1. Production of goods – tangible output
2. Delivery of services – an act
3. Service job categories:
 Government
 Wholesale/retail
 Financial services
 Healthcare
 Personal services
 Business services
 Education
Goods and Service Continuum
Goods Service

Surgery, teaching

Song writing, software development

Computer repair, restaurant meal

Automobile repair, fast food

Home remodeling, retail sales

Automobile assembly, steel making

 Differences between goods & service
Service Goods
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously:
Product can usually be kept in inventory
Beauty salon produces a haircut that is
(beauty care products)
consumed as it is produced
Unique: Your investments and medical care
Similar products produced (iPods)
are unique
High customer interaction: Often what the
Limited customer involvement in production
customer is paying for (consulting, education)
 Differences between goods & service
Service Goods
Inconsistent product definition: Auto insurance
Product standardized (iPhone)
changes with age and type of car
Often knowledge based: Legal, education, Standard tangible product tends to make
and medical services are hard to automate automation feasible
Services dispersed: Service may occur at
retail store, local office, house call, or via Product typically produced at a fixed facility
Internet.
Quality may be hard to evaluate: Many aspects of quality for tangible products
Consulting,education, and medical services are easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or
Product often has some residual value
medical care
Key differences of goods & service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content (predictable) Low High
Uniformity of output High Low
Output; production & delivery Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems;Quality High Low
Assurance
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usually
Key differences of goods & service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content (predictable) Low High
Uniformity of output High Low
Output; production & delivery Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems;Quality High Low
Assurance
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usually
Critical decision goods & service
Critical decision goods & service
 Critical decision goods & service
1. Design of goods and services
• What good or service should we offer?
• How should we design these products and services?

2. Managing quality
• How do we define quality?
• Who is responsible for quality?

3. Process and capacity design

• What process and what capacity will these products require?
• What equipment and technology is necessary for these processes?
 Critical decision goods & service
4. Location strategy
• Where should we put the facility?
• On what criteria should we base the location decision?

5. Layout strategy
• How should we arrange the facility?
• How large must the facility be to meet our plan?

6. Human resources and job design

• How do we provide a reasonable work environment?
• How much can we expect our employees to produce?
 Critical decision goods & service
7. Supply chain management
• Should we make or buy this component?
• Who are our suppliers and who can integrate into our e-commerce
program?

8. Inventory, material requirements planning, and JIT

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

9. Intermediate and short–term scheduling

• Are we better off keeping people on the payroll during slowdowns?
• Which jobs do we perform next?
 Critical decision goods & service
10. Maintenance
• Who is responsible for maintenance?
• When do we do maintenance?
 Scopes of OM
Capacity
Forecasting Scheduling
planning

Motivating and
Managing Assuring
training
inventories quality
employees

Locating Supply chain

And more . . .
facilities management
OM related jobs
https://www.jobstreet.com.my/en/job-search/production-manager-jobs/
https://www.jobstreet.com.my/en/job-
search/production-engineer-jobs/
Ethical issues in OM organization
Financial
Worker safety Product safety Quality
statements

Hiring/firing Closing
Environment Community
workers facilities

Worker’s rights
 Trends in OM organization
1. Operations strategy
2. Working with fewer resources
3. Revenue management
4. Process analysis and improvement
5. Increased regulation and product
liability
6. Lean production
7. Industrial 4.0
https://www.youtube.com/watch?v=Y99
0kaGbJD0
https://www.youtube.com/watch?
v=m6sl8KMsm5Q
 IR 4.0
1. Industry 4.0 is referred as production or manufacturing based industries
digitalization transformation, driven by connected technologies.
2. Also referred as “smart factory” in which cyber physical systems monitor
real time physical progress of the factory and can make decentralized
decisions.
 IR 4.0
Different countries are using different terms to describe their national strategy in
terms of Industry 4.0. Among other terms used include:
• “Smart Manufacturing” in the United States;
• “Made in China 2025” for China;
• “Manufacturing Innovation 3.0” (South Korea);
• “Industrial Value Chain Initiative” Japan; and
• “Smart Nation Programme” (Singapore)
 IR 4.0
Benefits of industries moving into Industry 4.0 are:

• Increase in flexibility
• Increase productivity, efficiency, quality
• Reduce time to market
• More R&D&D activities
• Development of new skills and talent globally.
IR 4.0
 IR 4.0
Source: Kadir Alpaslan Demir et al. / Procedia Computer Science 158 (2019) 688–695
 IR 4.0 9 PILLARS
1. Autonomous Robots
2. Big Data Analytics
3. Cloud Computing
4. Internet of Things (IoT)
5. Additive Manufacturing (3D Printing)
6. System Integration
7. Cybersecurity
8. Augmented Reality
9. Simulation.
Application of IR4.0 in Industry: JIT
Tool: e-Kanban
1. Barcoded kanban cards are scanned as
soon as the container becomes empty.
2. This will trigger an instantaneous
replenishment message to the supplier
so that material can be shipped right
away instead of waiting for the physical
bin to reach.
3. Integrated Kanban System:
https://www.youtube.com/watch?v=Z
maxWGW64oU
4. E-Kanban 4.0 - Electronic kanban with
RFID and e-labels:
https://www.youtube.com/watch?v=0y
GXjXk7XTA
 Software and Application Tools for OM
1. OM software is a type of computer program designed to help managers with
their day-to-day operations.

