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The Nature of Operations

Management
Operations management is constantly changing and
here are some of the 3 key themes:

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1. The Role of Services in

Operations Management
Although historically associated with manufacturing
industry there has been a shift in the theory and practice
of operations management to incorporate service
systems

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1. The Role of Services in

Operations Management
The rise to prominence of the service sector in the economies
of developed countries is due to an increase in what are
termed consumer services and producer services.
Consumer services are services aimed at the final consumers and
these have risen in line with peoples increasing disposable income in
developed countries.
Producer services are used in the production and delivery of goods
and services and constitute firms providing services such as
consultancy advice, legal advice, IT support, transportation and
maintenance facilities.
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1. The Role of Services in

Operations Management
Types of Service Operations
Services can be classified by their tangibility, while the way they are
delivered can be classified by their simultaneity.

Tangibility
This is the most commonly used distinction between goods and
services. Goods are tangible, they are a physical thing you can touch. A
service is intangible and can be seen as a process that is activated on
demand. In reality however both goods and services have both
tangible and intangible elements and can be placed on a continuum
ranging from low to high intangibility
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1. The Role of Services in

Operations Management

Amity Business School

1. The Role of Services in

Operations Management
The Degree of Customer Contact in Services

Simultaneity
This relates to the characteristic that services are
produced and consumed simultaneously. This
means the service provider and customer will
interact during the service delivery process. The
amount of interaction is termed the degree of
customer contact.

It should not be assumed that all employees in a

service operation have to deal directly with a
customer. This distinction in services is denoted by
back office tasks which add value to the inputs of the
service operation and front office tasks which deal
with the customer both as an input and output of the
operation

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Core Services
Defined

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Core Services Performance Objectives

Quality

Core services are basic things

that customers want from
products they purchase
Flexibility

Operations
Management

Speed

Price (or cost

Reduction)

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Value-Added Services
Defined

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Value-Added Service Categories

Value-added services
differentiate the organization
from competitors and build
relationships that bind
customers to the firm in a
positive way

Problem Solving

Information

Operations
Management

Sales Support

Field Support

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Strategy and Operations

2. The Strategic Role of Operations

Operations strategy can be seen from market-based
and resource-based perspectives.

Strategy

Provides direction for achieving a mission

Five Steps for Strategy Formulation

Defining a primary task

What is the firm in the business of doing?

Assessing core competencies

What does the firm do better than anyone else?

Determining order winners and order qualifiers

What qualifies an item to be considered for purchase?

What wins the order?

Positioning the firm

How will the firm compete?

Deploying the strategy

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Using a market-based approach to operations strategy the

organisation makes a decision regarding the markets and
the customers within those markets that it intends to
target. This market position is then translated into a list of
criteria or objectives which define what kind of
performance is required in order to successfully compete
in the markets chosen.
Using a resource-based view works from the inside-out of
the firm, rather than the outside-in perspective of the
market-based approach. Here an assessment of the
operations tangible and intangible resources and
processes leads to a view of the operations capability
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3. Technology and Operations Management

Technology plays a key role in the transformation process of
which operations is responsible for. Process technology is
used to help transform the three main categories of
transformed resources which are materials, customers and
information.
Computer Aided Design (CAD) allows testing of product and service
designs using computer-based drawings.
Customer processing technology such as automated teller machines
can reduce or eliminate the need for employee contact in customerfacing operations.
Information technologies such as e-business systems are having a
major effect on how firms organise their supply chains and utilise their
capacity
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The History of Operations

Management
To 18th Century Craft Production
18th Century Industrial Revolution Volume
production
20th Century Henry Ford Mass Production
1960s Operations Management emerges
1970s MRP
1980s JIT and TQM
1990s SCM and BPR
2000+ E-Commerce
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Historical Development of OM
JIT and TQC
Manufacturing Strategy Paradigm
Service Quality and Productivity
Total Quality Management and Quality
Certification

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Historical Development of OM
(contd)
Business Process Reengineering
Supply Chain Management
Electronic Commerce

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Current Issues in OM
Coordinate the relationships between
mutually supportive but separate
organizations.
Optimizing global supplier, production,
and distribution networks.
Increased co-production of goods and
services

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Current Issues in OM (contd)

Managing the customers
experience during the service
encounter
Raising the awareness of
operations as a significant
competitive weapon

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Ten Critical Decisions

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The Critical Decisions

Ten Decision Areas

Design of goods and services

Managing quality
Process and capacity
design
Location strategy
Layout strategy
Human resources and
job design
Supply chain
management
Inventory management
Scheduling
Maintenance

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Design of goods and services

What good or service should we offer?

