Chapter 1
Operations and Competitiveness
Operations Management - 5th Edition
Roberta Russell & Bernard W. Taylor, III
Copyright 2006 John Wiley & Sons, Inc.
Beni Asllani
University of Tennessee at Chattanooga
Lecture Outline
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What Do Operations Managers Do?
Operations Function
Evolution of Operations Management
Operations Management and E–Business
Globalization and Competitiveness
Primary Topics in Operations Management
Learning Objectives for this Course
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What Do Operations
Managers Do?
 What is Operations?

a function or system that transforms inputs into outputs of
greater value
 What is a Transformation Process?
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a series of activities along a value chain extending from
supplier to customer
activities that do not add value are superfluous and
should be eliminated
 What is Operations Management?

design, operation, and improvement of productive
systems
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Transformation Process
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Physical: as in manufacturing operations
Locational: as in transportation operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication
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Operations as a
Transformation Process
INPUT
•Material
•Machines
•Labor
•Management
•Capital
TRANSFORMATION
PROCESS
OUTPUT
•Goods
•Services
Feedback
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Operations Function
 Operations
 Marketing
 Finance and
Accounting
 Human
Resources
 Outside
Suppliers
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How is Operations Relevant to my
Major?
 Accounting
 Information
Technology
 Management
 “As an auditor you must
understand the fundamentals of
operations management.”
 “IT is a tool, and there’s no better
place to apply it than in
operations.”
 “We use so many things you
learn in an operations class—
scheduling, lean production,
theory of constraints, and tons of
quality tools.”
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How is Operations Relevant to my
Major?
 Economics
 Marketing
 Finance
 “It’s all about processes. I live
by flowcharts and Pareto
analysis.”
 “How can you do a good job
marketing a product if you’re
unsure of its quality or delivery
status?”
 “Most of our capital budgeting
requests are from operations,
and most of our cost savings,
too.”
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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
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standardization of parts initially as
replacement parts; enabled mass
production
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Evolution of Operations
Management (cont.)
 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
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Historical Events in
Operations Management
Era
Industrial
Revolution
Events/Concepts
Dates
Originator
Steam engine
Division of labor
Interchangeable parts
Principles of scientific
management
1769
1776
1790
James Watt
1911
Frederick W. Taylor
Time and motion studies
Scientific
Management Activity scheduling chart
Moving assembly line
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1911
1912
1913
Adam Smith
Eli Whitney
Frank and Lillian
Gilbreth
Henry Gantt
Henry Ford
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Historical Events in
Operations Management (cont.)
Era
Human
Relations
Operations
Research
Events/Concepts
Dates
Originator
Hawthorne studies
1930
1940s
1950s
1960s
1947
1951
Elton Mayo
Abraham Maslow
Frederick Herzberg
Douglas McGregor
George Dantzig
Remington Rand
1950s
Operations research
groups
1960s,
1970s
Joseph Orlicky, IBM
and others
Motivation theories
Linear programming
Digital computer
Simulation, waiting
line theory, decision
theory, PERT/CPM
MRP, EDI, EFT, CIM
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Historical Events in
Operations Management (cont.)
Era
Events/Concepts Dates Originator
JIT (just-in-time)
TQM (total quality
management)
Quality
Strategy and
Revolution
operations
Business process
reengineering
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1970s
1980s
1990s
1990s
Taiichi Ohno (Toyota)
W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy
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Historical Events in
Operations Management (cont.)
Era
Events/Concepts
Dates Originator
Globalization
WTO, European Union,
and other trade
agreements
Internet, WWW, ERP,
supply chain
management
1990s
2000s
Numerous countries
and companies
1990s
E-commerce
2000s
ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE,
PeopleSoft
Amazon, Yahoo,
eBay, and others
Internet
Revolution
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Continuum from Goods
to Services
Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff,
Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.
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Business
Consumer
Business
B2B
Commerceone.com
B2C
Amazon.com
Consumer
Operations Management
and E-Business
C2B
Priceline.com
C2C
eBay.com
Categories of E-Commerce
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An Integrated Value Chain
 Value chain: set of activities that create and
deliver products to customer
Customer
Manufacturer
Supplier
Flow of information (customer order)
Flow of product (order fulfillment)
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Impact of E-Business on
Operations Management
Benefits of E-Business
 Comparison shopping
by customers
 Direct contact with
customers
 Business processes
conducted online
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Impact on Operations
 Customer expectations escalate;
quality must be maintained and
costs lowered
 No more guessing about demand
is necessary; inventory costs go
down; product and service design
improves; build to-order products
and services is made possible
 Transaction costs are lower;
customer support costs decrease;
e-procurement saves big bucks
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Impact of E-Business on
Operations Management (cont.)
Benefits of E-Business
Impact on Operations
 Access to customers  Demand increases; order fulfillment
and logistics become major issues;
worldwide
production moves overseas
 Middlemen are
eliminated
 Access to suppliers
worldwide
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 Logistics change from delivering to a
store or distribution center to
delivering to individual homes;
consumer demand is more erratic and
unpredictable than business demand
 Outsourcing increases; more alliances
and partnerships among firms are
formed; supply is less certain; global
supply chain issues arise
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Impact of E-Business on
Operations Management (cont.)
Benefits of E-Business
Impact on Operations
 Online auctions and emarketplaces
 Better and faster
decision making
 Competitive bidding lowers cost
of materials; supply needs can be
found in one location
 More timely information is
available with immediate access
by all stakeholders in decisionmaking process; customer orders
and product designs can be
clarified electronically; electronic
meetings can be held;
collaborative planning is
facilitated
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Impact of E-Business on
Operations Management (cont.)
Benefits of E-Business
 IT synergy
 Expanded supply
chains
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Impact on Operations
 Productivity increases as
information can be shared more
efficiently internally and
between trading partners
 Order fulfillment, logistics,
warehousing, transportation and
delivery become focus of
operations management; risk is
spread out; trade barriers fall
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Globalization and
Competitiveness
 Favorable cost
 Access to international
markets
 Response to changes in
demand
 Reliable sources of
supply
 14 major trade
agreements in 1990s
 Peak: 26% in 2000
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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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Globalization and
Competitiveness (cont.)
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.
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China: $0.50
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Globalization and
Competitiveness (cont.)
Trade with China: Percent of each country‘s trade
Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,”
International Trade Statistics 2003, World Trade Organization, www.wto.org
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Risks of Globalization
 Cultural differences
 Supply chain logistics
 Safety, security, and
stability
 Quality problems
 Corporate image
 Loss of capabilities
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Competitiveness and
Productivity
 Competitiveness

