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Introduction to Operations Management
UNIVERSITI TEKNOLOGI MARAFACULTY OF BUSINESS MANAGEMENT
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WHAT IS OPERATIONS MANAGEMENT?
ORGANIZING TO PRODUCE GOODS AND SERVICES
WHY STUDY OM?
OPERATIONS IN THE SERVICE SECTOR
EXCITING NEW TRENDS IN OPERATIONS MANAGEMENT
THE PRODUCTIVITY ISSSUE
Topics
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Organizing to Produce Goods and Services
Essential functions: Marketing – generates demand Operations –creates the product Finance/accounting – tracks organizational performance, pays bills, collects
money
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Functions - Bank
Operations Finance/Accounting
Marketing
CheckClearing
TellerScheduling
Transactions
ProcessingSecurity
Commercial Bank© 1984-1994 T/Maker Co.
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Functions - Manufacturer
Operations Finance/Accounting
Marketing
ProductionControl
Manufacturing QualityControl
Purchasing
Manufacturing
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Organizational Charts
Manufacturing
OperationsFacilities: Construction:maintenanceProduction & inventory control Scheduling: materials control
Supply-chain managementManufacturing Tooling, fabrication,assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess analysis Development and installation of production tools and equipment
Finance & AccountingDisbursements/credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issues and recall
MarketingSales promotionsAdvertisingSalesMarket research
Production is the creation of goods and services
Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs
Transformation Process is a series of activities along a value chain extending from supplier to customer where less valuable input resources are transformed into valuable form of output
Definitions
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Transformations of Inputs to Outputs
Physical: Physical: as in manufacturing operationsas in manufacturing operationsLocational: Locational: as in transportation as in transportation operationsoperationsExchange: Exchange: as in retail operationsas in retail operationsPhysiological: Physiological: as in health careas in health carePsychological: Psychological: as in entertainmentas in entertainmentInformational: Informational: as in communicationas in communication
Land, Labor, Capital, Management
Goods and Services
Feedback loop
Inputs Transformation Process Outputs
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Characteristics of Goods
Tangible product Consistent product definition Production usually separate
from consumption Can be inventoried Low customer interaction
© 1995 Corel Corp.
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Characteristics of Service
Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed
© 1995 Corel Corp.
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Goods Versus Services
Can be resold Can be inventoried
Some aspects of quality measurable
Selling is distinct from production
Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service
GoodsGoods ServiceService
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Goods Versus Services - Continued
Product is transportable Site of facility important for cost
Often easy to automate Revenue generated primarily
from tangible product
Provider, not product is transportable
Site of facility important for customer contact
Often difficult to automate Revenue generated primarily
from intangible service.
GoodsGoods ServiceService GoodsGoods ServiceService
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Continuum from Goods to Services
Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.
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Why Study OM?
OM is one of three major functions (marketing, finance, and operations) of any organization.
We want (and need) to know how goods and services are produced.
We want to understand what operations managers do. OM is such a costly part of an organization.
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An Integrated Value Chain
Value chain: set of activities that create and deliver products to customer
Manufacturer SupplierCustomer
Flow of information (customer order)Flow of information (customer order)
Flow of product (order fulfillment)Flow of product (order fulfillment)
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Competitiveness and Productivity
Competitiveness degree to which a nation can produce goods and services that
meet the test of international markets Productivity
ratio of output to input Output
sales made, products produced, customers served, meals delivered, or calls answered
Input labor hours, investment in equipment, material usage, or square
footage
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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
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Productivity Variables
Labor - contributes about 10% of the annual increase Capital - contributes about 38% of the annual increase Management - contributes about 52% of the annual increase
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Key Variables for Improved Labor Productivity
Basic education appropriate for the labor force Diet of the labor force Social overhead that makes labor available Maintaining and enhancing skills in the midst of rapidly changing
technology and knowledge
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Service Productivity
Typically labor intensive Frequently individually processed Often an intellectual task performed by professionals Often difficult to mechanize Often difficult to evaluate for quality
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New Challenges in OM
Local or national focus Batch shipments Low bid purchasing
Lengthy product development
Standard products Job specialization
Global focus Just-in-time Supply chain partnering Rapid product development,
alliances Mass customization Empowered employees,
teams
FromFrom ToTo
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Changing Challenges for the Operations Manager
Past Causes Future Local or national focus
Low-cost, reliable worldwide communication and transportation networks
Global Focus
Batch (large) shipments
Cost of capital puts pressure on reducing investment in inventory
Just-in-time shipments
Low-bid purchasing
Quality emphasis requires that suppliers be engaged in product improvement
Supply-chain partners
Lengthy product development
Shorter life cycles, rapid international communication, computer-aided design, and international collaboration
Rapid product development, alliances, collaborative designs
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Changing Challenges for the Operations Manager
Past Causes Future Standardized products
Affluence and worldwide markets; increasingly flexible production processes
Mass customization
Job specialization
Changing sociocultural milieu. Increasingly a knowledge and information society.
Empowered employees, teams, and lean production
Low cost focus
Environmental issues, ISO 14000, increasing disposal costs
Environmentally sensitive production, Green manufacturing, recycled materials, remanufacturing