COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT
MASTER OF BUSINESS ADMINISTRATION
 
ADVANCED OPERATIONS MANAGEMENT
(MBA 6031)

BY:
Mehari H. (Ass.Prof, MBA, MA, BA)
E-mail: haileg2003@gmail.com

March, 2020
Maichew, Tigray

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 CHAPTER ONE
NATURE OF OPERATIONS
MANAGEMENT
Chapter Objectives
Explain what operations management
is.
Compare and contrast service and
manufacturing operations.
Describe the key aspects of operations
management decision making.
Briefly describe the historical
evolution of operations management.
Define productivity and identify
productivity measures.
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 1.1. Operations Management
What is Operations?
• Operation is that part of as organization,
which is concerned with the transformation
of a range of inputs into the required output
(services) having the requisite quality level.

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Cont’d
• Operations Management is;
• about how organizations create and
deliver products and services.
• the business function responsible for
planning, coordinating, and controlling
the resources needed to produce an
organizations goods and services.
• the process whereby resources, flowing
within a defined system, are combined
and transformed by a controlled manner
to add value in accordance with policies
communicated by management.
In general,
 1.2. Operations in an
Organization
• The three core functions of any business
organization are:

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1. The operations function
• Responsible for fulfilling customer requests for
service through the production and delivery of
products and services.
2. The marketing (including sales) function
• Responsible for communicating the organization’s
products and services to its markets in order to
generate customer requests for service.
3. The Finance/Accounting function
• Finance- Manages the financial resources of the
organization.
• Accounting- supplies information to management on
costs of labor, materials, and overhead, provide
reports on items such as scrap, downtime, and
inventories.
• Thus, marketing, operations, and
finance must interface on
• product and process design,
• forecasting,
• setting realistic schedules,
• quality and quantity decisions, and
• keeping each other informed on the
other’s strengths and weaknesses.

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 Supporting functions

Public
Legal relations

Operations
Managemen
t Personnel/
Information Human
System Resource
(MIS)
The legal department-
• must be consulted on contracts with
employees, customers, suppliers, and
transporters, as well as on liability and
environmental issues.
Management information systems (MIS)
• is concerned with providing management
with the information it needs to effectively
manage.
Personnel or human resources department
• is concerned with recruitment and training
of personnel, labor relations, contract
negotiations, wage and salary
administration, assisting in manpower
projections, and ensuring the health and
safety of employees.
Public relations
• is responsible for building and maintaining
a positive public image of the organization.
 1.3. Historical Development
of OM
• OM function is as old as human civilization.
• Operations management emerge as a formal field of
study in the late 1950s and early 1960s, when
scholars began to stress on the systems approach to
viewing operations processes.
• The most significant historical milestones that
helped to shape operations management are;
• Industrial revolution
• Scientific management
• Human relations movement
• Operations research
• Quality revolution
• Internet
• Globalization
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 Era Events/Concepts Date Contributor
s
176
Steam engine James Watt
Industri 9
al 177
Division of labor Adam Smith
Revoluti 6
on 179
Interchangeable parts Eli Whitney
0
Principles of scientific 191 Frederick W.
management 1 Taylor
Scientifi 191 Frank and Lillian
Time and motion studies 14
1 Gilbreth
 (Cont’d)
Era Events/Concepts Date Contributor
s
Hawthorne studies-physical
1930 Elton Mayo
and technical
1940
Abraham Maslow
Human s
Relations 1950
Motivation theories Frederick Herzberg
s
1960
Douglas McGregor
s
Linear programming 1947 George Dantzig
Operatio Digital computer 1951 Remington Rand15
 (cont’d)
Events/Concept Dates Contributor
Era
s
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran
Quality
Strategy and Wickham Skinner,
Revoluti 1980s
operations Robert Hayes
on
Business process Michael Hammer,
1990s
reengineering James Champy
Six Sigma 1990s GE, Motorola

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 (Cont.)
Era Events/Concepts Dates Contributor
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain Berners-Lee SAP,
management i2 Technologies,
ORACLE
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union, 1990s Numerous
and other trade 2000s countries
agreements, global and companies
supply chains, 17
Focuses of the historical
development of OM
 1.4. Today’s OM Environment
Customers demand better quality,
greater speed, and lower costs.
Companies implementing lean systems
concepts a total systems approach to
efficient operations
Recognized need to better manage
information using ERP and CRM
systems.
Increased cross-functional decision
making.

