Chapter 1
Introduction to Operations and
Supply Chain Management
Russell and Taylor
Operations and Supply Chain Management,
8th Edition
Welcome to ISQS 3344
Instructor: Dr. Burns
Summer I 2015 SEMESTER
Telephone: 834-1547
Email: jburns@ba.ttu.edu
Off hrs: by appointment
Website: burns.ba.ttu.edu
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My web site
http://burns.ba.ttu.edu
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Prerequisites
• STATISTICS
Basic Statistical Concepts
• COMPUTER LITERACY
• MS Excel
• MS Word
Copyright 2011 John Wiley & Sons, Inc.
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Seating
• The seat you sit in on the second session of
class will be your seat for the duration of the
class
• A seating chart will be ‘made-up’ then
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Grading
• Two exams and a final will be administered,
each worth 20% of the course grade
• Three homework sets will be required, each
worth 10%
• Class attendance and participation will be worth
10%
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
Grades
• 90-100---A
• 80-89.999---B
• 70-79.999---C
• 97.5-on up---A+
• 92.5-97.4999---A
• 90-92.4999—A-
Copyright 20011 John Wiley & Sons, Inc.
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Class Pedagogy
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Won’t show any movies
Video clips are OK, however
PowerPoint
Simulations, where possible
Lectures--more informal
Interactive Discussions
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How Long does it take you to do stuff?
• Do you know?
• Suppose your employer assigns a task to you
and asks you how long it will take you to do it?
Could you tell him/her?
• Do you have a tendency to underestimate how
long it takes you to do stuff?
Copyright 2015 John Wiley & Sons, Inc.
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About me
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PhD … in Engineering from Purdue
PMP certification by PMI
CIRM credential by APICS
My worldview, my cognitive lens
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
Questions
• How big is the U.S. economy in terms of GDP?
What is the world-wide GDP?
• How big is the U.S. population in relation to the
rest of the world?
• What percentage of worldwide nonrenewable
resources are consumed just in the U.S. alone?
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More questions
• Is the U.S. leadership in terms of material
standard of living sustainable?
• What does it take to make it sustainable?
• What is causing the devaluation of the dollar?
Will that devaluation continue?
• Is there anything good that comes from
devaluation of the dollar?
• What’s bad about the $ devaluation?
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What are some of the biggest
problems our country (U.S.A.)
faces?
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The war on terror
Mexican border out of control
The national debt; the budget and trade deficits
Contributions to global warming
High energy costs
Health care is too expensive
Major employers like banks tanking
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What solutions do you foresee to
America’s problems?
• Massive Jobs growth (particularly high-value jobs) and
Immigration of tax-paying, foreign professionals
• Strong productivity growth
• Sell Resources owned by the Federal Gov.
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Oil on Federally-owned lands
Gas on Federally-owned lands
Coal on Federally-owned lands
Uranium on Federally-owned lands
Electricity (solar and wind farms on federally-owned land)
• BUY AMERICAN
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The National Debt
• Officially, $ 18,455,325,678,402.07 as of today
accumulating at the rate of $3.5 billion per day-$139,250 per taxpayer
• According to Kotlikoff, the fiscal gap is a stunning
$65.9 trillion—that is more than twice the total net
worth of the entire country
• Social Security and Medicare liabilities are
estimated at $40 trillion
• No plans for accommodation of the retirements in
77 million baby boomers beginning now
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Lecture Outline
• The Operations Function
• The Evolution of Operations and Supply Chain
Management
• Globalization
• Productivity and Competitiveness
• Strategy and Operations
• Organization of the Text
• Learning Objectives of this Course
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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Learning Objectives for this Class
• Describe what the operations function is and how it
relates to other business functions.
• Discuss the key factors that have contributed to the
evolution of operations and supply chain management.
• Discuss how and why businesses operate globally, and
the importance of globalization in supply chain
management.
• Calculate and interpret productivity measures used for
measuring competitiveness.
• Discuss the importance of operations and supply chain
management to a firm’s strategy, and the process of
developing, aligning and deploying strategy.
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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Operations Management
• What is an Operation?
• a function or system that transforms inputs into
outputs of greater value
• Who decides whether the operation added value?
The customer
• What is Operations Management?
• design, operation, improvement and innovation of
productive systems
• What is a Value Chain?