How should we design these products
and services?

Managing quality

How do we define quality?

Who is responsible for quality?

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The Critical Decisions

Process and capacity design

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The Critical Decisions

Layout strategy

What process and what capacity will

these products require?
What equipment and technology is
necessary for these processes?

Location strategy
Where should we put the facility?
On what criteria should we base the
location decision?

How should we arrange the facility?

How large must the facility be to meet
our plan?

Human resources and job design

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

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The Critical Decisions

Supply chain management
Should we make or buy this component?
Who are our suppliers and who can
integrate into our e-commerce program?

Inventory, material requirements planning,

and JIT
How much inventory of each item should we
have?
When do we re-order?

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The Critical Decisions

Intermediate and shortterm
scheduling
Are we better off keeping people on the
payroll during slowdowns?
Which jobs do we perform next?

Maintenance
Who is responsible for maintenance?
When do we do maintenance?

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Where are the OM Jobs?

Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement

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The Heritage of OM
Division of labor (Adam Smith 1776; Charles Babbage
1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/ Sorenson 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922)
Quality control (Shewhart 1924; Deming 1950)

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The Heritage of OM

Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)

Material requirements planning (Orlicky 1960)

Computer aided design (CAD 1970)

Flexible manufacturing system (FMS 1975)

Baldrige Quality Awards (1980)

Computer integrated manufacturing (1990)

Globalization (1992)

Internet (1995)

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Eli Whitney
Born 1765; died 1825
In 1798, received government
contract to make 10,000 muskets
Showed that machine tools could
make standardized parts to exact
specifications
Musket parts could be used in any
musket

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Taylors Principles

Frederick W. Taylor
Born 1856; died 1915
Known as father of scientific
management
In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
Began first motion and time studies

Created efficiency principles

Management Should Take More

Responsibility for:

Matching employees to right job

Providing the proper training
Providing proper work methods and tools
Establishing legitimate incentives for
work to be accomplished

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Frank & Lillian Gilbreth

Frank (1868(1868-1924); Lillian (1878(1878-1972)
Husband
Husband--and
and--wife engineering team
Further developed work measurement
methods
Applied efficiency methods to their home
and 12 children!
Book & Movie: Cheaper by the Dozen,
book: Bells on Their Toes

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Henry Ford
Born 1863; died 1947
In 1903, created Ford Motor Company
In 1913, first used moving assembly line
to make Model T
Unfinished product moved by conveyor past
work station

Paid workers very well for 1911 ($5/day!)

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W. Edwards Deming

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Historical Events in Operations Management

Born 1900; died 1993

Era

Engineer and physicist

Credited with teaching Japan
quality control methods in postpostWW2
Used statistics to analyze process
His methods involve workers in
decisions

Industrial
Revolution

Events/Concepts
Steam engine
Division of labor
Interchangeable parts
Principles of scientific
management

Time and motion studies

Scientific
Management Activity scheduling chart
Moving assembly line

(cont.)

Era

Events/Concepts

Human
Relations

Motivation theories

Operations
Research

Hawthorne studies

Linear programming
Digital computer
Simulation, waiting
line theory, decision
theory, PERT/CPM
MRP, EDI, CIM

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1769
1776
1790

Originator
James Watt

Adam Smith
Eli Whitney

1911

Frederick W. Taylor

1911

Frank and Lillian

Gilbreth
Henry Gantt

1912
1913

Henry Ford

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Historical Events in Operations Management

Dates

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Historical Events in Operations Management

(cont.)

