Introduction to Operations Management Operations ManagementSession 1
Objectives The student will be able to: • Define Operations Management • Describe the nature and role of the operations function • Construct and use transformation models • Appreciate that operations produce both products and services • Understand the difference between micro and macro operations • Understand the importance of internal supplier-customer chains • Build a Typology of Operations based on the Four V’s • Appreciate how operations fit in with Operations Strategy
Topics • What is Operations? • What do Operations Managers do? • Operations Management in Goods and Services • Transformation Model • Business Process Analysis • Typology of Operations • Missions and Strategies
Definition • Operations Management (OM)management of activities that lead to the creation of goods and services through the transformation of inputs to outputs
Finance/ Marketing Operations Accounting Flight Ground Facility Catering Operations Support Maintenance Functions - Airline
OM - Critical Decisions • Managing quality • Design of goods and services • Process and capacity design • Layout design • Human resources • Location strategies • Supply-chain management • Inventory management • Scheduling • Maintenance
The Critical Decisions - 1 • Quality management • Who is responsible for quality? • How do we define quality? • Goods and services design • What product or service should we offer? • How should we design these products and services?
The Critical Decisions - 2 • Process and Capacity design • What processes will these products require and in what order? • What equipment and technology is necessary for these processes?
The Critical Decisions - 3 • Layout design • How should we arrange the facility? • How large a facility is required? • Human resources and job design • How do we provide a reasonable work environment? • How much can we expect our employees to produce?
The Critical Decisions - 4 • Supply chain management and JIT “Just-in-time” Inventory, Material Requirements Planning • Should we make or buy this item? • Who are our good suppliers and how many should we have? • How much inventory of each item should we have? • When do we re-order?
The Critical Decisions - 5 • Immediate, short term, and project scheduling • Is subcontracting production a good idea? • Are we better off keeping people on the payroll during slowdowns? • Maintenance • Who is responsible for maintenance? • Location • Where should we put the facility • On what criteria should we base this location decision?
PURE GOODS Tangible Can be stored Production precedes consumption Low customer contact CRUDE OIL PRODUCTION Can be transported ALUMINIUM SMELTING Quality is evident SPECIALIST MACHINE TOOL MANUFACTURER RESTAURANT COMPUTER SYSTEMS SERVICES Intangible Cannot be stored MANAGEMENT CONSULTANCY Production and consumption are simultaneous PSYCHOTHERAPY CLINIC High customer contact Cannot be transported Quality difficult to judge PURE SERVICES Output of most Operations a Mixture of Goods and Services
Goods Versus Services - 1 Good Service • 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
Goods Versus Services - 2 Good Service • 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.
The Transformation Model Input Resources Output Services + Products Input Transformed Resources Materials Information Customers Transformation Process Customers Input Transforming Resources Facilities Staff
Economic System Transforms Inputs to Outputs Inputs Process Outputs Economic system transforms inputs to outputs at about an annual 1% increase in productivity:- capital 1/6 of 1%- labour 1/6 of 1%- management 2/3 of 1% Land, Labour, Capital, Management Goods and Services Feedback Loop
Macro and Micro Operations • Micro • An operation or process that can not be split up into smaller operations and processes • Macro • An operation or process that can be split up into smaller operations and processes • All Macro operations are made up of many Micro operations
Internal Customer Concept • To treat internal suppliers and customers as if they were independent external organisations • Each micro-operation should identify its internal customers and internal suppliers • Discuss with them what they need and what they can offer • Related to Business Process Re-engineering (BPR)
The Four V’s • Volume of demand • How many the organisation makes • Service vs. Mass Production • Varietyin operations • The ability to adapt the transformation process to meet needs of the customer • Taxi vs. Train • Variation in demand • Adapting to changing demand • Visibility of transformation • How much of the operations functions are visible to the customer • Some operations have mixed high/low visibility eg Restaurant Front and Kitchen Often they are in conflict
Television plant Fast food restaurant Routine surgery Mass rapid transport Off-the-peg suit plant University lectures Financial audits Jeans shop Bespoke tailor University tutorials Corporate tax advice Department store Bread bakery Consultancy advice Shopping mall security Trucking operation Electricity utility Financial audits Emergency service London underground Most manufacturing Prepackaged sandwich maker Dental technicians Distance learning Health care "Cook at your table" restaurant Dentist Music teacher A Typology of Operations Electricity generator factory Gourmet restaurant Pioneering surgery Taxi service Volume Low High Variety High Low Variationin Demand High Low Visibility High Low
Project Job Batch Mass Continuous Product Unique Unique aspect to each product Made to order Made to stock Commodity Volume Very low Very low to low Low to med High Very high Variety Infinite Very high to high Medium to high Low Very low The Most Important Conflict Volume vs Variety
Process Types - Products Project High Job Batch Variety Mass Continuous Low Volume High Low
Process Types - Services Professional High Service (e.g shops) Variety Mass Services Low Volume High Low
Organisation Mission Statement • Mission – the purpose or rationale for an organisation’s existence • Example Mission Statement –“To manufacture and service a growing and profitable worldwide microwave communications business that exceeds our customers’ expectations”
Operations Management Mission Statement • General –To produce products consistent with the company’s mission as the worldwide low-cost manufacturer • Specific – To attain the exceptional value that is consistent with our company mission and marketing objectives by close attention to design, procurement, production and field service opportunities
Strategies • Strategy – How an organisation expects to achieve its missions and goals • Generic Strategies – • Competing on price • Competing on differentiation • Competing on response