• a series of activities from supplier to customer that add
value to a product or service
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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
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Transformation Process
• Physical: as in manufacturing operations
• Locational: as in transportation or warehouse
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 & Requirements
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The Operations Function
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Organizing/designing work
Selecting/designing processes
Arranging/designing layouts
Locating facilities
Designing jobs
Measuring performance
Controlling quality
Scheduling work
Managing inventory
Planning/designing production
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
What are some OM entry-level titles?
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PROJECT MANAGER
BUSINESS PROCESS ANALYST
INVENTORY ANALYST
PROJECT COORDINATOR
UNIT SUPERVISOR
SUPPLY CHAIN ANALYST
MATERIALS MANAGER
QUALITY ASSURANCE SPECIALIST
PRODUCTION SCHEDULER
LOGISTICS PLANNER
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Operations Function
• Operations
• Marketing
• Finance and
Accounting
• Human
Resources
• Suppliers
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Sample Organizational Structure
CEO
Chief Executive Officer
CFO
Chief Financial Officer
COO
Chief Operating Officer
CIO
Chief Information Officer
VP Human Resources
VP Operations
VP Supply Chain
Management
VP Marketing
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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How is Operations Relevant
to my Major?
• Accounting
• “As an auditor you must understand the
fundamentals of operations
management.”
• Information
Technology
• “IT is a tool, and there’s no better place to
apply it than in operations.”
• Management
• “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 and Supply
Chain Management
• Craft production
• process of handcrafting products or services for
individual customers
• Accomplished in a garage or studio of the craftperson’s home
• Division of labor—Adam Smith--1776
• dividing a job into a series of small tasks each
performed by a different worker
• Interchangeable parts—Eli Whitney--1790
• standardization of parts that enabled mass production
• Scientific management
• systematic analysis of work methods
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Evolution of Operations and
Supply Chain Management
• Mass production—Henry Ford--1910
• high-volume production of a standardized product for
a mass market
• Quality revolution—Deming--1980
• an emphasis on quality and the strategic role of
operations
• Lean production—Ishikawa, Michal Hammer
• adaptation of mass production that prizes quality and
flexibility
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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Historical Eras in Operations
Management
Era
Industrial
Revolution
Scientific
Management
Era/Concept
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
1911
Activity scheduling chart
Moving assembly line
1912
1913
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
Adam Smith
Eli Whitney
Frank and Lillian
Gilbreth
Henry Gantt
Henry Ford
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Historical Eras in
Operations Management
Era
Human
Relations
Operations
Research
Era/Concept
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 Eras in
Operations Management
Era
Era/Concept
JIT (just-in-time)
TQM (total quality
management)
Strategy and
Quality
Revolution operations
Dates Originator
1970s
1980s
1980s
Reengineering
1990s
Six Sigma
1990s
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
Taiichi Ohno (Toyota)
W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy
GE, Motorola
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Historical Eras in
Operations Management
Era
Era/Concept
Internet
Revolution
Internet, WWW, ERP,
1990s
supply chain management
Globalization
Dates Originator
E-commerce
2000s
WTO, European Union,
Global supply chains,
Outsourcing, Service
Science
1990s
2000s
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
Amazon, Yahoo,
eBay, Google, and
others
China, India,
Emerging
economies
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Historical Eras in
Operations Management
Era
Era/Concept
Sustainability Global warming
Carbon footprint
Green products
Corporate social
responsibility (CSR)
UN Global Compact
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
Dates Originator
Today
Numerous
companies,
statesmen,
governments,
United Nations,
World Economic
Forum
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Evolution of Operations and Supply
Chain Management
• Supply chain management
– management of the flow of information, products, and services
across a network of customers, enterprises, and supply chain
partners
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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Globalization
• Why “go global”?
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favorable cost
access to international markets
Access to cheaper labor
response to changes in demand
reliable sources of supply
latest trends and technologies
• Increased globalization
– results from the Internet and falling trade barriers
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Hourly Compensation
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GDP per Capita
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Trade in Goods, % of GDP
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GDP
16.00
Figure 1.7 - GDP (in trillions $US)
14.99
14.00
12.00
10.00
8.00
7.32
5.87
6.00
3.60
4.00
2.77
2.48
2.44
2.19
2.00
1.86
1.85
Russian
Federation
India
0.00
U.S.
China
Japan
Germany
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
France
Brazil
U.K.
Italy
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Trade in Goods, % of GDP
Figure 1.8 - Trade in Goods as % of GDP
80.0
70.0
60.0
Brazil
Percent
50.0
China
Germany
40.0
India
Japan
30.0
Mexico
U.S.
