Operations Management (OM) : Arsi University

Operations Management (OM)
Arsi University
MBA PROGRAM
Operations Management Dr.Yehualashet

Demeke
1 09/06/21
Course Objectives
Up on successful Completion of this course you will be able to:
 Understand the production/operation function as process of value addition
 Distinguish various structures of production systems and their associated
problems
 Understand goods and service design as one of the key strategic decisions of
any organization
 Identify the issues involved in the general transformation
process selection procedure
 Understand the strategic importance and objectives of facilities
location
 Become familiar with the basic types of plant layouts and the
factors to be considered for layout design
2 Operations Management 09/06/21

Dr.Yehualashet Demeke
Objective ctd….
 Understand the concept of capacity and how it is measured
 Realize the need for considering appropriate design considerations for
improving productivity
 Understand aggregate production planning and master schedule
determination
 Appreciate the role of quality control, quality assurance and quality
assessment
 Understand time based operations strategies and lean operations
3 Operations Management Dr.Yehualashet 09/06/21

Demeke
COURSE CONTENTS
 CHAPTER1- FUNDAMENTALS OF POM
 CHAPTER2-OPERATIONS STRATEGY,
COMPETITIVENESS AND PRODUCTIVITY
 CHAPTER3- GOODS AND SERVICE DESIGNS
 CHAPTER4-CAPACITY MANAGEMENT AND JOB
DESIGN
 CHAPTER5-FACILITY LOCATIONS AND LAYOUT
DECISIONS
 CHAPTER6-PRODUCTION PLANNING AND CONTROL
 CHAPTER7-MANAGING QUALITY
 CHAPTER8-JIT AND LEAN OPERATIONS

Demeke
CHAPTER-1
The Basics Of Operations Management
 Before directly proceed to what production
management mean, any one should clearly
understand.
- The purpose of the existence of organization
- Activities that are performed with in the
organization
- The concept of production
- What management mean.

Demeke
Ctd..
 What is organization? is social entity that is goal
directed and deliberately structured.
- Why organization exist?
 An objective of any organization except non profit
organization is gaining profit.
 In order to have profit business should provide goods and
services that satisfies individuals needs and wants.

Demeke
Operation general concepts
 Operations Management is crucial than others

business functional area.
 Operations and production
 Operations and Manufacturing
 Manufacturing is process of converting tangible
products.
 Operation is process of converting both tangible and
intangible products.
7 Operations Management Dr.Yehualashet Demeke 09/06/21

Operations Management
 What is operations?
◦ The part of a business organization that is responsible for
producing goods or services
◦ Production: is the process of converting raw materials to end
products by using the five M’s of production – Money,
Material, Machine, Men, and Methods/ processes
◦ Production: in general sense refers to the creation of any
goods or service people will buy. That it emphasizes creation
of those goods and services, which have exchange value.
◦ It is concerned with creation of economic utilities

Demeke
CTD.
 Management: is the process of planning, organizing
directing, staffing and controlling activities to accomplish
a stated objective.
 Reflection:
 Operations
 Operations Management
 Production management

Demeke
Ctd…
 Plan - A blueprint specifying the resource allocations,
schedules, and other actions necessary for attaining goals
 Planning – determining the organization’s goals and the
means for achieving them
 Organizing: is the process of
identifying and grouping the work to be performed
-
- defining and delegating responsibilities and authority and
- establishing relationships for the purpose of enabling people
to work most efficiently together to achieve objectives of the
business
 Leading is the ability to influence people toward the attainment
of organizational goals

Demeke
Ctd..
 Control is the systematic process through which
managers regulate organizational activities to make them
consistent with expectations established in plans, targets,
and standards of performance

Demeke
Ctd..
 How can we define operations management?
◦ The management of systems or processes that create goods
and/or provide services
 Operations management: is the process where by
resources, flowing with in a defined system, are
combined and transformed in a controlled manner to add
value in accordance with policies communicated by
management.
 It involves planning, organizing, directing and controlling
the production process.

Ctd..
 Operations management (OM) is the business function
that plans, organizes, coordinates, and controls the
resources needed to produce a company’s goods and
services.
 Operations management is a management function.
 It involves managing people, equipment, technology,
information, and many other resources.
 Operations managers focus on managing the “five
Ps” of the firm’s operations:
 People, plants, parts, processes, and planning and
control systems.

Demeke
Ctd..
 The role of operations management is to transform a
company’s inputs into the finished goods or services.
 Inputs include human resources (such as workers and
managers), facilities and processes (such as buildings and
equipment), as well as materials, technology, and
information.
 Outputs are the goods and services a company produce
 POM Is the management of day-to-day activities within the
organization function, which focus on adding value for the
organization through its transformation process, which is
sometimes referred to as technical core.

