Introduction

1. Introduction Lecture 1. Operation Management

2. Operations Management: Introduction • Definition • Operations Functions and environment • Operations Objectives • Operations Systems • The life cycle approach • Historical development of OM • Productivity and competitiveness

3. What is Operation Management? • Operation management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs.

4. Why OM? • OM is one of three major functions (marketing, finance, and operations) of any organization • To know how goods and services are produced • To understand what operations managers do • OM is a costly part of an organization • OM presents interesting career opportunities e.g. SCM, QA, Process Re-engineering, etc

5. Historical Development of OM • 1910s - Principles of scientific management (time study & work study concepts- FW Taylor) Industrial psychology (motion study), Moving assembly line (activity scheduling chart- Henry ford), EOQ (inventory control- FW Haris) • 1930s- Quality control (sampling inspection and statistical tables for QC), Hawthorne studies of worker motivation (activity sampling for work analysis) • 1940s-Multidisciplinary team approaches to complex system problems (Simplex method for liner programming- OR groups, Dantzig) • 1950/60s- Extensive development operations research tools (simulation, waiting line theory, PERT,CPM) • 1970s -Widespread use of computers in business (shop scheduling, inventory ontrol, MRP) service quality and productivity (mass production in service sector- MCDonalds)

6. Historical Development of OM •  1980s- Manufacturing strategy paradigm JIT, TQC and factory automation (kanban) synchronous manufacturing (bottleneck analysis) • Computer aided design (CAD 1970) • Flexible manufacturing system (FMS 1975) • Baldrige Quality Awards (1980) • Computer integrated manufacturing (1990) • 1990s- Total quality management (Baldrige quality award, ISO 9000,quality function deployment etc.), business process reengineering, electronic enterprises, supply chain management • 2000s-E commerce (Internet, World Wide Web)

7. Organizational Functions • Marketing • Gets customers • Operations • creates product or service • Finance/Accounting • Obtains funds • Tracks money

8. Functions - Bank Commercial Bank Finance/ Marketing Operations Accounting Transactions Teller Check Security Scheduling Clearing Processing

9. Functions - Airlines Airlines Finance/ Marketing Operations Accounting Facility Flight Ground Catering Operations Support Maintenance

10. Functions - Manufacturing Manufacturing Finance/ Marketing Operations Accounting Quality Production Manufacturing Purchasing Control Control

11. Examining the options for increasing contribution • A firm manager faces with three choices to three strategies. • Strategy 1 (Marketing Option): Increase sales revenue by 50%. By increasing sales by 50%, contribution will turn increase 71%. • Strategy2 (Financial Option): Reduce finance cost by 50% increases contribution by 21% • Strategy 3 (OM option) Reduce production cost by 20%. It increase contribution by 114%

12. Options for increasing contribution

13. Operation Strategy • Operation Strategy is concerned with setting broad policies and plans for using the resources of a firm to best support its long term competitive strategy. • Operation strategy mist be designed to anticipate future needs.

14. Competitive dimensions of Operation • Cost factor • Product differentiation • Rapid Response- “Delivery Speed” • Coping with changes in demand • Flexibility and New Product Introduction

15. Operations Function and its environment

16. Operation Objectives Create product and services of the organization with a best suited conversion process, minimizing cost • Efficiency measurement criteria • Effective process design • Cost control of the material • Cost control on factor of production • Cost control on facility utilization • Production as per expected demand • Efficient process design • Product or service quality

17. Expectations of Management

18. Production Management Process Planning Organizing Models Behavior Controlling

19. Planning Planning is setting a course of action that determines future decision making. Planning defines operational policy, program, forecasting, capacity planning, and scheduling. Product planning and designing, Facility planning and layout design for conversion process of inputs into desired outputs.

20. Organizing Setting authority Establish a structure of roles and flow of information within the operation system. Determines tasks and authorities of each individual as well as work center Organizing to Achieve operation goals and objectives.

21. Controlling Control all the activities Comparing actual performance with the standards for corrective action. Measuring actual performance in accordance with planned performance Determine present status and future course of action. Controlling concern with cost, quality and scheduling.

22. Behavior Understand the behavior of workers and employees. Behavior of workers and employees are affected by planning, scheduling and controlling activities of operation managers. Behavior is affected by leadership, motivation, communication, inter/intra personal relationship and finally by their attitude.

23. Models Desired outcome has deviated from the planned process. Deploy Mathematical and quantitative techniques in decision making such as network analysis, linear programming, queuing theory etc. Types of the model depends upon types of the problem and affecting variables. As example, Linear programming technique is used when there are multiple variable and constraints. Assignment technique is used for assigning resources to activities to the particular machine or person. Similarly, transportation model is used for minimization of the transportation cost for delivery of goods and equipments.

24. Product/operation Management function

25. Production Systems Transformation Process • Production is creation of goods and services • Production system uses resources to transform inputs into some desired output Transformation ProcessInputsOutputs • Labor Goods and services • Raw materials • Customer

26. Manufacturing Vs Service • Manufacturing Operations • It yields tangible input from conversion process. • Output can be store as inventory • Operations are capital intensive as they use less labor and more machine. • No customer contact during conversion process. • Complex and interrelated processes are followed in manufacturing operations

27. Manufacturing Vs Service • Service Operations • Service Operations produce intangible outputs • Service cannot be inventoried and consume as soon as produced • Service operation are labor intensive. • High degree of customer participation in service generation. • Simple service process is applied in service operations.

