Samara University

College of Business and Economics

Department of Management
Operations Management

Compiled by: Abdu Kamil (MBA)

Email: abkamilyahoo4569@gmail.com
 Content

Chapter One
Chapter Two
Chapter Three
Chapter Four
Chapter One: Introduction to Operations Management
✓ Introduction: Overview of OM
✓ Manufacturing Operations vs Service Operations
✓ Historical Development of Operation Management
✓ Operations environment and systems
✓ Decision making in operations system
✓ Operations strategy & Competitiveness
✓ Productivity Measurement
Chapter Two: Design of the Operation System
➢Product and service design

➢Process selection

➢Strategic Capacity Planning

➢Facility Location

➢Facility layout

➢Job Design and Work Measurement

Chapter Three: Operations Planning & Control
➢Aggregate production planning

➢Material Requirement Planning

➢Operations Scheduling
Chapter Four: Quality Management and Control
➢Meaning and nature of quality

➢The evolution of quality management

➢TQM
 4/7/2024 OM-BA-LSCM 7

Assessment Methods
For the purpose of insuring how students meet the main objective of the
course, the following evaluation methods will be used:

➢Individual assignment-------------------------------------------10%

➢Case assessment -------------------------------------------------10%

➢Mid exam---------------------------------------------------------25%

➢Quiz-----------------------------------------------------------------5%

➢Final exam--------------------------------------------------------50%

Total --------------------------------------------------------100%
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3/22/2023 1

CHAPTER O N E

Introduction to Operations Management

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Contents of this chapter

✓ Introduction: Overview of OM
✓ Manufacturing Operations vs Service Operations
✓ Historical Development of Operation Management
✓ Operations environment and systems
✓ Decision making in operations system
✓ Operations strategy & Competitiveness
✓ Productivity Measurement
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OPERATIONS MANAGEMENT
 Reflection
Think about the reputation, dominance, performance,
market share, good will in the market, which company
come to first in your mind?
Answer: Apple, Samsung, Amazon, Microsoft,
Walmart….etc

What is the reason?

Answer: They provide best goods and service

How they create those best goods and service? Operations Management
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1. 1. Introduction

➢The field of production management in the past focused almost exclusively on

manufacturing management, with a heavy emphasis on the methods and

techniques used in operating a factory.
➢In recent years, the scope of production management has broadened

considerably.
➢Production concepts and techniques are applied to a wide range of activities
and situations outside manufacturing; that is, in services such as health care,
food service, recreation, banking, hotel management, retail sales, education,
transportation, and government.
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Continued
▪ This broadened scope has given the field the name production/operations
management, or more simply, operations management, a term that more
closely reflects the diverse nature of activities to which its concepts and
techniques are applied.
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Definition of Production

• Production is the creation of goods and services.

•Production is the action of making or manufacturing from components or raw

materials, or the process of being so manufactured.

•Production is the process of producing goods and services to satisfy human

wants.
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Definition of Production and Operations Management

What is Operation?

• Operation is where the organizations goods & services produced.

•Operation is common to all organization it may be small or large, private or

government, local or international.

What is Management?

• Management is the process of planning, organizing, leading, and controlling an

organization’s human and capital resources in order to accomplish its objectives.

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•Operations management is the process of

managing the conversion of production inputs
(raw materials, human resources, and capital) into
production outputs (the goods that a company
produces).
•Operations management is the set of activities that
creates goods and services through the
transformation of inputs into outputs.
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Continued
❑ OM is the administration of process that transforms inputs of labor, capital
and materials in to output bundles of products and services that are valued to
customers.
❑It is the coordination of an organization’s resources and a transformation

process that will end up with the production of goods and services.
❑It is the essential features of the production functions are to bring together

people, machine, and materials to provide goods or services there by satisfying

the wants of the people.
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Continued

➢ OM is any activity or group of activities that takes one or more inputs, transforms

and adds value to them, and provides one or more outputs for its customers.

➢ In production management, we can see the creation tangible product such as TV or car.
➢For operations management example is the transformation that takes place at bank,
hospital or college.
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1.2. Manufacturing Operations vs Service Operations
Every organization can be broadly
classified in to two broad categories.

1. Manufacturing organization
➢ It produce physical, tangible goods that
can be stored in inventory before they are
needed.
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Continued
2. Service organization
➢ It produce intangible products that
cannot be produced ahead of time.
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Continued
Goods vs Service

Characteristic Goods Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
 1.3. Historical Development of Operation Management

Industrial Revolution
▪ During this period, manual labor was
gradually replaced by machinery,
leading to the mechanization of
production processes.
▪ Innovations such as the steam engine
and assembly line transformed
manufacturing, enabling mass
production and economies of scale.
Continued
 Continued
Human Relations Movement
▪ The human relations movement, led by researchers like Elton Mayo,
emphasized the importance of employee motivation, satisfaction, and social
dynamics in the workplace.

