1-1 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-2 Chapter One Introduction to Operations Management McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-3 Introduction to Operations Management Operations Management The management of systems or processes that create goods and/or provide services Organization Finance McGraw-Hill/Irwin Operations Marketing Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4 Introduction to Operations Management • Operations Management includes: – Forecasting – Capacity planning – Scheduling – Managing inventories – Assuring quality – Motivating employees – And more . . . McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-5 Introduction to Operations Management Business Operations Overlap Operations Marketing McGraw-Hill/Irwin Finance Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-6 Introduction to Operations Management Goods-service continuum Steel production Automobile fabrication Low service content High goods content House building Road construction Dressmaking Farming Auto Repair Appliance repair Increasing goods content Maid Service Manual car wash Increasing service content High service content Low goods content McGraw-Hill/Irwin Teaching Lawn mowing Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-7 Introduction to Operations Management 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 Stage of Production McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-8 Introduction to Operations Management Types of Operations Operations Examples Goods Producing Farming, mining, construction, manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, banking, renting, leasing, library, loans Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and television newscasts, telephone, satellites McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-9 Introduction to Operations Management Value-Added The difference between the cost of inputs and the value or price of outputs. Value added Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Feedback Control Feedback McGraw-Hill/Irwin Feedback Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-10 Introduction to Operations Management Food Processor Inputs Processing Outputs Raw Vegetables Metal Sheets Water Energy Labor Building Equipment Cleaning Making cans Cutting Cooking Packing Labeling Canned vegetables McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-11 Introduction to Operations Management Hospital Process Inputs Processing Outputs Doctors, nurses Hospital Medical Supplies Equipment Laboratories Examination Surgery Monitoring Medication Therapy Healthy patients McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-12 Introduction to Operations Management Operations Interfaces Industrial Engineering Distribution Maintenance MIS Public Relations Operations Purchasing Personnel Accounting McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-13 Introduction to Operations Management Decision Making System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-14 Introduction to Operations Management Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-15 Introduction to Operations Management Manufacturing or Service? Tangible McGraw-Hill/Irwin Act Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-16 Introduction to Operations Management Key Differences • Customer contact • Uniformity of input • Labor content • Uniformity of output • Measurement of productivity • Quality assurance These differences are beginning to fade in many cases McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction to Operations Management 1-17 Manufacturing vs Service Characteristic Manufacturing Service Output Tangible Customer contact Low High Uniformity of input High Low Labor content Low High Uniformity of output High Low Measurement of productivity Easy Difficult Opportunity to correct quality problems High Low Intangible High McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-18 Introduction to Operations Management Responsibilities of Operations Management Planning Organizing – Capacity – Degree of centralization – Location – Subcontracting – Products & services Staffing – Make or buy – Hiring/laying off – Layout – Use of Overtime – Projects Directing – Scheduling – Incentive plans Controlling – Issuance of work orders – Inventory – Job assignments – Quality McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-19 Introduction to Operations Management Models A model is an abstraction of reality. – Physical – Schematic – Mathematical Tradeoffs What are the pros and cons of models? McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-20 Introduction to Operations Management Systems Approach “The whole is greater than the sum of the parts.” Suboptimization McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 1-21 Introduction to Operations Management Quantitative Approaches • Linear programming • Queuing Techniques • Inventory models • Project models • Statistical models McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. 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