1-1 Introduction to Operations Management

OPERATIONS MANAGEMENT

Course Instructor:- Ashenafi C.

1-2 Introduction to Operations Management

Course Outline Degree Program: - MASTER OF BUSINESS

ADMINISTRATION (MBA)
Course Title:- Operations Management
Course Code:- MBA – 711
Credit hours:- 3hrs
Prerequisites:- NONE
Academic year:- 2nd Year, Semester I
Course Instructor and contact Address:
Name:- Ashenafi C.
Email:- _a.chanie25@gmail.com
Office:-
1-3 Introduction to Operations Management

Course Description

Operations management is concerned with the production

and delivery of goods and services. This course focuses on
those business processes, procedures and strategies used
to transform various inputs into finished goods and services.
Focus is on both understanding how the provision of goods
is organized and managed and recognizing potential areas
of improvement in the management or production of goods
and services.
1-4 Introduction to Operations Management

Course objectives:

The main objective of the study is to analyze how industry

and service organizations perform various management
practices to remain competitive and productive in current
environments. This course focuses on managerial decisions
in production and operations and their interrelationships with
the other functional areas of the firm.
1-5 Introduction to Operations Management

Course Contents
Chapter One: Introduction
1.1 Nature and Scope of Production and Operation
Management-
1.2 Historical Evolution –
1.3 Types of Manufacturing Systems –
1.4 Differences Between Manufacturing and Service
Operations,
1.5 Role of Production and Operation Manager.
1-6 Introduction to Operations Management

Chapter Two: Production Planning and Control:

2.1 Stages in PPC – Gantt – PPC in Mass, Batch, and Job

Order Manufacturing
2.2 Aggregate Planning
2.3 Maintenance Management
2.4 Industrial Safety.
1-7 Introduction to Operations Management

Chapter Three: Plant Location:

3.1. Facility Location and Layout Planning
 3.2. Types of Layouts
3.3. Material Handling Equipment
3.4. Material Handling Principles
3.5. Models Used in Layout Designs.
1-8 Introduction to Operations Management

Chapter Four: Productivity:

4.1 Factors Affecting Productivity
4.2 Job Design
4.3 Process Flow Charts
4.4 Methods Study
4.5 Work Measurement
4.6 Engineering and Behavioral Approaches.
 
1-9 Introduction to Operations Management

Chapter Five: Material Management: (Assignment)

5.1. Cost Associated with Inventory
5.2. Economic Order Quantity
5.3. ABC Analysis
5.4. Materials Requirement Planning
5.5. Just In – Time
5.6. Production Quality Management
5.6.1. Acceptance Sampling
5.6.2. Control Charts
5.6.3. Quality Circle
5.6.4. Zero Defects Programs
5.6.5. Application of Computer in Production and Operations.
1-10 Introduction to Operations Management

Delivery Mode:
Lecture, Case analysis, Class Discussions and presentations
 
Assessment Method
Individual Assignment --------------15%
Term paper---------------------------------15
Mid- term examination------------------ 20%
End Semester Examination ------------ 50%
References
1. Gaither & Frazier, Operations Management, Cengage, New Delhi
2. Panner Selvem, Production and Operation Management, Prentice Hall of India.
3. Chunnawals, Production & 9*/89Operation Management Himalaya, Mumbai
4. Kanishka Bedi, Production & Operation Management, University Press.
5. Upendra Kachru: Operation Management, Excel Publications.
6. Adam, E.E& Ebert; R.J. Production and Operation Management, 6th Ed., Prentice Hall
7. Chary , S.N.Production and Operation Management, New Delhi, Tata McGraw Hill
1-11 Introduction to Operations Management

Chapter One
1-12 Introduction to Operations Management
Concept of Operations Management

The best way to start understanding the nature of

‘operations’ is to look around you
Everything you can see around you has been processed by
an operation

Every service you consumed today (radio station, bus

service, lecture, etc.) has also been produced by an
operation
Operations Managers create everything you buy, sit on,
wear, eat, and throw away
1-13 Introduction to Operations Management

1.1 Introduction

OM: refers to the activities, decisions and responsibilities

of managing the resources dedicated to the production and
delivery of goods and services.
In a more comprehensive manner - It is the activity
whereby resources in a defined system, are combined and
transformed in a controlled manner to add value in
accordance with policies communicated by management.
1-14 Introduction to Operations Management

Cont’d …

Key concepts in the above definition

 Resources
 Systems
 Transformation
 Value adding
 Managerial policy
1-15 Introduction to Operations Management

Cont’d …

The management of systems or processes that create

goods and/or provide services

Organization

Finance Operations Marketing

1-16 Introduction to Operations Management

Value-Added

The difference between the cost of inputs

and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
1-17 Introduction to Operations Management

Discussion Question
 Some managers view operations function as a “black
box” which takes raw materials and transform into goods
and services without considering the need to consider
the external environment. Do you agree ? No!

