DAVIS
F O U R T H
E D I T I O N
AQUILANO
CHASE
chapter 1
Introduction to Operations
Management
© The McGraw-Hill Companies, Inc., 2003
PowerPoint
Presentation
by
Charlie
Cook
Chapter Objectives
• Introduce and define operations management (OM) in
terms of its contribution and the activities it involves.
• Describe how operations contributes to the overall
betterment of society.
• Present operations as a function that addresses
issues in both manufacturing and services.
• Show how operations management is gaining more
recognition both internally and externally to an
organization.
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Chapter Objectives (cont’d)
• Demonstrate how the operations management
function interacts with the other functional areas within
an organization.
• Present a brief history of operations management as a
field and its evolution to its current role in an
organization.
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Managerial Issues
• Shift in balance of power to consumers
–Globalization of business and markets
–E-commerce
• Achieving higher levels of productivity
–Creating higher quality products
–Delivering better customer service
–Achieving shorter delivery times
–Reducing labor and material costs
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What Is Operations Management?
• Operations Management
–Management of the conversion process which
transforms inputs such as raw material and
labor into outputs in the form of finished goods
and services.
Inputs
(customers
and/or
materials)
Transformation Process
(components)
Fundamentals of Operations Management 4e
Outputs
(goods
and
services)
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Role of OM within an Organization
Exhibit 1.1
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Top-down Approach to OM Strategy
• Operations Strategy Decisions
–Strategic (long-range)
• Needs of customers
(capacity planning)
–Tactical (medium-range)
• Efficient scheduling of
resources
–Operational planning
and control (short-range)
• Immediate tasks and
activities
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An Operational-Level OM Perspective
• OM’s function focuses on adding value
through the transformation process
(technical core) of converting inputs into
outputs.
–Physical: manufacturing
–Locational: transportation
–Exchange:retailing
–Storage: warehousing
–Physiological: health care
–Informational: telecommunications
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The Transformation Process within OM
Exhibit 1.2
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Input-Transformation-Output
Relationships for Typical Systems
Exhibit 1.3
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OM’s Contributions to Society
• Higher Standard of Living
–Ability to increase productivity
–Lower cost of goods and services
• Better Quality Goods and Services
–Competition increases quality
• Concern for the Environment
–Recycling and concern for air and water quality
• Improved Working Conditions
–Better job design and employee participation
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Annual Change in Productivity in
the United States (1980-2000)
Source: Economic Report of the President, United States
Government Printing Office, Washington, DC. January, 2001.
Fundamentals of Operations Management 4e
Exhibit 1.4
© The McGraw-Hill Companies, Inc., 2003
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Services as a Percent of Gross Domestic
Product (GDP) for Different Countries
Source: The World Factbook 2000, Central
Intelligence Agency, Washington, DC.
Fundamentals of Operations Management 4e
Exhibit 1.5
© The McGraw-Hill Companies, Inc., 2003
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The Emergence of OM
• Application of OM to Service Operations
–Batch cooking operations at McDonald’s
–Just-in-Time (JIT) at Northern Telecomm, Inc.
–Automatic inventory replenishment at Wal-Mart
Service
Fundamentals of Operations Management 4e
Product
Good
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Growth in Services in the United States
1-6
Source: Handbook of U.S. Labor Statistics, edited by Eva E. Jacobs,
Fifth Edition, Bernan Press, 2001, Table 2-1, pp. 161–164.
Fundamentals of Operations Management 4e
Exhibit 1.6
© The McGraw-Hill Companies, Inc., 2003
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Differences Between
Goods and Services
• Goods
–Tangible
–Can be
inventoried
–No interaction
between
customer and
process
1-6
• Services
–Intangible
–Cannot be
inventoried
–Direct interaction
between
customer and
process
Exhibit 1.7
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Most Products Are a “Bundle”
of Goods and Services
Exhibit 1.8
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An Expanded Definition of Quality
• Quality is important in all functional areas of
an organization.
• Quality is now much more than the technical
requirements for manufactured goods.
• Service quality (customer
relationships) is equally
important.
Quality
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A New Paradigm for OM
• Post-War U.S. Dominance in Manufacturing
–Available capacity built to support the war effort
–Pent-up demand for consumer goods
–Destruction of overseas production capabilities
• Proactive Operations Function (Skinner)
–Add value to products, increase profit margins.
–Compete on dimensions other than costs:
• Quality
• Speed of delivery
• Process flexibility
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The Ever-Changing World of OM
• Increased Global Competition
–Transformation into a global economy
–Pressure to excel on multiple competitive
dimensions
–Increased emphasis on logistics
• Advances in Technology
–Information technology (IT)
–Internet email and commerce (B2B)
–Automation and robotics
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Ford’s Global Network to Support
the Manufacturing of the Escort
Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed.
(New York: W.W. Norton and Company, 1997), p. 58.
Fundamentals of Operations Management 4e
Exhibit 1.9
© The McGraw-Hill Companies, Inc., 2003
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Linking OM to Customers and Suppliers
• Benefits of Buffering the Transformation
Process
–The process was not disturbed by
environmental interaction.
–The process was often more efficient than input
and distribution processes.
–Productivity was maximized when processes
operated at continuous rates.
–Process management skills were different from
those of other functional activities.
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Linking OM to Customers and Suppliers
• Disadvantages of Buffering the Transformation
Process
–Information lag in interaction with other
functional activities.
–Lack of communication between customers and
the shop floor for problem solving.
• Value Chain
–Steps an organization requires to produce a
good or a service regardless of where they are
performed.
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The Value Chain and Its Support Functions
Exhibit 1.10
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Line and Staff Jobs in OM
Exhibit 1.11
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Inputs Provided by OM to
Other Functional Areas
Exhibit 1.12
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Historical Development of OM
• Prior to 1900
–Cottage industry produced custom-made goods.
–Watt’s steam engine in 1785.
–Whitney’s standardized gun parts in 1801.
–Industrial Revolution began at mid-century.
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Historical Development of OM (cont.)
• Scientific Management (Frederick W. Taylor)
–Systematic approach to increasing worker
productivity through time study, standardization
of work, and incentives.
–Viewed workers as an interchangeable asset.
• Other Management Pioneers
–Frank and Lillian Gilbreth
• Motion study and industrial psychology
–Henry L. Gantt
• Scheduling and the Gantt chart
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Historical Development of OM (cont.)
• Moving Assembly Line (1913)
–Labor specialization reduced assembly time.
• Hawthorne Studies
–Yielded unexpected results in the productivity of
Western Electric plant workers after changes in
their production environment.
–Led to recognition of the importance of work
design and employee motivation.
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Historical Development of OM (cont.)
• Operations Research (Management Science)
–Outgrowth of WWII needs for logistics control
and weapons-systems design.
–Seeks to obtain mathematically optimal
(quantitative) solutions to complex problems.
• OM Emerges as a Field
–1950–1960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.
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Historical Development of OM (cont.)
• OM Emerges as a Field
–1950–1960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.
• The Marriage of OM and IT
–Integrated solutions approaches
• Business process reengineering
• Supply chain management
• Systems integration (SAP)
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Historical Development of OM (cont.)
• Operations Management in Services
–OM concepts can apply to both manufacturing
and service operations.
• Integration of Manufacturing and Services
–Conducting world class operations requires
compatible manufacturing and service
operations.
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