Outlines for Introducing
Operations Management
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MGMT 6020
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Introduction
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What is OM? Why Study OM?
Philosophy and New Trends in OM
Operations in the Service Sector
How would OM affect other functions in a firm?
Ten Decisions of OM
Achieving Competitive Advantage through Operations
Defining Global Operations
Why Global Operations are Important
Achieving Global Operations
Background: Steve Peng
MGMT 6020
Introduction
EDUCATION
Ph.D.
York University, Toronto, Operations Management, 2001
M.Sc
National Tsinghua University, Taiwan, Electrical Engineering, 1992
B.Sc
National Tsinghua University, Taiwan, Electrical Engineering, 1990
RESEARCH INTERESTS
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Risk control and financing mechanism design for new aircraft projects
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Contract design for risk sharing and coordination in supply networks
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Stochastic models for supply chain management
INDUSTRIAL EXPERIANCE
Consultant, Bombardier Aerospace, Toronto, 3/2001 – 6/1999
Risk management in new aircraft project
R&D Engineer, S-Tech Inc, Toronto, 3/1994 – 6/1996
Design and manufacturing of industrial gas detecting system
Project Engineer, General Instrument, 9/1992 – 12/1993
CATV system design and manufacturing
What is Operations Management
Managing the activities that creates goods
and services through the transformation of
inputs into outputs
 Focusing on both manufacturing and
service operations
 Modern OM often across organizational and
geographical boundaries
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MGMT 6020
Introduction
Operations Management
MGMT 6020
INPUTS
_____________
Labor
Materials
Technology
Capacity
VALUE-ADDING
ACTIVITIES
_________________
Performed with tools,
machines, techniques,
and human skills
OUTPUTS
____________
Goods and/or
services
Introduction
Management Process (planning, organizing, staffing, leading, and
controlling) embedded in IT infrastructures
Operations in Manufacturing
Firm
®
VISA
Material Flow
MGMT 6020
Supplier
Credit Flow
Manufacturing
Introduction
Supplier
Schedules
Order
Flow
Retailer
Consumer
Wholesaler
Retailer
Cash
Flow
Operations in Different Firms
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Introduction
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United Airlines
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Dell Computer
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Bank of America
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Oracle
Organizational Charts
Airline
Operations
MGMT 6020
Introduction
Ground support
equipment
Maintenance
Ground Operations
Facility maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science
Finance &
Accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange rates
Marketing
Traffic
administration
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising
Organizational Charts
Manufacturing
Operations
Facilities:
Construction:maintenance
MGMT 6020
Production & inventory control
Scheduling: materials control
Supply-chain management
Manufacturing
Tooling, fabrication,assembly
Design
Introduction
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space, and personnel
Process analysis
Development and installation of production tools
and equipment
Finance &
Accounting
Disbursements/credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issues and
recall
Marketing
Sales
promotions
Advertising
Sales
Market
research
Organizational Charts
Commercial Bank
Operations
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Introduction
Teller Scheduling
Check Clearing
Transactions
processing
Facilities
design/layout
Vault operations
Maintenance
Security
Finance
Investments
Security
Real Estate
Accounting
Auditing
Marketing
Loans
Commercial
Industrial
Financial
Personal
Mortgage
Trust Department
Characteristics of Service
Operations
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Intangible product
Produced & consumed at same time
Often unique
High customer interaction
Inconsistent demand
Difficult to inventory
Quality is difficult to measure
Site of facility is important for customer contact
Often difficult to automate
Why Study OM?
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MGMT 6020
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Introduction
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OM is one of three major functions (marketing, finance,
and operations) of any organization
OM plays a crucial role in managing organizations
effectively and efficiently, improving quality, increasing
productivity, and reducing costs
We want (and need) to know how goods and services are
produced and managed
OM will help you to better understand and manage other
functions in organizations (marketing, finance, accounting,
sales, human resources, purchasing, etc.)
The Role of OM during Business
Turbulence
TOTAL MANAGEMENT PIE
MGMT 6020
Marketing
Mgmt.
Operations
Mgmt.
Introduction
Finance
Mgmt.
The Hard Rock Cafe
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MGMT 6020
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Introduction
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First opened in 1971
 Now – 110 restaurants in over 40 countries
Rock music memorabilia
Creates value in the form of good food and
entertainment
3,500+ custom meals per day
How does an item get on the menu?
Role of the Operations Manager
Business Mission and Operations
Strategy
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Introduction
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Operations strategy is derived from the
organization mission.
Mission - where you are going
Provides boundaries & focus for a company’s
vision and represents the direction for the whole
company to satisfy customer's needs
Strategy - how you can get there
Action plans to achieve the mission
Company has overall business strategies and each
functional area also has strategies
Sample Mission - Merck
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The mission of Merck is to provide society with
superior products and services - innovations and
solutions that improve the quality of life and satisfy
customer needs - to provide employees with
meaningful work and advancement opportunities
and investors with a superior rate of return
Introduction
Mission of the Hard Rock Café
MGMT 6020
Introduction
To spread the spirit of Rock ‘n’ Roll by delivering an
exceptional entertainment and dining experience.
