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Chapter 1
Introduction toOperations Management
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Operations Management

• What is operations?
• The part of a business organization that is
  responsible for producing goods or services
• How can we define operations management?
• The management of systems or processes that
  create goods and/or provide services

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Basic Functions of the Business Organization
The management of systems or processes that
create goods and/or provide services
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Supply Chain
Supply Chain a sequence of activities and
organizations involved in producing and
delivering a good or service
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The Transformation Process --OM Model
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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Food Processor
Table 1.2
Outputs
Inputs
Processing
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Hospital Process
Table 1.2
Inputs
Processing
Outputs
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Goods-service Continuum
Products are typically neither purely service- or
purely goods-based.
Goods Services
Surgery, Teaching
Songwriting, Software Development
Computer Repair, Restaurant Meal
Home Remodeling, Retail Sales
Automobile Assembly, Steelmaking
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Manufacturing vs. Service?
Manufacturing and Service Organizations differ
chiefly because manufacturing is goods-oriented
and service is act-oriented.
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Production of Goods vs. Delivery of Services

• Production of goods tangible output
• Delivery of services an act
• Service job categories
• Government
• Wholesale/retail
• Financial services
• Healthcare
• Personal services
• Business services
• Education

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Manufacturing vs Service
Characteristic
Manufacturing
Service
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Process Management
Process - one or more actions that transform
inputs into outputs
Three Categories of Business Processes Three Categories of Business Processes
Upper-management processes These govern the operation of the entire organization.
Operational processes These are core processes that make up the value stream.
Supporting processes These support the core processes.
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Process Management
Four Sources of Variation
Variety of goods or services being offered The greater the variety of goods and services offered, the greater the variation in production or service requirements.
Structural variation in demand These are generally predictable. They are important for capacity planning.
Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers.
Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action.
Variations can be disruptive to operations and
supply chain processes. They may result in
additional costs, delays and shortages, poor
quality, and inefficient work systems.
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Scope of Operations Management

• Operations Management includes
• Forecasting
• Capacity planning
• Scheduling
• Managing inventories
• Assuring quality
• Motivating employees
• Deciding where to locate facilities
• And more . . .

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Role of the Operations Manager

• The Operations Function consists of all
  activities directly related to producing goods or
  providing services.
• A primary function of the operations manager is
  to guide the system by decision making.
• System Design
• System Operation

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Types of Operations
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U.S. Manufacturing vs. Service Employment
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The Decline in Manufacturing Employment

• Productivity
• Increasing productivity allows companies to
  maintain or increase their output using fewer
  workers
• Outsourcing
• Some manufacturing work has been outsourced to
  more productive companies
• A Statistical Artifact
• Manufacturers are increasingly using contract and
  temporary labor which no longer show up in the
  statistics as manufacturing employment

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Why Manufacturing Matters?
Myth 1 advanced economy like the U.S. no longer
needs to manufacture and can thrive exclusively
as a hub for high-value-added design and
innovation
Reality
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Why Manufacturing Matters?
Myth 2 the migration of mature manufacturing
industries away from developed countries like
the U.S. is just part of a healthy, natural
process of economic evolution that allows
resources to be redeployed to new,
higher- potential businesses.
Reality
Example 1
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Why Manufacturing Matters?
Example 2 GMs forthcoming Chevy Volts
lithium-ion batterythe highest value- added
component in the car will be manufactured in
South Korea.
GM had no choice but look abroad, since
rechargeable-battery manufacturing left the U.S.
long ago. Why?
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The State of U.S. Manufacturing
Fact 1 U.S. manufacturing workforce peaked at
19.5 million in 1979. It has declined about 40
since then, to 11.7 million.
Fact 2 U.S. lost over 5 million manufacturing
jobs between 2000 and 2009.