Demeke
The Production System
Environment
Customers . Competitors .Suppliers
Government regulations . Technology . Economy
Inputs Transformation
Capital System Outputs
Materials  Alteration Goods
Equipment  Transportation
Facilities
Services
 Storage
Suppliers  Inspection
Labor
Knowledge
Time
Data Action
Data Data
Monitoring &
Action
Control
Demeke
OM Involves Managing Transformations
Transformation
Input Process Output
(Value Adding)
Transformation is  People
enabled by The 5 Ps of  Plants
OM:  Parts
 Processes
 Planning and Control
Ctd..
 POM therefore, is all about transformation/ conversion
inputs in to outputs.
Examples of types of Transformations:
 Physical- as in manufacturing
 Locational- as in transportation
 Exchange- as in retailing
 Storage- as in warehousing
 Physiological- as in health care
 Informational - as in telecommunications, Newspapers,
Radio, TV etc.
 Psychological – as in Entertainment.
17 Operations Management Dr.Yehualashet Demeke 09/06/21

Key OM Concepts
 Efficiency - Doing something at the lowest possible cost
 Effectiveness - Doing the right things to create the most

value for the organization
 Value - Quality divided by price

Examples of Production Systems
System Inputs Conversion Output
(desired)
Hospital Patients Health Care Healthy
MDs, Nurses Individuals
Medical Supplies
Equipment
Restaurant Hungry Customers Prepare Food Satisfied
Food, Chef Serve Food Customers
Servers
Atmosphere
Automobile Sheet Steel Fabrication High Quality
Plant Engine Parts and Assembly Automobiles
Tools, Equipment of Cars
Workers
University High School Grads Transferring Educated
Teachers, Books of Knowledge Individuals
Classroom and Skills

Demeke
History of Operations
 Cottage System <1700 TIME

 Industrial Revolution 1700 - 1800
 Civil War 1850s
 Scientific Management 1890s
 Moving Assembly Line 1910s
 Hawthorne Studies 1930s
 Operations Research 1940s
 Global Competition 1970s
 Service Revolution 1980s

20
Mass Customization 1990s
Operations Management 09/06/21
12
Development of OM as a Field – The Names and
Emphasis Change, but the Elements Remain
Basically the Same!
Scientific Manufacturing TQM &

Management Strategy Six Sigma
Moving Assembly JIT/Lean Business Process

Line Manufacturing Reengineering
Hawthorne Manufacturing Electronic

Studies Resources Planning Enterprise
Operations Service Quality Global Supply

Research and Productivity Chain Mgt.
Historical OM’s Emergence

Underpinnings as a Field
13
Significant Events in OM
 Division of labor (Smith, 1776)
 Standardized parts (Whitney, 1800)
 Scientific management (Taylor, 1881)
 Coordinated assembly line (Ford 1913)
 Gantt charts (Gantt, 1916)
 Motion study (the Gilbreths, 1922)
 Quality control (Shewhart, 1924)

Significant Events - Continued
 CPM/PERT (DuPont, 1957)
 MRP (Orlicky, 1960)
 CAD, CAM, FMS, CIM, TQM
 Globalization
 Internet
 Supply Chain Management (SAP, Oracle)
 E-Commerce

Manufacturing Vs Service Operations
 Organizations can be divided into two broad categories:
- manufacturing organizations and
- service organizations,
- There are two primary distinctions between these
categories.
- First, manufacturing organizations produce physical,
tangible goods that can be stored in inventory before
they are needed
- By contrast, service organizations produce intangible
products that cannot be produced ahead of time

Cont’d….
 Second, in manufacturing organizations most customers
have no direct contact with the operation.
 Customer contact is made through distributors and retailers.
 However, in service organizations the customers are
typically present during the creation of the service.

Service or Good?

 “If you drop it on your foot, it won’t hurt you.” (Good or
service?)
 “Services never include goods and goods never include
services.” (True or false?)

Manufacturing vs 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
High

Demeke
Goods versus Services
Good Service
 Can be resold
 Can be inventoried
¨ Reselling unusual
 Some aspects of quality ¨ Difficult to
measurable
 Selling is distinct from
inventory
production ¨ Quality difficult to
measure
¨ Selling is part of
service

Goods versus Services - continued
Good Service
 Product is ¨ Provider, not
transportable product is
transportable
 Site of facility ¨ Site of facility
important for cost important for
 Often easy to customer contact
automate ¨ Often difficult to
 Revenue automate
generated ¨ Revenue generated
primarily from primarily from
tangible product intangible service.

Ctd….

Demeke
Scope/functions of Operations
Management
 The operations function Consists of all activities directly related to
producing goods or providing services
The operations function includes many interrelated activities
such as:
◦ Forecasting
◦ Capacity planning
◦ Scheduling
◦ Managing inventories
◦ Assuring quality
◦ Motivating employees
◦ Deciding where to locate facilities
◦ And more . . .

