OPERATIONS MANAGEMENT (MHRM 502-1)

CHAPTER I
INTRODUCTION TO PRODUCTION/OPERATIONS MANAGEMENT

• Operations management (OM) is the set of

activities that creates goods and services by
transforming inputs into outputs.
– Activities creating goods and services take
place in all organizations.  

– In manufacturing firms, the production

activities that create goods are usually quite
obvious.
– In them, we can see the creation of a tangible
product such as a TV or a car.
• In organizations that do not crate physical
products, the production function may be less
obvious.
• An example is the transformation that takes
place at a bank, hospital, or college.
• The field of production/operations
management in the past focused almost
exclusively on manufacturing management,
 with a heavy emphasis on the methods and
techniques used in operating a factory.
• Most of the activities performed by
management and employees in many
organizations fall into the realm of operations
management:
• Forecasting
• Capacity planning
• Scheduling
• Managing inventory
• Assuring quality
• Employee motivation and training
• Location of facilities
• At first glance, it may appear that service
operations don’t have much in common with
manufacturing operations.
– However, a unifying feature of these operations is
that both can be viewed as transformation
processes.
 

– In manufacturing, inputs of raw materials, energy,

labor, and capital are transformed into finished
goods.
– In service operations, these same types of
inputs are transformed into service outputs. 

– Managing the transformation process in an

efficient and effective manner is the task of
the operations manager in any type of
organization.
1.2 Why Study OM?

• We study OM for four reasons: 

 OM is one of the three major functions of any
organization, and it is integrally related to all the
other business functions.
 We study OM because we want to know how
goods and services are produced.
 We study OM to understand what operations
managers do.
 We study OM because it is such a costly part of
an organization.
New Trends in Operations Management

• Global focus
• Just-in-time performance
• Supply-chain partnering
• Rapid product development
• Mass customization
• Empowered employees
1.3 Operation in the Service Sector

• Differences between Goods and Services

 Services are usually intangible as opposed to a tangible
good.
 Services are often produced and consumed
simultaneously; there is no stored inventory.
 Services are often unique. The medical procedure or a
haircut produced for you is not exactly like anyone
else’s.
 Services have high customer interaction.
Services are often difficult to standardize,
automate, and make as efficient as we would
like because customer interaction demands
uniqueness.

 Services are often knowledge-based, as in the

case of educational, medical, and legal services,
and therefore hard to automate.
1.4 The Productivity Challenge

• Productivity is the ratio of outputs (goods and

services) divided by the inputs (resources, such as
labor and capital).
• The operations manager’s job is to enhance
(improve) this ratio of outputs to inputs.
• Improving productivity means improving
efficiency.
• This improvement can be achieved in two ways: a
reduction in inputs while output remains constant,
or an increase in output while inputs remain
constant.
Productivity Measurement

• Measurement of productivity is an excellent way to

evaluate a country’s ability to provide an improving
standard of living for its people.
• Only through increases in productivity can the
standard of living improve.

• Productivity = Units produced

Inputs used
• The use of just one resource input to measure
productivity is known as single-factor
productivity.
• However, a broader view of productivity is
multifactor productivity, which includes all
inputs (e.g., labor, material, energy, capital).
• Multifactor productivity is also known as total
factor productivity.
1.6 Operations Strategy for Competitive Advantage

• Each of a firm’s strategies should be established

in light of (1) the threats and opportunities in
the environment and (2) the strengths and
weaknesses of the organization.

• Ultimately, every strategy is an attempt to

answer the question, “How do we satisfy a
customer?” within these constraints.
• An effective operations management effort
must have a mission so it knows where it is
going and a strategy so it knows how to get
there.

• We define the organization’s mission as its

purpose  what it will contribute to society.
• Mission statements provide boundaries and
focus for organizations and the concept around
which the firm can rally.
• The mission states the rationale for the
organization’s existence.
• With the mission established, strategy and its
implementation can begin.
• Strategy is an organization’s action plan to
achieve the mission.  

Each functional area has a strategy for

achieving its mission and for helping the
organization reach the overall mission.
These strategies exploit opportunities and
strengths, neutralize threats, and avoid
weaknesses.
• Firms achieve missions in three conceptual
ways: (1) differentiation, (2) cost leadership,
and (3) quick response.