Good performance

▪ When workers are happy and get along well, they work better.
▪ So, companies started caring more about how their workers feel and
getting along with each other, not just about getting work done fast.
 Continued
Lean Manufacturing
▪ The aftermath of World War II saw
the rise of lean manufacturing
principles, notably pioneered by
Toyota in Japan.

▪ Lean manufacturing aimed to eliminate waste, optimize

production processes, and enhance flexibility by implementing
practices such as just-in-time, continuous improvement (kaizen),
and total quality management (TQM).
 Continued
➢ Throughout history, operations management has continuously
evolved in response to changing economic, technological, and
organizational contexts, with a focus on improving efficiency,
quality, and competitiveness in businesses.
➢ So, operations management keeps changing to keep up with these
goals and the changes in the world around us.
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1.4. Operations environment and systems

➢A system may be defined as “a purpose

full collection of people, objects and
procedures for operating within an
environment”.

➢The basic process of the system

converts (transforms) the resource inputs
(such as people, plant, part processes,
planning and controlling systems) in to
some useful form of outputs.
 1-28

Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
Potato
Onion
Salt
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1.5. Decision making in operations system

❑Operations management is essentially

function concerning decision making

with respect to operation system so as
to render the necessary customer
satisfaction at lowest cost.

❑Operation managers manage all

activities in the transformation of input
in to output by making broad types of
decisions.
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A) Strategic (long term) decisions: - a decision is said to be strategic if it has

a long term impact influence a large part of the system and is difficult to undo
once implemented.

i. Product selection and design

ii. Process selection and planning

iii. Facilities location

iv. Facilities lay out and materials handling

v. Capacity planning
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Continued

B) Operational (short term) decisions: - operational level decisions deal with short

term planning and control problems. Some of these are:

➢ Production planning, scheduling and control

➢ Inventory planning and control

➢ Quality assurance

➢ Work and job design

➢ Maintenance and replacement

➢ Cost reduction and control

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Continued
Operations management is study decisions making includes;
1. Process: Decisions in this category
determine the physical process or facility

used to produce the product or service.

❑It is important that the physical process

be designed on relation to the long

strategic posture of the business.

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2. Capacity: Capacity decisions are aimed at

providing the right amount of capacity at

right place at the right time.

❑The available capacity must be allocated

to specific tasks and jobs in operations by

scheduling people, equipment, and

facilities.
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Continued
3. Inventory: Inventory decisions in

operations determine what to order, how

much to order, and when to order.

➢Inventory control systems are used to

manage materials from purchasing through

raw materials, work in process, and

finished goods inventories.

➢They manage the flow of materials within

the firm.
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Continued
4. Work force: Work force decisions

include selection, hiring, firing, training,

supervision, and compensation.

▪ Managing the work force in a productive

and humane way is a key task for

operations today.
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Continued
5. Quality: Quality is an important
operations responsibility which requires

total organizational support.

▪ Quality decisions must ensure that quality

is built into the product in all stages of

operations, standard must be set,

equipment designed, people trained, and

product or service inspected for quality to

result.
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Reasons for the study of Operations Management

We study operations management

for the following reasons:
❑ Operations management (OM)

is one of the three major

functions of any organizations,
and it is integrally related to all
the other business functions.
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Continued

❑ We study operations management because we want to know how goods and

services are produced. The production function is the segment of our

society that creates the products we use.
❑ We study OM to understand what operations managers do. By
understanding what these messages do, you can develops the skills
necessary to become such a manager.
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Continued

❑ We study OM because it is such a costly

part of an organization.
❑ A large percentage of revenue of most

firms is spent in the operations

management functions.
❑ Indeed, operations management
provides a major opportunity for an
organization to improve its profitability
and enhance its services to society.
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Session 02
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1.6. Operations Strategy and Competitiveness

Identifying Missions and Strategies ➢ An effective operations management

effort must have a mission so it knows

where it is going and a strategy so it
What is Vision? knows how to get there.
Goal? Mission
Mission? ✓ We define the organization’s mission

Strategy? as its purpose what it will contribute to

Tactic? society.
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Continued

✓ Mission statements provide boundaries and focus for organizations and the
concept around which the firm can really.
✓ The mission states the rationale for the organization’s existence.
✓ Developing a good strategy is difficult, but it is much easier if the mission has
been well defined.
➢ Once an organization’s mission has been decided, each functional area within

the firm determines its supporting mission.

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Continued

➢ By “functional area” we mean the major

disciplines required by the firm, such as
marketing, finance /accounting, and
production/operations.
➢ Missions for each functional area are
developed to support the firm’s overall mission.
➢ Then within that function lower-level
supporting missions are established for the
operation management functions.
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Continued

Strategy and Tactics

➢ 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.
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Continued

Example- Meron is a high school student in Samara Town. She would like to
have a career in business, have a good job, and earn enough income to live
comfortably. A possible scenario for achieving her goals might look something
like this:

Mission: Live a good life.

Goal: Successful career, good income.
Strategy: Obtain a university education.
Tactics: Select a university and a major; decide how to finance university.
Operations: Register, buy books, takes courses, study.
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Continued
Levels of Strategy
Strategy can be seen as to exist three major
levels within the organizations.

