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 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 Copyright 2006 John Wiley & Sons, Inc. 1-2 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? 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 Copyright 2006 John Wiley & Sons, Inc. 1-3 Transformation Process 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 Copyright 2006 John Wiley & Sons, Inc. 1-4 Operations as a Transformation Process INPUT •Material •Machines •Labor •Management •Capital TRANSFORMATION PROCESS OUTPUT •Goods •Services Feedback Copyright 2006 John Wiley & Sons, Inc. 1-5 Operations Function Operations Marketing Finance and Accounting Human Resources Outside Suppliers Copyright 2006 John Wiley & Sons, Inc. 1-6 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.” Copyright 2006 John Wiley & Sons, Inc. 1-7 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.” Copyright 2006 John Wiley & Sons, Inc. 1-8 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 Copyright 2006 John Wiley & Sons, Inc. 1-9 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 Copyright 2006 John Wiley & Sons, Inc. 1-10 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 Copyright 2006 John Wiley & Sons, Inc. 1911 1912 1913 Adam Smith Eli Whitney Frank and Lillian Gilbreth Henry Gantt Henry Ford 1-11 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 Copyright 2006 John Wiley & Sons, Inc. 1-12 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 Copyright 2006 John Wiley & Sons, Inc. 1970s 1980s 1990s 1990s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy 1-13 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 Copyright 2006 John Wiley & Sons, Inc. 1-14 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. Copyright 2006 John Wiley & Sons, Inc. 1-15 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 Copyright 2006 John Wiley & Sons, Inc. 1-16 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) Copyright 2006 John Wiley & Sons, Inc. 1-17 Impact of E-Business on Operations Management Benefits of E-Business Comparison shopping by customers Direct contact with customers Business processes conducted online Copyright 2006 John Wiley & Sons, Inc. 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 1-18 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 Copyright 2006 John Wiley & Sons, Inc. 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 1-19 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 Copyright 2006 John Wiley & Sons, Inc. 1-20 Impact of E-Business on Operations Management (cont.) Benefits of E-Business IT synergy Expanded supply chains Copyright 2006 John Wiley & Sons, Inc. 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 1-21 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 Copyright 2006 John Wiley & Sons, Inc. 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 1-22 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. Copyright 2006 John Wiley & Sons, Inc. China: $0.50 1-23 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 Copyright 2006 John Wiley & Sons, Inc. 1-24 Risks of Globalization Cultural differences Supply chain logistics Safety, security, and stability Quality problems Corporate image Loss of capabilities Copyright 2006 John Wiley & Sons, Inc. 1-25 Competitiveness and Productivity Competitiveness degree to which a nation can produce goods and services that meet the test of international markets Productivity ratio of output to input Output sales made, products produced, customers served, meals delivered, or calls answered Input labor hours, investment in equipment, material usage, or square footage Copyright 2006 John Wiley & Sons, Inc. 1-26 Competitiveness and Productivity (cont.) Measures of Productivity Copyright 2006 John Wiley & Sons, Inc. 1-27 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 Copyright 2006 John Wiley & Sons, Inc. 1-28 Productivity Increase Become efficient output increases with little or no increase in input Expand both output and input grow with output growing more rapidly Achieve breakthroughs output increases while input decreases Downsize output remains the same and input is reduced Retrench both output and input decrease, with input decreasing at a faster rate Copyright 2006 John Wiley & Sons, Inc. 1-29 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 Copyright 2006 John Wiley & Sons, Inc. 1-30 Global Competitiveness Ranking 1. Finland 2. United States 3. Sweden 4. Denmark 5. Taiwan 6. Singapore 7. Switzerland 8. Iceland 9. Norway 10. Australia Copyright 2006 John Wiley & Sons, Inc. Source: Global Competitiveness Report 2003–2004, World Economic Forum, January 2004, www.weforum.org 1-31 Operations–Oriented Barriers to Entry Economies of Scale Capital Investment Access to Supply and Distribution Channels Learning Curve Copyright 2006 John Wiley & Sons, Inc. 1-32 Primary Topics in Operations Management Copyright 2006 John Wiley & Sons, Inc. 1-33 Primary Topics in Operations Management (cont.) Copyright 2006 John Wiley & Sons, Inc. 1-34 Operations Strategy Strategy: Chapter 2 Maintaining an operations strategy to support firm’s competitive advantage Quality: Chapters 3 and 4 Focusing on quality in operational decision making Product and Services: Chapter 5 Designing quality products and services Processes, Technologies, and Capacity: Chapter 6 Setting up process so that it works smoothly and efficiently Copyright 2006 John Wiley & Sons, Inc. 1-35 Operations Strategy (cont.) Facilities: Chapter 7 Setting up facility so that it works smoothly and efficiently Human Resources: Chapter 8 Designing jobs and work to produce quality products Project Management: Chapter 9 Managing complex projects Copyright 2006 John Wiley & Sons, Inc. 1-36 Supply Chain Management Supply Chain: Chapter 10 Managing supply chain Forecasting: Chapter 11 Predicting customer demand Aggregate Planning: Chapter 12 How much to produce and when to produce it Inventory Management: Chapter 13 How much to order and when to order Copyright 2006 John Wiley & Sons, Inc. 1-37 Supply Chain Management (cont.) Resource Planning: Chapter 14 Planning capacity and other resources Lean Production: Chapter 15 Designing efficient production lines Scheduling: Chapter 16 Job and task assignments Waiting Lines: Chapter 17 Minimizing waiting time of customers and products Copyright 2006 John Wiley & Sons, Inc. 1-38 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 Copyright 2006 John Wiley & Sons, Inc. 1-39 Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. 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