Chapter 1
Introduction to Operations and
Competitiveness
Production/Operations management (POM) is
concerned with the production of goods, services and
information. All business enterprises produce goods,
services and information. They try to serve in the
satisfaction of human need in one way. So production
activities are the foundation of a nation’s economic
system.
James Watt was the most important person especially
beginning the industrial revolution.
Job shop production was organized in Whitney’s gun
factory as the method of manufacturing in batches.
Charles Babbage provided us too much contribution
for management.
Frederic Taylor is the father of management science.
Henry Ford begun job flow production in
manufacturing which are called serialized production
systems.
http://www.youtube.com/swf/l.swf?video_id=S4KrIMZ
pwCY
• Harris gave us some important information about
inventory control.
• Shewhart used the statistical theory for Quality
Control (QC). Computer and Operations Research
(OR) are used for business.
• Deeming and Juran presented us Total Quality
Management (TQM).
• Toyota used pull system instead of push system
(Just-in-Time JIT).
WHY STUDY PRODUCTION/OPERATIONS
MANAGEMENT (POM)?
We study POM for four reasons:
a. POM is one of the three major functions of any organisations,
and it is integrally related to all the other business functions. All
organisations market (sell), finance (account), and produce
(operate), and it is important to know how the POM segment
functions. Therefore, we study how people organise themselves
for productive enterprise.
b. We study POM because we want to know how goods and
services are produced. The production function is the segment of
our society that creates the products we use.
Operations As A Basic Function
OPERATIONS
MARKETING
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FINANCE
Ch 1 - 5
Production&Operations As The
Technical Core
Operations
Workers
Finance
Personnel
Purchasing
Suppliers
Capital Markets, Stockholders
Marketing
Customers
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Ch 1 - 6
c. We study POM to understand what production/
operations managers do. By understanding what these
managers do, you can develop the skills necessary to
become such a manager. This will help you explore the
numerous and lucrative career opportunities in POM.
d. We study POM because it is such a costly part of
an organisation. A large percentage of the revenue of most
firms is spent in the POM function. Indeed, POM provides a
major opportunity for an organisation to improve its
profitability and enhance its service to society.
• The production and operations management is
also used to denote the wide scope of application.
Production operations management or, more
simply, operations management include the
service industries as well.
The Operations Function &
The Field of Operations management
• Operations as a transformation process
• Operations as a basic function
• Operations as the technical core
OM is defined as the design, operation, & improvement of the
production systems that create the firm’s primary products
or services.
OM is fuctional fields of business with clear line manegement
responsibilities.
Ch 1 - 2
• This point is important because operations management is
fruquently confused with Operations Research(OR) &
Management Science(MS) and Industrial Engineering(IE).
This sitiuation is need to support the application of QM to
decision making in all fields.
• OM is related with other business function like
Management, Finance, & Accounting and etc.
• Because;
– Accountants need to understand the basic of
Investment Management, Capital Uti.&labor standarts
to develop accurate cost data, perform audits &
prepare financial reports. Cost Accountants in
particular must be aware of how JIT and CIM work.
– Finance managers can use investment& capital.
Concepts to judge the need for capital investment, to
forecast cash flow, & to manage current assests.
Make or buy,plant expansion etc.
• Marketing specialists need to understand what operations
can do relative to meeting customer due dates, product
customization,& new product introduction. So Marketing &
Operations Management have overlapping interests.
• Human Resource Managers must know how jobs are
designed, relationship between standart & incentive plans,
& the types of production skills required of the direct
workforce.
• Management Information System (MIS) specialist often
install OI systems that they themselves design or that are
developed as off-the-shelf software by computer
companies. As a major business application of computers in
POQC .
• Everybody know that entrepreneurs often fail because they run out
of working capital due to poor production planning and inventory
management.
Because of all these reason The firm’s Corporate Strategy is based
on the corporate mission and in essence reflects how the firm will
plans to use all its resources and functions to gain competitive
advantage. The Operation Strategy specifies how the firm employ
its production capabilities to support its corporate strategy.
Within the operations function, management decisions can be divided
into three broad areas: Strategic (long term) decisions , Tactical
(intermediate decisions) , Operational planning and control (shortterm) decisions.
