Business Finance - Operations Management OPMT 620: Operations Management - Case Study McDonalds Assignment
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Stevenson7ce_PPT_Ch01.pptx
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Sam Lampropoulos George Brown College
Introduction to Operations Management
Chapter
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Define the term operations management
Identify the three major functional areas of organizations and describe how they interact.
Describe the scope of operations management, including differentiating between design and planning/control decisions.
Compare production of goods and services.
Discuss the operations manager’s job.
Describe key aspects of operations management decision making.
Briefly describe the historical evolution of OM
Identify major trends that affect operations management.
Learning Objectives
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Service Operations Examples
Learning Objectives
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What is operations management (OM)?
Three basic functions within organizations
The scope of operations management
Differentiating goods and services
Operations manager’s job
Operations managers and decision making
The historical evolution of operations management
Major trends
Chapter Outline
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OM is the management of processes that create goods and/or provide services.
What is Operations Management?
Companies use OM to improve:
Efficiency (operating to minimize cost and time)
Effectiveness (achieving intended goals: quality & timeliness)
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| OM Activities | Airline company (services) | Bicycle factory (goods) |
| Forecasting | ||
| Capacity planning | ||
| Scheduling | ||
| Managing inventories | ||
| Assuring quality | ||
| Motivating employees | ||
| Where to locate facilities |
Detail the following OM activities for each company
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What is Operations Management?
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From Page #2
Airline:
Forecasting demand for flights, the growth in air travel, and weather and landing conditions.
Capacity planning, deciding the number of planes and where to use them.
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 food and beverages and spare parts.
Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety. Also important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and in-flight service, where the emphasis is on efficiency and courtesy.
Employee motivation and training in all phases of operations.
Location of facilities according to top managers’ decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs.
Buying materials such as fuel, food, bags, and spare parts. Buying aircraft and maintaining it.
bicycle factory. This might be primarily an assembly operation: buying components such as frames, tires, wheels, gears, and other items from suppliers, and then assembling bicycles. The factory might also do some of the fabrication work itself (forming frames, making the gears and chains) and buy mainly raw materials and a few parts and materials such as paint, nuts and bolts, and tires. Among the key operations management activities in either case are scheduling production, deciding which components to make and which to buy, ordering parts and materials, deciding on the style of bicycle to produce and how many, purchasing new equipment to replace old or worn-out equipment, maintaining equipment, motivating workers, and ensuring that quality standards are met.
Why Study Operations Management?
A large percentage of a company’s expenses occur in OM area (more efficient operations = more profits).
A large number of all jobs are in OM area (purchasing, quality, planning, scheduling, inventory, etc.).
Activities in all other areas( finance, human resources, marketing, ) are interrelated with OM activities.
Operations innovations lead to marketplace and strategic benefits (Toyota Production System, Dells’ direct shipping of personal computers).
Opportunity!
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Careers and Professional Certifications in OM
Supply Chain Management Association (SCMA)
Canadian Institute of Traffic and Transportation (CITT)
Canadian Supply Chain Sector Council (CSCSC)
American Production and Inventory Control Society (APICS), now known as the Association for Supply Chain Management
American Society for Quality (ASQ)
Project Management Institute (PMI)
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Page #5
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Functions Within Organizations
A typical organization (manufacturing or service) has three basic functions.
Operations: creates goods and services.
Finance: provide funds and the economic analysis of investment proposals.
Marketing: assess customer wants and needs and communicate them to others.
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Figure 1-1
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Figure 1-1 Page #5.
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Three Basic Functions Interact
The functions must interact to achieve the goals and objectives of the organization.
Each functional area makes an important contribution to organizational success.
Finance
Marketing
Operations
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For instance, unless operations and marketing work together, marketing may promote goods or services that operations cannot profitably deliver, or operations may turn out goods or services for which there is no demand. Similarly, unless finance and operations work closely, funds for materials, building expansion, and new equipment may not be available when needed.
Three Basic Functions : Airline
This shows how the operations function relates to an airline company.
Note: this is an example of how operations applies to a service based business.
Operations
Finance/
Accounting
Marketing
Ground
Support
Flight
Operations
Facility
Maintenance
Catering
Airline Company
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Operations Function
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Figure 1-2
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Figure 1-2 Page#6.