 Likewise, do you think human brain is a ‘black box’,

too?
1-18 Introduction to Operations Management

Role of Operations Manager

 Operations manager should:
 Understand the overall objectives of the organization
 Develop the operations plan of the organization and
control the function
 Assume responsibility in the design of goods, services
and jobs
 Explain the plans of the department to the other
functions
 Improve the Operation

 
1-19 Introduction to Operations Management

Why Study OM?

 You may be wondering why you need to study

operations management. There are a number of very
good reasons: Some are:
 Operations management activities are at the core of all
business organizations.
 More of works in the organization are operations related
 Activities in all of the rest functions are interrelated
with operations activities.
 Operations bear greater percentage of working cost
 It is an important factor in a country’s well being.
1-20 Introduction to Operations Management

Cont’d …
It plays a crucial role in the society:
 Higher standard of living,
 Better quality goods and services,
 Concern for the environment,
 Improved working conditions,
 Cost leadership,
 goods/services differentiation,
 Implementation of business strategy,
1-21 Introduction to Operations Management

Scope of Operations Management

 Operations Management includes:
 Forecasting
 Capacity planning

 Scheduling

 Managing inventories

 Assuring quality

 Motivating employees

 Deciding where to locate facilities

 And more . . .
1-22 Introduction to Operations Management

Key Decisions of Operations Managers

 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed/strategy/
 Who
To do the work
1-23 Introduction to Operations Management

Business Operations Overlap

Systems Approach

Operations

Marketing Finance

“The whole is greater than

the sum of the parts.”
1-24 Introduction to Operations Management

Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
1-25 Introduction to Operations Management

Recent Trends in Business

 Major trends
 The Internet: e-commerce/e-business
 Management of technology

 Globalization

 Management of supply chains

 Agile/lean production

 Outsourcing

 Business Ethics

 Corporate social responsibility (CSR)

1-26 Introduction to Operations Management

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  Rapid product
development development,
alliances
 Standard products  Mass customization
 Empowered
 Job specialization employees, teams
1-27 Introduction to Operations Management

1.2 Historical Development of OM

Cottage System <1700 TIME

 Industrial Revolution 1700 - 1800
 Civil War 1850s

 Scientific Management 1890s

 Moving Assembly Line 1910s

 Hawthorne Studies 1930s
 Operations Research 1940s

 Global Competition 1970s

 Service Revolution 1980s
 Mass Customization 1990s
1-28 Introduction to Operations Management

Cont’d …
 The evolution of operations management can be
classified into three periods:
 Before 1930’s – manufacturing management
The work of Adam Smith
 From 1930’s-1950’s- production management

F.W. Tailor & Elton Mayo got better

recognition
 Since 1970’s – operation management

Service revolution
1-29 Introduction to Operations Management
Development of OM as a Field – The Names
and Emphasis Change, but the Elements
Remain Basically the Same

Scientific Manufacturing TQM &

Management-F.Taylor Strategy Six Sigma

Moving Assembly JIT/Lean Business Process

Line-Ford’s innovation Manufacturing Reengineering

Hawthorne Studies Manufacturing Electronic

Hawthorne Studies-Elton Mayo Resources Planning Enterprise

Operations Service Quality Global Supply

Research-Optimal solution and Productivity Chain Mgt.
-mathematical

Historical OM’s Emergence

Underpinnings as a Field
1-30 Introduction to Operations Management

Significant Events In OM
i. Early Concepts (1776 – 1880)
 Labor specialization

 Standardized parts

ii. Scientific Management era (1880 – 1910)

 Motion & time study

 Queuing theory

iii. Mass Production Era (1910 – 1980) Cost focus

 Moving assembly line

 Statistical Sampling

 Economic order quantity

 Linear programming

 Materials requirements planning (MRP)