• We have omitted in the notes the theoretical treatments and
have concentrated on providing an easy-to-read, easy-tounderstand treatment of the basic POM knowledge. In other
words, our aim was to give students a solid understanding
of the analytical tools necessary to solve
production/operations problems.
• Finaly the purpose of production/operations is to satisfy
people’s wants.
• And then we can define; PO System.
WHAT IS PRODUCTION&
OPERATIONS SYSTEM
• A production/operations system is a configuration of
resources combined for the provision of goods or
services.
• A production/operations system is that part of the
organization that exists primarily to generate and
produce the organization products, i.e. goods or
services.
.
Operations As A Transformation
Process
INPUT
Material
Machines
Labor
Management
Capital
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Transformation
process
Feedback
OUTPUT
Goods
or
Services
Ch 1 - 3
To produce goods and services various
form of inputs are brought together in
a transformation system.
• RESOURCES IN PRODUCTION/OPERATIONS SYSTEMS
• Managers in production and operations functions practice
production/operations management. They do not practice
behavioural science, quantitative methods or systems
analysis, although they utilise these underlying disciplines.
Likewise doctors do not practice biology, although they
know how to use biological methods. While methodologies
are certainly important, they are not essence of POM.
• PO managers are principally concerned with the use of
physical resources;
Therefore we shall take a physical view of PO systems and
concentrate on the physical resources used by the system
which for convenience will be categorized as follows:
• Materials, i.e. the physical items consumed or converted by
the system, e.g. raw materials, fuel, indirect materials.
• Capital, i.e. the physical items equipment and facilities, used
by the system, e.g. plant, tools, vehicles, buildings.
• Human Resources, i.e. the people, workers and managers,
who provide or contribute to the operation of the system,
without which neither machine nor materials are effectively
used.
Transformation Processes
• Physical
(manufacturing)
• Locational
(transport/storage)
• Exchange
(retail)
• Physiological
(healthcare)
• Psychological
(entertainment)
• Informational
(communications)
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Historical Events In POM
•
•
•
•
•
•
•
Industrial Revolution
Scientific Management
Human Relations
Management Science
Quality Revolution
Information Age
Globalization
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Ch 1 - 7
We know real production problems began to
physical production in the industrial revaluation. For
this reason the knowledge about the field is known
as production management and then service
business came in to our life it has been seen that
production management concepts and tools could
be easily applied in all types of enterprises.
In 1940 Operations Research Techniques were
developed and computer became economical.
Computers come along to give managers up-to-theminute information about markets costs, production
levels and inventories. Machines with linked
computers that are responsible for changing them
over from one job to another. Manufacturers began
installing logic units in equipment.
Computers are the driving force in the long-wave
changeover of manufacturing technology. The
grouping of computer-controlled machines and
development of industrial robots have now given
production systems the flexibility to receive and
respond to on line information. With robots, flexible
manufacturing can deliver customized products.
Robots and flexible production system are
reducing the demand for low skilled direct labor.
Offsetting this surplus of untrained workers is the
growing need for more technically trained control
and maintenance personnel.
Retraining is needed to prepare low-skilled
workers for the emerging more sophisticated
fields of work. Learning organization is new
important concept to manufacturing. Business of
the future will be more active involving specialty
items (high-tech metals) and advanced
information and communications services.
A change in management technology is
necessary because traditional old approach do
not provide appropriate support for new kind of
manufacturing systems developed often the mid
1980 New manufacturing technology cannot be
used without changes in management
technology.
By the year 2020, about 85-90 percent of
workforce will most likely be engaged in
nonmanufacturing activities. Now about 70
percent of world workforce are engaged in service
activities .
High-technology system (e.g. electronic, fiber
optics, laser) will play en major role.
• In the 1940s, nobody have guessed how much
manufacturing technology would change by 1990.
Using robots, in 1990 factories doubled output-with
half as many blue-color workers-to match growth in
consumer fueled by sharply lower costs and higher
quality.
• We can say some new concepts:
• Smart Customer
• Smart factories
• “Smart Customers interact with smart factories to
help design the goods and services that they want.”