Types of Operations
Operations
Examples
Goods Producing
Farming, mining, construction
,
manufacturing, power generation
Storage/Transportation
Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange
Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment
Films, radio and television,
concerts, recording
Communication
Newspapers, radio and television
newscasts, telephone, satellites
Services
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Transformation Process at a Food Processor
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Table 1-2
| Food Processor | Inputs | Process | Output |
| Raw Materials | Cleaning | Canned Vegetables | |
| Metal sheets | Making cans | ||
| Water | Cutting | ||
| Energy | Cooking | ||
| Labour | Packing | ||
| Building | Labelling | ||
| Equipment |
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Table 1-2 Page#6
Transformation Process at a Hospital
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Table 1-2
| Hospital | Inputs | Process | Output |
| Sick patients, doctors, nurses | Examination | Healthy patients | |
| Building | Surgery | ||
| Medical supplies and drugs | Monitoring | ||
| Equipment | Medication | ||
| Laboratories | Therapy |
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Table 1-2 Page #6
The Goods-Service Continuum
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Figure 1-3
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Figure 1-3 Page #7.
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 new oil is a good. Similarly, house painting is a service, but the paint is a good. The goods–service package is a continuum.
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Operations Interfaces
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Figure 1-4
Operations interfaces with a number of supporting functions.
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Figure 1-4 Page#8
There are many supporting functions that interface with operations.
The Scope of Operations Management
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Page# 8
System design is vital because many of the parameters (and limitations) of the system operation are decided by design.
We have already noted that operations management is responsible for the creation of goods and services. This encompasses acquisition of resources and the conversion of raw material into outputs using one or more transformation processes. This involves designing, planning, scheduling, executing, and controlling the activities/operations that make up the processes.
Designing Decisions
Capacity
Location
Equipment
Planning/Control Decisions
Inventory
Scheduling
Quality assurance
Personnel
| Decision area | Basic question | Chapter |
| Forecasting | What will the demand be? | 3 |
| Product/ service design | What customers want? How to improve products/services? | 4 |
| Capacity | How much capacity will be needed? | 5 |
| Process | What processes should be used? | 6 |
| Layout | What is the best arrangement for the departments? | 6 |
| Work/Job Design | How to improve work methods? | 7 |
| Quality | How to define quality? How to improve it? | 9 |
| Supply Chain Management | Which supplier to choose? | 11 |
| Inventory Management | How much to order? | 12 |
| Aggregate planning | How much capacity will be needed over the medium term? | 13 |
| JIT systems | How to coordinate production and purchasing? | 15 |
| Scheduling | How to schedule jobs, staff? | 16 |
Which decision is design type and which is planning/control type?
The Scope of Operations Management
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Table 1-3
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Table 1-3 Page# 9 Text has complete list of chapters
| Differences | Goods (Produce a car) | Services (Teach a class) |
| Output | Tangible | Intangible |
| Customer contact | Low | High |
| Uniformity of input | High | Low |
| Labour content | Low | High |
| Uniformity of output | High | Low |
| Measurement of productivity | Easy | Difficult |
| Quality assurance | Easy | Difficult |
Goods vs. Services
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Page #10-#11
Production of goods and performance of services are often similar in many design and planning/control decisions. However, they differ in:
1. Customer contact, use of inventories, and demand variability.
2. Uniformity of inputs.
3. Labour content of jobs.
4. Uniformity of outputs.
5. Measurement of productivity.
6. Quality assurance.
Goods or Service?
Tangible
Act
Most systems are a blend of both good & service.
Service sector accounts for > 79% of jobs in Canada.
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Page#11
Goods vs. Services in Canada
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Percentage of total labour force by industry.
Figure 1-5
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Figure 1-5 Page #11
Both service and the goods-producing industries are important to the economy. However, services have been growing faster and now account for more than 79 percent of jobs in Canada
The Operations Manager’s Job
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The operations manager must coordinate the use of resources through the management activities of planning, organizing, directing, and controlling.
Table 1-4
| Planning | Organizing |
| Capacity | Degree of centralization |
| Location | Departments |
| Mix of products | Subcontracting |
| Production process | Suppliers |
| Layout | Staffing |
| Controlling | Directing |
| Inventory Control | Scheduling |
| Quality control | Issuance of work orders |
| Production pace | Job assignments |
| Motivation | Purchasing |
| Cost control | Logistics |
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Table 1-4 Page #12
The operations manager has the ultimate responsibility for the creation of goods or performance of services. Note that the person performing this job may have a different title. For example, a fast-food chain’s restaurant manager is essentially the restaurant’s operations manager. At the district level, the district manager is essentially the operations manager, and at the executive level there is usually a vice-president of operations
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The Systems Approach
Figure 1-6
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Operations Managers and Decision Making
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Page #13- #15
Models: an abstraction of reality, a simplified representation of something; they must ignore the unimportant details so that attention can be concentrated on the most important aspects
Quantitative Techniques: Linear Programming, Queuing technique, Inventory techniques, Project Scheduling.