Dates Originator
1930
1940s
1950s
1960s
1947
1951

Elton Mayo
Abraham Maslow
Frederick Herzberg
Douglas McGregor
George Dantzig
Remington Rand

1950s

Operations research
groups

1960s,
1970s

Joseph Orlicky, IBM

and others
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Era

Events/Concepts Dates Originator

JIT (just-in-time)
TQM (total quality
management)
Strategy and
Quality
Revolution operations
Business process
reengineering
Six Sigma

1970s
1980s
1980s
1990s
1990s

Taiichi Ohno (Toyota)

W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy
GE, Motorola
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Historical Events in Operations Management (cont.)

Era

Internet
Revolution

Events/Concepts

Dates Originator

E-commerce

2000s

Internet, WWW, ERP,

1990s
supply chain management

Globalization WTO, European Union,

1990s
and other trade
2000s
agreements, global supply
chains, outsourcing, BPO,
Services Science

Contributions From
Human factors
Industrial engineering
Management science
Biological science
Physical sciences
Information technology

ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE
Amazon, Yahoo,
eBay, Google, and
others
Numerous countries
and companies

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New Trends in OM

New Challenges in OM
From

To

Local or national focus

Batch shipments

Global focus

Low bid purchasing

Just--in
Just
in--time

Supply chain partnering

Rapid product
development, alliances

Mass customization

Empowered employees,
teams

Lengthy product development

Standard products
Job specialization

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Past

Causes

Future

Local or
national
focus

Reliable worldwide
communication and
transportation networks

Global focus,
moving
production
offshore

Batch (large)
shipments

Short product life cycles

and cost of capital put
pressure on reducing
inventory

Just-in
Justin--time
performance

Low-bid
Lowpurchasing

Supply chain competition

requires that suppliers be
engaged in a focus on the
end customer

Supply chain
partners,
collaboration,
alliances,
outsourcing

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New Trends in OM
Past

New Trends in OM

Causes
Shorter life cycles,
Internet, rapid international
communication, computercomputeraided design, and
international collaboration
Affluence and worldwide
markets; increasingly
flexible production
processes

Lengthy
product
development
Standardized
products

Job
specialization

Changing socioculture
milieu; increasingly a
knowledge and information
society

Future
Rapid product
development,
alliances,
collaborative
designs
Mass
customization
with added
emphasis on
quality
Empowered
employees,
teams, and lean
production

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New Trends in OM

Global focus
Just-in-time performance
Supply chain partnering
Rapid product development
Mass customization
Empowered employees
Environmentally sensitive production
Ethics
Output f (Input)

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Past

Causes

Future

Low-cost
Lowfocus

Environmental issues, ISO

14000, increasing disposal
costs

Environmentally
sensitive
production, green
manufacturing,
recycled
materials,
remanufacturing

Ethics not
at forefront

Businesses operate more

openly; public and global
review of ethics; opposition
to child labor, bribery,
pollution

High ethical
standards and
social
responsibility
expected

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Productivity Challenge
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output only and not a
measure of efficiency

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The Economic System

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Globalization and Competitiveness

Inputs

Processes

Outputs

Labor,
capital,
management

The production economic

system transforms inputs to
outputs at about an annual
2.5% increase in productivity
per year. The productivity
increase is the result of a
mix of capital (38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).

Goods
and
services

Why go global?

favorable cost
access to international markets
response to changes in demand
reliable sources of supply
latest trends and technologies

Increased globalization
results from the Internet and falling trade
barriers

Feedback loop

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Productivity and Competitiveness

Solution Focus

products are solutions and making the solutions more

powerful and preferable to customers is the striving for
competitiveness

Competitiveness

degree to which a nation can produce goods and services

that meet the test of international markets

Productivity

ratio of output to input

Output

sales made, products produced, customers served,

meals delivered, or calls answered

Input

labor hours, investment in equipment, material usage, or

square footage
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Productivity and Competitiveness (cont.)

Retrenching
productivity is increasing, but both output and input
decrease with input decreasing at a faster rate

Assumption that more input would cause

output to increase at the same rate
certain limits to the amount of output may not be
considered
output produced is emphasized, not output sold;
increased inventories
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