Operations Management
Operations function consists of all activities directly
related to producing goods or providing services.
Organization
Finance Production/ Marketing
Operations
Value-Added
The difference between the cost of inputs
and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback
How value can be added ?
Alter
Transport
Store
Inspect
OPERATIONS DEFINED
Purposeful activities of an organization
All operations are value adding
Is the process of changing inputs to
outputs and thereby adding value to
some entity
Performance Objectives
Efficiency
Effectiveness
Flexibility
Quality
Lead times
Capacity utilization
Cost Objectives
Explicit (visible) costs Implicit (invisible/hidden) costs:
Cost of carrying inventory
Material cost Cost of stockouts, shortages, back-
Direct and indirect logging, lost sales
labor cost Cost of delayed deliveries
Scrap/rework cost Cost of material handling
Maintenance cost Cost of inspection
Cost of grievances, dissatisfaction
Downtime costs/ Opportunity costs
PRODUCTION MANAGEMENT
DECISIONS
PERIODIC CONTINUAL
SELECTION DESIGN UPDATING OPERATING-CONTROLLING
• Product • Product • Involves revision of • Setting targets
• Process • Process equipment production system in • Sequencing
• Equipmen • Job the light of changing • Scheduling
t • Methods environment • Inventory control
• Workforce • Wage payment systems • Quality control
• Layout • Operating and control • Cost control
• Location systems • Production control
• Systems and Procedures • Maintenance
FRAMEWORK OF OPC DECISIONS
Goods-service Continuum
Steel production Home remodeling Auto Repair Maid Service Teaching
Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing
High percentage goods Low percentage goods
Low percentage service High percentage service
Hospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy
Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
Services are more important now than ever
before…. Why?
Manufacturing or Service?
Tangible Act
Production of Goods vs. Delivery of
Services
Production of goods – tangible output
Delivery of services – an act
Service job categories
–
Government
–
Wholesale/retail
–
Financial services
–
Healthcare
–
Personal services
–
Business services
–
Education
Key Differences – Services versus Mfg
• Customer contact
• Uniformity of input
• Labor content
• Uniformity of output
• Measurement of productivity
• Quality assurance
• Amount of inventory
These differences are beginning to fade
in many cases
Manufacturing versus Service
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
Key Decisions of Operations Managers
What
What resources/what amounts
When
Needed/scheduled/ordered
Where
Work to be done
How
Designed
Who
To do the work
Why
Business Operations Overlap
Operations
Marketing Finance