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OM Interface: Business Information Flow between OM
and other functions of an organization

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 1.5. New Challenges in OM
From To
 Local or national focus  Global focus
 Batch shipments  Just-in-time
 Low bid purchasing  Supply chain
partnering
 Lengthy product
development  Rapid product
development, alliances
 Standard products
 Mass customization
 Job specialization
 Empowered
employees, teams
 1.6. General Model of OM
• Process design • Operations management
• Layout and flow • Operations performance
• Process technology • Operations strategy
• People in operations • Product and service innovation
• The structure and scope of
operations
Transformed Direct –
resources steering
operations and
• Materials
processes
• Information Deliver –
• Customers Operations improving the
Design –
operation’s
shaping Manageme
Input
capabilities Output Value
processes, nt
resources products and • products added for
Develop – • services
services
planning and customers
Transformin controlling
g resources ongoing
operations
• Facilities
• Staff
• Planning and control of
operations
• Operations
• Capacity management improvement
• Supply chain management • Quality
• Inventory management
• Planning and control systems
management
• Risk and recovery
 1.7. Why we study OM
1. to study how people organize themselves for
productive enterprise.
2. To know how goods and services are
produced .
3. To understand what operations managers
do. In addition, it will help you explore the
numerous and lucrative career opportunities
in the field.
4. it is such a costly part of an organization. A
large percentage of the revenue of most
firms is spent in the OM function.
 Indeed, OM provides a major opportunity for an
organization to improve its profitability and
enhance its service to society.
 1.9. OM Strategy Decisions
Location
of
facilities Plant
Scheduling layout

Human Product
Resources /service
design
OM

Maintenance
management Process
design

Materials Production
Managem planning
ent and control
Quality
control
 Goods and Services
andth 10 OM
e Decisions
Operation
s Goo Servic
Decisions
Goods and ds is
Product es is
Product
service usually not
design tangible tangible
Many
Quality objective Many subjective
standards standards
Process Customers Customer may be
and not directly involved
capacity involved
Capacity must
design
match demand
Operations
Decisions Goo Servic
Locatio Neards Neares
n raw customers
selection material
s and
Layout Production
labor Enhances
design efficiency product
and
Human Technical production
resources skills,
and job consistent Interact
design labor with
standards, customers,
output labor 2 –
Operations
Decisions Goo Servic
ds
Supply Relationship es
Important, but
chain critical may
to final product not be critical
Invento Raw materials, Cannot be
ry work-in- stored
process, and
finished goods
may be held
Meet
Schedulin Level immediate
g schedules customer
possible demand
Operations
Decisions Goo Servic
Maintenan Oftends Often es “repair”
ce preventive and
production takes place at
customer’s
site site.
 1.8. Objectives of Operations
Management
• The objective of operations management
is to produce goods and services of;
• Right quality
• Right quantity
• At the right time
• At right manufacturing cost
• Customer service
• Resource utilization

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 1.10. Manufacturing and
Service organizations
• Manufacturing and service organizations are
often different in terms of what is done but
quite similar in terms of how it is done.
• Manufacturing organizations:
• primarily produce a tangible product and
typically have low customer contact.
• Service organizations:
• primarily produce an intangible product, such as
ideas, assistance, or information, and typically
have high customer contact.

