Unit 1: Introduction to Operations
Management
This unit covers:
• Operations and Productivity (Chapter 1)
• Operations Strategy in a Global
Environment (Chapter 1)
By the end of this unit you should be able to:
• Explain the concept of Operations Management
• Explain the difference between a good and a service
• Calculate various measures of productivity
Respond to the discussion questions by Friday and respond to other participants
by Sunday. Answer unit assignment/ practice questions/ group assignment by
the following Thursday unless otherwise stated.
1. Operations Management
What is operations management?
• Production = Creation of goods and services
• Operations Management = Set of activities that create goods and services
by transforming inputs into outputs
• Manufacturing – Transformations is obvious whereas for services it is less
obvious
Historical Perspective
• Eli Whitney (1800) – Interchangeable, standard parts – govt contract for
10,000 muskets
1
• Frederick W Taylor (1881) – Father of scientific management – personnel
selection, planning and controlling, motion study and ergonomics
• Henry Ford and Charles Sorensen – Standardised parts/quasi assembly
lines
• Walter Shewart (1924) – Quality control, statistics, statistical sampling in
quality control
Operations Management Role?
• Management Process – Planning, Organising, Staffing, Leading,
Controlling
• Quality Management – Quality definition, responsibility for quality
• Service/Product Design – Product offerings, should products/services be
designed?
• Process and Capacity Design – Process order/necessary equipment
technology
• Location – Where to locate? How do evaluate the decision?
• Layout design – How should the facility be arranged? How large should
the facility be?
Operations Management Role?
• Human Resource and Job Design – Good work environment/ employee
expectations?
• Supply chain management – make or buy decisions, establishment of
critical few suppliers
• Inventory/MRP/JIT – How much inventory should we have? When should
• we order?
• Scheduling – Production subcontracting? Layoffs during production
downturns?
• Project Management – How do we plan to get things done
2
Common Functions in any company
• Operations – Creation of product/service
• Marketing – Generation of demand/receives the order
• Finance/accounting – collects the money/pays the bills
New trends in Operations Management
• Global focus – Decrease communication and transport costs
• JIT Performance – Cutting inventories, increase deliveries
• Supply-Chain partnering – Increased supplier involvement
• Rapid product development – Faster more effective design management
• Mass customization – Increased manufacturing/ Service flexibility
• Empowered Employees – More competent workforce
Operations in the Service Sector
• Inconsistent definition = Inconsistent Data
• Manufacturing companies become more service oriented
• Services = Food/Lodging, transport, insurance, real estate
Difference between goods and services
• Services = Intangible
• Services are produced and consumed simultaneously, no inventory
• Services often unique
• Services = High customer interaction
• Services = Knowledge based
Productivity
• Productivity – Ratio of output to inputs = Output/Inputs
• Operations Management Role – Increased Productivity
• Productivity Improvement
3
• Reduction in inputs
• Increase in outputs
• Increased productivity – Increased standard of living
Productivity Measurement
• Direct – labour hrs/ton or lbs of sugar/KWh
Productivity Measurement problems
• Quality changes despite variable consistency
• External factors
• Precise units of measure lacking
• Generally difficult to measure in the service sector
Productivity Variables
• Labour
• Capital
• Management
Productivity variables – Labour
• Key factors
• Basic education
• Labour force diet
• Social overhead
• Maintaining and enhancing labour skills
Productivity variables – Capital
• Capital investment provides tools for job completion
• Inflation and taxes increased capital costs
4
• Use of labour as opposed to capital is short term fix only
Productivity and the service sector
• Difficulties
• Labour intensive
• Individual processing
• Professional intellectual tasks
• Difficult to mechanise and automate
• Difficult to evaluate for quality
2. Operations Strategy in a Global Environment
Operations management and its business fit
• Mission – Operations management must have a clear mission
• Strategy – Must have a strategy to achieve the mission
Operations management mission
• Mission – Defines organization’s purpose
• Rationale for organisation’s existence
• Makes development of a good strategy easier
• Organisational mission supported by functional mission
• Differentiation/Cost leadership/Quick response
Operations Management Strategy
• Strategy should follow mission development
• Strategy – Organization’s action plan to achieve the mission
• Operations Managers translate strategic concepts into tangible tasks
5
• Aim is to create competitive advantage
Key Strategy elements in successful enterprise
• High product quality
• High capacity utilization
• High operating effectiveness
• Low investment intensity
• Low direct cost per unit
Preconditions for strategy implementation
• Competitor strength and weaknesses
• Environmental, technical and legal issues
• Product life cycle
• Resource available in firm
• Integration of OM strategy with company strategy
Strategy and the Product life cycle
• Product life cycle impact business/OM Strategy