degree to which a nation can produce goods and
services that meet the test of international
markets
 Productivity
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ratio of output to input
 Output
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sales made, products produced, customers
served, meals delivered, or calls answered
 Input
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labor hours, investment in equipment, material
usage, or square footage
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Competitiveness and
Productivity (cont.)
Measures of Productivity
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Changes in Productivity
for Select Countries
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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Productivity Increase
 Become efficient
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output increases with little or no increase in input
 Expand
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both output and input grow with output growing
more rapidly
 Achieve breakthroughs
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output increases while input decreases
 Downsize
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output remains the same and input is reduced
 Retrench
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both output and input decrease, with input
decreasing at a faster rate
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Competitiveness and
Productivity
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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Global Competitiveness
Ranking
1. Finland
2. United States
3. Sweden
4. Denmark
5. Taiwan
6. Singapore
7. Switzerland
8. Iceland
9. Norway
10. Australia
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Source: Global Competitiveness Report
2003–2004, World Economic Forum,
January 2004, www.weforum.org
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Operations–Oriented
Barriers to Entry
 Economies of Scale
 Capital Investment
 Access to Supply and Distribution
Channels
 Learning Curve
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Primary Topics in
Operations Management
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Primary Topics in Operations
Management (cont.)
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Operations Strategy
 Strategy: Chapter 2
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Maintaining an operations strategy to support firm’s
competitive advantage
 Quality: Chapters 3 and 4
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Focusing on quality in operational decision making
 Product and Services: Chapter 5
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Designing quality products and services
 Processes, Technologies, and Capacity: Chapter 6
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Setting up process so that it works smoothly and
efficiently
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Operations Strategy
(cont.)
 Facilities: Chapter 7
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Setting up facility so that it works
smoothly and efficiently
 Human Resources: Chapter 8
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Designing jobs and work to produce
quality products
 Project Management: Chapter 9
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Managing complex projects
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Supply Chain
Management
 Supply Chain: Chapter 10
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Managing supply chain
 Forecasting: Chapter 11
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Predicting customer demand
 Aggregate Planning: Chapter 12
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How much to produce and when to
produce it
 Inventory Management: Chapter 13
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How much to order and when to order
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Supply Chain
Management (cont.)
 Resource Planning: Chapter 14
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Planning capacity and other resources
 Lean Production: Chapter 15
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Designing efficient production lines
 Scheduling: Chapter 16
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Job and task assignments
 Waiting Lines: Chapter 17
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Minimizing waiting time of customers and
products
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Learning Objectives of
this Course
 Gain an appreciation of strategic importance
of operations in a global business
environment
 Understand how operations relates to other
business functions
 Develop a working knowledge of concepts
and methods related to designing and
managing operations
 Develop a skill set for quality and process
improvement
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Copyright 2006 John Wiley & Sons, Inc.
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