We are committed to being an important,
contributing member of our community and offering
the Hard Rock family a fun, healthy, and nurturing
work environment while ensuring our long-term
success.
Strategy Process
Company
Mission
MGMT 6020
Business
Strategy
Functional
Functional Area
Area
Strategies
Introduction
Marketing
Decisions
Operations
Decisions
Fin./Acct.
Decisions
Webvan’s Mission and
Operations Strategies
Mission: Change the way how people do
grocery shopping in the Internet era
 Operations strategies: introduce the service
to 200 cities in 30 states within 3 years.
 In retrospect : Understand how to evaluate
the consistency between a company’s
mission and operations strategies is
important
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Introduction
Concepts for Developing
Operations Strategies
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Exploit external opportunities and internal
strengths
Neutralize threat from competitors and avoid
existing weaknesses
Three concepts or options:
Differentiation (unique or better)
Cost leadership (cheaper)
Quick response (flexible or responsive)
Combination of Three Concepts
Sound OM strategies usually include more
than one strategic concept or option.
 The key is to make sure the secondary
concept in the strategies will not conflict
with the primary concept
 Achieve Differentiation, Low Cost, and
Response via 10 OM decisions
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Introduction
Ten Critical Decisions
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Introduction
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Ch. 5
Ch. 6, 6S
Ch. 7, 7S
Ch. 8
Ch. 9
Ch. 10, 10S
Ch. 11,11s
Inventory management ……………. Ch. 12, 14, 16
Scheduling ………………………
Ch. 3, 13, 15
Maintenance …………………….
Ch. 17
Service, product design……………..
Quality management…………………
Process, capacity design…………..
Location ………….…………………
Layout design ………………………..
Human resources, job design……..
Supply-chain management…………
Strategic Decisions in OM
(Designing Operations)
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Design of Goods and Services (from new aircraft to
wrapping paper for Taco)
What product or service should we offer?
How to design these products and services?
Quality
Who is responsible for quality?
How do we define and improve quality?
Design Process and Capacity
What processes will the products require and in what
order?
What equipment and technology is best for the processes?
Strategic Decisions in OM
(Designing Operations)
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Location
Where should we put the facilities (in a global view)
On what criteria should we base for location decision
Layout Design (e.g. semiconductor fab)
How should we arrange the facility?
How large a facility is required?
Human Resources and Job Design (e.g. design course)
How do we provide a reasonable work environment?
How much can we expect our employees to produce?
Strategic Decisions in OM
(Managing Operations)
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Supply Chain Management
Should we make or buy this item?
Who are our good suppliers and how many should we
have? How to develop and deliver a product on-time?
Inventory, Material Requirements Planning, Just-inTime
How much inventory of each item should we have?
When do we re-order? What’s the tradeoffs?
What is the best inventory schedule?
Strategic Decisions in OM
(Managing Operations)
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Immediate, short term, and master scheduling
How many employees do we need to schedule on a daily
basis?
What is best way to complete a job or project?
What is the shortest time and lowest cost to accomplish a
job? (e.g. staff scheduling for check in counters)
Maintenance (machine and other resources)
Who is responsible for maintenance?
How to organize, schedule, and control maintenance?
Jobs in Operations Management
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Technology/methods
Facilities/space utilization
Strategic issues (e.g. technology selection)
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement (e.g. Six Sigma)
Significant Events in Operations
Management
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Introduction
The Heritage of
Operations Management
Division of labor (Adam Smith 1776 and Charles Babbage 1852)
Standardized parts (Whitney 1800)
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Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/Sorenson/Avery 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922
Introduction
Quality control (Shewhart 1924; Deming 1950)
Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957)
The Heritage of Operations
Management - Continued
Material requirements planning (Orlicky 1960)
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Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Introduction
Globalization(1992)
Internet (1995)
Productivity Measurement
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Measure of process improvement
Represents output relative to input
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Productivi ty 
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Labor Productivity
Productivi ty 
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Introduction
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Output
Units of Labor Input
Overall productivity (efficiency):
Productivi ty 
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Units produced
Input used
Output
Total Resources (Labor, Material, Energy, Capital, etc.)
Productivity growth improves standards of living
Productivity increased in U.S. at a 2.5% annual
rate between 1994 and 2004.
Reasons for Operating Globally
TANGIBLE
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Reduce costs (labor, taxes, tariffs, etc.)
Reduce risks (foreign exchange, etc.)
Improve supply chain
Provide better goods and services
Attract new markets
Learn to improve operations
Attract and retain global talent
INTANGIBLE
Examples of Global Operations
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Boeing - both its sales and subsystem production
are world-wide
Benetton - moves inventory to stores around the
world faster than its competitors
Sony - purchases components from suppliers in
Thailand, Malaysia, etc.