28. Life cycle Approach

29. Product Life Cycle Predictable pattern of demand for the product throughout the product life. Life of products may vary from product to product and industry to industry. Time span of each stage varies from one stage to another. Determines facilities, labor, capital, management system required for producing at each stage. Determine the pattern and process of each stage

30. Operation Issues of Product Life Cycle Product life cycle is concerned with the pattern of demand for product, its introduction to market to the point where the product faces the decision of the customer choice and preference. The study of the pattern and process of product life cycle helps in determining facilities, labor, capital and management system etc. The concern for the operation manager is to determine the pattern of the product life cycle and then forecast the resources required for producing the product.

31. CONCERNS for Operation manager for Product Life Cycle • When various states of product life cycle occur for our product? • What management, facilities and resources are needed on various stages of life cycle? • What should be done with existing facilities and conversion process, when product proceeds through these various stages? • What and when new product should be introduced to sustain the existing system?

32. Product Life Cycle Sales Dial pad phones CRT monitors 8D cinema Growth Maturity Decline Introduction Touch screen Time

33. Product Life Cycle, Sales, Cost, and Profit Cost of Development & Manufacture Sales Revenue Sales, Cost & Profit . Profit Cash flow Loss Time Introduction Growth Maturity Decline

34. Product Life CycleIntroduction • Low volume production • Research • Industry structure is small • process modification and enhancement • Product verities

35. Introduction Phase strategy

36. Product Life CycleGrowth • Product design begins to stabilize • Effective forecasting of capacity becomes necessary, as competition increase • Adding or enhancing capacity may be necessary • Focus on standardization

37. Growth phase strategies

38. Product Life CycleMaturity • Competitors now established • High volume, innovative production may be needed • Emergence of dominant design • Improved cost control, reduction in options, paring down of product line

39. Maturity phase strategy

40. Decline phase strategy

41. Product Life CycleDecline • Unless product makes a special contribution, must plan to terminate offering

42. Exciting New Trends In operation Management Operation manager are confronted with ever changing world. These dynamics are the result of a variety of forces, from globalization of world trade to the transfer of ideas, products, and money at electronic speeds.

43. Exciting New Trends In operation Management • The challenges of the Operation Management in this era are as follow; • Global Focus • Just in time Performance • Supply chain partnering • Rapid Product Development • Mass Customization • Empowered Employees • Environmentally sensitive production • Business Ethics

44. Productivity and Competitiveness The creation of goods and services requires changing resources into goods and services. Productivity is the ration of outputs (goods and services) divided by the inputs (resources, such as labor and capital) . Operation Manager’s job is to enhance (improve) this outputs to inputs . Improving productivity means improving efficiency.

45. Productivity Measurement Productivity is a common measure of how well a country, industry or business unit is using its resources (or factor of production). Productivity is a relative measure. In other words, to be meaningful, it needs to be compared with something else. Productivity comparison can be done in two ways. First a company can compare itself with similar operations within its industry, or it can use industry data when such data are available (e.g comparing productivity among different stores in a franchise) Another approach is to measure productivity over time within the same operation.

46. Productivity Measurement Productivity can be expressed as partial measures, multifactor measures or total measures. The use of just one resource input to measure productivity is known as single factor productivity or Partial productivity. E.g A broader view of productivity is multifactor productivity. It is also term as total factor productivity. Multifactor productivity is calculated as follow;

47. Example 1 • A light bulb production company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expense of $400 per day. The company processes a closes on 8 Led bulbs each day. The company recently purchased a computerized system for Led bulb-search system that will allow the processing of 14 Led bulbs per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day. • Based on above data, calculate • Labor productivity with old system (Ans. 0.25 bulbs per labor-hour) • Labor producitvity with the new system (Ans. 0.437 bulbs per labor-hour) • Multifactor productivity with the old system (Ans. 0.0077 bulbs per dollar) • Multifactor productivity with the new system (Ans. 0.0097 bulbs per dollar)

48. Calculate the productivity for the following operations • Three Employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Calculate their productivity. (Ans. 5 Policies/hr) • A team of workers makes 400 units of a product, which is valued by its standard cost of $10 each (before markeups for other expense and profit). The accounting department reports that for this job the actual costs are $400 for labor, $1000 for materials, and $300 for overhead. Calculate multifactor productivity. (Ans. 2.35)

49. Apple new Iphone 4S are produced on an automated assembly line process. The standard cost of Iphone 4S is $150 ( labor, $30; materials,$70; and overhead, $50). The sales price is $300 per unit. • To achieve a 10% multifactor productivity improvement by reducing material cost only, by what percentage must those costs be reduced? (19.4%) • To achieve a 10 % multifactor productivity improvement by reducing labor costs only, by what percentage must those costs be reduced? (45.43%)

50. Define Operation Management and discuss its relationship with various management functions. Explain the role of operation management in an organization to achieve competitive advantage. (15) PU2007 • Define operation management? Why is operation Management important to any orgnanization? (7) • What are the objectives of operation Management? Discuss the various environments under which production operation manager has to work. • Define productivity. What is the relationship between production and productivity? • What is operation management? How can operations be used as a competitive weapon? • Describe the recent trends in operation management. • Define operation. Why do you think it is necessary for management students to study operation management? • How are service organizations different from manufacturing organizations? Explain with suitable expample. • Define operation function with two suitable examples? Why study of operation management is important for business students? • Define operation management.Explain the importance of operation management. How can manager benefit from it?