Operations Management
OPMA 3306
Finance
HRM
Sales
OM
QA
Marketing
Engineering
MIS
Accounting
Course Composition
• Textbook
– Foundations of Operations
Management 1st ed.
• Student evaluations
– Three examinations (200
points—lowest score dropped)
– Final examination (100 points)
– Quizzes (100 points—lowest
score dropped)
– Total = 400 points
General Class Agenda
• Exam schedule (drop lowest 1-3 score)
– Exam 1—covering chapters 1, 2, 3, 4, 9, & A
– Exam 2—covering chapters 5, 6, 7, 8, & 10
– Exam 3—covering chapters 11, 12, J, & K
– Final exam—comprehensive
• Exam structure
– Varied type questions
– Questions from textbook and lecture notes
Quizzes
•
•
•
•
•
Several during term (probably 6)
No make-up
Drop lowest quiz grade
Generous grading on quizzes
In-class quizzes
– Answer on provided answer sheet
– Show all work
– Corrected quiz returned next class period
Chapter 1
Competing with
Operations
Learning Objectives
• Be able to apply concepts in learning
goals
• Be able to use and apply formulas
presented in the chapter
Output
Productivity =
Input
Operations Management
OPMA 3306
Finance
HRM
Sales
OM
QA
Marketing
Engineering
MIS
Accounting
Introduction
• Operations management (OM): the
management of an organization’s productive
resources or its production system.
• Production system: process that converts
inputs into finished goods & services.
• Conversion process: the predominant activity
of a production system.
• Primary concern of an operations manager:
activities of the conversion process.
Introduction
Inputs
External:
•Legal/Political
•Economic
•Social
•Technology
Market:
•Competition
•Customer
•Product Data
Resources:
•Workers
•Managers
•Equipment
•Facilities
•Materials
•Services
•Land
•Energy
Customer or Client
Participation
Operations and
Transformations
1
3
5
2
4
Information on
Performance
Outputs
Direct:
•Goods
•Services
Indirect:
•Taxes
•Wages/Salaries
•Waste
•Pollution
•Technological
Advances
Historical Milestones in OM
•
•
•
•
•
•
The Industrial Revolution
Post-Civil War Period
Scientific Management
Human Relations and Behaviorism
Operations Research
The Service Revolution
The Industrial Revolution
• Industrial Revolution developed in England in
the 1700s.
• Steam engine, invented by James Watt in
1764, largely replaced human and water
power for factories.
• Adam Smith’s The Wealth of Nations (1776)
touted economic benefits of Specialization of
Labor.
• By late-1700s factories had not only machine
power but also ways of planning and
controlling tasks of workers.
The Industrial Revolution
• Industrial revolution spread from england to
other European countries & to united states.
• In 1790 an American, Eli Whitney, developed
concept of interchangeable parts
• First great industry in us was textile industry.
• In 1800s development of gasoline engine &
electricity further advanced revolution
• By mid-1800s, old cottage system of
production had been replaced by factory
system
Post-Civil War Period
• During post-Civil War period great
expansion of production capacity occurred.
• By post-Civil War the following
developments set stage for great
production explosion of 20th century:
– Increased capital and production capacity
– Expanded urban workforce
– New western US markets
– Effective national transportation system
Scientific Management
Frederick Winslow Taylor
• Frederick Winslow Taylor known as father of
scientific management. His shop system
employed these steps:
– Each worker’s skill, strength, & learning ability were
determined.
– Stopwatch studies were conducted to precisely set
standard output per worker on each task.
– Material specifications, work methods, & routing
sequences were used to organize shop.
– Supervisors were carefully selected & trained.
– Incentive pay systems were initiated.
Scientific Management
Henry Ford
• In 1920s, Ford Motor Company’s operation
embodied key elements of scientific
management:
– Standardized product designs
– Mass production
– Low manufacturing costs
– Mechanized assembly lines
– Specialization of labor
– Interchangeable parts
Human Relations
and Behavioralism
• In 1927-1932 period, researchers in the
hawthorne studies realized that human
factors were affecting production.
• Researchers and managers alike were
recognizing that psychological &
sociological factors affected production.
• From work of behavioralists came a
gradual change in way managers thought
about & treated workers.
Operations Research
• During World War II, enormous quantities of
resources (personnel, supplies, equipment,
…) had to be deployed.
• Military operations research (OR) teams were
formed to deal with complexity of deployment.
• After war, operations researchers found their
way back to universities, industry,
government, & consulting firms.
• OR helps operations managers make
decisions when problems are complex &
wrong decisions are costly.
Example of Use of Operations
Research
AH-1G
AH-64A
The Service Revolution
• The creation of services organizations
accelerated sharply after World War II.
• Today, more than 2/3 of US workforce is
employed in services.
• About 2/3 of US GDP is from services.
• There is a huge trade surplus in services.
• Investment per office worker now exceeds
investment per factory worker.
• Thus there is a growing need for service
operations management.
