1 Introduction to Operations Management Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved. 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 1-2 Learning Objectives 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 1-3 Kellogg’s Company Maker of popular cereal, breakfast, and snack products, such as Kellogg’s Corn Flakes, Rice Krispies, Raisin Bran, PopTarts, Eggo Waffles, and Nutri-grain bars Founded in 1906 in Battle Creek, Michigan, by W. K. Kellogg. Adhere to strong quality standards and developing new technologies, such as Waxtite wrappers to keep cereal fresh for long periods of time. Figure 1.1: Kellogg’s 2006 Sales Around the World (in $ billions) Kellogg’s Company The supply chain consists of 27 manufacturing plants in the United States and 19 plants in 15 countries around the world, including Australia, Mexico, India, Brazil, and Japan. Key operations decisions must be made throughout Kellogg’s network of plants. Kellogg’s Company The product mix to manufactured at each plant must decided – example should every plant make every product or should plants be specialized and focus Is it better for Kellogg's to work with smaller, local suppliers for each plant or with larger, national or international suppliers? Inventory decisions and policies must be set for each plant, each distribution center, and each retailer that Kellogg's’ runs, works with, or sells to. 1-7 Operations Management 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 1-8 The Organization Figure 1.1 The Three Basic Functions Organization Finance Operations Marketing 1-9 Value-Added Process Figure 1.2 The operations function involves the conversion of inputs into outputs Value added Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Feedback Control Feedback Feedback 1-10 Value-Added and Product Packages Value-added elements make 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. 1-11 The 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 1-12 Food Processor Table 1.2 Inputs Processing Outputs Raw vegetables Metal sheets Water Energy Labor Building Equipment Cleaning Making cans Cutting Cooking Packing Labeling Canned vegetables 1-13 Hospital Table 1.2 Inputs Doctors, nurses Hospital Medical supplies Equipment Laboratories Processing Outputs Examination Surgery Monitoring Medication Therapy Treated patients 1-14 Manufacturing or Service? Tangible Act 1-15 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 1-16 Key Differences 1. 2. 3. 4. 5. Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity 1-17 Key Differences 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design 1-18 Table 1.3 Goods vs. Service Characteristic Goods Service Customer contact Uniformity of input Labor content Low High Low High Low High Uniformity of output High Low Output Measurement of productivity Opportunity to correct problems Inventory Tangible Easy High Much Intangible Difficult Low Little Evaluation Patentable Easier Usually Difficult Not usually 1-19 Scope of Operations Management Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating and training employees Locating facilities Supply chain management And more . . . 1-20 Types of Operations Table 1.4 Operations Examples Goods Producing Farming, mining, construction, manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, financial advising, renting or leasing Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and TV newscasts, telephone, satellites 1-21 Key Decisions of Operations Managers What What resources/what amounts When Needed/scheduled/ordered Where Work to be done How Designed/Resources allocated Who To do the work 1-26 Overlap of Business Functions Figure 1.5 Operations Finance Marketing 1-38 Operations Interfaces Figure 1.6 Legal Public Relations Accounting Operations Personnel/ Human resources MIS 1-39 Historical Summary of Operations Management Industrial revolution (1770s) Scientific management (1911) Mass production Interchangeable parts Division of labor Human relations movement (1920–60) Decision models (1915, 1960–’70s) Influence of Japanese manufacturers 1-40