Operations Management: An Overview PDF

OPERATIONS MANAGEMENT: AN OVERVIEW Operations management concern with the transformation of inputs into outputs, using physical resources, so as to provide the desired goods & services to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability.So,...

OPERATIONS MANAGEMENT: AN OVERVIEW Operations management concern with the transformation of inputs into outputs, using physical resources, so as to provide the desired goods & services to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability.So, within organizations, operations management describes the functional area responsible for managing the operations that produce goods and/or services for customers. Goods are physical items that include raw materials, parts, subassemblies such as motherboards that go into computers, and final products such as cell phones and automobiles. While, Services are activities that provide some combination of time, location, form, or psychological value. Operational activities are core to the producing of goods and/or delivering services. Every organization provides a product and service combination. A meal in a restaurant, a visit to the hospital, watching a movie, reading a book, insuring an automobile, staying in an hotel, going to the cinema; all have operations activities and their management is central to the successful providing of goods and services.The ideal situation for a business organization is to achieve an economic match of supply and demand. Having excess supply or excess capacity is wasteful and costly; having too little means lost opportunity and possible customer dissatisfaction. The key functions on the supply side are operations and supply chains, while sales and marketing are working on the demand side. While the operations function is responsible for producing products and/or delivering services, it needs the support and input from other areas of the organization. Three basic functional areas can be found in business organizations, as shown in Figure 1.1, including finance, marketing, and operations. It doesn’t matter whether the business is a retail store, a hospital, a manufacturing firm, a car wash, or some other type of business; all business organizations have these three core functions. Finance is responsible for securing financial resources at favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment proposals, and providing funds for operations. Marketing is responsible for assessing consumer wants and needs, and selling and promoting the organization’s goods or services. Operations is responsible for producing the goods or providing the services offered by the organization. To put this into perspective, if a business organization were a car, operations would be its engine. And just as the engine is the core of what a car does, in a business organization, operations is the core of what the organization does. Operations management is responsible for managing that core. Hence, operations management is the management of systems or processes that create goods and/or provide services. (Press to learn more ) The following table (Table.1.1) shows the most important differences between production management and operations management. It will be helpful for students to understand the idea in a better way. Production is concerned with the creation of goods and/ or services. While operations are concerned with the transformation of specific inputs such as: materials, staff, information and facilities into desired outputs such as: goods and/or services. In the same vein, we have to put in mid that there are many differences between production and manufacturing as illustrated in the following figure (Figure, 1.2).To do the previously mentioned, any organization must have operations system which consists of four elements.i.e. inputs, processes, outputs and feedback. (Press to learn more) - Inputs are divided into to types: Converted resources.i.e. the resources that are treated before using them such as: raw materials and information. Converting resources.i.e. the resources that act upon the converted resources such as: staff and facilities - Transformation Processes indicate into all activities that add values. There are five common transformation processes.i.e. physical process as in manufacturing, locational process as in transportation, exchange process as in a giant store, physiological process in entertainment, and informational process as in telecommunications. - Outputs are goods and/or services such as: a pen and a health care. - Feedback, to ensure that the desired outputs are obtained, an organization takes measurements at various points in the transformation process {feedback) and then compares them with previously established standards to determine whether corrective action is needed {control). Figure 1.3. illustrates the operations function as a system. The term value added is used to describe the difference between the cost of inputs and the value or price of outputs. In nonprofit organizations, the value of outputs (e.g., highway construction, police and fire protection) is their value to society; the greater the value-added, the greater the effectiveness of these operations. In for-profit organizations, the value of outputs is measured by the prices that customers are willing to pay for those goods or services. Activities that do not add value are considered a waste; these include certain jobs, equipment, and processes. 2. PRODUCING GOODS VERSUS PROVIDING SERVICES It is important to note that goods and services often occur jointly. For example, having the oil changed in your car is a service, but the oil that is delivered is a good. The goods-service combination can be considered as a continuum. It can range from primar ily goods, with little service, to primarily service, with few goods. Figure 1.4. illustrates this continuum. Because there are relatively few pure goods or pure services, companies usually sell product-packages, which are combination of goods and services. There are elements of both goods production and service delivery in these product packages. This makes managing operations more interesting, and also more challenging. Despite goods and services often go hand in hand, there are some basic differences between both. These differences affect the management of the goods portion versus management of the service portion. On the other hand, there are also many similarities between them. Production of goods results in a tangible output, such as an automobile, eyeglasses, a golf ball, a