INTRODUCTION TO OPERATIONS MANAGEMENT

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INTRODUCTION TO OPERATIONS 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 design, operation and improvement of the
  systems or processes that create goods and/or
  provide services

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SUPPLY DEMAND
Operations Supply Chains
Sales Marketing
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THE OPERATIONS FUNCTION

• Operations as a transformation process
• Operations as a basic function
• Operations as the technical core

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THE 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.
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WHAT 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.

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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

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TRANSFORMATION PROCESS OF A CANNED FOOD PROCESSOR
Inputs
Processing
Outputs
Metal sheets Raw vegetables Water Energy Labor Bu
ilding Equipment
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TRANSFORMATION PROCESS OF A HOSPITAL
Processing
Inputs
Outputs
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EXAMPLES OF VARIOUS OPERATIONS
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TYPES OF TRANSFORMATION PROCESSES

• Physical- manufacturing
• Locational- transportation
• Exchange- retailing
• Storage- warehousing
• Physiological- health care
• Informational- telecommunications
• Psychological- entertainment

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OPERATIONS AS A BASIC FUNCTION

• Marketing
• Generates demand gets customers

• Operations
• creates product or service
• Finance/Accounting
• Obtains funds
• Tracks organizational performance

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BASIC FUNCTIONS OF THE BUSINESS ORGANIZATION
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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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IMPORTANCE 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

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IMPORTANCE 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

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OPTIONS FOR INCREASING CONTRIBUTION
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TYPES OF PRODUCTION PROCESSES(PROCESS FLOW
STRUCTURES)

• INTERMITTENT
• Job shop
• Batch production
• CONTINOUS
• Mass production
• Continuous flow production
• PROJECT

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EMERGENCY ROOM
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AUTOMOBILE 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
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PRODUCTION OF GOODS VS. DELIVERY OF SERVICES
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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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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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GOODS 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
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GOODS 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
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GOODS 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
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MANAGING 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)

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SERVICE JOB CATEGORIES (1 of 2)

• Governmental services
• Municipal services
• Trade services (wholesale/retail)
• Finance, insurance, real estate
• Medical (healthcare)
• Personal services

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SERVICE JOB CATEGORIES(2 of 2)

• Business services
• Education
• Food, lodging and entertainment
• Utilities and transportation
• Legal, consulting
• Repair

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SERVICES IN MANUFACTURING

• In manufacturing, services can be divided into
  two groups
• Core Services
• Value-added Services

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CORE SERVICES
Core services are basic things that customers
want from products they purchase
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CORE SERVICES PERFORMANCE OBJECTIVES
Operations
Management
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Value-added services differentiate the
organization from competitors and build
relationships that bind customers to the firm in
a positive way
VALUE-ADDED SERVICES
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VALUE-ADDED SERVICE CATEGORIES
Operations
Management
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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 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.
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The Scope of OM What Do Operations Managers Do?
Plan - Organize - Staff - Lead - Control
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SCOPE 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 . . .

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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 Decisions
• System Operation Decisions

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SYSTEM 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

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SYSTEM 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

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U.S. MANUFACTURING vs. SERVICE EMPLOYMENT

• Insert Figure 1.7

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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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OPERATIONS 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?
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OPERATIONS MANAGEMENT AND DECISION MAKING

• Models
• Quantitative approaches
• Analysis of tradeoffs
• Systems approach
• Establishing priorities

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GENERAL 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

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MODELS

• 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

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UNDERSTANDING 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?

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BENEFITS 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.

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MODEL 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.

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QUANTITATIVE 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

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METRICS 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
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ESTABLISHING 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

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ESTABLISHING 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?
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SYSTEMS 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

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DEGREE 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

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ETHICAL 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

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THE HISTORICAL EVOLUTION OF OPERATIONS MANAGEMENT
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HISTORICAL 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-)

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INDUSTRIAL 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

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SCIENTIFIC 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

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SCIENTIFIC 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

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HUMAN 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

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DECISION 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

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INFLUENCE OF JAPANESE MANUFACTURERS

• Refined and developed management practices that
  increased productivity
• Credited with fueling the quality revolution
• Just-in-Time production

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EXCITING NEW CHALLENGES IN OPERATIONS MANAGEMENT
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NEW 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

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NEW CONCEPTS AND TRENDS MASS CUSTOMIZATION
The rapid, low cost production of goods and
services that fulfill constantly changing and
increasingly unique customer desires.
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NEW 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)

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THE 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

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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
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ELEMENTS 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

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ELEMENTS 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

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NEW CONCEPTS AND TRENDS OUTSOURCING

• Buying goods or services rather than producing
  goods or performing services within the
  organization

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NEW 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)

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NEW 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

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NEW CONCEPTS AND TRENDS ELECTRONIC COMMERCE

• The use of computer networks, primarily the
  internet, to buy and sell products, services, and
  information.

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OTHER 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

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OTHER TRENDS (2 of 2)

• Developing flexible supply chains to enable mass
  customization of products and services
• Achieving the Service Factory

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GLOBALIZATION
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GLOBALIZATION CAN TAKE THE FORM OF

• Selling in foreign markets
• Producing in foreign lands
• Purchasing from foreign suppliers
• Partnering with foreign firms

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REASONS 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

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REASONS 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

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EXAMPLES 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

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SOME MULTINATIONAL CORPORATIONS (1 of 3)
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SOME MULTINATIONAL CORPORATIONS (2 of 3)
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SOME MULTINATIONAL CORPORATIONS (3 of 3)
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BOEING SUPPLIERS
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AN INTERNATIONAL COMPARISON OF HOURLY WAGE RATES
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COMPETITIVENESS
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COMPETITIVENESS
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.
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COMPETITIVENESS OF SELECTED COUNTRIES
US Singapore Finland Ireland Germany UK Japan Mexi
co Russia