2. Function of software/tools:
• Better visibility and control over business performance-fast decisions and
more efficient

• To streamline processes, implement workflow management, and ensure

operational efficiency across all departments in the organization.

3. Modern day operational management software is highly customizable

depending on a business's unique needs.
 Software and Application Tools for OM
4. Most vendors offer cloud-based solutions which allows companies access
from anywhere with an internet connection while giving IT teams the ability
to maintain secure user accounts and restrict access levels within the
system.
Source: https://sourceforge.net/software/operations-management/
 Software and Application Tools Feature
• Scheduling: Operations management software provides scheduling
capabilities to help manage the tasks, resources and activities of day-to-day
operations. It allows users to set up recurring orders or events, adjust
personnel roles as needed, and closely track every step in the process.

• Forecasting: This feature helps businesses predict their future operations

needs. It enables users to more accurately forecast demand for products and
services, identify customer trends, and adjust labor schedules accordingly.

• Cost estimating: Cost estimating capabilities enable users to quickly

determine the estimated costs of a particular project or deliverable. It can
provide insights into total material costs and labor expenses associated with
any operations activity.
 Software and Application Tools Feature
• Inventory tracking: keep track of all inventory items such as raw materials
and finished goods. This feature also helps businesses ensure they
maintain adequate stock levels at all times while reducing overstocking
costs.

• Data analysis: Data analysis tools offered by operations management

software allow users to analyze data from multiple sources and identify key
trends in order to optimize the efficiency of their business processes. These
tools can generate reports that allow users to quickly assess performance
metrics such as customer satisfaction levels, lead time, cost savings
initiatives and more.
 Software and Application Tools Feature
• Document control: Document control features facilitate changes made
throughout the production process by allowing easy access to associated
documents for each operation activity running within an organization's
system. This ensures that everyone is on the same page when it comes to
reviewing upcoming tasks or adjusting existing ones.

• Quality control: This feature helps businesses ensure that the quality of
their products and services meets customer expectations. It can provide a
comprehensive view of the entire production cycle, helping users identify
potential problems and areas for improvement.
 Software and Application Tools
1. Enterprise Resource Planning (ERP): ERP software helps businesses
streamline their operations by integrating all of their core processes into one
system. It allows companies to manage inventory, track sales and
financials, manage customer relationships, and more.

2. Customer Relationship Management (CRM): CRM is designed to help

companies better understand their customers while offering a
comprehensive view of their interactions across multiple channels. It helps
businesses keep track of contacts, leads, orders and accounts in order to
provide better service and increase sales opportunities.
 Software and Application Tools
1. Supply Chain Management (SCM): SCM software enables organizations
to plan and optimize the flow of goods from suppliers through production
facilities to end customers. This includes managing every aspect of the
supply chain such as procurement, inventory control, warehousing,
distribution centers, transportation and logistics.

2. Manufacturing Software: This type of software helps businesses stay

organized throughout all phases of production from design to finished
product. It can be used for job scheduling, tracking materials usage,
tracking costs associated with each job or process step and validating
quality control standards.
 Software and Application Tools Type
5. Business Intelligence (BI) Software: BI software uses data-driven
analysis tools so that organizations can make informed decisions when
forming strategies or launching campaigns. It also helps them gain insights
into customer behavior patterns or trends that may be affecting overall
performance or profitability.

6. Analytics & Reporting Software: Analytics & reporting software provides

users with a variety of reports such as financial statements or sales results
so they can identify areas where improvements are needed or monitor
progress against goals over time.
 Software and Application Tools Type
7. Project Management Software: Project management software enables
organizations to plan, manage and track projects from start to finish. It
helps teams stay on time and on budget by providing them with the tools to
assign tasks, track activity and share documents efficiently.
 Advantages of tools/software
applications
• Automation: can automate key processes such as inventory tracking, order
processing, and reporting. This reduces the need for manual input and
eliminates potential errors caused by human input.

• Resource Optimization: used to manage resources including staff,

equipment, materials and supplies more effectively. The system can be
used to track usage levels and flag any discrepancies or fluctuations in
usage rates.

• Real-Time Dashboards: Operations management software provides real-

time dashboards that allow managers to quickly see how their business is
performing at all times. The dashboards contain critical information such as
sales figures, inventory levels, customer satisfaction ratings and much
more.
 Advantages of tools/software
applications
• Reporting & Analytics: Operations management software systems provide
detailed analytics that give managers a comprehensive view of the
performance of their business in one easy-to-read report. This allows them
to identify issues quickly and make decisions accordingly.

• Cost Savings: By reducing manual labor through automation and

improving resource optimization with real-time dashboards, operations
management systems can reduce operational costs significantly over time.
The data gathered from detailed reports also allows managers to identify
any areas where costs could be further reduced in the future.
 Advantages of tools/software
applications
At the end of this lesson students should be able to :
1. Discuss the nature of production/operations management
2. Recognize the functions of production/operations manager
3. Compare and contrast the differences between goods and services
operation’s management
4. Identify the current trends and issues in production/operations management
5. Know the IR 4.0 pillars.
6. Know software and application tools for Operation Management