BUSINESS ADMINISTRATION

DEPARTMENT

COURSE INSTRUCTOR:
SHAGUFTA SALEEM SHAIKH

© 2014 Pearson Education, Inc. 1-1

OPERATIONS MANAGEMENT (BBA 2K21) BY: SHAGUFTA SALEEM SHAIKH
 Learning Objectives
When you complete this chapter
you should be able to:
1. Define operations management
2. Explain the distinction between
goods and services
3. Explain the difference between
production and productivity

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OPERATIONS MANAGEMENT (BBA 2K21) BY: SHAGUFTA SALEEM SHAIKH
 Learning Objectives
When you complete this chapter
you should be able to:
4. Compute single-factor productivity
5. Compute multifactor productivity
6. Identify the critical variables in
enhancing productivity

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 Introduction to Operations
Management
▶ The set of interrelated activities, which are
involved in manufacturing certain products,
is called as “Production Management”. If
the same concept is extended to services
management, then the corresponding set of
management activities is called as
“Operations Management”
▶ Operations Management transforms inputs,
such as people, material, and money, to
Outputs which may be goods and / or
services. 1-4
 Operations Management
▶ Definition: Operation Management is
the business function responsible for
managing the process of creation of
goods and services. It involves
Planning, Organizing, Coordinating
and Controlling all the resources
needed in the production of goods and
services.

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 Operations Management
Conti…
▶ Production Management is concerned with
the production of goods and services.

▶ – It deals with the management of

resources (inputs: machines, raw materials,
human skills, etc),

▶ – And the distribution of finished goods and

services (outputs) to the customers.
(Resources) (Goods/Products & Services)
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 What Is Operations
Management?

Production is the creation of

goods and services
Operations management (OM) is
the set of activities that create
value in the form of goods and
services by transforming inputs
into outputs

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Organizing to Produce Goods
and Services

Essential functions:
1. Marketing – generates demand
2. Production/operations – creates
the product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money

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Organizational Charts

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Organizational Charts

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Organizational Charts

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 The Supply Chain
▶ A global network of organizations and
activities that supply a firm with goods and
services
▶ Members of the supply chain collaborate to
achieve high levels of customer satisfaction,
efficiency and competitive advantage.

Farmer Syrup Bottler Distributor Retailer

producer

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 Why Study OM?
1. OM is one of the major functions of any
organization, we want to study how people
organize themselves for productive
enterprise
2. We want (and need) to know how goods
and services are produced
3. We want to understand what operations
managers do
4. OM is such a costly part of an
organization
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 What Operations
Managers Do

Basic Management Functions

▶ Planning
▶ Organizing
▶ Staffing
▶ Leading
▶ Controlling

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 The Strategic Decisions
1. Design of goods and services
▶ Defines what is required of operations
▶ Product design determines quality,
sustainability and human resources
2. Managing quality
▶ Determine the customer’s quality
expectations
▶ Establish policies and procedures to
identify and achieve that quality

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 The Strategic Decisions
3. Process and capacity design
▶ How is a good or service produced?
▶ Commits management to specific
technology, quality, resources, and
investment.
4. Location strategy
▶ Nearness to customers, suppliers, and
talent.
▶ Considering costs, infrastructure, logistics,
and government.
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 The Strategic Decisions
5. Layout strategy
▶ Integrate capacity needs, personnel levels,
technology, and inventory
▶ Determine the efficient flow of materials,
people, and information.
6. Human resources and job design
▶ Recruit, motivate, and retain personnel with
the required talent and skills.
▶ Integral and expensive part of the total
system design.

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 The Strategic Decisions
7. Supply-chain management
▶ Integrate supply chain into the firm’s strategy.
▶ Determine what is to be purchased, from
whom, and under what conditions.
8. Inventory management
▶ Inventory ordering and holding decisions.
▶ Optimize considering customer satisfaction,
supplier capability, and production schedules.

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 The Strategic Decisions
9. Scheduling
▶ Determine and implement intermediate-
and short-term schedules.
▶ Utilize personnel and facilities while
meeting customer demands.
10. Maintenance
▶ Consider facility capacity, production
demands, and personnel.
▶ Maintain a reliable and stable process.

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 Operations for
Goods and Services

▶ Manufacturers produce tangible product,

services often intangible
▶ Operations activities often very similar
▶ Distinction not always clear
▶ Few pure services

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 Differences Between Goods and
Services
TABLE 1.3
CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Beauty salon Product can usually be kept in inventory (beauty care
produces a haircut that is consumed as it is produced products)
Unique: Your investments and medical care are unique Similar products produced (iPods)

High customer interaction: Often what the customer is Limited customer involvement in production
paying for (consulting, education)
Inconsistent product definition: Auto Insurance Product standardized (iPhone)
changes with age and type of car
Often knowledge based: Legal, education, and medical Standard tangible product tends to make automation
services are hard to automate feasible
Services dispersed: Service may occur at retail store, Product typically produced at a fixed facility
local office, house call, or via internet.
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products are easy
education, and medical services to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or medical care Product often has some residual value

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The Transformation Process
Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
•Capital
Process
•Information

Measurement
and Feedback
Measurement Measurement
and Feedback and Feedback
Control

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established

standards to determine if corrective action is needed.

