operations mgt1

8/8/2019 Operations Mgt1

http://slidepdf.com/reader/full/operations-mgt1 1/43

Operations Management andOperations Management and

ProductionProduction

Objectives:

-Understand what is meant by Operations (or Production) Management

- Identify and explain operation processes and

activities involved in operations process

control



Outcome: Explain the meaning of the term production or

operations. Explain the relations between production and

marketing functions Explain two types of operation processes

Explain four types of business locations & ways tomeasure size of business Explain Internal and External economies of scale Explain types of production

Identify the activities involved in operationsprocess control Identify the activities and underlying objectives

involved in total quality management



What DoesWhat Does OperationsOperations

Mean Today?Mean Today? Operations (Production)Operations (Production)

± ± All the activities involved in making All the activities involved in makingproductsproducts²²goods and servicesgoods and services²²for for

customerscustomers Service Operations (Service Production)Service Operations (Service Production)

± ± Provide intangible and tangible serviceProvide intangible and tangible serviceproductsproducts (entertainment, transportation)(entertainment, transportation)

Goods Operations (Goods Production)Goods Operations (Goods Production)

± ± Produce tangible productsProduce tangible products (radios, buses)(radios, buses)

© 2009 Pearson Education, Inc.



Operations (or Production)Operations (or Production)

Management Management The systematic direction and control of The systematic direction and control of

processes that transform resources intoprocesses that transform resources into

finished services and goods that createfinished services and goods that createvalue for and provide benefits tovalue for and provide benefits tocustomerscustomers



Operations (or Production)Operations (or Production)

Management Management



Operations (or Production)Operations (or Production)ManagersManagers responsible forresponsible for production,production,

inventory, and quality control.inventory, and quality control.1.1. Basic resources gatheredBasic resources gathered

2.2. Plan & control work for right amount Plan & control work for right amount

demandeddemanded3.3. Control cost, quality & inventory level,Control cost, quality & inventory level,

facilitiesfacilities



Operations ProcessesOperations Processes

Set of methods and technologies used inSet of methods and technologies used inproduction:production:

GoodsGoods--Manufacturing Processes:Manufacturing Processes:

Analytic versus Synthetic Analytic versus Synthetic

Service Processes:Service Processes:

Extent of Customer Contact Extent of Customer Contact



GoodsGoods--ManufacturingManufacturing

Processes:Processes: Analytic process Analytic process

-- resources are broken down into components toresources are broken down into components tocreate finished productscreate finished products

-- Ayamas transforms whole chickens into packaged Ayamas transforms whole chickens into packagedpartsparts

Synthetic processSynthetic process-- resources are combined to created finishedresources are combined to created finishedproductsproducts-- GE combines raw materials to produceGE combines raw materials to producerefrigerators.refrigerators.



Service Processes:Service Processes:

HighHigh--Contact SystemContact System

-- customer is part of the system duringcustomer is part of the system during

service delivery. high customer involvement service delivery. high customer involvement

LowLow--Contact SystemContact System

-- customer need not be a part of the systemcustomer need not be a part of the systemto receive service. low customerto receive service. low customerinvolvement involvement



Differences Between Service and GoodsDifferences Between Service and Goods

Manufacturing OperationsManufacturing Operations Goods areGoods are producedproduced, services are, services are

performedperformed

Service operations differ fromService operations differ frommanufacturing operations in that servicemanufacturing operations in that serviceoperations:operations:

1.1. Involve interacting with consumers.Involve interacting with consumers.

2.2. Are sometimes intangible and unstorable. Are sometimes intangible and unstorable.3.3. Involve a customers presence in the process.Involve a customers presence in the process.

4.4. Involve certain service quality considerations.Involve certain service quality considerations.



Production and Marketing:Production and Marketing:

RelationsRelations There is no point of promoting demandThere is no point of promoting demand

for a product which a business cannot for a product which a business cannot

supplysupply

New products or changes in existingNew products or changes in existingones must be developed in response toones must be developed in response to

identified market needs & productionidentified market needs & productioncapacity & capability of the firmcapacity & capability of the firm



Marketing dept. ensures productionMarketing dept. ensures productiondept. to:dept. to:

-- Manufacture/design according toManufacture/design according tocustomers demanded specificationcustomers demanded specification