General Motors - simultaneously building four
similar plants in Argentine, Poland, China, and
Thailand so that they can learn from each other
and drive down cost while increasing quality
Evolution of Komatsu’s Global
Strategy
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1960s – use international licensing to augment
product line and improve quality
1970s – build export market, reduce cost, and set
global service departments
1980s – start to manufacture outside of Japan due
to strong yen
1990s – improve quality, reduce cost, use new
technologies
2000s – use joint ventures to extend global OM
Trade and Tariffs
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Maquiladoras - Mexican factories located along
the U.S.-Mexico border that receive preferential
tariff treatment
WTO – World trade Organization has helped
reduce tariffs from 40% in 1940 to 3% in 1995
NAFTA - a free trade agreement between Canada,
Mexico, and the United States
GATT, APEC, SEATO, MERCOSUR international treaties that help promote world trade
by lowering barriers to the free flow of goods
across borders
Global Integration of Operations
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International strategy - engages in cross-border
transactions
Multidomestic strategy- has extensive
involvement in international business, owning or
controlling facilities in more than one country
Global strategy - integrates operations from
different countries, and views world as a single
marketplace
Transnational strategy - seeks to combine the
benefits of global scale efficiencies with the
benefits of local responsiveness
Considerations in Global
Operations
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Global product design
Integrate different technology and expertise
Overcome social and cultural differences that affect
customer’s needs
Use modularized design to defer the differentiation
Global process design and technology
Information technology enables management of integrated,
globally dispersed operation
Production, purchasing, human resource, and financial
planning
Considerations in Global
Operations
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MGMT 6020
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Global factory location analysis (long term planning)
Cost advantage and risk control (e.g. exchange rates)
Incentives or import restrictions from foreign government
Productivity of workers and product liability laws
Availability of raw materials and reduces time-to-market
Impact of culture and ethics
Concerns about globalization including third-world debt,
environment damage, child labor, sweat factory, and so on
Underlying question: Who will benefit from globalization?
Minit-Lube Inc
MGMT 6020
Introduction
Questions
1. What constitutes the mission of Minit-Lube.
2. How does the Minit-Lube operations strategy provide
competitive advantage? Answer this question by
evaluating how Minit-Lube’s traditional competitors
perform the 10 decisions of operations management vs.
how Minute-Lube performs them.
3. Is it likely that Minit-Lube has increased productivity over
their more traditional competitors? Why? How would you
measure productivity in this industry?
Issues in Minit-Lube Inc
Type of product: goods vs. service
 Mission statement
 What’s Minit-lube’s operations strategy?
 How to create or maintain the sustainable
advantage through the 10 OM decisions
 What are the competitors’ possible
missions, advantages, and
strategies/decisions
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Competition Analysis
Who are direct competitors? Who are
potential entrants?
 Identify all competitor’s competitive
advantages
 Analyze competitor’s operations strategies
and 10 OM decisions
 Verify that Minit-Lube’s strategies are
sustainable and can support its mission
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Strength and Opportunity vs.
Weakness and Threat
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Focused product line
Economies of scale
(achieved by franchise
chain) on training and
material purchasing
Lower overhead
investment than
traditional garages
Clean, friendly, and
unified product image
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Imitation due to low entry
barrier
Inventory and technique
challenges for serving
multi-brands and models
Limits (e.g.warrantee)
imposed by dealer
Operations are run by
individual participant
Certain parts are
controlled by competitors
Mission Statement and Potential
Competitive Advantage
For a franchise chain, it is important to use
mission statement to communicate parent
company’s vision and to highlight the
direction for the whole organization
 Minit-Lube may need to compete on all
three dimensions but with different weights
(e.g. differentiation > response/flexibility >
cost)
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10 Strategic Operations
Decisions in Minit-Lube Inc
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Goods and service design: define product line
based on the competitive advantage
Quality: set detail operations guide lines and
standards to ensure the customer’s satisfaction
Process and capacity design: select technology to
optimize efficiency and cost; arrange resources
and capital commitments with participants
Layout design: to maximize throughput, minimize
customer’s waiting, remove bottleneck
Location selection: convenience vs. rent
10 Strategic Operations
Decisions in Minit-Lube Inc
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Human resources and job design: develop
training and evaluation system to unify the product
quality delivered by each franchise
Supply chain management: make or buy
decisions; focus on quality and JIT
Inventory: different policies for common parts and
genuine parts
Scheduling: identify demand patterns to optimize
human resource and facility utilization
Maintenance: for equipment and environment
Mission, Strategy and Ten OM
Decisions in Kaiser Permanent’s
New Facility
Mission statement
 Define Kaiser’s overall strategy when
establish new facility
 Develop and address 10 OM decision for
Kaiser’s decision makers
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10 Strategic OM Decisions in
Kaiser’s New Hospital
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Introduction
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Goods and service design
Quality
Process and capacity design
Layout design
Location selection
Human resources and job design
Supply chain management
Inventory
Scheduling
Maintenance