The idea that the customer can use computer to
intent out directly with the production process was
suggested by Chrysler Coo. in 1960. Customers in
1990 dial the production process directly on their
computerized telephones to set down their design
specifications for the particular varieties of the
company’s product that they desire to purchase.
Companies have invented a variety of competing and
co-operative strategies to fit their own unique
situations.
Some of the competitive approaches are continuous
quality improvement, being first bringing new products
to market increasing the firm’s value-added and so
on. Competition relentlessly seeks to improve both
manufacturing
and
management.
Technology and telecommunication have been
brighten some new approach for business.
Now
we
can
write
these
two
points
as
follows:
1) Changes in manufacturing technology- the use of information
networks by people and computer driven equipment.
2) Changes in management technology- the managing of
manufacturing technology for example JIT and Kanban,
reengineering
etc.
As in all of these waves of technological change, there are new
tactical production concepts and new strategic concepts that
must be understood for the strategic production planning.
Because of global changes in
business
there are five main elements that capture the
changing in manufacturing that are taking place.
1) There are fewer workers on the line.
2) There are fewer supervisors for the line.
3) More smart machines.
4) More workers engaged in planning systems.
5) More workers designing hardware and software.
So it is necessary a manufacturing system that
receives all in formation that exists in the company,
on-line and immediately. It has decision making
competence based on all relevant information.
So we can say that to use Computer Integrated
Manufacturing (CIM) will be too important for us.
Summarized;
Historical Events In POM
Industrial Revolution
Steam engine
Division of labor
Interchangeable parts
1769
1776
1790
James Watt
Adam Smith
Eli Whitney
Scientific Management
Principles
Time / motion study
Activity scheduling chart
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1911
1911
1912
Frederick W. Taylor
Frank & Lillian Gilbreth
Henry Gant
Ch 1 - 8
Human Relations
Hawthorne studies
Motivation theories
1930
1940s
1950s
1960s
Elton Mayo
Abraham Maslow
Frederick Hertzberg
Douglas McGregor
Management Science
Linear programming
Digital computer
Simulation, PERT/CPM,
Waiting line theory
MRP
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1947
1951
1960
George Dantzig
Remington Rand
Research groups
1960s Joseph Orlicky, IBM
Ch 1 - 9
Quality Revolution
JIT
TQM
Reengineering
1970s Taiichi Ohno, Toyota
1980s W. Edwards Deming,
Joseph Juran, et. al.
1990s Hammer, Champy
Information Age
EDI, EFT,
CIM
Internet, World Wide Web
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1970s Numerous
1980s
individuals and
1990s
companies
1990s Tim Berners-Lee
Ch 1 - 10
Globalization
Worldwide markets
Numerous individuals and operations and companies
Supply chain management
Electronic commerce
For The 21. Century ;
World Class Manufacturing
Mass customization
Sutainability
Green SCM
Green Logistic
Carbon Foot Print
World Class Manufacturing in Crysler Video
http://www.youtube.com/watch?v=BNHT3kStYyM&feature=related
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Ch 1 - 11
TGW (Things Gone Wrong) In First
Eight Months Per 100 Cars
Chrysler
GM
Ford
Japanese
Toyota
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256
214
132
55
Ch 1 - 12
Quality Of Semiconductors
Defective on delivery
U.S.
16%
Japan
0%
Failure after 1000 hrs
14%
1%
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Ch 1 - 13
Quality Of Room Air Conditioners
Fabrication defects
Assembly line defects
Service calls
Warranty cost
U.S.
4.4%
63.5%
10.5%
2.2%
Japan
<0.1%
0.9%
0.6%
0.6%
(% of sales)
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Ch 1 - 14
Quality Of Color TVs
Assembly defects
Service calls
U.S.
1.4
1.0
Japan
0.01
0.09
(per set)
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Ch 1 - 15
Globalization will offer us :
•
•
•
•
Take advantage of favorable costs
Gain access to foreign markets
Reduced trade barriers
Changing markets
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Ch 1 - 16
Hourly Wage Rates
Germany: $26.18
USA: $21.33
Taiwan: $5.41
Mexico: $2.38
Hourly Wage Rates for Selected Countries
Source: “International Comparisons of Hourly Compensation Costs for Production Workers in
Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.