1-31 Introduction to Operations Management

Cont’d …
iv. Lean Production Era (1980 – 1995)
 Just- in- time

 Computer - aided design

Quality focus
 Electronic data interchange

 Total quality management

 Empowerment
1-32 Introduction to Operations Management

Cont’d …
v. Mass Customization Era (1995 – till date)
 Globalization

 Internet/E commerce

 Enterprise resource planning

Customization
 Learning organization
focus
 International quality standards (ISO)

 Finite scheduling

 Supply chain management

 Mass customization

 Make/build to order
1-33 Introduction to Operations Management

Factors driving the Continued dev’t of

OM…
Globalization of the Economy- efficiency and
effective
 Fierce Competition, importance of manufacturing
for the domestic economy is declining
 The current battle ground for market place
dominance is speed objective
Empowerment – cost- effective- operation
 But requires good Knowledge and skill of
operation workers
1-34 Introduction to Operations Management

Cont’d …

 Total Quality Management

 The necessity for Operations manager to have
external orientation
 Requires the involvement of every personnel
 Information technology
 Improving public services
1-35 Introduction to Operations Management

Discussion Question

1. Can there be any difference between public and

for profit organizations in the application of
operations management practices?
1-36 Introduction to Operations Management

1.3 Goods Vs Service Operations

 What basic differences and similarities exist

between the operations system of goods and
services?
 Production of goods Vs Delivery of Services
1-37 Introduction to Operations Management

Goods & Services characters

 Manufacturing  Services
 Tangible product  Intangible product
 Product can be  Product cannot be
inventoried inventoried
 Low customer contact  High customer
 Capital intensive contact/production &
 Consistent product consumption takes place
definition simultaneously
 Labor intensive

 Often knowledge based

1-38 Introduction to Operations Management

Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
1-39 Introduction to Operations Management

Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
1-40 Introduction to Operations Management

University

Inputs Processing Outputs

 High school grads Transferring kdg Educated
 Teachers & skills Individuals
 Books registration
 Class rooms lectures
examination
1-41 Introduction to Operations Management

1.4 Productivity Measures

 Productivity is the ratio of outputs (goods and
services) divided by the inputs (resources such as
labour and capital)

Units produced
Productivity =
Input used
 Measure of process improvement
 Represents output relative to input
 Only through productivity increases can our
standard of living improve
1-42 Introduction to Operations Management

Cont’d …
 Productivity ratios can be:
—Partial productivity measurement
—Multi-factor productivity measurement
—Total productivity measurement
 Productivity Variables
 Labor Important Note!

 Capital  Production is a measure of
 Management output only and not a measure
 Machine of efficiency
1-43 Introduction to Operations Management

Efficiency Vs Effectiveness

i. Efficiency – resource focused

ii. Effectiveness – objective focused
Input – process – output – outcome

 In order to assure that productivity measurement captures

what the company is trying to do with respect to customer
satisfaction and quality, some firms redefined productivity
as:
 Productivity = Effectiveness or value to
customer/Efficiency or cost to producer
1-44 Introduction to Operations Management

Simple Exercise
4 employees produced 1600 cameras in two days. The
company works 8 hours a day, 5 days a week, 52 weeks
a year Workers get paid $14 an hour, and salary
overheads are 200% Equipment yearly depreciation cost
is $312,000, Material cost is $18 per camera.

This company charges dealers $30 per camera

What is the Productivity?

1-45 Introduction to Operations Management

Measurement Problems

 Quality may change while the quantity of

inputs and outputs remains constant

 External elements may cause an increase

or decrease in productivity
 Precise units of measure may be lacking
1-46 Introduction to Operations Management
Improving productivity

 Develop productivity measures to all operations.

 Look at the system as a whole
 Develop methods for achieving productivity
improvements
 Make it clear that management supports and encourages
productivity improvement
 Measure improvements and publicize them
 Do not confuse efficiency with productivity
1-47 Introduction to Operations Management

Cont’d …
 Higher productivity leads to:
 a reduction in cost of production

 reduces the sales price of an item

 expands markets and

 enables the goods to compete effectively in the world

market.
1-48 Introduction to Operations Management

Cont’d …
 Productivity: The reduction in wastage of
resources such as labor, machines, materials,
power, space, time, capital, etc.

 It implies development of an attitude of mind

and a constant urge to find better, cheaper,
easier, quicker, and safer means of doing a job,
manufacturing a product and providing service
1-49 Introduction to Operations Management