Achieving Competitive Advantage through

Operations
• Each of the three strategies provides an
opportunity for operations managers to achieve
competitive advantage.
• Competitive advantage implies the creation of
a system that has a unique advantage over
competitors.
Competing on Differentiation
• Differentiation is concerned with providing
uniqueness.
Competing on Cost
• One driver of a low-cost strategy is a facility that
is effectively utilized.
• A low-cost strategy does not imply low value or
low quality.
 Competing on Response
• Response is often thought of as flexible response,
but it also refers to reliable and quick response.
• In practice, these three concepts 
differentiation, low cost, and response  are
often implemented via the following six specific
strategies:
• flexibility in design and volume,
• low price,
• delivery,
• quality,
• after-sale service, and
• a broad product line.
• Through these six specific strategies, OM can
increase productivity and generate a sustainable
competitive advantage.
 Proper implementation of the following
decisions by operations managers will
allow these strategies to be achieved.
Ten Strategic OM Decisions
• Differentiation, low cost, and response can be
achieved when managers make effective
decisions in 10 areas of OM.
• These are collectively known as operations
decisions.

• The 10 decisions of OM that support missions

and implement strategies follow:
1. Goods and service design.
• Designing goods and services defines much of
the transformation process.
• Designs usually determine the lower limits of
cost and the upper limits of quality.

2. Quality. The customer’s quality expectations

must be determined and policies and procedures
established to identify and achieve that quality.
 
3. Process and capacity design.
• Process options are available for products and
services.
• Process decisions commit management to
specific technology, quality, human resource use,
and maintenance.
4. Location selection.
• Facility-location decisions for both manufacturing
and service organizations may determine the
firm’s ultimate success.
• Errors made at this juncture may overwhelm
other efficiencies.
5. Layout design.
• Processes and materials must be sensibly
located in relation to each other.
6. Human resources and job design. People are
an integral and expensive part of the total
system design.
• Therefore, the quality of work life provided, the
talent and skills required, and their costs must
be determined.
7. Supply-chain management. These decisions
determine what is to be made and what is to be
purchased.
• An atmosphere of mutual respect between
buyer and supplier is necessary for effective
purchasing.
8. Inventory.
• Inventory decisions can be optimized only when
customer satisfaction, suppliers, production
schedules, and human resource planning are
considered.
9. Scheduling.
• Feasible and efficient schedules of production
must be developed; the demands on human
resources and facilities must be determined and
controlled.
10. Maintenance.
• Decisions must be made regarding desired levels
of reliability and stability, and systems must be
established to maintain the reliability and
stability.
• Operations managers implement these 10
decisions by identifying key tasks and the
staffing needed to achieve them.

• However, the implementation of decisions is

influenced by a variety of issues, including a
product’s proportion of goods and services.
• Few products are either all goods or all
services.

• While the 10 decisions remain the same for

both goods and services, their relative
importance and method of implementation
depend upon this ratio of goods and services.
 CHAPTER II 
PRODUCT AND SERVICE DESIGN

Introduction
• The essence of any organization is the products
or services it offers.
• There is an obvious link between the design of
those products or services and the success of
the organization:
• Organizations that have well-designed products
or services are more likely to realize their goals
than those with poorly designed products or
services.
• Product and service design is a major factor in
customer satisfaction, product and service
quality, and production costs.
• The customer connection is obvious:
 The product or service is the main concern of
the customer, and becomes the ultimate basis
for judging the organization.
• The quality connection is twofold.
 Quality is obviously affected by design, but also,
during production, by the degree to which
production conforms to the intent of design.
 A key factor there is manufacturability, which
refers to the ease with which design features
can be achieved by production.
• Similarly, design affects cost, both the cost of
materials specified by design and the cost
required to achieve the intent of design (e.g.
labor and equipment costs).