• Reason 1

• Reason 2

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The State of U.S. Manufacturing
Fact 3 After decades of decline, manufacturing
jobs are returning to the U.S..
Fact 4 The U.S. remains the global
manufacturing leader, churning out 19 of the
worlds goods, ahead of Chinas 15.6.
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The State of U.S. Manufacturing
Reasons for the Return
1. Wages. Climbing wages in China (17 per year)
makes offshoring less compelling.
2. Transportation. Rising fuel prices make global
shipping less cost-effective.
3. Security. Supply chain disruptions following
the 3/11/11 tsunami in Japan have companies
reconsidering local or regional supply chains.
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Does America Need Manufacturing?
Myth It is a curiosity of modern life that
information companies can create extraordinary
social disruptions and vast shareholder wealth
but relatively few jobs. 
Cases
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Does America Need Manufacturing?
Insights
 When youre manufacturing anything, even if the
work is done by robots and machines, theres an
incredible value chain involved, Susan
Hockfield, the president of M.I.T., says.
Manufacturing is simply this huge engine of job
creation.
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Does America Need a clear Policy?
Government (industrial) policy debates 1.
1970s federal bailouts of Lockheed and
Chrysler. 2. 1980s assist U.S. companies in
gaining ground on the Japanese in the
semiconductor industry. 3. When George H. W.
Bush became the president in 1988, the move away
from industrial policy was clear.
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Does America Need Manufacturing?
U.S. corporations, by offshoring so much
manufacturing work over the past few decades,
have eroded our ability to raise living standards
and curtailed the development of new
high-technology industries.
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Did That Robot Take My Job?
Technology/Productivity factor ?
Companies binged on new equipment and software in
the late 1990s even more than today, yet the
unemployment rate averaged 4.4
Another Key Factor?
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Why Learn about Operations Management?
Operations
Marketing
Finance
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Operations Interfaces
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Why Learn about Operations Management?
Career Opportunities abound

• Operations manager
• Purchasing manager
• Supply chain manager
• Distribution manager
• Quality manager
• Etc.

Visit APICS, ISM, ASQ, CSCMP websites
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Key Decisions of Operations Managers

• What
• What resources/what amounts
• When
• Needed/scheduled/ordered
• Where
• Work to be done
• How
• Designed
• Who
• To do the work

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Decision Making

• Models
• Quantitative approaches
• Analysis of trade-offs
• Systems approach

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Systems Approach
The whole is greater than the sum of the parts.
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Historical Evolution of Operations Management

• Industrial revolution (1770s)
• Scientific management (1911)
• Mass production
• Interchangeable parts
• Division of labor
• Human relations movement (1920-60)
• Decision models (1915, 1960-70s)
• Influence of Japanese manufacturers

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Trends in Business (Operations Today)

• Major trends
• The Internet, e-commerce, e-business
• Management of technology
• Globalization
• Management of supply chains
• Agility

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A Typical Supply Chain
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Simple Product Supply Chain
Supply Chain A sequence of activities and
organizations involved in producing and
delivering a good or service
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Key Issues for Todays Business Operations

• Environmental Concerns
• Sustainability Using resources in ways that do
  not harm ecological systems that support human
  existence.
• All areas of business have an impact on
  sustainability.
• Individual choice makes a big difference too
• Ethical Conduct
• Meeting all economic, social, and environmental
  criteria (e.g., Fair Trade Certified
  agri-product, Forest Stewardship Council
  certified paper and furniture)

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The need for managing supply chain

• In the past, organizations did little to manage
  the supply chain beyond their own operations and
  immediate suppliers which led to numerous
  problems
• Oscillating inventory levels
• Inventory stockouts
• Late deliveries
• Quality problems

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The need for managing supply chain

• Supply Chain Management is essential to business
  success because of
• The need to improve operations
• Increasing level of outsourcing
• Increasing transportation cost
• Competitive pressures
• Increasing globalization
• Increased complexity of supply chains
• The need to manage inventories
• Increasing importance of e-business

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Elements of Supply Chain Management

• Customers what products/services do customers
  want
• Forecasting predicting timing and volume of
  customer demand
• Design incorporating customer wants,
  manufacturability, and time to market
• Capacity planning matching supply and demand
• Processing controlling quality, scheduling work

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Elements of Supply Chain Management

• Inventory meeting demand requirements while
  managing costs
• Purchasing evaluating potential suppliers,
  supporting the needs of operations on purchased
  goods and services
• Suppliers monitoring supplier quality, on-time
  delivery, and flexibility maintaining supplier
  relations
• Location determining the location of facilities
• Logistics deciding how to best move information
  and materials