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 Categories of services
• The majority of service jobs fall into these categories:
• Professional services (e.g., financial, health care, legal)
• Mass services (e.g., utilities, Internet, communications)
• Service shops (e.g., tailoring, appliance repair, car wash, auto
repair/maintenance)
• Personal care services (e.g., beauty salon, spa, barbershop)
• Government services (e.g., Medicare, mail, social services, police,
fire)
• Education (e.g., schools, universities)
• Food service (e.g., catering)
• Services within organizations (e.g., payroll, accounting,
maintenance, IT, HR, janitorial)
• Shipping and delivery (e.g., truck, railroad, boat, air)
• Residential services (e.g., lawn care, painting, general repair,
remodeling, interior design)
• Transportation (e.g., mass transit, taxi, airlines, ambulance)
• Travel and hospitality (e.g., travel bureaus, hotels, resorts)
• Miscellaneous services (e.g., copy service, temporary help)
 Cont’d
Manufacturing vs. Service
Characteristic Manufacturi Service
ng

 Out put Tangible Intangible

 Customer contact Low High

 Uniformity of High Low

input Low High

 Labor content High Low

 Uniformity of Easy difficult 32

 1.11. Productivity
• Productivity is nothing but the reduction in
wastage of resources such as labor, machines,
materials, power, space, time, capital, etc.
• Productivity can also be defined as human
effort to produce more and more with less
and less inputs of resources so that the
products can be purchased by a large
number of people at affordable price.
• Productivity implies development of an
attitude of mind and a constant urge
(desire) to find better, cheaper, easier,
quicker, and safer means of doing a job,
manufacturing a product and providing
service.
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 1.11.1.Productivity
Measures
Output
Productivity =
Input

Output Ouput Output

Partial Measures/Single - factor productivity  ; ;
Single Input Labor Capital
Output Ouput Output
Multifactor Measures  ; ;
Multiple Inputs Labor + Machine Labor + Capital + Energy

Goods or services produced

Total Measure 
All inputs used to produce them

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 Examples
1. let’s say that the weekly Birr value of a company’s
outputs, such as finished goods and work in progress
is Birr 10,000 and that the value of its inputs such
as labor, materials, and capital is Birr 8,600. What is
the company’s total productivity?
2.Student tuition fee of Raya University is birr 150
per semester credit hour. The state supplements the
university’s revenue by birr 100 per semester credit
hour. Average class size for a typical 3 credit hours
course is 50 students. Labor costs are Birr 4000 per
class, materials costs are birr 20 per student per
class, and overhead costs are birr 25,000 per class.
a. What is the multifactor productivity ratio for
this course process?
b. If instructors work an average of 14 hours per
week for 16 weeks for each 3 credit class of 50
students, what is the labor productivity ratio?
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 Solution

a.•  Multifactor productivity is the ratio of the value of output to

the value of input resources.
Value of output x (3 cr hrs/student) x (150 tution+100
state support)/cr hr.
= 37500/class
Value of inputs= L +M +OH
=400 +(20/St X 50 St/class)+25,000
=30,000/class
So, MFP= OUT PUT/INPUTS
=37500/30000=1.25
b. Labor productivity is the ratio of the value of output to labor
hours. The value of output is the same as in part a=birr
37500 /class. So
Labor hours of input= 14hrs/week X16 weeks/class= 224
hours/class
Labor productivity = output/input
=37500/class/224 hours/class
 1.11.2. Factors Affecting Productivity
1. Scarcity of some resources: Resources such as
energy, water and number of metals will create
productivity problems.
2. Work-force changes: Change in work-force effect
productivity to a larger extent, because of the labor
turnover.
3. Innovations and technology: This is the major cause
of increasing productivity.
4. Capital/labor ratio: It is a measure of whether
enough investment is being made in plant,
machinery, and tools to make effective use of labor
hours.
5. Regulatory effects: These impose substantial
constraints on some firms, which lead to change in
productivity. 37
7. Managerial factors: Managerial factors are the
ways an organization benefits from the unique
planning and managerial skills of its manager.
8. Quality of work life: It is a term that describes
the organizational culture, and the extent to
which it motivates and satisfies employees.

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Thank you!!