Introduction to Operations Management - Chapter 1 Stevenson Lecture Slides
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Chapter 1 Introduction to Operations Management (William J Stevenson) 1-1 Learning Objectives ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ Define the term operations management Identify the three major functional areas of organizations and describe how they interrelate Compare and contrast service and manufacturing operations Describe the operations function and the nature of the operations manager’s job Differentiate between design and operation of production systems Describe the key aspects of operations management decision making Briefly describe the historical evolution of operations management Identify current trends that impact operations management 1-2 Introduction ▪ To many people, the term production conjures up images of factories, machines, and assembly lines. Interestingly enough, the field of production management in the past focused almost exclusively on manufacturing management, with a heavy emphasis on the methods and techniques used in operating a factory. ▪ In recent years, the scope of production management has broaden considerably. Production concepts and techniques are applied to wide range of activities and situations outside manufacturing; that is, in services, such as health care, food service, recreation, banking, hotel management, retail sales, etc. 1-3 What is Operations? ▪ The operational function consists of all activities directly related to producing goods or providing services. Operation is a function or system that transforms inputs into outputs of greater value. ▪ To ensure that the desired outputs are obtained, measurements are taken at various points in the transformation process (feedback) and then compared with previously established standards to determine whether corrective action is needed (control). ▪ The essence of the operations function is to add value during the transformation process. 1-4 Types of Operations Table 1.4 Operations Examples Goods Producing Farming, mining, construction , manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites Storage/Transportation Exchange Entertainment Communication 1-5 Operations Management Defined ▪ Operations Management is: The management of systems or processes that create goods and/or provide services. ▪ Operations Management affects: ▪ Companies’ ability to compete ▪ Nation’s ability to compete internationally 1-6 Operations Management Defined ▪ Operations management designs the system and controls it; this includes arranging facilities, scheduling tasks, developing procedures for inventory acquisition and turnover, as well as providing corrective actions to ensure that changes are made whenever it is necessary to do so. Examples ▪ Airline company – forecasting, capacity planning, scheduling, managing inventory, assuring quality, employee motivation, location of facilities, etc. ▪ Bicycle factory – assembly operation, fabrication work, scheduling production, selecting and maintaining operation, etc. 1-7 Why Study Operations Management? ▪ There are a number of very good reason for studying operations management: ▪ Operations management activities are at the core of all business organizations ▪ 50% or more of all jobs management-related areas are in operations ▪ Activities in all of the other areas of business organizations are all interrelated with operations management activities 1-8 The Organization Figure 1.1 The Three Basic Functions Organization Finance Operations Marketing 1-9 Operations Function 1-10 Value-Added Process Value added INPUT •Material •Machines •Labor •Management •Capital TRANSFORMATION PROCESS OUTPUT •Goods •Services Feedback 1-11 Value-Added & Product Packages ▪ Value-added is the difference between the cost of inputs and the value or price of outputs. ▪ Product packages are a combination of goods and services. ▪ Product packages can make a company more competitive. 1-12 Goods-Service Continuum Figure 1.3 Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Home remodeling, retail sales Automobile assembly, steel making 1-13 Food Processor Table 1.2 Inputs Raw Vegetables Metal Sheets Water Energy Labor Building Equipment Processing Outputs Cleaning Making cans Cutting Cooking Packing Labeling Canned vegetables 1-14 Hospital Process Table 1.2 Inputs Processing Outputs Doctors, nurses Hospital Medical Supplies Equipment Laboratories Examination Surgery Monitoring Medication Therapy Healthy patients 1-15 Manufacturing or Service? Tangible Act 1-16 Production of Goods vs. Delivery of Services ▪ Production of goods – tangible output ▪ Delivery of services – an act ▪ Service job categories ▪ Government ▪ Wholesale/retail ▪ Financial services ▪ Healthcare ▪ Personal services ▪ Business services ▪ Education 1-17 Key Differences 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design 1-18 Goods vs Service Characteristic Customer contact Uniformity of input Labor content Uniformity of output Goods Low High Low High Service High Low High Low Output Measurement of productivity Opportunity to correct problems Inventory Evaluation Patentable Tangible Easy High Much Easier Usually Intangible Difficult Low Little Difficult Not usual 1-19 Scope of Operations Management ▪ Operations Management includes: ▪ Forecasting ▪ Capacity planning ▪ Scheduling ▪ Managing inventories ▪ Assuring quality ▪ Motivating employees ▪ Deciding where to locate facilities ▪ Supply chain management ▪ And many more . . . 