Introduction to Operations Management

Introduction to Operations Management

• Operation is a group of actions linked to the creation of goods and services.
• Operation Management (OM) involves managing the systems or processes that produce goods and services.
• OM is vital, as it generates demand, creates products, and helps in understanding goods and services production.
• Managing production and operations is often the highest cost for a company.

Role of Operation Management

• OM changes inputs like manpower, material, money, and machines into outputs of goods and services.
• OM adds value by increasing product value at each stage.
• Value-added equals net increase between output and input values. Value defined as Quality divided by Price.
• OM provides efficiency through lowest cost operation.
• Effectiveness involves doing the right things to create maximum value.

Types of Operations [GSEEC]

• Goods-Producing: Includes farming, mining, manufacturing, and power generation.
• Storage/Transportation: Encompasses warehousing, trucking, and airlines.
• Exchange: Covers retailing, banking, and leasing.
• Entertainment: Involves films, TV, and concerts.
• Communication: Includes newspapers, broadcasting, and telephony.

Goods vs. Services

• Goods are touchable, resellable, can be inventoried, and involve low customer contact.
• Services are intangible, non-resellable, hard to inventory, and involve high customer contact.
• Both use technology, deal with quality, productivity, forecasting, capacity, layout, location, staffing, customers, and suppliers.

Operations Strategy

• Operations Strategy defines long-term direction and scope, aligning resources with market conditions and stakeholder expectations.
• Action plans exist to achieve the mission and exploit strengths, neutralize threats, and avoid weaknesses.

Strategies for Competitive Advantage [DCQT]

• Differentiation provides unique products or services.
• Cost Leadership offers maximum value at the lowest cost.
• Quick Response includes flexibility, reliability, and timeliness.
• Technology can be an advantage but is also risky and costly.

Elements of Operations Strategy [LPT-PIFL]

• Key elements include low-cost product, product-line breadth, technical superiority, product differentiation, innovation, and flexible efficient operations.

Levels of Strategy [CBF]

• Corporate Level: Sets long-term direction for the entire organization.
• Business Level: Decides what products/services to offer in the market.
• Functional Level: Forms plans those support competitive advantages.

Operations Strategy Approaches

• Market-Based Approach focuses on customer needs and competitor actions.
• Resource-Based Approach focuses on optimizing internal resources and processes.

McDonald's Operations Strategy Example

• Mission: Prioritizes fast, quality, low-cost service.
• Objectives: Manage process, quality, capacity, and inventory.
• Strategic Decisions: Strive for continuous improvement

Performance Objectives

• Quality aims for error-free processes.
• Dependability aims to minimize disruptions.
• Speed aims to reduce processing time.
• Flexibility aims to adapt to changes.
• Cost aims for high productivity with a low cost.

Product Life Cycle Stages

• Introduction: Focus on market share expansion and R&D.
• Growth: Strengthen niche, stabilize pricing.
• Maturity: Focus on cost control, defend market position.
• Decline: Manage exit or innovation.

Stakeholders in Operations Strategy

• Stakeholders are Internal, Connected, and External.
• Internal: Employees, managers.
• Connected: Customers, shareholders, and suppliers.
• External: Government and regulatory bodies.

Measuring Productivity

• The formula is Productivity = Output / Input.
• Types of Productivity Measures include Total, Partial, and Multifactor Productivity..
• Total Productivity: Output vs. all inputs.
• Partial Productivity: Output vs. a single input.
• Multifactor Productivity: Output vs. several inputs.
• Measuring intangible outputs is a challenge.

Manufacturing Process Types

• Process design is categorized into manufacturing and service processes that dependent on volume and variety.
• Project Process: Highly customized, low volume, follows unique processing requirements, e.g., custom-built homes.
• Batch Process: Multiple jobs in groups, uses components combined in various ways, more variety than mass production, e.g., print shops.
• Line/Mass Process: Large volumes of standardized products, products pass through the same sequence, highly automated, low flexibility, e.g., cars. Continuous Process: Extremely high volume, standardized products flow continuously, highly automated, capital intensive, e.g., oil refineries.

Service Process Types

• Professional Service: Highly customized, labor-intensive, e.g., doctors, lawyers, consultants.
• Service Shop: Moderately customized, labor-intensive, e.g., banks, restaurants.
• Mass Service: Less customized, less labor-intensive, e.g., supermarkets, public transportation.
• Service Factory: Least customized, least labor-intensive, e.g., utilities, airlines, large-scale logistics.

Types of Layouts [ORWFPWP]

• Office Layout aims for efficiency, comfort, and communication.
• Retail Layout maximizes profitability per square foot of space.
• Warehouse Layout optimizes the balance between handling costs and space utilization.
• Fixed-Position Layout is utilized for large, bulky projects with limited space.
• Process-Oriented Layout is best for low-volume, high-variety production.
• Work Cell Layout groups machinery and workers for specific product families.
• Product-Oriented Layout is designed for repetitive or continuous production.

Key Layout objectives

• Aims to develop cost-effective layout that meets competitive needs.
• Considers material handling efficiency, space and capacity requirements, environment, information flow, and the cost of moving materials

McDonald's Layout Innovations

• Layout innovations include indoor seating, drive-thru windows, breakfast menu, play areas, kitchen redesign, self-service kiosk, "Linger Zone", "Grab & Go Zone", and "Flexible Zone".

Location Strategies

• Location decisions include country, regional/community, and site decisions to maximize benefits while minimizing costs.
• Country-Level: Political risks, cultural conditions, exchange rates.
• Regional/Community-Level: Labor costs, environmental regulations, government incentives.
• Site-Level: Transportation access, zoning laws, environmental impact.

Methods for Location Selection

• Factor-Rating Method: Weighs and scores multiple location factors.
• Locational Break-Even Analysis: Compares costs at different production volumes.
• Center-of-Gravity Method: Determines optimal location for distribution centers to minimize shipping costs.

Proximity Considerations

• Proximity to Markets is essential for service industries.
• Reduces logistics costs with suppliers.
• The industry benefits from co-location with competitors.

Factors Affecting Location Selection

• Labor Productivity considers wage rates & overall productivity.
• Exchange Rates affect cost structure and profitability.
• Tangible Costs include utilities, labor & taxes.
• Intangible Costs include community quality & education.
• Political and Cultural Risks cover government stability, worker attitudes, and legal standards.
• Important for service industries & manufacturers to lower logistical costs.
• Essential proximity to suppliers for perishable merchandise products.
• Proximity to Competitors (Clustering) benefits from resource availability.

Learn about Operations Management (OM) and its vital role in managing systems that produce goods and services. Understand how OM transforms inputs into outputs, adds value at each stage, and focuses on efficiency and effectiveness. Explore different types of operations.