Operations Management
• Development and administration of the activities
involved in transforming resources into goods
and services.
• Historically called “production” or “manufacturing”
where the focus was on methods to operate a factory
• “Operations” view the operations functions as a
whole rather than just inputs and outputs
• The planning and designing of the processes
that transform resources into finished products;
managing the transformation process; ensuring
high quality of finished goods.
FHF
8-3
Operations Management
• Manufacturing – activities and processes used in making
tangible products (also called production)
• Production – activities and processes used in making
tangible products (also called manufacturing)
• Operations – the activities and processes used in making
both tangible and intangible products
FHF
8-3
Transformation Processes of
Operations Management
…continued on next page
FHF
8-4
Services Are...




Generally intangible
Perishable
Demand can be variable
Cannot be saved, stored, resold, or packaged
FHF
8-7
Service Businesses –
• Airlines
• Universities
• Hotels
• Restaurants
• Nonprofit organizations
• Over 70% of all employment in developed economies;
fastest growth of jobs
…continued on next page
FHF
8-10
Manufacturing and Service
Compared
Manufacturing
Service
Tangible
Intangible
Uniform inputs
Customized inputs
Uniform outputs
Customized outputs
Less labor intensive
More labor intensive
Easy to measure productivity
More difficult to measure productivity
(due to variations in demand, service,
requirements and intangibility)
FHF
8-8
Designing Operations Process
What is the appropriate method of transformation?
• A. Standardization – the making of identical
interchangeable components or products.
Faster, reduces production costs
• Televisions, Ballpoint pens, Tortilla chips etc.
• B. Modular Design – creation of an item in selfcontained units that can be combined or
interchanged to create different products
• Personal computers -- CPU’s, motherboards,
monitors, Automobiles
…continued on next page
FHF
8-10
Designing Operations Process
• C. Customization – making products to meet a
particular customer’s needs or wants
• Repair services
• Photocopy services
• Custom artwork
• Bridges
• Ships
…continued on next page
FHF
8-10
Designing Operations Process
• Mass Customization – making products to
meet needs or wants of a large number of
individual customers.
• Customer selects
• Model, size, color, style, design
• Dell Computer
• Fitness program
• Travel packages
FHF
8-11
Planning Facilities
• Once the company
knows the process
it will use to create
its products, then
they need to
decide on;
• Facility location
• Physical layout
 Facility location
• High costs involved
• Permanent
 Pay attention to
• Proximity to market
• Availability of raw materials,
transportation, power, labor
 Climatic influences
• Community characteristics
• Taxes and inducements
FHF
8-13
Facilities Layout
• Fixed-Position Layout--Project organization
– All resources needed for the product are brought to a central
location.
– Unique product e.g., construction, exploration
• A company using a fixed position layout is called a project
organization
• Process Layout-- Intermittent organization
– Layout is organized into departments that group related
processes
– Produce products to customers’ specifications, e.g.,hospital
• Product Layout--Continuous manufacturing org
– Production is broken down into relatively simple tasks
assigned to workers positioned along an assembly line.
– E.g., automobiles, TV
FHF
8-15
Sustainability and Manufacturing
 Pressure has increased for manufacturing and
production systems to reduce waste and improve
sustainability
 Conservation, recycling, alternative energy use, reduction
of pollution (greenhouse gas)
 Consumers prefer to purchase goods that were manufactured
in an environmentally-friendly facility
 Conservation, recycling, alternative energy use, reduction
of pollution (greenhouse gas)
FHF
8-17
SUPPLY CHAIN MANAGEMENT
Connecting and integrating all parties or
members of the distribution system in order to
satisfy customers
[
Also called Logistics: includes all the
activities involved in obtaining and managing
raw materials and component parts, managing
finished products, packaging them and getting
them to customers.
]
FHF
8-18
Purchasing
Buying of all materials needed by the
organization
 Desired quality
 Correct quantities
 Lowest cost
 Otherwise known as Procurement
FHF
8-19
Inventory
All raw materials, components, completed
or partially completed products, and pieces
of equipment that a firm uses
Inventory Control
• Process of determining how many supplies and goods are
needed and keeping track of quantities on hand, where each
item is and who is responsible for it
FHF
8-20
Outsourcing
 Increasingly a part of supply chain
management in operations
 Outsource aspects of operations to companies that
provide products more efficiently, at lower cost,
greater customer satisfaction.
FHF
8-22
Routing & Scheduling
After all materials have been procured managers
must then consider
Routing
 Sequence of operations through which the product must pass
Scheduling
 The assignment of required tasks to departments or specific
machines, workers, or teams.
FHF
8-23
Program Evaluation and
Review Technique (PERT)
[
Identifies major activities required to
complete a project, determines the critical
path and estimates time needed to finish
]
FHF
8-24
Quality
Degree to which a good or service meets
the demands and requirements of customers
 A critical element of operations management
 Determining quality can be difficult
 Subjective based on consumers’ expectations and perspectives
FHF
8-25
Managing Quality
Quality Control
 Processes an organization uses to maintain its established
quality standards.
Total Quality Management (TQM)
 Philosophy that uniform commitment to quality will promote a culture that
meets customers’ perceptions of quality
Statistical Process Control
 System to collect and analyze information about production processed to
pinpoint quality problems in the system
FHF
8-26
International Organization
for Standardization
(ISO) system of quality management
standards designed to ensure the customer’s
quality standards are met
 ISO 9000: Quality assurance standards for product quality
under many conditions
 ISO 14000: Uniform environmental standards for use by global
corporations to help businesses be cleaner, safer and less
wasteful
FHF
8-27
Inspection and Sampling
Inspection
 Reveals whether a product meets quality standards.
Sampling
 How many items should be inspected.
 Depends on potential costs of product flaws in terms of human
lives and safety.
FHF
8-28