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Om ibs-1
What is Operations Management?
The direction and control of the processes
that transform inputs into products and
services

2
Operations Management
Operations Management is a set of
decisions that the Operations Manager
makes these could be strategic & tactical
namely:
• Strategic
• Process
• Quality
• Capacity, Location and Layout
• Operating decision
3
Operations Management as a
Function

4
OM Decisions
1. Strategic Choices

These decisions affect the company’s future
direction.
Operations
Managers
help
determine the company’s global strategy and
competitive priorities. How the OM’s will best
design the process to fit with its competitive
priorities.

5
OM Decisions
2. Process

The Operations Managers make process
decisions about the types of work to be done
in-house, the amount of automation to be used,
methods to improve current processes and
technologies to pursue to become market
leaders.

6
OM Decisions
3. Quality

Quality issues underlie all processes and work
activity. Operations Managers help in establish
quality objectives and seek ways to improve
the quality of the firms products/services and
use various statistical methods to monitor the
quality produced by various processes.

7
OM Decisions
4. Capacity, Location and Layout

The types of decisions in this category require
long term commitments. Operations Managers
help to determine the systems capacity,
location of new facility including global
locations and organizing of the departments
physical layout.

8
OM Decisions
5. Operating Decisions

These deal with operating the facility after it is
built, this requires Operations Managers to
help co-ordinate with internal and external
supply chain, manage inventory, control
output and staffing levels, do resource
planning, implement new techniques etc.

9
Manufacturing v/s Services
Manufacturing

Services

Physical Product

Intangible product

Output can be inventoried

Output cannot be
inventoried

Low customer contact

High customer contact

Long response time

Short response time

Regional, national or
international markets

Local Markets

Large facilities

Small facilities

Capital intensive

Labor intensive

Quality easily measured

Quality not easily measured
10
Operations Strategy a
Competitive Weapon
• An Organization that wants to succeed in a
competitive business needs needs a sound
strategy.
• A strategy is a broad long term plan
conceived in order to achieve business
objectives.
• Strategies are developed at 3 levels:
• Corporate level
• Business level
• Functional level
11
Operations Strategy a
Competitive Weapon
Key objective of any business organization
is to attract more customers than its
competitors and they do that with:
• Product/Process Expertise
• E.g. Intel Corp using superior chip
technology
• Quick Delivery – An organization with
flexible capacity, an adaptive production
process and satisfy customer needs
• E.g. 1 hour photo
• “Same-day” dry-cleaning

12
Elements of Operations Strategy
• Designing the production system.
• Product/Service design and development.
• Technology
selection
and
process
development.
• Allocation of resources to strategic
alternatives
• Facility planning

13
Designing the Production System
• Product Design
• Customized product design: high level of
customization and quantity produced is
low. E.g. Rolls Royce, Handmade watches
etc.
• Standard Product design: Production of
limited variety of products but produced
in large batches. E.g. Ford Model T,
coolers, fan, televisions etc.
14
Designing the Production System
• Production System
• Product-focused systems: used generally
employed in mass production units
where there are groups of machines,
tools and workers arranged according to
tasks. E.g. cars, televisions etc.
• Process-focused systems: Designed to
support departments that perform a
single task like painting or packing .
15
Finished Good Inventory Policy
• Produce-to-stock: Products are produced
well in advance and are stored in
warehouses from where they are
dispatched as per customer orders
• Produce-to-order: This allows production
to start only after the company receives
customer orders and halts production until
another order is received

16
Product/Service Design and
Development
The following are the important steps in
the development of new products:
• Idea Generation
• Feasibility Studies
• Prototype Design
• Prototype Testing
• Initial Design of Production Model
• Economic Evaluation
• Market Testing
• Final Design of Production Model
17
Product/Service Life Cycle

18
Product/Service Life Cycle
Once Product Design is finalized:
• Technology
selection
and
process
development: This involves thorough
analysis and planning or the production
process and facilities
• Allocation of resources to strategic
alternatives: Minimizing wastage and
optimal use of resources
• Facility Planning: Set up facility with
adequate capacity and proximity to raw
materials