▪ At the highest or corporate level the

strategy provides very general long-range
guidance for the whole organizations often

expressed as a statement of its mission.

The corporate level can be;
▪ The mission statement describes in a
▪ Stable
general terms what key decision maker want
the company to accomplish and what kind of
▪ Growth

company they want it’s to become. ▪ Retrenchment

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Continued

▪ The second level of strategy is termed as a

business strategy, which includes;

✓ Low-cost strategy: focus on producing the

lowest cost products.

✓ Focus strategy: focus on satisfying the

needs of a particular market.

✓ Differentiations strategy: focus on

offering products that differ significantly
from the competitor products.
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Continued

The third level of the strategy is operation

strategy.

❑The organization strategy provides the

overall direction for the organization.

❑It is broad in scope, covering the entire

organization.

❑Operations strategy is narrower in scope,

dealing primarily with the operations aspect of

the organization.
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Continued

➢ Operation strategy refers to how the

operation function contributes to a firm
ability to achieve its competitive
advantage in that marketplace.
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Continued
Strategy Formulation

To formulate an effective strategy, senior management must take into account the

▪ Scan the environment

▪ Distinctive competencies

▪ Order qualifiers, and order winners

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Continued
Scan the environment
➢ Environmental scanning is referred to as the SWOT approach.

➢Generally these include competitors’ activities; changing consumer needs;

legal, economic, political, and environmental issues; the potential for new
markets; and the like.
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Continued
Distinctive competencies
✓Distinctive competencies are those special attributes or abilities possessed by
an organization that give it a competitive edge.

✓These can include price (based on some combination of low costs of resources
such as labor and materials, low operating costs, and low production costs);
quality (high performance or consistent quality); time (rapid delivery or on-time
delivery); flexibility (variety & volume); customer service; and location.
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Continued
Order winners and qualifiers

• Order qualifiers as those characteristics

that potential customers perceive as

minimum standards of acceptability to be
considered as a potential for purchase.
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Continued

▪ However, that may not be sufficient to get a potential customer to purchase

from the organization.

▪ Order winners are those characteristics of an organization’s goods or services

that cause them to be perceived as better than the competition.
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Continued
Achieving CompetitiveAdvantage through Operations
❑ Competitiveness refers to how
effectively an organization meets the
needs of customers relative to others
that offer similar goods and services.

❑ Competitive advantage can be viewed

as any activity that creates superior

value above its rivals.
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Continued

❑ The strongest competitive advantage is a strategy that can’t be imitated by

other companies.
❑ In general, a competitive advantage can be gained by offering the customer a

greater value than the competitors.

❑ Organizations can achieve competitive advantage via differentiation, low cost,

and response.

❑ Generally, these three concepts- differentiation, low cost, and response-are

often translated into six specific strategies: flexibility in design and volume, low
price, delivery, quality, after-sale service, and a broad product line.
 4/17/2023 19
Operations Objectives

1. Cost: to successfully compete in niche

market, firm must necessarily, be the low cost
producers and even doing this does not always
guarantee profitability and success.

❑ To compete based on cost, operations

managers must address labor, materials, scrap,
overhead and other cost to design a system
that lower the cost per units of the product or
service.
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Continued

2. Quality: quality is a dimension of a product

or services that is defined by the customer.

This may include:

✓ Superior features, and greater durability.

✓ Helpfulness, courteousness and availability of

service employees.

✓ Convenience of access to service locations.

✓ Safety of product or service.

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Continued

3. Time (Delivery): As the saying goes,”

time is money”. Three competitive
priorities deals with time include:

• Fast delivery time (delivery speed)

• On time delivery

• Development speed
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Continued

4. Flexibility: is a characteristic of a
firm’s operations that enables it to react
to customer needs quickly and
efficiently.

✓ Customization/Product flexibility

✓ Volume flexibility
 3/22/2023 36

1.7. Productivity Measurement

❖ Productivity is a measure of how efficiently inputs are converted to output.

Output
Productivity =
Inputs
❖ Productivity is a measure of how well resources are used.

Productivity a relatively measured by:

• Partial productivity measures compare output to a single input.
• Multifactor productivity measures compare output to a group of inputs.
• Total productivity measures compare output to all inputs.
 3/22/2023 35
Efficiency and Effectiveness

▪Efficiency and effectiveness are not the

same thing.

▪Efficiency is defined as the ability to

accomplish something with the least
amount of wasted time, money, and
effort or competency in performance.

▪Effectiveness is defined as the degree to

which something is successful in
producing a desired result; success.
Continued
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Continued
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Continued
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Continued

Exercise: ABC Furniture Company produced 10,000 chairs, with annual labor, wood
and equipment cost of Birr 50,000, 2,000 and 25,000 respectively. Calculate
productivity through

▪ Partial productivity measures

▪ Multifactor productivity measures
▪ Total productivity measures
4/17/2023 24

End of the First Part