INTRODUCTION:

PRODUCTION / OPERATIONS MANAGEMENTWhat is Production / Operations management?

Production is the creation of goods and services Operations management is the set of activities that creates

goods and services through the transformation of inputs into outputs.

It encompasses forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more.

DefinitionOperations management is the management of systems or processes that create goods and/or provide services.

What is a system?

It is a set of interrelated parts that must work together. Why study Production / Operations Management?

Operations management activities are the core of all business organizations.

60% or more of all jobs are operations management related such as:

Customer service Quality assurance Production planning & control Scheduling Job design Inventory management

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All other activities that are interrelated to operations management that need to be understood are:

Finance Accounting Human resources Logistics Marketing Purchasing Production / operations management is about management,

and managers ability of having the knowledge and skills concerning:

Productivity Strategy Forecasting Quality Inventory control SchedulingThe use of quantitative tools enhances managerial decision-making.

FUNCTIONS WITHIN BUSINESS ORGANIZATIONS

The 3 major functions of any organization that overlap are marketing (that sell the product), finance (that’s involved with the paper work, accounts) and production (produce).

The need to know how goods and services are produced. The need to know what operations managers do, which assists

in skills development in order to become a manager. It’s also significant in exploring career opportunities in operation managers.

It is the most costly part of the organization, with operations management one can improve its profitability and enhance services to customers.

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ORGANIZATION

FINANCE PRODUCTION /

OPERATIONS

MARKETING

The 3 basic functions ofbusiness organizations

Production /

Operations

Marketing Finance

The 3 major functions of Business

Figure 1.1

Figure 1.2

What are the different types of operations?

Types of Operations

Examples

1. Goods Producing

Farming, mining, construction, manufacturing, power generation.

2. Storage / Transportation

Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines

3. Exchange Retailing, wholesaling, banking, renting, or leasing, library loans

4. Entertainment Films, radio and television, plays, concerts, recording

5. Communication Newspapers, radio and television, newscasts, telephones, satellites

The operations functions involves the conversion of inputs into outputs

Explain what is meant by Value - Added

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Examples of types of Operatio

Figure 1.1

Inputs Land Labour Capital

Transformation / conversion process

Outputs Goods Services

Feedback

Figure 1.3

The conversion of inputs into

Value – added is the term describing the difference between the costs of inputs to the value price of the outputs.

In service industries, (which are non-profitable organizations) it represents its values to society.

Goods producing organizations, (profit orientated) is where the value of the output is measured by the price the customer is willing to pay for that product and services.

Profits generated from value added are utilized for research and development, investments in new facilities and equipment.

Productivity is critically examined to establish whether the operations performed by the workers add value.

Non value added operations is wasteful, elimination and improvement on such operations decreases output costs and processing.

Finance

Finance is responsible for securing resources at favourable prices and allocating it throughout the organization.

Finance and operations management exchange information for:

(a) Budgeting – periodic preparation to plan financial requirement

(b) Economic Analysis – of investment proposals, evaluation of alternatives, requirement of plant and equipment for the operations(b) Provision of funds – is necessary for the operations with

timing being of essence.

Marketing

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ControlFeedback Feedback

Responsible for selling and / or promoting goods or services of an organizations

Advertising and pricing decisions Determines the customers wants and needs Operations are made aware of the demand, short or

intermediate terms and plans accordingly Marketing also provides vital information on competitors Provides information on consumer’s preferences types of

products and features needed. Operations provide information on capacity, new equipment or

the skills required for new products or services. Interaction with Finance, to make available funds for the

production of new products and services. Lead times provides information to customers on the estimates

of how long it would take to firm their orders.

What is LEAD TIME?Lead time is the time between ordering a good or service and receiving it.

Therefore there is the need for operations, finance, and marketing to interact to interface on products and process design.

Other FunctionsSome of the other supporting functions interfaced with the operations, finance and marketing are:(a) Accounting – responsible for the preparation of financial

statements on the organization’s performance.Provides information on labour, materials and overheads costs.Reports on downtime scrap and inventoriesTrack goods receivable, payable, insurance costs and prepares taxation statements.

(b) Purchasing - procurement of materials, supplies and equipment.

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Ensures correct quantities and timing of purchases.Evaluates vendors for quality, reliability, service, price, and ability to adjust to changing demand.

(c) Personnel / Human Resources – recruiting and training personnel, labour relations, wage & salaries,

Contract negotiations, administration and assist managers in power projections.Ensures the health and safety of employees.

(d) Public Relations – building and maintaining positive public image.

Involves news releases, promotions, new products, and service design.Contributes to up-liftment & development of society.Good public relations provide many potential benefits in the market place.

(e) Industrial Engineering – responsible for scheduling, performance standards, work methods, quality control and material handling.

(f) Distribution – involves shipping of goods to warehouses,

retail outlets and finally to customers.

(g) Maintenance – does the general upkeep and repairs to equipment, buildings & grounds, heating & air

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Operations

MaintenanceDistribution

PurchasingPublic

Relations

Personnel / Human

ResourcesAccounting

Industrial Engineerin

g

THE SCOPE OF OPERATIONS MANAGEMENT

Designing and Operating Management systems A primary function of operations management is to guide the

system by decision making Certain decisions affect the design of the system and others

affect the operation of the system.