Today's Factors Affecting OM
• Global competition
• US quality, customer service, & cost
challenges
• Computers & advanced production
technology
• Growth of US service sector
• Scarcity of production resources
• Issues of social responsibility
The Computer Revolution
• Explosive growth of computer & communication
technologies
• Easy access to information & availability of
more information
• Advances in software applications such as
enterprise resource planning (ERP) software
• Widespread use of email
• More & more firms becoming involved in ebusiness using internet
• Result: faster, better decisions over greater
distances
Production as a System
Inputs
External:
•Legal
•Economic
•Social
•Technology
Market:
•Competition
•Customer
•Product Data
Resources:
•Workers
•Managers
•Equipment
•Facilities
•Materials
•Services
•Land
•Energy
Conversion Subsystem
Physical
•Manufacturing, Mining
Locational Services
•Transportation
Exchange Services
•Retailing/Wholesaling
Storage Services
•Warehousing
Other Private Services
•Insurance, Finance,
Utilities, Real Estate,
Health, Business
Service, & Personal
Service
Government Services
•Local, State, Federal
Control Subsystem
Outputs
Direct:
•Goods
•Services
Indirect:
•Taxes
•Wages/Salaries
•Waste
•Pollution
•Technological
Advances
Decision Making in OM
• Strategic Decisions
• Operating Decisions
• Control Decisions
Strategic Decisions
• These decisions are of strategic
importance & have long-term
significance for the organization.
• Examples include deciding:
– Design for a new product’s production
process
– Where to locate a new factory
– Whether to launch a new-product
development plan
Operating Decisions
• These decisions are necessary if
ongoing production of goods and
services is to satisfy market demands &
provide profits.
• Examples include deciding:
– How much finished-goods inventory to
carry
– Amount of overtime to use next week
– Details for purchasing raw material next
month
Control Decisions
• These decisions concern day-to-day
activities of workers, quality of products
& services, production & overhead
costs, & machine maintenance.
• Examples include deciding:
– Labor cost standards for a new product
– Frequency of preventive maintenance
– New quality control acceptance criteria
What Controls the Operations
System?
• Information about outputs, conversions,
and inputs is fed back to management.
• This information is matched with
management’s expectations
• When there is a difference,
management must take corrective
action to maintain control of the system
Continuum of Characteristics of
Manufacturing & Service
Organizations
More Like a
Manufacturing
Organization
More Like a
Service
Organization
•Physical, Durable Product
•Intangible, Perishable Product
•Output Can Be Inventoried
•Output Cannot Be Inventoried
•Low Customer Contact
•High Customer Content
•Long Response Time
•Short Response Time
•Regional, National, or
International Markets
•Local Markets
•Large Facilities
•Capital Intensive
•Quality Easily Measured
•Small Facilities
•Labor Intensive
•Quality Not Easily Measured
What Is a Process?
• Process—any activity or group of
activities that take one or more inputs,
transforms and adds value to them, &
provides one or more outputs to
customers
– External customers
– Internal customers
Processes & Operations
Internal &
external customers
Inputs
•
•
•
•
•
•
•
•
Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy
Processes &
operations
1
Outputs
3
5
2
4
Information on
performance
• Services
• Goods
Nested Processes at a
Large Bank
BANK
Operations
Retail
Products
Wholesale
Cash Management
Loan operations
Trading operations
Others
Distribution
Compliance
Finance
Human resources
Auto Finance
Cards
Mortgages
Others
Trading
Loan administration
Leasing
Others
ATM support
Customer transactions
Service quality
Others
Teller line transactions
Track branch sales
ATM hotline
Others
Credit applications
Manage retail products
Originate lease portfolio
Others
Fund management
Market making spot
Dealer support
Others
Maintain cards
Research problems
Site analysis
Others
Process deposits
Cash checks
Safe deposit boxes
Others
Loan documentation
Review credit standing
Obtain manager approval
Others
Prepare reports
Attend meetings
Input funds deals
Others
Operations Management as a
Function
Operations Management As a
Function
Skill Areas
• Quantitative
methods
• Organizational
behavior
• General
management
• Information systems
• Economics
• International
business
• Business ethics
and law
Service Sector Jobs
Percentage of workforce
40 –
Manufacturing, mining,
and construction
Other
services
30 –
Wholesale
and retail sales
20 –
Government
10 –
0 |
1959
|
|
|
|
1969
1979
1989
1999
Competitive Priorities
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
• segmentation
• needs assessment
Competitive priorities
Operations
• cost
• quality
• time
• flexibility
Marketing
Finance
Others
Competitive Priorities
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Cost
Quality
1. Low-cost operations
2.analysis
High-performance design
Market
• segmentation
3.assessment
Consistent quality
• needs
Time
4. Fast delivery
5. On-time delivery
6. Development speed
Flexibility 7. Customization
8. Volume flexibility
Competitive Priorities
Corporate strategy
•
•
•
•
•
goals
core competencies
environmental responses
new products/services
global strategies
Market analysis
• segmentation
• needs assessment
Competitive priorities
Capabilities
Operations
• cost
• quality
• time
• flexibility
• current
• needed
• plans
Marketing
Finance
Others
Functional area strategies
•
•
•
•
finance
marketing
operations
others
Health Clinic Process
Physical exam
Physical exam
Flu
D
R
P
Broken arm
Broken arm
T
B
Flu
D:
R:
T:
B:
P:
Doctor (examination rooms)
Radiology (X-ray)
Triage (assess severity of illness)
Blood (lab test)
Pharmacy (fill prescriptions)
Automobile Assembly Process
A
H
F
A: Front-end body-tochassis assembly
H: Hood attachment
F: Fluid filling
S: Start-up testing
S
Strategy and Decisions
Corporate strategy
Market analysis
Competitive priorities
Operations strategy
Services
Manufacturing
• Standardized services • Make-to-stock
• Assemble-to-order
• Assemble-to-order
• Customized services
• Make-to-order
•
•
•
•
Process decisions
Quality decisions
Capacity, location, and layout decisions
Operating decisions
Capabilities