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 Productivity
Productivity is a relationship between the output
(product/service) and input (resources consumed
in providing them) of a business system.
The ratio of aggregate output to the aggregate
input is called productivity.

Productivity = output/Input

The objective is to improve productivity!

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 Productivity
According to Interna ti onal Labor
Organization(ILO) , “ The ratio between the volumes of
output is measure by production indices and the
corresponding volumes of labor input is measured by the
employment indices. The productivity is a measure of how
much input is required to achieve a given output.

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 Productivity
Example

• Incase A, 10 products are produced spending

1000 rupees and in case B, 15 products are
produced by spending 2000 rupees.

• Productivity in case A=10/1000

• Productivity in case B=15/2000
In case B, it’s a clear indication that the
productivity has reduced.

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 Partial Productivity
• Theresources of productivity when measured
separately are called as Partial Productivity.
• A measure of partial productivity plays a very
important role in improving the productivity.
LABOUR
LABOUR
PRODUCTIVITY OUTPUT INPUT

CAPITAL CAPITAL
PRODUCTIVITY OUTPUT INPUT

MATERIAL
MATERIAL
OUTPUT INPUT
PRODUCTIVITY
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 Productivity Calculations
Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource input  single-factor productivity

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 Multi Factor Productivity
• In any production process, many of the resources
inputs are available within the organization, while
a few others are purchased from outside.

► Also known as total factor productivity

► Output and inputs are often expressed in
dollars

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 Multi-Factor Productivity

Output
Productivity =
Labor + Material + Energy +
Management + Capital

Multiple resource inputs  multi-factor productivity

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 Productivity Variables
1. Labor - contributes
about 10% of the
annual increase
2. Capital - contributes
about 38% of the
annual increase
3. Management -
contributes about 52%
of the annual increase
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Example 1:
Kleen Carpet cleaned 65 rugs in October, consuming the
following resources:

Labor: 520 hours @ 13 per hour

Solvent: 100 gallons @ 5 per gallon
Machine rental: 20 days @ 50 per day

a) What is labor productivity?

b) What is the multifactor productivity?

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Example 2:
Panther is president of panther tyres manufacturing, a producer
of Go-kart tyres. Panther makes 1000 tyres per day with the
following resources.

Labor 400 hours per day @ 12.50 per hour

Raw material 20,000 pounds per day @ 1 per pound
Energy 5000 per day
Capital costs 10,000 per day

What is the labor productivity per labor hour for these tyres at
panther tyre manufacturing?
What is the multifactor productivity for these tyres at panther tyre
manufacturing?

© 2014 Pearson Education, Inc. 1 - 32

 Capital
10
Percent increase in productivity

0
10 15 20 25 30 35
Percentage investment

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 Management ensures that labor and
capital are effectively used to increase
productivity.
 In order to improve productivity, effective
use of knowledge and capital is needed,
and the manager’s job is to select the
best new capital investments and
improve the productivity of the existing
ones

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 While there are many good theories on how to
improve goods-production based activities, the
productivity in the service sector is more difficult to
improve, since work in the service sector is often:

1.Typically labor intensive

2. Frequently focused on unique individual
attributes or desires
3. An intellectual task performed by
professionals
4. Difficult to mechanize and automate
5. Difficult to evaluate for quality
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Ethics and Social Responsibility
Challenges facing
operations managers:
▶ Managers must meet the demand of the
market place while doing everything in a
socially responsible and ethical way.
▶ Therefore managers should have a moral
awareness and focus on increasing
productivity, as well as developing safe
quality products, maintaining a clean
environment and a safe workplace.
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New Challenges in OM
▶ Global focus
▶ Supply-chain partnering
▶ Sustainability
▶ Rapid product development
▶ Mass customization
▶ Just-in-time performance
▶ Empowered employees

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 1. Jameela produces seasonal wooden yard ornaments for re-sale at local
craft fairs. She currently works 8 hours per day to produce 16 ornaments.
Calculate labor productivity.

2. A wrapping paper company produced 2000 rolls of paper one

day. Labor cost was Rs. 160, material cost was Rs. 50, and
overhead was Rs.320. Determine the multifactor productivity.

3. A company that processes fruits and vegetables is able to

produce 400 cases of canned peaches in one half hour with four
workers. What is the labor productivity?

© 2014 Pearson Education, Inc. 1 - 38

Thank You 

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