System Design

The important factors concerning design decision making: Capacity Location Arrangement of departments Purchasing and placement of equipment Product and service planning

System Operation

The important factors concerning operation management decision making:

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Scheduling Project management Quality assurance Managers are involved in day – to – day operating decisions Systems design determines the parameters of system

operations Costs, space, capacities and quality are directly affected by

design decisions

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Production of Goods versus Service Operation

Production of goods is a tangible output (one can see or touch) Services implies an act Manufacturing and service is often what is done and how it is

done where manufacturing and service organizations differ Manufacturing is goods orientated where as service is act

orientated The differences are :

Characteristic Goods Service

Customer contact Low High

Uniformity of Input High Low

Labour content Low High

Uniformity of output HighLow

Output TangibleIntangible

Measurement of productivity EasyDifficult

Opportunity to correct quality problems before delivery to customer High

Low

Inventory Much Little

Evaluation Easier More difficult

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Patentable Usually not usually

Services involves more customer contact than manufacturing Performance of service occurs at point of consumption Manufacturing separates production from consumption which

allows for selecting work methods, assigning jobs, scheduling work, and exercising control over components

Operations Managers & Decision Making

The role of an operations manager is that of a planner & decision maker

He / she influences the goals and objectives of the organization The necessary tools available for operation managers decision

making are Quantitative methods Use of models Analysis of Trade - offs A Systems approach Establishing priorities Ethics Quantitative approaches – help solve and obtain

mathematical solutions to managerial problems These techniques were developed during World War II

Linear programming – was used to allocate scarce resources Queuing techniques – are useful for analyzing waiting lines Inventory models – were used for controlling inventories Project models – PERT (Program Evaluation & Review

Technique) and CPM are useful for planning, coordinating and controlling large scale projects

Forecasting techniques – involves planning and scheduling Statistical methods – used in many areas in decision making

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The introduction of calculators and high speed computers have been accepted by operation managers for their capabilities in handling and solving quantitative problems

The growing availability of software and its capability of rapid error free computations has increased in management use

Managers use qualitative and quantitative approaches in decision making

Use of models

Model: is an abstraction of reality, a simplified version of real phenomenon.

Physical models: looks like their real counter parts. E.g. miniature cars, trucks, airplanes etc. the advantage of these models is their visual correspondence with reality.

Schematic models: are more abstract than their physical counterparts. They have less resemblance to the physical reality. E.g. graphs, charts, pictures, drawings.

Mathematical models: are most abstract, they do not look at all like their real counterparts. e.g. formulas, numbers, symbol. These models are easy to manipulate and are essential forms of input for computers and calculators.Reasons for managers to use models

Generally easy to use and less expensive than dealing directly with the actual situationThey provide a systematic approach to problem solvingThey increase an understanding of the problemThey enable managers to analyse “what if…? QuestionsThey requires users to be very specific about objectives

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They serve as consistent tool for evaluationThey enable users to bring the power of mathematics to bear on a problem.

Analysis of Trade – Offs

Operations managers encounter decisions that can be described as trade-off decisions. E.g. scheduling overtime to increase output, the manager must weigh the value of the increased output against the higher costs of overtime like labor costs, lower quality, greater risk of accidents. A Systems Approach

A system is a set of interrelated parts that must work together The systems approach emphasizes interrelationships amongst

systems The output and objectives of the organization as a whole takes

precedence over those of any subsystem Alternative approach is to concentrate on efficiency with

subsystems and also achieve overall efficiency Systems approach is required when designing, redesigning,

implementing and improving

Establishing priorities

Managers discover that certain elements are more important than others. Recognizing this fact of life enables managers to direct their efforts to where they will do the most good and avoid wasting time and energy on insignificant elements.

Ethics

Managers have the responsibility to make ethical decision:

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Workers safety – provide adequate training, induction for new employees, maintaining equipment, maintain safe working environment.

Product safety – products that minimize risks, injury to users, damage to property and the environment

Quality – honoring warranties and providing “O” defect products

Environment – obeying government rules and regulations Community – satisfying the community in terms of creating job

opportunities, reducing unemployment rate. Hiring & Firing – should not be done on false pretenses,

should be made aware of the duration they have been employed for

Closing of Facilities – must consider the impact it has on the community and the commitments made

Workers Rights – respect the workers right with regards to solving problems & disputes quickly and fair

The Historical evolution of operations management

The Industrial Revolution

Craft production – refers to a system in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods.

Scientific management

Pertains to the management of factories.

F.W. Taylor known as the father of science management believed in science management based on observation, measurement, analysis and improvement of work methods.

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Frank Gilbreth was an industrial engineer who is often referred to as father of motion study. He developed principles of motion economy that could be applied to increasingly small portions of tasks.

Henry Gantt recognized the value of nonmonetary rewards to motivate workers and developed a widely used system for scheduling, called Gantt chart.