20.0
10.0
0.0
2007
2008
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2009
2010
2011
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Manufacturing Output
$2,500.00
$2,000.00
$1,500.00
China
Germany
Japan
$1,000.00
U.S.
$500.00
$0.00
2004
2005
2006
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
2007
2008
2009
2010
2011
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Productivity and Competitiveness
• 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
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Why Productivity??
• Productivity determines Standard of Living which
determines, in part, Quality of Life
• Countries closely monitor their productivity
growth
• Did personal computers cause a jump in
productivity growth?
• What is the most common measure of
productivity that countries use?
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
Measures of Productivity
How do you increase Productivity?
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Osborne Industries
B5*B7
B6*B8
B4/B5
B4/B6
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B4/B14
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Percent Change in Input and Output
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Changes in Productivity
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Strategy and Operations
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How the mission of a company is accomplished
Provides direction for achieving a mission
Unites the organization
Provides consistency in decisions
Keeps organization moving in the right direction
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Strategy Formulation
1. Defining a primary task
• What is the firm in the business of doing?
2. Assessing core competencies
• What does the firm do better than anyone else?
3. Determining order winners and order qualifiers
• What qualifies an item to be considered for
purchase?
• What wins the order?
4. Positioning the firm
• How will the firm compete?
5. Deploying the strategy
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Strategic Planning
Mission
and Vision
Corporate
Strategy
Marketing
Strategy
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Operations
Strategy
Financial
Strategy
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Order Winners
and Order Qualifiers
Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts,
Operations and Process Management, Prentice Hall, 2006, p. 47
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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Positioning the Firm
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Cost
Speed
Quality
Flexibility
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Positioning the Firm: Cost
• Waste elimination
• relentlessly pursuing the removal of all waste
• Examination of cost structure
• looking at the entire cost structure for reduction potential
• Lean production
• providing low costs through disciplined operations
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Positioning the Firm: Speed
• Fast moves, Fast adaptations, Tight linkages
• Internet
• Customers expect immediate responses
• Service organizations
• always competed on speed (McDonald’s, LensCrafters,
and Federal Express)
• Manufacturers
• time-based competition: build-to-order production and
efficient supply chains
• Fashion industry
• two-week design-to-rack lead time of Spanish retailer, Zara
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Positioning the Firm: Quality
• Minimizing defect rates or conforming to design
specifications
• Ritz-Carlton - one customer at a time
• Service system designed to “move heaven and earth”
to satisfy customer
• Employees empowered to satisfy a guest’s wish
• Teams set objectives and devise quality action plans
• Each hotel has a quality leader
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Positioning the Firm: Flexibility
• Ability to adjust to changes in product mix,
production volume, or design
• Mass customization
• mass production of customized parts
• National Bicycle Industrial Company
• offers 11,231,862 variations
• delivers within two weeks at costs only 10% above
standard models
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Policy Deployment
• Policy deployment
• translates corporate strategy into measurable
objectives at the worker level
• Hoshins
• action plans generated from the policy
deployment process
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Policy Deployment
Derivation of an Action Plan Using Policy Deployment
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Balanced Scorecard
• Balanced scorecard
• measuring more than financial performance
• finances
• customers
• processes
• learning and growing
• Key performance indicators
• set of measures to help managers evaluate
performance in critical areas
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Balanced Scorecard
Radar Chart
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Dashboard
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Operations Strategy
Services
Products
Capacity
Facilities
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
Human
Resources
Sourcing
Process
and
Technology
Quality
Operating
Systems
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Organization of This Text:
Part I – Operations Management
1. Intro. to Operations and Supply Chain
Management
2. Quality Management
3. Statistical Quality Control
4. Product Design
5. Service Design
6. Processes and Technology
7. Capacity and Facilities Design
8. Human Resources
9. Project Management
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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Organization of This Text:
Part II – Supply Chain Management
10. Supply Chain Strategy and Design
11. Global Supply Chain Procurement and Distribution
12. Forecasting
13. Inventory Management
14. Sales and Operations Planning
15. Resource Planning
16. Lean Systems
17. Scheduling
© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e
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Learning Objectives of this Course
• Gain an appreciation of strategic importance of
operations and supply chain management 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 and creating value along the supply chains
• Develop a skill set for continuous improvement
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information herein.
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