refrigerator—anything that we can see or touch. It may take place in a factory, but it can occur elsewhere. For example, farming and restaurants produce nonmanufactured goods. Delivery of service, on the other hand, generally implies an act. A physician’s examination, TV and auto repair, lawn care, and the projection of a film in a theater are examples of services. all, Goods and service are often different in terms of what is done but quite similar in terms of how it is done. Consider these points of comparison: - Tangibility: Goods are tangible (Embodied such as a table) while services are intangible (Disembodied such as a lecture). - Storability: Goods can be stored (such as, storing a car while services are not (such as storing a healthcare service, can not be sored). - Transportability: Goods can be transported (cares can be produced in Korea, then transported to Egypt), while services are not (Such as a car maintenance service). - Simultaneity: Goods can be produced before they are needed (care can be produced then sored until they are needed from a customer part), while services are provided when they are needed (Such as a hair dresser or a barber provides his or her service when a customer wants such service). - Quality judgment. You can judge on quality of goods before you buy them such as: buying a new car you can judge on its quality before you buy it, while in services you have to receive a service firstly, then you can judge on its quality such as: receiving a health care service at a dental clinic, or attending a lecture on Operations Management. - Degree of customer contact. Many services involve a high degree of customer contact, although services such as Internet providers, utilities, and mail service do not. When there is a high degree of contact, the interaction between server and customer becomes a “moment of truth” that-will be judged by the customer every time the service occurs. - Uniformity of inputs. Service operations are often subject to a higher degree of variability of inputs. Each client, patient, customer, repair job, and so on presents a somewhat unique situation that requires assessment and flexibility. Conversely, manufacturing operations often have a greater ability to control the variability of inputs, which leads to more-uniform job requirements. - Measurement of productivity. Measurement of productivity can be more difficult for service jobs due largely to the high variations of inputs. Thus, one doctor might have a higher level of routine cases to deal with, while another might have more difficult cases. Unless a careful analysis is conducted, it may appear that the doctor with the difficult cases has a much lower productivity than the one with the routine cases. (Press to learn more) 3. WHY STUDY OPERATIONS MANAGEMENT? This is a question often asked by students (at both undergraduate and graduate levels) when they study this unique discipline. The answer is very simple, in operations management course the students will find tools, information and skills to become the best managers possible, the skill set them gain studying operations management will serve them well in their career. More importantly, Operations management is one of the in demand specializations in any business school or college of commerce at both undergraduate and graduate levels. It provides a systematic way towards the organizational process. It uses analytical thinking in the real world. By enrolling into operation management, a student can benefit with: - product efficacy - increasing customer satisfaction - promoting creativity and innovation - improving maintenance - material planning and control. - Developing operations strategy. Furthermore, there are many career-related reasons for wanting to learn about operations management, whether you plan to work in the field of operations or not. This is because every aspect of business affects or is affected by operations. Operations and marketing are the two-line functions in a business organization. All other functions—accounting, f inance, marketing, IT, and so on—support the two-line functions. Among the service jobs that are closely related to operations are financial services (e.g., stock market analyst, broker, investment banker, and loan officer), marketing services (e.g., market analyst, marketing researcher, advertising manager, and product manager), accounting services (e.g., corporate accountant, public accountant, and budget analyst), and information services'(e.g., corporate intelligence, library services, management information systems design services) In contrast, a common complaint from employers is that college graduates come to them very focused, when employers would prefer them to have more of a general knowledge of how business organizations operate. This book provides some of the breadth that employers are looking for in their new hires. Apart from the career-related reasons is a not so obvious one: Through learning about operations and supply chains, you will have a much better understanding of the world you live in, the global dependencies of companies and nations, some of the reasons that companies succeed or fail, and the importance of working with others. Working together successfully means that all members of the organization understand not only their own role, but they also understand the roles of others. In practice, there is significant interfacing and collaboration among the various functional areas, involving exchange of information and cooperative decision making. For example, although the three primary functions in business organizations perform different activities, many of their decisions impact on the other areas of the organization. Consequently, these functions have numerous interactions, as depicted by the overlapping circles shown in Figure 1.5. Finance and operations management personnel cooperate by exchanging information and expertise in such activities as the following: 1-Budgeting. Budgets must be periodically prepared to plan financial requirements. Budgets must sometimes be adjusted, and performance relative to a budget must be evaluated. 2-Economic analysis of investment proposals. Evaluation of alternative investments in plant and equipment requires inputs from both operations and finance people. 