Title: INTRODUCTION TO OPERATIONS MANAGEMENT
1INTRODUCTION TO OPERATIONS MANAGEMENT
2OPERATIONS 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 design, operation and improvement of the
systems or processes that create goods and/or
provide services
3SUPPLY DEMAND
Operations Supply Chains
Sales Marketing
4THE OPERATIONS FUNCTION
- Operations as a transformation process
- Operations as a basic function
- Operations as the technical core
5THE TRANSFORMATION PROCESS
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.
6WHAT IS VALUE ADDED?
-
- The essence of operations function is to add
value during the transformation process -
- Value added is the difference between the cost
of intputs and the value or price of outputs.
7 FIRMS USE THE MONEY GENERATED BY VALUE ADDED FOR
- RD
- Investment in new facilities and equipment
- Paying workers
- Paying for materials
- Paying for general expenses
- Profits
8TRANSFORMATION PROCESS OF A CANNED FOOD PROCESSOR
Inputs
Processing
Outputs
Metal sheets Raw vegetables Water Energy Labor Bu
ilding Equipment
9TRANSFORMATION PROCESS OF A HOSPITAL
Processing
Inputs
Outputs
10EXAMPLES OF VARIOUS OPERATIONS
11TYPES OF TRANSFORMATION PROCESSES
- Physical- manufacturing
- Locational- transportation
- Exchange- retailing
- Storage- warehousing
- Physiological- health care
- Informational- telecommunications
- Psychological- entertainment
12OPERATIONS AS A BASIC FUNCTION
- Marketing
- Generates demand gets customers
- Operations
- creates product or service
- Finance/Accounting
- Obtains funds
- Tracks organizational performance
13BASIC FUNCTIONS OF THE BUSINESS ORGANIZATION
14SUPPLY CHAIN
Supply Chain a sequence of activities and
organizations involved in producing and
delivering a good or service
15IMPORTANCE OF OM (WHY STUDY OM?) (1 of 2)
- Operations is one of the three major functions
of an organization - Offers a major opportunity for an organization to
improve its productivity and profitability - OM affects 1) the companies ability to compete
and 2) the nations ability to compete
internationally - Nearly half of the employed people over the world
have jobs in operations
16IMPORTANCE OF OM (WHY STUDY OM?) (2 of 2)
- The OM function is responsible for a major
portion of the assets of most organizations - OM is a costly part of an organization
- The concepts, tools and techniques of OM are
widely used in managing other functions. - Presents career opportunities
17OPTIONS FOR INCREASING CONTRIBUTION
18TYPES OF PRODUCTION PROCESSES(PROCESS FLOW
STRUCTURES)
- INTERMITTENT
- Job shop
- Batch production
- CONTINOUS
- Mass production
- Continuous flow production
- PROJECT
19EMERGENCY ROOM
20AUTOMOBILE PLANT
sequential
Raw materials or customer
Station 2
Station 3
Station 4
Station 1
F G
Material and/or labor
Material and/or labor
Material and/or labor
Material and/or labor
Used for Repetitive or Continuous Processing
21PRODUCTION OF GOODS VS. DELIVERY OF SERVICES
22 MANUFACTURING vs. SERVICE
Manufacturing and Service Organizations differ
chiefly because manufacturing is goods-oriented
and service is act-oriented.
23GOODS-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
24GOODS VS. SERVICES (1 of 3)
CHARACTERISTICS GOODS SERVICE
Customer contact Low High
Uniformity of inputs and outputs High Low
Labor content Low High
Automation Easy Generally difficult
Output Tangible Intangible, often unique
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Quality evaluation Easier Difficult
Production activities Obvious Not so obvious
25GOODS VS. SERVICES (2 of 3)
CHARACTERISTICS GOODS SERVICE
Production and consumption Separate Generally take place at the same time
Location Centralized Generally dispersed
Locational factors to be considered Cost-oriented Revenue-oriented
Reselling Possible Not possible
Patentability Usually Not usually
Activities Smooth and efficient Slower and awkward
Inventoriability andTransportability Inventoriable Transportable Non inventoriable and so nontransportable
26GOODS VS. SERVICES (3 of 3)
CHARACTERISTICS GOODS SERVICE
Job structure More structured Less structured
Worker skill levels Generally higher Generally lower
Employee turnover Generally lower Generally higher
27MANAGING SERVICES IS CHALLENGING
- Jobs in services are often less structured than
in manufacturing - Customer contact is generally much higher in
services compared to manufacturing - In many services, worker skill levels are low
compared to those of manufacturing employees - Services are adding many new workers in
low-skill, entry-level positions - Employee turnover is high in services, especially
in low-skill jobs - Input variability tends to be higher in many
service environments than in manufacturing - Service performance can be adversely affected by
many factors outside of the managers control
(e.g., employee and customer attitudes)
28 SERVICE JOB CATEGORIES (1 of 2)
- Governmental services
- Municipal services
- Trade services (wholesale/retail)
- Finance, insurance, real estate
- Medical (healthcare)
- Personal services
29SERVICE JOB CATEGORIES(2 of 2)
- Business services
- Education
- Food, lodging and entertainment
- Utilities and transportation
- Legal, consulting
- Repair
30SERVICES IN MANUFACTURING
- In manufacturing, services can be divided into
two groups - Core Services
- Value-added Services
31CORE SERVICES
Core services are basic things that customers
want from products they purchase
32CORE SERVICES PERFORMANCE OBJECTIVES
Operations
Management
33Value-added services differentiate the
organization from competitors and build
relationships that bind customers to the firm in
a positive way
VALUE-ADDED SERVICES
34VALUE-ADDED SERVICE CATEGORIES
Operations
Management
35PROCESS 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.