1-20 Decline in Manufacturing Jobs Figure 1.4 1-21 Decline in Manufacturing Jobs ▪ 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 1-22 Why Manufacturing Matters? ▪ Over 18 million workers in manufacturing jobs ▪ Manufacturing accounts for over 70% of value of U.S. exports ▪ Average full-time compensation about 20% higher than average of all workers ▪ Manufacturing workers more likely to have benefits ▪ Productivity growth in manufacturing in the last 5 years is more than double that of U.S. economy 1-23 Why Manufacturing Matters? ▪ More than half of the total R&D performed is in the manufacturing industries ▪ Manufacturing workers in California earn an average of about $25,000 more a year than service workers ▪ When a California manufacturing job is lost, an average of 2.5 service jobs are lost 1-24 Challenges of Managing Services ▪ Service jobs are often less structured than manufacturing jobs ▪ Customer contact is higher ▪ Worker skill levels are lower ▪ Services hire many low-skill, entry-level workers ▪ Employee turnover is higher ▪ Input variability is higher ▪ Service performance can be affected by worker’s personal factors 1-25 Operations Management And Decision Making Key Decisions of Operations Managers that affect entire organization ▪ What What resources/what amounts ▪ When Needed/scheduled/ordered ▪ Where Work to be done ▪ How Product or Service be designed ▪ Who Will do the work? 1-26 Operations Management And Decision Making General Approach to Decision Making Use of Tools/decision making aids: ▪ Models ▪ Quantitative approaches ▪ Analysis of trade-offs ▪ Systems approach ▪ Establishing priorities ▪ Ethics 1-27 Decision Making System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment 1-28 Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance 1-29 Models A model is an abstraction of reality. – Physical – Schematic – Mathematical What are the pros and cons of models? 1-30 Models Are Beneficial ▪ Easy to use, less expensive ▪ Require users to organize ▪ Increase understanding of the problem ▪ Enable managers to analyze “what if” questions ▪ 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 1-31 Limitations of Models ▪ Quantitative information may be emphasized over qualitative ▪ Models may be incorrectly applied and results misinterpreted ▪ Nonqualified users may not comprehend the rules on how to use the model ▪ Use of models does not guarantee good decisions 1-32 Quantitative Approaches • Linear programming • Queuing Techniques • Inventory models • Project models • Statistical models 1-33 Analysis of Trade-Offs ▪ Decision on the amount of inventory to stock ▪ Increased cost of holding inventory Vs. ▪ Level of customer service Tradeof fs 1-34 Systems Approach “The whole is greater than the sum of the parts.” Suboptimization 1-35 Establishing Priorities Pareto Phenomenon • A few factors account for a high percentage of the occurrence of some event(s). • 80/20 Rule - 80% of problems are caused by 20% of the activities. How do we identify the vital few? 1-36 Ethical Issues ▪ Financial statements ▪ Worker safety ▪ Product safety ▪ Quality ▪ Environment ▪ Community ▪ Hiring/firing workers ▪ Closing facilities ▪ Worker’s rights 1-37 Business Operations Overlap Figure 1.5 Operations Marketing Finance 1-38 Operations Interfaces Industrial Engineerin g Maintenance Distribution Purchasing Public Relations Operations Legal Personnel Accounting MIS 1-39 Trends in Business ▪ Major trends ▪ The Internet, e-commerce, e-business ▪ Management technology ▪ Globalization ▪ Management of supply chains ▪ Outsourcing ▪ Agility ▪ Ethical behavior 1-40 Management Technology ▪ Technology: The application of scientific discoveries to the development and improvement of goods and services ▪ Product and service technology ▪ Process technology ▪ Information technology 1-41 Simple Product Supply Chain Figure 1.7 Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Supply Chain: A sequence of activities and organizations involved in producing and delivering a good or service 1-42 A Supply Chain for Bread Farmer produces and harvests wheat $0.15 Value of Product $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 Value Added 1-43 Other Important Trends ▪ Ethical behavior ▪ Operations strategy ▪ Working with fewer resources ▪ Revenue management ▪ Process analysis and improvement ▪ Increased regulation and product liability ▪ Lean production 1-44 Evolution of Operations Management ▪ Craft Production ▪ process of handcrafting products or services for individual customers ▪ Division of Labor ▪ dividing a job into a series of small tasks each performed by a different worker ▪ Interchangeable Parts ▪ standardization of parts initially as replacement parts; enabled mass production 1-45 Evolution of Operations Management ▪ Scientific Management ▪ systematic analysis of work methods ▪ Mass Production ▪ high-volume production of a standardized product for a mass market ▪ Lean Production ▪ adaptation of mass production that prizes quality and flexibility 1-46 Historical Events in Operations Management Era Industrial Revolution Scientific Management Events/Concepts Dates Originator Steam engine 1769 James Watt Division of labor 1776 Adam Smith Interchangeable parts 1790 Eli Whitney Principles of scientific management 1911 Frederick W. Taylor Time and motion studies 1911 Frank and Lillian Gilbreth Activity scheduling chart 1912 Henry Gantt Moving assembly line 1913 Henry Ford 1-47 Historical Events in Operations Management Era Human Relations Operations Research Events/Concepts Dates Originator Hawthorne studies 1930 Elton Mayo 1940s Abraham Maslow 1950s Frederick Herzberg 1960s Douglas McGregor Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, waiting line theory, decision theory, PERT/CPM 1950s Operations research groups MRP, EDI, EFT, CIM 1960s, 1970s Joseph Orlicky, IBM and others Motivation theories 1-48 Historical Events in Operations Management Era Events/Concepts Dates Originator JIT (just-in-time) 1970s Taiichi Ohno (Toyota) TQM (total quality management) 1980s W. Edwards Deming, Joseph Juran 1990s Wickham Skinner, Robert Hayes 1990s Michael Hammer, James Champy Quality Strategy and Revolution operations Business process reengineering 1-49 Historical Events in Operations Management Era Events/Concepts Globalization WTO, European Union, and other trade agreements Internet Internet, WWW, ERP, Revolution supply chain management E-commerce Dates 1990s 2000s Originator Numerous countries and companies 1990s ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE, PeopleSoft Amazon, Yahoo, eBay, and others 2000s 1-50
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