3-Provision of funds. The necessary funding of operations and the amount and timing of funding can be important and even critical when funds are tight. Careful planning can help avoid cash-flow problems. Marketing’s focus is on selling and/or promoting the goods or services of an organization. Marketing is also responsible for assessing customer wants and needs, and for communicat ing those to operations people (short term) and to design people (long term). That is, operations needs information about demand over the short to intermediate term so that it can plan accordingly (e.g., purchase materials. or schedule work), while design people need information that relates to improving current products and services and designing new ones. Market ing, design, and production must work closely together to successfully implement design changes and to develop and produce new products. Marketing can provide valuable insight on what competitors are doing. Marketing also can supply information on consumer preferences so that design will know the kinds of products and features needed; operations can supply information about capacities and judge the manufacturability of designs. Operations will also have advance warning if new equipment or skills will be needed for new products or services. Finance people should be included in these exchanges in order to provide information on what funds might be available (short term) and to learn what funds might be needed for new products or services (intermediate to long term). One important piece of information marketing needs from operations is the manufacturing or service lead time in order to give customers realistic estimates of how long it will take to fill their orders. Thus, marketing, operations, and finance must interface on product and process design, forecasting, setting realistic schedules, quality and quantity decisions, and keeping each other informed on the other’s strengths and weaknesses. People in every area of business need to appreciate the importance of managing and coordinating operations decisions that affect the supply chain and the matching of supply and demand, and how those decisions impact other functions in an organization. Operations also interacts with other functional areas of the organization, including legal, management information systems (MIS), accounting, personnel/human resources, and public relations. The legal department must be consulted on contracts with employees, customers, suppliers, and transporters, as well as on liability and environmental issues. Accounting supplies information to management on costs of labor, materials, and overhead, and may provide reports on items such as scrap, downtime, and inventories. Management information systems (MIS) is concerned with providing management with the information it needs to effectively manage. This occurs mainly through designing systems to capture relevant information and designing reports. MIS is also important for managing the control and decision-making tools used in operations management. The personnel or human resources department is concerned with recruitment and training of personnel, labor relations, contract negotiations, wage and salary administration, assisting in manpower projections, and ensuring the health and safety of employees. Public relations has responsibility for building and maintaining a positive public image of the organization. Good public relations provides many potential benefits. An obvious one is in the marketplace. Other potential benefits include public awareness of the organization as a good place to work (labor supply), improved chances of approval of zoning change requests, community acceptance of expansion plans, and instilling a positive attitude among employees. 4. OBJECTIVES OF OPERATIONS MANAGEMENT Operation Management involves management of the entire process responsible for converting inputs into outputs. The following are the objectives of operations management. 1. To provide customer service The main objective of any operating management systems is to utilize resources judiciously for the satisfaction of customer needs and wants. Therefore, customer satisfaction is a key objective of operations management. Operation management focuses on providing the right products at a right price at the right time. Hence, this objective will influence the operations manager’s decisions to achieve the required customer service. 2. Effective utilization of resources Resources that are used in the business organization must be carefully utilized. Inefficient use of resources or inadequate customer service leads to commercial failure of an organization. Operations management is concerned essentially with the utilization of resources. It aims at obtaining maximum output from the available resources with minimum cost. 3. To reduce cost of production Operation management aims at reduction in the cost of production of goods and services. The cost per unit of the product has to be set properly and all efforts should be taken to control the actual cost to pre determined cost of production. Cost can be classified in to fixed cost and variable cost. The variable cost changes with every level of production. This variable cost can be checked by means of inventory and labor control techniques. 4. To improve product quality Quality control and maintenance are the two important objectives of operations management. Quality control consists of all those activities, which are designed to define, maintain and control specific quality of products within reasonable limits. It is the systematic regulation of all variables affecting the goodness of the final product. In other words, quality control involves determination of quality standards and its actual measurement.It is necessary to ensure that the established standards are practiced and maintained. It does not attempt to achieve the perfect quality but to secure satisfactory or reasonable quality at a reasonable level of cost. 5. To fix time schedule Another important objective of operation management is to establish time schedule for various operation activities. The schedule fixation includes the operating cycle time, inventory turnover rate, machine utilization rate, capacity utilization etc. 6. Proper utilization of Machinery Operation management has to take number of decisions with regard to machinery and equipment. New machines should be installed and the old machines are to be replaced. It has to ensure judicious utilization of machinery and equipment. 7. Material control Based on the sales forecast and production plans, the materials planning and control is done. This involves estimating the individual requirements of parts, preparing materials budget, forecasting the levels of inventories, scheduling the orders and monitoring the performance in relation to production and sales. 