-- Subcontract if popularity of product Subcontract if popularity of product

lead sales >productionlead sales >production-- Technically sound product will not sellTechnically sound product will not sell

if not attractive to customersif not attractive to customers



Types of BusinessTypes of Business

LocationLocation Office SpaceOffice Space

Used by service companies & major manufacturesUsed by service companies & major manufactures

Retail WarehousingRetail Warehousing-- located out of town retail parkslocated out of town retail parks-- major businesses for product distributionmajor businesses for product distribution

Retail OutletRetail OutletHigh street locationsHigh street locations expensive in large citiesexpensive in large cities

Industrial locationIndustrial locationLocated further from centre of populationLocated further from centre of population --cheapercheaper



Factors affecting locationFactors affecting location

Availability of property Availability of property

Cost of propertyCost of property

PopularityPopularity

Cost & availabilityCost & availability --local labor market local labor market

InfrastructureInfrastructure



Measuring The Size Of Measuring The Size Of

BusinessBusiness RevenueRevenue

-- The value of products soldThe value of products sold

ProfitProfit

-- Shows how much the business is worth in futureShows how much the business is worth in future

Volume Volume

-- Actual number of products sold Actual number of products sold

Market capitalizationMarket capitalization

-- Number of shares x share price (for companies whose shareNumber of shares x share price (for companies whose share

price quoted regularly in share market)price quoted regularly in share market)



Number of employeesNumber of employees

-- Easy to measure and allows comparison across industriesEasy to measure and allows comparison across industries

Capital employedCapital employed

-- Amount of money tied up in assets Amount of money tied up in assets company deal incompany deal in

propertyproperty

Market shareMarket share

-- (Total sales of business / Total sales of industry) x 100(Total sales of business / Total sales of industry) x 100

-- Determines leaders in industryDetermines leaders in industry



Economies of ScaleEconomies of Scale

Definition:Definition:

Reduction in cost per unit as output Reduction in cost per unit as output

increase due to large scale productionincrease due to large scale production

organization growth/size expands it can gainorganization growth/size expands it can gain

the advantages of operating on a large scalethe advantages of operating on a large scale



There are 2 types of economies of There are 2 types of economies of

scale:scale: Internal economiesInternal economies

External economiesExternal economies



Internal Economies OfInternal Economies Of

ScaleScale PurchasingPurchasing

-- Bulk purchase discount from regular supplierBulk purchase discount from regular supplier

Tech

nicalTech

nical-- Spreading more units of output over fixed costsSpreading more units of output over fixed costs

TechnologicalTechnological

-- Advanced machineries produce quickly, higher quality and less Advanced machineries produce quickly, higher quality and less

wastagewastage

SpecializationSpecialization

-- Work specialization allows labor to be efficient Work specialization allows labor to be efficient



MarketingMarketing

-- Bigger company with established brand capable launching newBigger company with established brand capable launching new

product & reducing advertising cost product & reducing advertising cost

FinancialFinancial

-- Large company safer (reliability), banks charge lower rate interest Large company safer (reliability), banks charge lower rate interest

ManagerialManagerial

-- Specialized managers running individual functions leads to greaterSpecialized managers running individual functions leads to greatercontrol leading to lower costscontrol leading to lower costs

Risk bearingRisk bearing

-- Diversifying business into unrelated market (associated with reducingDiversifying business into unrelated market (associated with reducing

the cost of loosing money)the cost of loosing money)



External Economies ofExternal Economies of

ScaleScale When company dominates a locality may allow otherWhen company dominates a locality may allow other

businesses and infrastructure around to growbusinesses and infrastructure around to grow

Employment &Employment & humanhuman--capital formationcapital formation (train local(train local

workers highworkers high--skilled way)skilled way)

Improvement in local infrastructureImprovement in local infrastructure persuadingpersuading

local authority build roads/transportation hublocal authority build roads/transportation hub

Benefits local suppliers and cafeteriasBenefits local suppliers and cafeterias



Diseconomies of ScaleDiseconomies of ScaleDefinition:Definition: Cost per unit increase as output increaseCost per unit increase as output increase

Full capacity output forceFull capacity output force overtime payment overtime payment

Pushing output beyond limit Pushing output beyond limit cost high machinery maintenancecost high machinery maintenance