19
Developing Operations Strategy

20
Financial and Economic Analysis
Productivity =

Output
--------------------Input

Two types of Productivity:
• Labor Productivity – Index of output per
person or per hour worked
• Multifactor Productivity – output provided
by more than 1 resource used in input
21
Productivity Calculations
Calculate the productivity for the following
operations:
1. Three employees process 600 insurance
policies in a week. They work 8 hours per
day and 5 days per week
2. A team of workers make 400 units of a
product, which is valued by its standard
cost of $10 each. The accounting
department reports that for this job the
actual costs are $400 for labor, $1000 for
material and $300 for overhead

22
Productivity Calculations
Policies Processed
------------------------Employee hours

Labor Productivity =

Labor Productivity =

600 policies
-------------------------

(3
employees)(40hrs/empl
oyee)
= 5 policies/hour
23
Productivity Calculations
Quantity at standard cost
Multifactor Productivity =

-------------------------

Labor cost+Material cost+overhead cost

(400 units)($10/unit)
Multifactor Productivity =

------------------------$400+$1000+$300

= $4000/$1700
= 2.35
24
Productivity Calculations
Calculate the productivity for the following
operations:
1. 5 employees create 800 units of chairs in a
week. They work 10 hours per day and 6
days per week
2. A team of workers make 500 units of
television, which is valued by its standard
cost of $150 each. The accounting
department reports that for this job the
actual costs are $300 for labor, $800 for
material and $400 for overhead

25
Financial and Economic Analysis
Two methods to evaluate the
effectiveness of an investment:
• Payback Method
• Net Present Value (NPV) method

cost

26
Financial and Economic Analysis
Payback Method:

Payback period =

Net Investment
--------------------Net Annual income

27
Productivity Calculations
Calculate the productivity for Payback
Method:
1. The initial investment for a factory is 12
lakhs and is expected to generate an
income of 3 lakhs per annum what is the
payback period
2. The initial investment in a call center is 45
lakhs and is expected to generate a revenue
of $20,000/- per annum, what is the
payback period.
28
Financial and Economic Analysis
Net Present Value (NPV):

29
Financial and Economic Analysis
Net Present Value (NPV):
If the NPV is greater than 1 then the project is
acceptable. If the NPV is less than zero the
project is rejected.
The greater the NPV of a project the better the
profitability
When multiple projects are being considered
then project with highest NPV is selected
30

