3

1
Fundamentals of
Operations Management
Lecture-1 & 2

Introduction to Operations Management

Course Instructor: Sayda Uzma Tahira

Uzma.tahira@ucp.edu.pk

UCP Business School, University of Central Punjab, Lahore

 Outline
▶ Definition of Operations Management (OM)
▶ Process View of Operations Management
▶ Dimensions of Operations Processes
▶ Why Study OM?
▶ Goods Versus Services
▶ Evolution of Operations Management
▶ Strategic Operations Management Decisions
 What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs
Operations Management
Process View of Operations Management
 Input Resources
▶ Transformed Resources
 Resources that are treated, transformed or converted in
the process.
 Transformation in physical properties, location,
possession and psychological state
o Material
o Information
o Customers

▶ Transforming Resources
 Resources which act upon the transformed resources.
o facilities – the buildings, equipment, plant and process technology of
the operation;
o staff – the people who operate, maintain, plan and manage the
operation.
Operations described in terms of
their processes
 Why Study OM?
1. OM is one of four major functions of any
organization, we want to study how people
organize themselves for productive
enterprise
2. We want (and need) to know how goods
and services are produced
3. We want to understand what operations
managers do
4. OM is such a costly part of an
organization
 What Operations
Managers Do
Basic Management Functions

▶ Planning
▶ Organizing
▶ Staffing
▶ Leading
▶ Controlling
 Organizing to Produce Goods and
Services
▶ Essential functions:
Core Functions
1. Marketing – generates demand
2. Product & Service Development
3. Production/operations – creates the
product
Support Functions
1. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
2. Human Resources – provides labor,
employs, assigns and gives training.
 Operations for
Goods and Services
▶ Manufacturers produce tangible product,
services often intangible
▶ Operations activities often very similar
▶ Distinction not always clear
▶ Few pure services
 Differences Between Goods and
Services
TABLE 1.3
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty Product can usually be kept in inventory (beauty care
salon produces a haircut that is consumed as it is products)
produced
Unique: Your investments and medical care are Similar products produced (iPods)
unique
High customer interaction: Often what the customer Limited customer involvement in production
is paying for (consulting, education)
Inconsistent product definition: Auto Insurance Product standardized (iPhone)
changes with age and type of car
Often knowledge based: Legal, education, and Standard tangible product tends to make automation
medical services are hard to automate feasible
Services dispersed: Service may occur at retail store, Product typically produced at a fixed facility
local office, house call, or via internet.
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products are easy
education, and medical services to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care Product often has some residual value
 Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

 Goods & Services
▶ Facilitating Services
o Crude oil producers are concerned almost exclusively
with the product which comes from their oil wells.
o Services produced in these circumstances are called
facilitating services.
▶ Facilitating Products
o The services produced by a restaurant are an essential
part of what the customer is paying for.
o It is both a manufacturing operation which produces
meals and a provider of service in the advice, ambience
and service of the food.
o Products used in this case are facilitating products
Dimensions of Operations Processes

▶The four Vs,

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.
Dimensions of Operations Processes
▶ The volume dimension
o McDonalds vs small cafeteria
o Difference in volume of production, level of systemization, repeatability of
tasks, staff requirement and unit cost
▶ The variety dimension
o Taxi Service vs Bus Service
o Cost depends upon degree of standardization vs flexibility

▶ The variation dimension

o Peak season vs Off season demand
o Stable vs uncertain demand pattern
o Capacity & cost considerations

▶ The visibility dimension

o How much of the operation’s activities its customers experience, or how
much the operation is exposed to its customers
o Bricks & Mortar vs Web Based retail operations
Significant Events in OM