• Objectives of Product and Service Design

The objectives of product and service design are:
  To bring new or revised products or services to
the market as quickly as possible.
 To design products and/or services that have
customer appeal.
 To increase the level of customer satisfaction.
 To increase quality.  
 To reduce costs.
• In a competitive environment,
 getting new or improved products or services to
the market ahead of competitors gives an
organization a competitive advantage that can
lead to increased profits as well as increased
market share, and
 can create an image of the organization as a
leader.
2.1 The Design Process
• The design process begins with the motivation
for design.
• For a new business or a new product, the
motivation may be obvious: to achieve the goals
of the organization.
• For an existing business, in addition to that
general motivation, there are more specific
factors to consider,
 such as government regulations,
 the appearance of new technologies that have
product or process applications,
 competitive pressures, and customer needs.
• Ultimately, the customer is the driving force for
product and service design.
 Failure to satisfy customers can result in
customer complaints, returns, warranty claims,
and so on.
 Loss of market share becomes a potential
problem if customer satisfaction is not achieved.
• Ideas for new or improved designs can come
from a variety of sources, most obviously the
customer.
• Marketing can tap this source of ideas in a number
of ways, such as the use of focus groups, surveys,
and the analyses of buying patterns.
• Some organizations have research and development
departments that also generate ideas for new or
improved products and services.
• Competitors are another important source of ideas.
 By studying competitor’s products or services, and
how it operates an organization can learn a great
deal that can help to achieve design improvements.
• Beyond that, some companies buy a
competitor’s newly designed product the
moment it appears on the market.  

• Using a procedure called reverse engineering;

they then carefully dismantle and inspect the
product. 

• This may uncover product improvements that

can be incorporated in their own product.
• Sometimes reverse engineering can lead to a
product that is superior to the one being
examined; that is designers are able to conceive an
improved design, enabling them to “leap frog” the
competition by introducing an improved version of
a competitor’s product within a short time.
 
• This may deny the competitor some of the rewards
that usually result from being the first to introduce
a new product, or one with new features.
 2.2 Product Development
• The product development system may well
determine not only product success but also
the firm’s future.
• The stages of product development
1. Ideas from many sources
2. Does firm have ability to carry out idea
3. Customer requirements to win orders
4. Functional specifications:
How the product will work
5. Product specifications:
How the product will be made
6. Design review:
Are these product specifications the best way to
meet customer requirements?
7. Test market: Does product meet customer
expectations.
8. Introduction to market
9. Evaluation (Success?)
• Two tools that are particularly helpful in the
early stages of product development are (1)
creativity and (2) identifying customer wants.

• We can address the former via creative, open

organizations and brainstorming and the second
with quality function deployment.
• Brainstorming is a technique in which a diverse
group of people share, without criticism, ideas
on a particular topic.

• The goal in this application is to generate an

open discussion that will yield creative ideas
about possible products and product
improvements.
Quality Function Deployment (QFD)
• Quality function deployment (QFD) refers to
both (1) determining what will satisfy the
customer and (2) translating those customer
desires into the target design.
• The idea is to capture a rich understanding of
customer wants and to identify alternative
process solutions.
• This information is then integrated into the
evolving product design.

• QFD is used early in the design process to help

determine what will satisfy the customer and
where to deploy quality efforts.
Organizing for Product Development

• The traditional approach to product

development is an organization with distinct
departments.

• These departments are: first, a research and

development department to do the necessary
research; then a manufacturing engineering
department to design a product that can be
produced; and finally, a production department
that produces the product.
• The distinct advantage of this approach is that
fixed duties and responsibilities exist.

• The distinct disadvantage is lack of forward

thinking:
 How will downstream departments in the
process deal with the concepts, ideas, and
designs presented to them, and ultimately what
will the customer think of the product?
• Another approach to product development is
the use of teams.

• Such teams are known variously as product

development teams, design for
manufacturability teams, and value engineering
teams.
• Product development teams are charged with
the responsibility of moving from market
requirements for a product to achieving a
product success.

• Such teams often include representatives from

marketing, manufacturing, purchasing, quality
assurance, and field service personnel.
• The objective of a product development team is
to make the good or service a success.
• This includes marketability, manufacturability,
and serviceability.

• Use of such teams is also called concurrent

engineering and implies a team representing all
affected areas (known as a cross-functional
team).
• To achieve a smoother transition from product
design to production, and to decrease product
development time, many companies are using
simultaneous development, or concurrent
engineering.

• Concurrent engineering implies speedier

product development through simultaneous
performance of various aspects of product
development.
2.3 Issues for Product Design

• In addition to developing an effective system

and organization structure for product
development several techniques are important
to the design of a product.
• We will now review five of these:
• (1) robust design,
• (2) modular design,
• (3) computer-aided design,
• (4) value analysis, and
• (5) environmentally friendly designs.
 Robust Design
• Some products will perform as designed only
within a narrow range of conditions, while other
products will perform as designed over a much
broader range of conditions. 