Copyright 2006 John Wiley & Sons, Inc.
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China: $0.50
1-46
Ch 1 - 17
Growth in Volume of World Trade
World Trade Compared to World GDP
Source: “Real GDP and Trade Growth of OECD Countries, 2001–03,”
International Trade Statistics 2003, World Trade Organization,
www.wto.org
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Ch 1 - 18
Impact of Trade Agreements
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Risks In Globalization
•
•
•
•
•
Weak infrastructure
Distinct languages, customs, trade barriers
Inefficient distribution channels
Instability of governments
Poor economic conditions
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Ch 1 - 20
In this case we can define
Competitiveness ;
The degree to which a nation, can, under
demanding and rapidly changing market
conditions, 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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Ch 1 - 21
Measures Of Competitiveness
• Gross domestic product (GDP)
• Import/export ratio
• Productivity = output / input
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Productivity Increases When Firms
•
•
•
•
•
Become more efficient
Downsize
Expand
Retrench
Achieve breakthroughs
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Productivity In The ‘90s
Internet-enabled
productivity
- Dot com bust
- 9/11 terrorist attacks
Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor
Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002–2003 from “Major Sector Productivity and
Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004
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Changes In Input and Output
Breakthrough
Performance
More Efficient
..
Retrench
Productivity as a Function of Inputs and Outputs, 2001–2002
Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor
Statistics, U.S. Department of Labor, September 2003
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Ch 1 - 25
Competitive Industries
• Relatively equal in size and resources
• Standardized products and services
• Slow or exponential growth
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Measuring Competitiveness
• Number of major players
• Average market share
• Average profit margin
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Barriers To Entry
• Economies of scale
• Capital investment
• Access to supply and distribution
channels
• Learning curves
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• It seems that flexible manufacturing or World
Class Manufacturing (WCM) created the need for
top management that was oriented towards putting
it all together with the systems viewpoint.
We know, some enterprises is related with one or
two or more business activities.
On the other hand production activities are related
with all of them.
Finally production/operations management is the
study of the principles and quantitative and
qualitative tools of decision making in periodic
tasks of selecting, designing and updating a
productive system and continual tasks of operating
controlling and maintaining it.
Issues & Trends In Operations
1. Intense competition
2. Global markets, global sourcing,
and global financing
3. Importance of strategy
4. Product variety and mass customization
5. More services
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Ch 1 - 29
Issues & Trends In Operations
6. Emphasis on quality
7. Flexibility
8. Advances in technology
9. Worker involvement
10. Environmental and ethical concerns
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Ch 1 - 30
Primary Topics In Operations
Management
•
•
•
•
•
Deploying strategy
Assuring quality
Designing products & services
Planning the production process
Laying out the facility
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Ch 1 - 31
Primary Topics In Operations
Management
•
•
•
•
Designing jobs & work
Managing the supply chain
Forecasting demand for products & services
Production planning & scheduling
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Ch 1 - 32
Organization Of Book
Strategy of productive systems
Designing productive systems
Operating Productive systems
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Strategy Of Productive Systems
1. Introduction to Operations & competitiveness
2. Operations strategy
3. Forecasting
4. Product & Services Design
70
60
50
40
30
20
10
0
0
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2
3
4
5
6
7
Ch 1 - 34
Designing Productive Systems
5.Stratrgic Capacity Plannig- Decision Theory
6. Process planning, analysis and reengineering
7. Facility layout- Lineer programming, Assignment
Models
8.Location Planning & Controll- Transportation
Models
9. Supply chain management
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Operating Productive Systems
10. Inventory management
11. Materials requirements planning
12. Quality Control- Total Quality Management
13. Just-in-time systems
14. Statistical Quality Control
15. Project management
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Ch 1 - 36
Purpose Of Text
• Gain an appreciation of the strategic importance of
operations and how operations can provide a
competitive advantage in the marketplace
• Understand the relationship between operations
and other business functions
• Develop a working knowledge of the concepts and
methods related to designing and managing
operations
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Ch 1 - 37