36PROCESS VARIATION
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.
37The Scope of OM What Do Operations Managers Do?
Plan - Organize - Staff - Lead - Control
38SCOPE OF OPERATIONS MANAGEMENT
The scope of operations management ranges across
the organization.
- The operations function includes many
interrelated activities such as - Forecasting
- Capacity planning
- Scheduling
- Managing inventories
- Assuring quality
- Motivating employees
- Deciding where to locate facilities
- And more . . .
39ROLE 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 Decisions
- System Operation Decisions
40SYSTEM DESIGN DECISIONS
- System Design Decisions
- Capacity
- Facility location
- Facility layout
- Product and service planning
- Process planning
- Technology planning
- Acquisition and placement of equipment
- These are typically strategic decisions that
require - long-term commitment of resources
- Determine parameters of system operation
41SYSTEM OPERATION DECISIONS
- System Operation Decisions
- Management of personnel
- Inventory management and control
- Scheduling
- Project management
- Quality assurance
- Operations managers spend more time on system
operation decision than any other decision area
but they still have a vital stake in system
design
42U.S. MANUFACTURING vs. SERVICE EMPLOYMENT
43THE 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
44OPERATIONS MANAGEMENT AND DECISION MAKING
Most operations decisions involve many
alternatives that can have quite different
impacts on costs or profits Typical operations
decisions include What What resources
are needed, and in what amounts? When When
will each resource be needed? When should the
work be scheduled? When should materials and
other supplies be ordered? Where Where will
the work be done? How How will he product or
service be designed? How will the work be done?
How will resources be allocated? Who Who will
do the work?
45OPERATIONS MANAGEMENT AND DECISION MAKING
- Models
- Quantitative approaches
- Analysis of tradeoffs
- Systems approach
- Establishing priorities
46GENERAL APPROACH TO DECISION MAKING
- Modeling is a key tool used by all decision
makers - Model - an abstraction of reality a
simplification of something. - Common features of models
- They are simplifications of real-life
phenomena - They omit unimportant details of the real-life
systems they mimic so that attention can be
focused on the most important aspects of the
real-life system
47MODELS
- Types of Models
- Physical Models
- Look like their real-life counterparts
- Schematic Models
- Look less like their real-life counterparts than
physical models - Mathematical Models
- Do not look at all like their real-life
counterparts
48UNDERSTANDING MODELS
- Keys to successfully using a model in decision
making - What is its purpose?
- How is it used to generate results?
- How are the results interpreted and used?
- What are the models assumptions and
limitations?
49BENEFITS OF MODELS
- Models are generally easier to use and less
expensive than dealing with the real system - Require users to organize and sometimes quantify
information - Provide a systematic approach to problem solving
- Increase understanding of the problem
- Enable managers to analyze What if? questions
- Enable managers to specify objectives
- Serve as a consistent tool for evaluation and
provide a standardized format for analyzing a
problem - Enable users to bring the power of mathematics to
bear on a problem.
50MODEL LIMITATIONS
- Quantitative information may be emphasized at
the expense of qualitative information - Models may be incorrectly applied and the
results misinterpreted - This is a real risk with the widespread
availability of sophisticated, computerized
models are placed in the hands of uninformed
users. - The use of models does not guarantee good
decisions.