Demeke
The production management Environment
 The business environment, consists of all those aspects and
forces in the surroundings of business enterprises under which
business operations are to be carried out effectively and
efficiently.
 “Environment “ as, the environment posses threats to the firm
and offers opportunities for exploitation.
 Generally, production Environment is divide in to two broad
categories.
 These are:
- Internal and
- External environment

The production Environment cont’d….
A. Internal Environment
 All Subsystems with in the organization are
considered as internal environment
 Internal Environment includes:
Marketing function

 Finance function
 Human resource
 Purchasing
 Information technology etc.
 All these have a direct relationship with the production system

B. External Environment
 It can be divided in to two these are
 Micro External Environment
 Suppliers
 Customers
 Competitors
 Distributors
 Their influence is more nearer to the organization. That is why

we call them micro-environment.

Macro External Environment

 It includes
 Technological factors
 Economic forces
 Socio-cultural forces
 Demographic factors
 Political and legal Environment
 Education

Internal influences on the operation
function
1. Human resources
◦ human resources: the total knowledge, skills, creative
abilities, talents and aptitudes of an organization’s workforce,
as well as the values, attitudes, approaches and beliefs of the
individuals involved in the affairs of the organization.
◦ The personnel function is responsible for recruiting and
developing the work force required by various internal
functions.
◦ As such it can influence the performance of the operation
functions by having the right recruitment strategy & selecting
& training the right people for the right jobs.

function
2. Sales
- The r/ship b/n sales and operation functions is an
important one.
- The absence or lacks of communication and
interaction b/n this function creates interruptions in
production activities and resects in lose of outputs and
productivity

function
3. Marketing
- The marketing functions have an important role to
play both in manufacturing and service operations.
- Today b/c of competition a marketing function has
become a major deriving force in many types of
organization.
- This means that to be successful all departments in
firm should be market led or customer oriented and
there should be integrations b/n all functions specially
b/n marketing and productions function.

function
4. finance
- Financial & accounting people are responsible for
budgets Labor costs, inventory levels, purchase
decisions for raw materials & capital equipment
therefore, the finance functions can influence the
performance of production functions.
5. Purchasing
- The role of purchasing functions is to make materials
and parts of the right quality and quantity available for
use by operation at the right time and at the right
price.

External influences on the operation
functions
1. Political and legal environment
- Political instability and the government over all attitudes towards
an organization can affect its performance.
- Legislation on pollution and noise control as well as procurement
policies will have implications on operation activities.
2. Economic conditions
- Changes in the economic condition both at the national and
international levels can have implications for operations activities.
- If there is a growth in the world economy, then the demand for
goods & services increases.
- The rate of interest has also an impact in the performance of
operations activities in raising capital

functions
3. Competitors
- If a firms competitors can produce products of similar or better
design, cheaper, faster and of better quality, it will soon make the
company out of date and capture its present marking. This can have a
significant impact on the activities of the operations function.
4. Labor Market
- A firm having access to the right labor market which can supply the
company with the required labor force of the right skills and
capabilities can increase the performance of its operations.

functions
5. Customers
-Today, customers can put a lot of pressure on the operations
functions. They can ask for faster delivery, better quality,
lower price, more variety, etc.
6. Suppliers
- A firm’s r/ship with its suppliers can affect the performance of
the operations function.

functions
7. Technological Development
 Performance of the operations function can be influenced
by Development in technology and the firm’s willingness
to take advantage of this advancement.
8. Capital and money markets
 The extent is which a company is able to raise money
from banks and stock market to support investments in its
people, resources, processes and new technology will
also affect the performance of its production function.

OM Critical Decisions
 Managing quality
 Design of goods and services
 Process strategies
 Location strategies
 Layout strategies
 Human resources
 Supply-chain management
 Inventory management
 Scheduling
 Maintenance
Demeke
The Critical Decisions
 Quality Management
 Who is responsible for quality?
 How do we define quality?
 Goods and Services Design

 What product or service should we offer?
 How should we design these products and
services?

The Critical Decisions - continued
 Process and Capacity Design
 What processes will these products require and in
what order?
 What equipment and technology is necessary for
these processes?
 Location
 Where should we put the facility
 On what criteria should we base this location
decision?
 Layout Design
 How should we arrange the facility?
 How large a facility is required?
 Human Resources and Job Design

 How do we provide a reasonable work
environment?
 How much can we expect our employees to
produce?