Urgent delivery may push forUrgent delivery may push for higher raw material cost higher raw material cost

Growth in companyGrowth in company (personnel, customers, departments)(personnel, customers, departments)

lead to:lead to:

-- Inefficiency of management & increase administration cost Inefficiency of management & increase administration cost

-- Control is harder & may require greater bureaucratic proceduresControl is harder & may require greater bureaucratic procedures

-- neglecting employee motivationneglecting employee motivation



Methods of ProductionMethods of Production

Job ProductionJob Production

Batch ProductionBatch Production

Flow ProductionFlow Production




production of single, oneproduction of single, one--off product or unique product off product or unique product

Manufactured to meet individual consumer needsManufactured to meet individual consumer needs

individual product completed before the next productionindividual product completed before the next production

expensive processexpensive process -- it requires specialized and skilledit requires specialized and skilled

staff (who concentrate on the individual job or project)staff (who concentrate on the individual job or project)

labor intensive & need expensive capital equipment labor intensive & need expensive capital equipment

relatively small jobrelatively small job --sandwich made to order in a café,sandwich made to order in a café,

or massive jobor massive job building new stadium.building new stadium.



Examples:Examples:

-- Designing an advertisement/ organizing event Designing an advertisement/ organizing event

-- Construction of projectsConstruction of projects building, bridgebuilding, bridge-- Interior designingInterior designing

-- Operation conducted by surgeonsOperation conducted by surgeons

-- Hairdressing

Hairdressing-- tailoringtailoring

-- film productionfilm production



Main characteristicsMain characteristics

Quantity producedQuantity produced

-- Small quantity or customized at 1 unit Small quantity or customized at 1 unit

Variation of goods Variation of goods

-- Individual requirement leads to huge differencesIndividual requirement leads to huge differences

Capital equipment requiredCapital equipment required

-- less need for automation/capital intensiveless need for automation/capital intensive

Labour requirementLabour requirement

-- High level skilled workforce neededHigh level skilled workforce needed

FinanceFinance

-- only need material purchased & no stocks holdonly need material purchased & no stocks hold



Batch ProductionBatch Production

products areproducts are produced in small or largeproduced in small or large

batchesbatches--usefuluseful of different variation of of different variation of basicallybasically

similar productssimilar products..

Each operationEach operation completed through whole batch completed through whole batch

at a workstationat a workstation before the next operationbefore the next operation

performed at another workstationperformed at another workstation

commonly used method for manufacturingcommonly used method for manufacturing



Sandwiches prepared in batches of all the different types andSandwiches prepared in batches of all the different types and

available for sale, preavailable for sale, pre--packedpacked

toothpaste manufacturer:toothpaste manufacturer:

-- will set its weekly batches of production of each product will set its weekly batches of production of each product

according to the orders from the supermarkets andaccording to the orders from the supermarkets and

wholesalers.wholesalers.-- same machinery is used for each product but thesame machinery is used for each product but the

ingredients, packaging an/or size is changed for each batch asingredients, packaging an/or size is changed for each batch as

requiredrequired



Example:Example:

-- bakeriesbakeries

-- manufacture of sports shoesmanufacture of sports shoes

-- pharmaceutical ingredientspharmaceutical ingredients

-- manufacture of ceramic/clay productsmanufacture of ceramic/clay products



Batch processing for fast food buns

Pottery being made

Batch processing of soft drink bottles



Main CharacteristicsMain Characteristics

Quantity producedQuantity produced

-- Greater size of each batch determined by demandGreater size of each batch determined by demand


-- Can be wide variety or standardizedCan be wide variety or standardized


-- More machines operated due great number of productionMore machines operated due great number of production


-- Lower level skill workers as same process repeatedLower level skill workers as same process repeated

FinanceFinance

-- Additional capital required due to more machinery usage Additional capital required due to more machinery usage



Flow productionFlow production

production line methodproduction line method --product is continuouslyproduct is continuously

producedproduced, flowing from one stage of production to, flowing from one stage of production to

the next the next

Workers, machineries and robots, carry out Workers, machineries and robots, carry out

individual repetitive tasks efficientlyindividual repetitive tasks efficiently

typicallytypically capital intensivecapital intensive

High level capacity utilization leads to greaterHigh level capacity utilization leads to greater

production and economies of scale realizationproduction and economies of scale realization



uses moving tracks or conveyor beltsuses moving tracks or conveyor beltsto move partially complete products toto move partially complete products to

workers to perform simple repetitiveworkers to perform simple repetitivetaskstasks