51QUANTITATIVE APPROACHES (ANALYTICAL TOOLS USED
IN OM)
- A decision making approach that frequently seeks
to obtain a mathematically optimal solution - Linear programming
- Queuing techniques
- Forecasting techniques
- Inventory models
- Project models
- Statistical models
- Simulation
- Decision analysis
52METRICS AND TRADE-OFFS
- Performance Metrics
- All managers use metrics to manage and control
operations - Profits
- Costs
- Productivity
- Forecast accuracy
- Analysis of Trade-Offs
- A trade-off is giving up one thing in return for
something else - Carrying more inventory (an expense) in order to
achieve a greater level of customer service
Tradeoffs
53ESTABLISHING PRIORITIES
- In nearly all cases, certain issues or items are
more important than others - Recognizing this allows managers to focus their
attention to those efforts that will do the most
good
54ESTABLISHING PRIORITIES PARETO PHENOMENON
Pareto Phenomenon - a few factors account for a
high percentage of occurrence of some
event(s) The critical few factors should receive
the highest priority 80/20 Rule- 80 of the
problems are caused by 20 of the activities
This is a concept that is appropriately applied
to all areas and levels of management
How do we identify the vital few?
55SYSTEMS APPROACH
- System - a set of interrelated parts that must
work together - The business organization is a system composed of
subsystems - marketing subsystem
- operations subsystem
- finance subsystem
- The systems approach
- Emphasizes interrelationships among subsystems
- Main theme is that the whole is greater than the
sum of its parts - The output and objectives of the organization
take precedence over those of any one subsystem
56DEGREE OF CUSTOMIZATION
- Relative to other standardized products and
services customized products - Tend to be more labor intensive
- Tend to be more time consuming
- Tend to require more highly-skilled people
- Tend to require more flexible equipment
- Have much lower volume of output
- Have higher price tags
- Degree of customization has a significant
influence on the entire organization - Process selection
- Job design
- Affects marketing, sales, accounting, finance,
and information systems
57ETHICAL ISSUES IN OPERATIONS
- Ethical issues arise in many aspects of
operations management
- Financial statements
- Worker safety
- Product safety
- Quality
- The environment
- The community
- Hiring and firing workers
- Closing facilities
- Workers rights
58THE HISTORICAL EVOLUTION OF OPERATIONS MANAGEMENT
59HISTORICAL EVENTS IN OM
- Industrial Revolution (1770s)
- Scientific Management (1911)
- Human Relations Movement (1920-1960)
- Decision Models Management Science (1915,
1940-70s) - Influence of Japanese Manufacturers-Quality
Revolution JIT (1970s-1990s ) - Globalization (1970s- )
- Information Age/Internet Revolution (1990s-)
60INDUSTRIAL REVOLUTION
- Pre-Industrial Revolution
- Craft production - System in which highly skilled
workers use simple, flexible tools to produce
small quantities of customized goods - Some key elements of the industrial revolution
- Began in England in the 1770s
- Division of labor - Adam Smith, 1776
- Application of the rotative steam engine, 1780s
- Cotton Gin and Interchangeable Parts - Eli
Whitney, 1792 - Management theory and practice did not advance
appreciably during this period
61SCIENTIFIC MANAGEMENT
- Movement was led by efficiency engineer,
Frederick Winslow Taylor - Believed in a Science of Management based on
observation, measurement, analysis and
improvement of work methods, and economic
incentives - Management is responsible for planning, carefully
selecting and training workers, finding the best
way to perform each job, achieving cooperate
between management and workers, and separating
management activities from work activities - Emphasis was on maximizing output
62SCIENTIFIC MANAGEMENT- CONTRIBUTORS
- Frank Gilbreth - father of motion studies
- Henry Gantt - developed the Gantt chart
scheduling system and recognized the value of
non-monetary rewards for motivating employees - Harrington Emerson - applied Taylors ideas to
organization structure - Henry Ford - employed scientific management
techniques to his factories - Moving assembly line
- Mass production
63HUMAN RELATIONS MOVEMENT
- The human relations movement emphasized the
importance of the human element in job design - Lillian Gilbreth
- Elton Mayo Hawthorne studies on worker
motivation, 1930 - Abraham Maslow Motivation theory, 1940s
Hierarchy of Needs, 1954 - Frederick Hertzberg Two Factor Theory, 1959
- Douglas McGregor Theory X and Theory Y, 1960s
- William Ouchi Theory Z, 1981
64DECISION MODELS AND MANAGEMENT SCIENCE
- F.W. Harris Mathematical Model for Inventory
Management, 1915 - Dodge, Romig, and Shewart Statistical
Procedures for Sampling and Quality Control,
1930s - Tippett Statistical Sampling Theory, 1935
- Operations Research (OR) Groups OR applications
in Warfare - George Dantzig Linear Programming, 1947
65INFLUENCE OF JAPANESE MANUFACTURERS
- Refined and developed management practices that
increased productivity - Credited with fueling the quality revolution
- Just-in-Time production
66EXCITING NEW CHALLENGES IN OPERATIONS MANAGEMENT
67NEW TRENDS AND ISSUES IN OM
- Mass Customization
- Supply Chain Management
- Outsourcing
- Lean manufacturing
- Agility
- E-Business and E-Commerce
- Management of Technology
- Globalization
- Ethical Behavior
68NEW CONCEPTS AND TRENDS MASS CUSTOMIZATION
The rapid, low cost production of goods and
services that fulfill constantly changing and
increasingly unique customer desires.