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Om ibs-1

  • 2. What is Operations Management? The direction and control of the processes that transform inputs into products and services 2
  • 3. Operations Management Operations Management is a set of decisions that the Operations Manager makes these could be strategic & tactical namely: • Strategic • Process • Quality • Capacity, Location and Layout • Operating decision 3
  • 5. OM Decisions 1. Strategic Choices These decisions affect the company’s future direction. Operations Managers help determine the company’s global strategy and competitive priorities. How the OM’s will best design the process to fit with its competitive priorities. 5
  • 6. OM Decisions 2. Process The Operations Managers make process decisions about the types of work to be done in-house, the amount of automation to be used, methods to improve current processes and technologies to pursue to become market leaders. 6
  • 7. OM Decisions 3. Quality Quality issues underlie all processes and work activity. Operations Managers help in establish quality objectives and seek ways to improve the quality of the firms products/services and use various statistical methods to monitor the quality produced by various processes. 7
  • 8. OM Decisions 4. Capacity, Location and Layout The types of decisions in this category require long term commitments. Operations Managers help to determine the systems capacity, location of new facility including global locations and organizing of the departments physical layout. 8
  • 9. OM Decisions 5. Operating Decisions These deal with operating the facility after it is built, this requires Operations Managers to help co-ordinate with internal and external supply chain, manage inventory, control output and staffing levels, do resource planning, implement new techniques etc. 9
  • 10. Manufacturing v/s Services Manufacturing Services Physical Product Intangible product Output can be inventoried Output cannot be inventoried Low customer contact High customer contact Long response time Short response time Regional, national or international markets Local Markets Large facilities Small facilities Capital intensive Labor intensive Quality easily measured Quality not easily measured 10
  • 11. Operations Strategy a Competitive Weapon • An Organization that wants to succeed in a competitive business needs needs a sound strategy. • A strategy is a broad long term plan conceived in order to achieve business objectives. • Strategies are developed at 3 levels: • Corporate level • Business level • Functional level 11
  • 12. Operations Strategy a Competitive Weapon Key objective of any business organization is to attract more customers than its competitors and they do that with: • Product/Process Expertise • E.g. Intel Corp using superior chip technology • Quick Delivery – An organization with flexible capacity, an adaptive production process and satisfy customer needs • E.g. 1 hour photo • “Same-day” dry-cleaning 12
  • 13. Elements of Operations Strategy • Designing the production system. • Product/Service design and development. • Technology selection and process development. • Allocation of resources to strategic alternatives • Facility planning 13
  • 14. Designing the Production System • Product Design • Customized product design: high level of customization and quantity produced is low. E.g. Rolls Royce, Handmade watches etc. • Standard Product design: Production of limited variety of products but produced in large batches. E.g. Ford Model T, coolers, fan, televisions etc. 14
  • 15. Designing the Production System • Production System • Product-focused systems: used generally employed in mass production units where there are groups of machines, tools and workers arranged according to tasks. E.g. cars, televisions etc. • Process-focused systems: Designed to support departments that perform a single task like painting or packing . 15
  • 16. Finished Good Inventory Policy • Produce-to-stock: Products are produced well in advance and are stored in warehouses from where they are dispatched as per customer orders • Produce-to-order: This allows production to start only after the company receives customer orders and halts production until another order is received 16
  • 17. Product/Service Design and Development The following are the important steps in the development of new products: • Idea Generation • Feasibility Studies • Prototype Design • Prototype Testing • Initial Design of Production Model • Economic Evaluation • Market Testing • Final Design of Production Model 17
  • 19. Product/Service Life Cycle Once Product Design is finalized: • Technology selection and process development: This involves thorough analysis and planning or the production process and facilities • Allocation of resources to strategic alternatives: Minimizing wastage and optimal use of resources • Facility Planning: Set up facility with adequate capacity and proximity to raw materials 19
  • 21. Financial and Economic Analysis Productivity = Output --------------------Input Two types of Productivity: • Labor Productivity – Index of output per person or per hour worked • Multifactor Productivity – output provided by more than 1 resource used in input 21
  • 22. Productivity Calculations Calculate the productivity for the following operations: 1. Three employees process 600 insurance policies in a week. They work 8 hours per day and 5 days per week 2. A team of workers make 400 units of a product, which is valued by its standard cost of $10 each. The accounting department reports that for this job the actual costs are $400 for labor, $1000 for material and $300 for overhead 22
  • 23. Productivity Calculations Policies Processed ------------------------Employee hours Labor Productivity = Labor Productivity = 600 policies ------------------------- (3 employees)(40hrs/empl oyee) = 5 policies/hour 23
  • 24. Productivity Calculations Quantity at standard cost Multifactor Productivity = ------------------------- Labor cost+Material cost+overhead cost (400 units)($10/unit) Multifactor Productivity = ------------------------$400+$1000+$300 = $4000/$1700 = 2.35 24
  • 25. Productivity Calculations Calculate the productivity for the following operations: 1. 5 employees create 800 units of chairs in a week. They work 10 hours per day and 6 days per week 2. A team of workers make 500 units of television, which is valued by its standard cost of $150 each. The accounting department reports that for this job the actual costs are $300 for labor, $800 for material and $400 for overhead 25
  • 26. Financial and Economic Analysis Two methods to evaluate the effectiveness of an investment: • Payback Method • Net Present Value (NPV) method cost 26
  • 27. Financial and Economic Analysis Payback Method: Payback period = Net Investment --------------------Net Annual income 27
  • 28. Productivity Calculations Calculate the productivity for Payback Method: 1. The initial investment for a factory is 12 lakhs and is expected to generate an income of 3 lakhs per annum what is the payback period 2. The initial investment in a call center is 45 lakhs and is expected to generate a revenue of $20,000/- per annum, what is the payback period. 28
  • 29. Financial and Economic Analysis Net Present Value (NPV): 29
  • 30. Financial and Economic Analysis Net Present Value (NPV): If the NPV is greater than 1 then the project is acceptable. If the NPV is less than zero the project is rejected. The greater the NPV of a project the better the profitability When multiple projects are being considered then project with highest NPV is selected 30