Example:Example:

-- Automobile industry (cars on assembly Automobile industry (cars on assemblyline)line)



Volvo on assembly line production

Laptop partial production



Main CharacteristicsMain Characteristics Quantity producedQuantity produced

-- Large volume leading to economies of scaleLarge volume leading to economies of scale


-- Standardized or variety within machinery limitationsStandardized or variety within machinery limitations

(eg: colour, size of engine, gearbox, electrics produced in same assembly line)(eg: colour, size of engine, gearbox, electrics produced in same assembly line)


-- capitalcapital--intensive (sufficient machinery and space for different task in same lineintensive (sufficient machinery and space for different task in same line

production)production)


-- Skill required depending on work specialization and system sets production, not Skill required depending on work specialization and system sets production, not

individualindividual

FinanceFinance

-- High capital investment High capital investment



Just In Time ProductionJust In Time Production

A A production and inventory system thatproduction and inventory system that Bringing together all neededBringing together all needed

materials only when they are required, creating fast and efficient materials only when they are required, creating fast and efficient

responses to customer ordersresponses to customer orders

save companies money and time because they do not have to pay forsave companies money and time because they do not have to pay forstorage space or manage as much inventory.storage space or manage as much inventory.

Delivery of stock to the work place (production line/ retail shelf) minimizesDelivery of stock to the work place (production line/ retail shelf) minimizes

time stocks to be used or bought time stocks to be used or bought

allows faster response to customer demands without goodsallows faster response to customer demands without goods--inin--processprocess

inventories.inventories.

Toyota invested heavily in this method to save time & storage cost of carToyota invested heavily in this method to save time & storage cost of car

componentscomponents



Considerations for JITs effectivenessConsiderations for JITs effectiveness

-- Use of computerized stock control system viaUse of computerized stock control system via

Kanban (bar coded card that triggers reordering of Kanban (bar coded card that triggers reordering of

parts)parts)

-- Regular demandRegular demand

-- Assured quality of stocks received Assured quality of stocks received



Quality ControlQuality Control

Quality ControlQuality Control Taking action to ensure that operations producesTaking action to ensure that operations produces

products that meet specific quality standardsproducts that meet specific quality standards

Requires establishment of specific standards andRequires establishment of specific standards andmeasurementsmeasurements

QualityQuality A products fitness for use; its A products fitness for use; its

success in offering features that consumerssuccess in offering features that consumers

want want



Methods for managingMethods for managing

qualityqualityTotal Quality Management (TQM) (orTotal Quality Management (TQM) (orQuality Assurance)Quality Assurance)

the sum of all activities involved in gettingthe sum of all activities involved in gettinghighhigh--quality products into the marketplace.quality products into the marketplace.

Customer focusCustomer focus -- determining what determining what customers want, creating customercustomers want, creating customersatisfaction.satisfaction.

plan for production processes (includingplan for production processes (includingequipment, methods, worker skills, andequipment, methods, worker skills, andmaterials).materials).



Tools For Total QualityTools For Total Quality

Management Management Competitive product analysisCompetitive product analysis ProcessProcess

by which aby which a company analyzes a competitorscompany analyzes a competitors

productsproducts to identify desirable improvementsto identify desirable improvements

BenchmarkingBenchmarking process by which aprocess by which acompany implements the best practicescompany implements the best practices

from its own past performance and those of from its own past performance and those of other companies to improve its ownother companies to improve its ownproducts.products.



ISO 9000:2000 (Quality standard)ISO 9000:2000 (Quality standard)

-- a certification program shows that a certification program shows that factory, a laboratory, or an office hasfactory, a laboratory, or an office hasmet the precise quality management met the precise quality management requirements set by the Internationalrequirements set by the International

Organization for StandardizationOrganization for Standardization



Quality Improvement TeamsQuality Improvement Teams groups of employees work together togroups of employees work together to

improve quality by meeting regularlyimprove quality by meeting regularlyto define, analyze, and solve commonto define, analyze, and solve commonproduction problems to improve bothproduction problems to improve both

work methods and the productswork methods and the products

operations mgt1

Documents