Henry Ford, the great industrialist, employed scientific management techniques in his factories. He used MASS PRODUCTION, which is a system in which lower-skilled workers used specialized machinery to produce high volumes of standardized goods. He was able to do this by taking advantage of a number of important concept e.g.

INTERCHANGEABLE PARTS- Which are parts of product made to such precision

that they do not have to be custom fitted.DIVISION OF LABOR- Which is breaking up a production process into small

tasks, so that each worker performs a small portion of the overall job.

The human relations movement

Lillian Gilbreth, a psychologist and wife of Frank Gilbreth worked with her husband, focusing on the human factor in work.

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The influence of Japanese manufacturers

A number of Japanese manufactures developed management practices that increased the productivity of their operations and the quality of their products.Their approaches emphasized quality and continual improvement, workers teams and empowerment, and achieving customer satisfaction. Trends in business

Business must constantly monitor new trends and take them into account in their strategies and operations management. In this

section we will touch on some of the key trends that are occurring in business around the world.

Major trends

The internet, e-commerce, and e-business Management of technology Globalization Management of supply chain Outsourcing Agility Ethical behavior

The Internet, e-commerce, and e-business

e-business is the use of internet to transact business, to interact with customers, suppliers etc. e-business is changing the way business organizations interact with their customers and their suppliers. It is receiving increased attention from business owners and managers in developing strategies, planning and decision making.

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e-business is the use of the internet to transact business.

e-commerce is the consumer to consumer transactions

Technology is the application of scientific discoveries to the development and improvement of goods and services.

Operations management is concerned with three kinds of technology:

Product and service technology refers to the discovery and development of new products and services.

Process technology refers to methods, procedures, and equipment used to produce goods and provide services.

Information technology refers to the science and use of computers and other electronic equipment to store, process, and send information.

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Management of technology

Technology advances have led to a vast array of new product and processes. Undoubtedly the computer has had and will continue to have the greatest impact on business organization. Applications include product design, product features, processing technology, information processing and communication. Technological advances in new materials; new methods and new equipment have also made their mark on operations.

Management of supply chain

Supply chain is a sequence of organizations, their facilities, functions, and activities that are involved in producing and delivering a product or service. The sequence begins with basic suppliers of raw materials and extends all the way to the final customer. Functions and activities include forecasting, purchasing, inventory management, quality assurance, scheduling, production, delivery and customer service.

A simple product supply chain

Suppliers >>

DirectSuppliers >>

Producers > Distributor >

FinalCustomers

Outsourcing

- Is about obtaining a product or service from outside the organization.

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It has become a challenging issue for politicians, labor organizations , and operations managers as companies increasingly outsource both manufacturing and service jobs.

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Globalization

Stoner defines globalization as the recognition by organizations that business must have a global, not local focus. It is about entering international market. Global competition, global market, global supply chain and international operations are having impact on the strategies and operations of business large and small around the world.

AGILITY

- Is the ability of an organization to respond quickly to demands to opportunities. It is a strategy that involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/ service offerings.

Ethical behavior

- Is commanding increased attention from management at all levels. E.g. accounting scandals, stockbrokers releasing misleading information, product liability claims etc.

Other important trends

Operations Strategy

During 1970s and 1980s, many companies neglected to include operations strategy in their corporate strategy. Now more and more companies are recognizing the importance of operations strategy on the overall success of their business.

Working with fewer workers

This is forcing manager to make trade-off decisions on resources allocation, and to place increased emphasis on cost control and productivity improvement.

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Revenue management

It is a method used by some companies to maximize the revenue they receive from fixed operating capacity by influencing demand through price manipulation. It is also known as yield management.

Process analysis and improvement

Includes cost and time reduction, productivity improvement, process yield improvement, and quality improvement and increasing customer satisfaction. This is also called Six sigma.

Some businesses use the term total quality management (TQM) to describe their quality effort. A quality focus emphasizes customer satisfaction and involves teamwork. Process improvement can result in improved quality, cost reduction, and time reduction.

A quality focus emphasizes customer satisfaction and often involves teamwork. Process improvement can result in improved quality, cost reduction, and time reduction. Time relates to costs and to competitive advantage, and businesses seek ways to reduce the time to bring new products and service to the marketplace to gain a competitive edge.

Increased regulation and some very costly product liability claims have continued to make these issues important management issues.

Lean production

It is a system that uses minimal amounts of resources to produce a high volume of high quality goods with some variety.

It incorporate a number of recent trends listed here, with emphasis on quality, flexibility, time reduction, and teamwork.

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They use less of certain resources than mass production systems use, less space, less inventory, and fewer workers to produce comparable amount of output. The skilled workers in lean production system are more involved in maintaining and improving the system than their mass production counterparts.

Workers are taught to stop production if they discover defect, and work with other employees to find and correct the cause of the defect so that it won’t recur. This result in an increasing level of quality, overtimes, and eliminate the need to inspect and rework at the end of the line.

Because Lean production systems operate with lower amounts of inventory, additional emphasis is placed on anticipating when problems might occur before they arise, and avoiding those problems through careful planning.

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