69NEW CONCEPTS AND TRENDS SUPPLY CHAIN MANAGEMENT
- The management of the sequence of organizations-
their facilities, functions and activities- that
are involved in producing and delivering a
product or service - SCM requires the application of a systems
approach to managing the flow of information,
materials and services from raw material
suppliers through factories and warehoses to the
end user (customer)
70THE NEED FOR MANAGING THE 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 such as - Oscillating inventory levels
- Inventory stockouts
- Late deliveries
- Quality problems
71 A SUPPLY CHAIN FOR BREAD
Stage of Production Value Added Value of Product
Farmer produces and harvests wheat 0.15 0.15
Wheat transported to mill 0.08 0.23
Mill produces flour 0.15 0.38
Flour transported to baker 0.08 0.46
Baker produces bread 0.54 1.00
Bread transported to grocery store 0.08 1.08
Grocery store displays and sells bread 0.21 1.29
Total Value-Added 1.29
72ELEMENTS OF SUPPLY CHAIN MANAGEMENT (1 of 2)
- 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
73ELEMENTS OF SUPPLY CHAIN MANAGEMENT (2 of 2)
- 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
74NEW CONCEPTS AND TRENDS OUTSOURCING
- Buying goods or services rather than producing
goods or performing services within the
organization
75NEW CONCEPTS AND TRENDS LEAN MANUFACTURING
- Systems that use minimal amounts of resources -
less space, less inventory, fewer workers, fewer
levels of management- to produce a high volume of
high-quality goods with some variety - An adaptation of mass production that prizes
quality and flexibility - Incorporates advantages of mass production (high
volume, low unit cost) and craft production
(variety and flexibility)
76NEW CONCEPTS AND TRENDS AGILITY
- The ability of an organization to respond
quickly to demands or opportunities. - Involves maintaining a flexible system that can
quickly respond to changes in either the volume
of demand or changes in product/service offerings
77NEW CONCEPTS AND TRENDS ELECTRONIC COMMERCE
- The use of computer networks, primarily the
internet, to buy and sell products, services, and
information.
78OTHER TRENDS (1 of 2)
- Enhancing Value-Added Services
- Management of Technology
- Emphasis on Operations Strategy
- Increasing Emphasis on Cost Control and
Productivity Improvement - Quality and Process Improvements
- Increasing emphasis on business and social
responsibility
79OTHER TRENDS (2 of 2)
- Developing flexible supply chains to enable mass
customization of products and services - Achieving the Service Factory
80GLOBALIZATION
81GLOBALIZATION CAN TAKE THE FORM OF
- Selling in foreign markets
- Producing in foreign lands
- Purchasing from foreign suppliers
- Partnering with foreign firms
82REASONS TO GLOBALIZE OPERATIONS (1 of 2)
- To take advantage of favorable costs
- To gain access to and attract international
markets - To build reliable sources of supply
- To improve the supply chain
- To be more responsive to changes in demand
83REASONS TO GLOBALIZE OPERATIONS (2 of 2)
- To provide better goods and services
- To learn to improve operations
- To attract and retain global talent
- To keep abreast of the latest trends and
technologies
84EXAMPLES OF GLOBAL STRATEGIES
- Boeing both sales and production are worldwide.
- Benetton moves inventory to stores around the
world faster than its competitor by building
flexibility into design, production, and
distribution - Sony purchases components from suppliers in
Thailand, Malaysia, and around the world - GM is building four similar plants in Argentina,
Poland, China, and Thailand
85SOME MULTINATIONAL CORPORATIONS (1 of 3)
86SOME MULTINATIONAL CORPORATIONS (2 of 3)
87SOME MULTINATIONAL CORPORATIONS (3 of 3)
88BOEING SUPPLIERS
89AN INTERNATIONAL COMPARISON OF HOURLY WAGE RATES
90COMPETITIVENESS
91COMPETITIVENESS
The degree to which a nation can produce goods
and services that meet the test of international
markets while simultaneously maintaining or
expanding the real incomes of its citizens.
92COMPETITIVENESS OF SELECTED COUNTRIES
US Singapore Finland Ireland Germany UK Japan Mexi
co Russia