Figure 1.4
 The Heritage of OM
▶ Division of labor (Adam Smith 1776;
Charles Babbage 1852)
▶ Standardized parts (Whitney 1800)
▶ Scientific Management (Taylor 1881)
▶ Coordinated assembly line (Ford/
Sorenson 1913)
▶ Gantt charts (Gantt 1916)
▶ Motion study (Frank and Lillian Gilbreth
1922)
▶ Quality control (Shewhart 1924; Deming
1950)
 The Heritage of OM
▶ Computer (Atanasoff 1938)
▶ CPM/PERT (DuPont 1957, Navy 1958)
▶ Material requirements planning (Orlicky
1960)
▶ Computer aided design (CAD 1970)
▶ Flexible manufacturing system (FMS 1975)
▶ Baldrige Quality Awards (1980)
▶ Computer integrated manufacturing (1990)
▶ Globalization (1992)
▶ Internet (1995)
 Eli Whitney
▶ Born 1765; died 1825
▶ In 1798, received government
contract to make 10,000 muskets
▶ Showed that machine tools could
make standardized parts to exact
specifications
▶ Musket parts could be used in any
musket
 Frederick W. Taylor
▶ Born 1856; died 1915
▶ Known as ‘father of scientific
management’
▶ In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
▶ Began first motion and time studies
▶ Created efficiency principles
 Taylor’s Principles
Management Should Take More
Responsibility for:
► Matching employees to right job
► Providing the proper training
► Providing proper work methods and
tools
► Establishing legitimate incentives for
work to be accomplished
 Frank & Lillian Gilbreth
▶ Frank (1868-1924); Lillian (1878-1972)
▶ Husband-and-wife engineering team
▶ Further developed work measurement
methods
▶ Applied efficiency methods to their
home and 12 children!
▶ Book & Movie: “Cheaper by the Dozen,”
“Bells on Their Toes”
 Henry Ford
▶ Born 1863; died 1947
▶ In 1903, created Ford Motor Company
▶ In 1913, first used moving assembly
line to make Model T
▶ Unfinished product moved by conveyor
past work station
▶ Paid workers very well for 1911
($5/day!)
 W. Edwards Deming
▶ Born 1900; died 1993
▶ Engineer and physicist
▶ Credited with teaching Japan quality
control methods in post-WW2
▶ Used statistics to analyze process
▶ His methods involve workers in
decisions
 Strategic OM Decisions

TABLE 1.2
DECISION CHAPTER(S)
1. Design of goods and services 5, Supplement 5
2. Managing quality 6, Supplement 6
3. Process and capacity design 7, Supplement 7
4. Location strategy 8
5. Layout strategy 9
6. Human resources and job design 10
7. Supply-chain management 11, Supplement 11
8. Inventory management 12, 14, 16
9. Scheduling 13, 15
10. Maintenance 17
 Strategic OM Decisions

1. Design of goods and services

▶ Defines what is required of operations
▶ Product design determines quality,
sustainability and human resources
2. Managing quality
▶ Determine the customer’s quality
expectations
▶ Establish policies and procedures to
identify and achieve that quality
Table 1.2 (cont.)
 Strategic OM Decisions

3. Process and capacity design

▶ How is a good or service produced?
▶ Commits management to specific
technology, quality, resources, and
investment.
4. Location strategy
▶ Nearness to customers, suppliers, and
talent.
▶ Considering costs, infrastructure, logistics,
and government. Table 1.2 (cont.)
 Strategic OM Decisions

5. Layout strategy
▶ Integrate capacity needs, personnel levels,
technology, and inventory
▶ Determine the efficient flow of materials,
people, and information.
6. Human resources and job design
▶ Recruit, motivate, and retain personnel with
the required talent and skills.
▶ Integral and expensive part of the total
system design.
Table 1.2 (cont.)
 Strategic OM Decisions

7. Supply-chain management
▶ Integrate supply chain into the firm’s strategy.
▶ Determine what is to be purchased, from
whom, and under what conditions.
8. Inventory management
▶ Inventory ordering and holding decisions.
▶ Optimize considering customer satisfaction,
supplier capability, and production schedules.

Table 1.2 (cont.)

 Strategic OM Decisions

9. Scheduling
▶ Determine and implement intermediate-
and short-term schedules.
▶ Utilize personnel and facilities while
meeting customer demands.
10. Maintenance
▶ Consider facility capacity, production
demands, and personnel.
▶ Maintain a reliable and stable process.
Table 1.2 (cont.)
 Current Challenges in OM
▶ Globalization
▶ Supply Chain Partnering
▶ Sustainability
▶ Rapid Product Development
▶ Mass Customization
▶ Lean Operations
▶ Ethics, Social Responsibility &
Sustainability
Ethics, Social Responsibility,
and Sustainability
Challenges facing
operations managers:
▶ Develop and produce safe, high-quality
green products
▶ Train, retrain, and motivate employees
in a safe workplace
▶ Honor stakeholder commitments
Your Takeaways?
 Conclusion
▶ Operations, marketing, product & service
development are the basic functions to all
organizations.
▶ finance/accounting and human resource
management are the support functions to all
organizations.
▶ The operations function creates goods and
services.
 References
▶ Operations Management (12th Edition) by
Heizer and Render, Prentice Hall, 2017
▶ Operations Management (6th Edition) by
Nigel Slack, Stuart Chambers & Robert
Jhonston, Pearsons, 2009