5. THE SCOPE OF OPERATIONS MANAGEMENT The scope of operations management ranges across the organization. Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and qual ity improvement of the organization’s products or 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. For example, consider a service organization’s operations system in an airline company. The system consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide territory. The activities include: - Forecasting such things as weather and landing conditions, seat demand for flights, and the growth in air travel. - Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit. (Too few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.) - Facilities and layout, important in achieving effective use of workers and equipment. - Locating facilities according to managers’ decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs. - Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers. - Managing inventories of such items as foods and beverages, first-aid equipment, inflight magazines, pillows and blankets, and life preservers. - Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb service, where the emphasis is on efficiency and courtesy. - Motivating and training employees in all phases of operations. 6. OPERATIONS MANAGEMENT AND DECISION MAKING The Operations manager is responsible for making several decisions in order to achieve outcomes that contribute to the achievement of the organization’s overall strategic goals. Most decisions involve many possible alternatives that can have quite different impacts on costs or profits. Operations management professionals make a number of key decisions that affect the entire organization. These include the following: - What: What resources will be needed, and in what amounts? - When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When is corrective action needed? - Where: Where will the work be done? - How: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be allocated? - Who: Who will do the work? An operations manager’s daily concerns include costs (budget), quality, and schedules (time).Throughout this book, a broad range of decisions that operations managers must make will be identified, besides the main tools necessary to handle those decisions. This section describes general approaches to decision making, including the use of models, quantitative methods, analysis of trade-offs, establishing priorities, ethics, and the systems approach. Models are often a key tool used by all decision makers. 7.1. Models A model is an abstraction of reality, a simplified representation of something. For example, a child's toy car is a model of a real automobile. It has many of the same visual features (shape, relative proportions, and wheels) that make it suitable for the child’s learning and playing. But the toy does not have a real engine, it cannot transport people, and it does not weigh 2,000 pounds. Other examples of models include automobile test tracks and crash tests; formulas, graphs and charts; balance sheets and income statements; and financial ratios. Common statistical models include descriptive statistics such as the mean, median, mode, range, and standard deviation, as well as random sampling, the normal distribution, and regression equations. Models are sometimes classified as physical, schematic, or mathematical: - Physical models look like their real-life counterparts. Examples include miniature cars, trucks, airplanes, toy animals and trains, and scale-model buildings. The advantage of these models is their visual correspondence with reality. - Schematic models are more abstract than their physical counterparts; that is, they have less resemblance to the physical reality. Examples include graphs and charts, blueprints, pictures, and drawings. The advantage of schematic models is that they are often relatively simple to construct and change. Moreover, they have some degree of visual correspondence. - Mathematical models are the most abstract: They do not look at all like their real-life counterparts. Examples include numbers, formulas, and symbols. These models are usually the easiest to manipulate, and they are important forms of inputs for computers and calculators. The variety of models in use is enormous. Nonetheless, all have certain common features: They are all decision-making aids and simplifications of more complex real-life phenomena. Real life involves an overwhelming amount of detail, much of which is irrelevant for any particular problem. Models omit unimportant details so that attention can be concentrated on the most important aspects of a situation. Since models play a significant role in operations management decision making, they are heavily integrated into the material of this text. For each model, try to learn (1) its purpose, (2) how it is used to generate results, (3) how these results are interpreted and used, and (4) what assumptions and limitations apply. The last point is particularly important because virtually every model has an associated set of assumptions or conditions under which the model is valid. Failure to satisfy all of the assumptions will make the results suspect. Attempts to apply the results to a problem under such circumstances can lead to disastrous consequences. Managers use models in a variety of ways and for a variety of reasons. Since Models are beneficial because they: 1- Are generally easy to use and less expensive than dealing directly with the actual situation. 2- Require users to organize and sometimes quantify information and, in the process, often indicate areas where additional information is needed. 3- Increase understanding of the problem. 4- Enable managers to analyze what-if questions. 5- Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem. 6- Enable users to bring the power of mathematics to bear on a problem. However, models have certain limitations of which managers should be aware. The following are three of the more important limitations: 1- Quantitative information may be emphasized at the expense of qualitative information. 2- Models may be incorrectly applied and the results misinterpreted. The widespread use of computerized models adds to this risk because highly sophisticated models may be placed in the hands of users who are not sufficiently knowledgeable to appreciate the subtleties of a particular model; thus, they are unable to fully comprehend the circumstances under which the model can be successfully employed. 3- The use of models does not guarantee good decisions.