Introduction to Operations
Management
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Introduction
Production and operations management (POM)
is the management of an organization’s
production system.
A production system takes inputs and converts
them into outputs.
The primary concern of an operations manager
is the activities of the conversion process.
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The Production System
The operations system transforms inputs into
desired goods and services.
EXTERNAL
FACTORS
INPUTS PROCESS OUTPUTS
FEEDBACK
Material flow
Information Flow
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What is Operations Management?
OM is a business function responsible for planning, coordinating, and
controlling the resources needed to produce a company’s products and
services.
• Every organization has the OM function
• Manufacturing or Service
• For Profit or Not For Profit
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Definition of Operations Management (OM)
OM is defined as design, operation, and
improvement of systems that create and
deliver firm’s primary products and
services.
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Advantages of Operations Management
Improves productivity:
* Effective control of the conversion process of inputs into
outputs (e.g., fewer defect output, less wastage of material
inputs, effective allocation of staff, will lead to more output
per unit time).
Improves our ability to meet customer needs:
* Ensure provision of high quality products and services at
reasonable prices (not just cheap output)
* Enables us to provide service to our target customers better
than our competitors
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Building of a brand reputation of the company as a
competitive weapon:
* High-quality product/service provider
* Low cost
* Fast delivery
Improves the living standards of citizens and wealth of
nations:
* Has impact on GDP per capita
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Differences between Manufacturers and
Service Organizations
•Services: •Manufacturers:
• Intangible product • Tangible product
• Product cannot be inventoried • Product can be inventoried
• High customer contact • Low customer contact
• Short response time • Longer response time
• Labor intensive • Capital intensive
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Similarities between Manufacturers and
Service Organizations
• All use technology
• Both have quality, productivity, and response issues
• All must forecast demand
• Each will have capacity, layout, and location issues
• All have customers and suppliers
• All have scheduling and staffing issues
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Competitive Priorities for the Operational Function
Price
Quality
Flexibility
Product Mix: make various products
Volume flexibility
Time
Speed of Delivery
Speed of Product Development
Service
Delivering a comprehensive solution to the customer’s needs
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Today’s OM Environment
• Customers demand better quality, faster deliveries, and lower costs
• Increased cross-functional decision making
• Recognized need to better manage information using ERP (Enterprise
Resource Planning) and CRM (Customer Relationship Management)
systems
• Global competition
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Types of Decision Making
Strategic Decisions
Operational Decisions
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Strategic Decisions
These decisions are of strategic
importance and have long-term
significance for the organization.
Examples include deciding:
the design for a new product’s production
process
where to locate a new factory
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Operational Decisions
These decisions are necessary to satisfy
market demands and provide profits.
Examples include deciding:
how much store finished-goods inventory
the amount of overtime to use next week
the details for purchasing raw material next
month
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Responsibilities of Operations Management
Planning Controlling
Capacity utilization Inventory
Location Quality
Choosing products or Costs
services Organization
Make or buy Subcontracting
Layout
Process selection
Projects
Scheduling
Staffing
Hiring/Firing
Forecasting
Use of overtime
Incentive plans
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Forecasting
Forecasting is the
art and science of
predicting future
demand.
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Why forecasting is important
All businesses need forecasting to plan
at strategic and operational levels.
Forecasting is critical to run a business.
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Forecasting Process
Separate dependent from independent
variables
Determine forecast horizon
Select a model
Assess the proposed model
Apply the model
Monitor the performance
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Forecast Horizons
Short Range forecasts: up to one year
used for materials planning & ordering,
job scheduling, determining workforce
and production levels.
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Medium range forecasts: up to 3 years
used for sales planning, production
planning & budgeting
Long range forecasts: 3 years +
used in the planning of new products,
major capital expenditure, facility
expansion or location, and research &
development
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Types of forecasting Techniques
• Simple Moving Average
• Weighted Moving Average
• Exponential Smoothing
• Regression (Time Series)
• Analytic hierarchy process
• Artificial neural networks
• etc.
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