Trade Offs: Factor Rating approach
Systems Approach: the output and the objective of the organization as a whole takes precedence over those of any one subsystem
Establishing priorities: Pareto Phenomenon
Ethics: worker safety, Product safety, clean environment, impact on the community
Models
Quantitative techniques
Analysis of trade-offs
Systems approach
Establishing Priorities
Ethics
A model is an abstraction of reality. Used to support the decision process.
Models
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Models ignore the unimportant details so that attention can be concentrated on the most important aspects of a problem, thus increasing the opportunity to understand a problem and find its solution.
Physical
Schematic
Mathematical
Quantitative Approaches
Linear programming
Queuing techniques
Inventory techniques
Project techniques
Statistical techniques
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Quantitative techniques are methods that focus on objective measurements and analysis of numbers in order to draw conclusions
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Analysis of Trade-Offs
Decision on amount of inventory to stock
Increased cost of holding inventory
vs.
Level of customer service
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A trade-off is a balance achieved between two incompatible features—a compromise. For example, (a) in deciding on the amount of inventory to stock, the manager may take into account the trade-off between the increased level of customer service (availability) that the additional inventory would yield and the increased cost of holding that inventory in storage
Establishing Priorities
Pareto Phenomenon
A few factors account for a high percentage of the occurrence of some event(s).
80/20 Rule - 80% of problems are caused by 20% of the activities.
How do we identify the vital few?
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In virtually every situation, managers discover that certain elements are more important than others. Recognizing this fact of life enables the managers to direct their efforts to where they will do the most good and to avoid wasting time and energy on insignificant elements
Ethical Issues
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Ethics are moral principles that govern a person’s behaviour. Operations managers, like all managers, have the responsibility to make ethical decisions.
Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
The Historical Evolution of OM
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Earliest days
Craft production (no economies of scale),
Industrial revolution
Interchangeable Parts (Eli Whitney, 1700)
Division of Labour (Adam Smith, 1776)
Scientific Management (1920s, Frederick Taylor, Frank and Lillian Gilbreth, Henry Gantt, Henry Ford)
Human relations Movement
Improve Productivity (Elton Mayo, 1930)
Motivational Theories (Abraham Maslow), 1940s
Employee Problem Solving (William Ouchi), 1970s
Decision Models and Computer (1960+)
Manage-ment Science,
Japanese Manu-facturers (1980+)
TQM revolution
Mercant-ilism
EDI,
ERP
lean production
World Class Mftg
Trends in Business
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The Internet and e-commerce
Management technology
Globalization
Management of supply chains
Sustainability
Supply Chain
A sequence of activities and organizations involved in producing and delivering a good or service.
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Figure 1-8
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Figure 1-8 Page #21
Operations management is responsible for planning and coordinating the use of the organization’s resources to convert inputs into outputs.
The operations function is one of three primary functions of organizations; the other two are marketing and finance. The operations function is present in both service- and goods-producing organizations.
Operations decisions involve design decisions and planning/control decisions. Design decisions relate to capacity planning, product design, processes design, layout of facilities, and selecting locations for facilities. Planning/control decisions relate to quality assurance, production planning, scheduling and control, inventory management, and project management.
Service differs from goods production in customer contact and labour content, lack of inventories, variation in inputs and outputs, and difficulties in productivity measurement and quality assurance.
Chapter Summary (1)
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Operations managers plan, organize, control, and direct the operations of an organization.
They use models, quantitative techniques, trade-off analysis, systems approach, priorities, and ethics in decision making.
Operations management evolved through craft, mass, and lean production systems.
Major trends currently are e-commerce, technology, globalization, supply chains, and sustainability.
Chapter Summary (2)
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‹#›
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Define the term operations management and describe what an operation manager might do.
Identify the three major functional areas of organizations and describe how they interact.
Differentiate between design and operations decisions.
Compare goods versus services.
Describe key aspects of the operations managers job and their role and involvement in decision making.
Briefly describe the historical evolution of operations management.
Identify current trends that affect operations management.
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Learning Checklist
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