Demeke
 Supply Chain Management and JIT “Just-in-
time” Inventory, Material Requirements
Planning
 Should we make or buy this item?
 Who are our good suppliers and how many should
we have?
 How much inventory of each item should we
have?
 When do we re-order?
Demeke
 Immediate, Short Term, and Project
Scheduling
 Is subcontracting production a good idea?
 Are we better off keeping people on the payroll
during slowdowns?
 Maintenance
 Who is responsible for maintenance?

Responsibilities of Operations Manager
Table 1.6
Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
Why Study Production/Operations
Management?
Systematic Approach
to Org. Processes
Operations
Business Education Career Opportunities
Management
Cross-Functional
Applications
Why Study OM?
 Every aspect of business revolves around operations
 Many service jobs are closely related to operations
 Financial services
 Marketing services
 Accounting services
 Information services
 There is a significant amount of interaction and
collaboration amongst the functional areas
 It provides an excellent vehicle for understanding the
world in which we live

Some Current Issues
 Implementing/sustaining Quality Management initiatives
 Consolidating operations resulting from mergers
 Speeding up the time to get new products to market
 Developing flexible production systems to enable mass
customization of products and services
 Developing and integrating new technologies
 Managing global supplier, production and distribution
networks
 Outsourcing

14
Contributions from
 Human Factors
 Industrial Engineering
 Management Science
 Biological Science
 Physical Sciences
 Information Science

Career Opportunities in OM
 Operations manager
 Production analyst
 Production manager
 Industrial engineer
 Time study analyst
 Inventory manager
 Quality analyst
 Quality manager

New Challenges in OM
From To
 Local or national focus Global focus
 Batch shipments Just-in-time

 Low bid purchasing Supply chain partnering
 Lengthy product development Rapid PD
 Standard products Mass Customization
 Job specialization Empowered Employees

summary
 Operations management is important because when an
operation works well, goods and services are delivered to
customers when they want them, with something extra that
delights the customer and creates customer loyalty.
 If an organization has outstanding financials, human
resources and market plans, and utilizes the very latest IT
system but can’t deliver products and services, then it will
not succeed. Operations management makes this happen.
 The study of operations management shows us how to
accomplish and improve the operations task of the
organization. Operations is changing as fast as organizations
themselves change – everyday, products and processes are
being improved.
Operations Management
57 09/06/21
 Operations management contributes to organizational
success or failure. Every organization has an operations
function, which is what the company does. Within an
organization, operations produces the organization’s
goods and services for internal and organizational
customers or clients.
 Operations management focuses on the processes by
which work gets done. Processes bring together the four
‘P’s of operations – policies, processes, practices and
performance. These processes have evolved over time
from craft-based work to mass production and other
specialized work, and today’s reintegrated work.
Ctd…
 Processes also tie operations to the other functional areas of
the organization, and to suppliers and customers. Processes
can be categorized using the volume–variety matrix and other
characteristics.
 Operations managers are responsible for managing human
resources, assets and costs. Operations managers must also
consider a range of imperatives, including ethical and
environmental considerations, and new technologies such as
the Internet. The operations process itself can be described
using the transformation model, which applies to both
services and manufacturing. In the wider perspective,
operations managers bring together resources, knowledge and
market opportunities, as shown in the dynamic convergence
model.
Reflection?
1)Define operations management in your own words.
Is your definition accommodate both manufacturing
and service operations?
2) Operations managers should be well versed in what
disciplines in order to make good decisions?
4).Why are services typically more difficult to
standardize, automate, and make efficient?
5). How do services differ from goods? Identify five ways.
6). What are some of the ethical and social challenges faced
by operations managers?


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Operations Management (OM)

Operations Management Dr.Yehualashet

2 Operations Management 09/06/21

3 Operations Management Dr.Yehualashet 09/06/21

4 Operations Management Dr.Yehualashet 09/06/21

5 Operations Management Dr.Yehualashet 09/06/21

6 Operations Management Dr.Yehualashet 09/06/21

 Operations Management is crucial than others

7 Operations Management Dr.Yehualashet Demeke 09/06/21

8 Operations Management Dr.Yehualashet 09/06/21

9 Operations Management Dr.Yehualashet 09/06/21

10 Operations Management Dr.Yehualashet 09/06/21

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17 Operations Management Dr.Yehualashet Demeke 09/06/21

 Effectiveness - Doing the right things to create the most

 Value - Quality divided by price

18 Operations Management 09/06/21

19 Operations Management Dr.Yehualashet 09/06/21

 Cottage System <1700 TIME

Scientific Manufacturing TQM &

Moving Assembly JIT/Lean Business Process

Hawthorne Manufacturing Electronic

Operations Service Quality Global Supply

Historical OM’s Emergence

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Characteristic Manufacturing service

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 All these have a direct relationship with the production system

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 Their influence is more nearer to the organization. That is why

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Macro External Environment

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 Goods and Services Design

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 Human Resources and Job Design

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