 The latter have robust design. The more robust a

product is the less likely that it will fail due to a
change in the environment in which it is used.
 Hence, the extent to which designers can build
robustness into the product, the better it should
hold up, and the higher the level of customer
satisfaction.

Modular Design  
• Modular design is a form of standardization in
which component parts are subdivided into
modules that are easily replaced or
interchanged. 
• Modular design makes it possible to have
relatively high product variety and low
component variety at the same time.

• The basic idea is to develop a series of basic

product components, or modules, that can be
assembled into a large number of different
products.
• To the customer, it appears there are a great
number of different products.
• To operations, there are only a limited number
of basic components and processes.
• Instead of designing each product separately,
the company designs product around standard
component modules and standard processes.

• This approach will still allow for a great deal of

product varieties but the number of
unnecessary product variations will be reduced.
Computer-Aided Design (CAD)

• Computers are increasingly used for product

design, particularly for manufacturing.

• Computer-aided design (CAD) uses computer

graphics for product design.

• The designer can modify an existing design or

create a new one by means of a light pen, a
keyboard, a joystick, or a similar device.
• A major benefit of CAD is the increased
productivity of designers.
• No longer is it necessary to laboriously prepare
mechanical drawings of products or parts and
revise them repeatedly to correct errors or
incorporate revisions. 
– A rough estimate is that CAD increases the
productivity of designers from 3 to 10 times.
Value Analysis
• Value analysis is a method for improving the
usefulness of a product without increasing its
cost or reducing the cost without reducing the
usefulness of the product.  

– It can result in great cost savings or a better product

for the customer, or both. 

– Value analysis seeks improvements that lead to

either a better product or a product made more
economically.  

– Value analysis is like a zero base budgeting in that

each product function is carefully examined for
possible elimination.
Environmentally Friendly Designs

• One of the operation manager’s most

environmentally sound activities is to enhance
productivity.

• Environmental Teams – With employees from

different functional areas working together, a
wider range of environmental issues can be
addressed.
• These teams should consider two issues.
• First, they should view the impact of product
design from a “systems” perspective, that is,
view the product in terms of its impact on the
entire economy.
• Second, the teams should consider the life cycle
of the product, from raw material, to
installation, to use, to disposal.
• The goal is to reduce the environmental impact
of a product throughout its life.
 The benefits of such a strategy include:
1.Developing safe and more environmentally
sound products.
2.Minimizing waste of raw materials and energy.
3.Differentiating products form the competition.
4.Increasing cost-effectiveness of complying
with environmental regulations.
5.Being recognized as a good corporate citizen.
• Green Manufacturing –
 The concept of green manufacturing  that is,
making environmentally sound products
through efficient processes  can be good
business.

• Companies can show their sensitivity to green

manufacturing in product and process design in
several ways:
1.Make products recyclable.
2.Use recycled products.
3.Use less harmful ingredients.
4.Use lighter components.
5.Use less energy.
6.Use less material.
• Green manufacturing is appreciated by the
public, and it can save money, material, and the
environment we live in.

• These are the kind of win-win situations that

operations managers seek.
2.4 Service Design

• Service industries include banking, finance,

insurance, transportation, and communications.
 
• Designing services is challenging because they
often have unique characteristics.
– One reason productivity improvements in
services are so low is because both the
design and delivery of service products
include customer interaction. 

– When the customer participates in the design

process, the service supplier may have a
menu of services form which the customer
selects options.
• Because of the differences between services
and products, the design of services must take
into account different elements than the design
of products.
• Consider these differences:
1.Products are generally tangible; services are
generally intangible.
• Consequently, service design often focuses
more on intangible factors than does product
design.
 2.Services are often produced and received at
the same time (e.g a hair cut, a car wash).
• Because of this, there is less latitude in finding
and correcting errors before the customer has a
chance to discover them.

3.Services cannot be inventoried.

• This poses restrictions on flexibility, and makes
capacity design very important.
 4.Some services have low barriers to entry and
exit.
• This places additional burden on service design
to continually be aware of what competitors are
offering.
5.Location is often important in service design,
with convenience as a major factor.
• Hence, design of services and choice of location
are often closely linked.