1-1 Introduction to Operations Management

William J. Stevenson

Operations Management

8th edition

1-2 Introduction to Operations Management

GHANA INSTITUTE OF MANAGEMENT AND PUBLIC ADMINISTRATION [GIMPA]

POST-GRADUATE PROGRAMMES

MANAGING OPERATIONS

Instructor: Samuel Famiyeh., [Ph. D., MBA., BSc. MGhIG]

Email: sfamiyeh@hotmail.com, cfamiyeh@yahoo.com Tel: 00233 246 306296

Room : D-BLOCK ROOM 14

1-3 Introduction to Operations Management

Course Description

The way every organization manage productive resources is very critical to its strategic growth and competitiveness.

If productive resources are not well managed, organizations are not able to grow in the long run and hence not competitive and eventually get out of business in this global economy.

Operations management is the effective and efficient management of these productive resources. It entails the design and control of systems responsible for the productive use of raw materials, human resources, equipment and facilities in the development of a product or service.

1-4 Introduction to Operations Management

Course Description

Hence this course focuses on the operational processes involved in managing the value chain for a company.

Emphasis is placed on the managerial approach to acquiring resource inputs and converting them into value added inputs.

The aim here is to cover some of the most important issues facing operation managers, as well as the basic tools and techniques in dealing with these issues.

1-5 Introduction to Operations Management

Course Description

The course examines activities such as:

•Introduction to operations management•Competitiveness, Strategy and Productivity•Forecasting, •Designing products and services, •Process selection and facility Layout•Inventory, •Capacity and location planning •Project management, •Assuring and improving quality are addressed.

1-6 Introduction to Operations Management

CHAPTER1

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights

reserved.

1-7 Introduction to Operations Management

Operations ManagementOperations ManagementHighlights of the chapter include the following:

1. Operations as one of the three main functional concerns of most organizations.

2. The role and job of the operations manager as a planner and decision-maker.

3. Different ways of classifying (and understanding) production systems.4. System design versus system operation.5. Major characteristics of production systems.6. Contemporary issues in operations management.7. Operations as essentially managerial (planning, staffing,

etc.)8. Manufacturing operations versus service operations.

1-8 Introduction to Operations Management

Figure 1-1Figure 1-1

The management of systems or processes that create goods and/or provide services

1-9 Introduction to Operations Management

Value added Figure 1-2Value added Figure 1-2

The difference between the cost of inputs and the value or price of outputs.

1-10 Introduction to Operations Management

Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment

Table 1.2

1-11 Introduction to Operations Management

Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy

Table 1.2

1-12 Introduction to Operations Management

Value added Figure 1-8Value added Figure 1-8

1-13 Introduction to Operations Management

Steel productionAutomobile fabrication

Home remodelingRetail sales

Auto RepairAppliance repair

Maid ServiceManual car wash

TeachingLawn mowing

High percentage goodsLow percentage service

Goods-service ContinuumGoods-service Continuum

Low percentage goodsHigh percentage service

Figure 1.3

1-14 Introduction to Operations Management

Manufacturing or Service?Manufacturing or Service?

Tangible Act

1-15 Introduction to Operations Management

Production of Goods vs. Delivery of ServicesProduction 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 Introduction to Operations Management

Key DifferencesKey Differences

1. Customer contact

2. Uniformity of input

3. Labor content of jobs

4. Uniformity of output

5. Measurement of productivity

6. Production and delivery

7. Quality assurance

8. Amount of inventory

1-17 Introduction to Operations Management

Manufacturing vs ServiceManufacturing vs Service

Characteristic Manufacturing ServiceOutput

Customer contact

Uniformity of input

Labor content

Uniformity of output

Measurement of productivity

Opportunity to correct

Tangible

Low

High

Low

High

Easy

High

Intangible

High

Low

High

Low

Difficult

Lowquality problems

High

1-18 Introduction to Operations Management

Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .

Scope of Operations ManagementScope of Operations Management

1-19 Introduction to Operations Management

Types of OperationsTypes of OperationsTable 1.4

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/Transportation Warehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, banking,renting, leasing, library, loans

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and televisionnewscasts, telephone, satellites

1-20 Introduction to Operations Management

U.S. Manufacturing vs. Service Employment

0

20

40

60

80

100

45 50 55 60 65 70 75 80 85 90 95 00

Year

Perc

ent

Year Mfg. Service45 79 2150 72 2855 72 2860 68 3265 64 3670 64 3675 58 4280 44 4685 43 5790 35 6595 32 6800 30 70

Figure 1.4

1-21 Introduction to Operations Management

Responsibilities of Operations ManagementResponsibilities of Operations Management

Products & services

Planning– Capacity– Location–– Make or buy– Layout– Projects– Scheduling

Controlling/Improving– Inventory– Quality

Organizing– Degree of centralization– Process selection

Staffing– Hiring/laying off– Use of Overtime

Directing– Incentive plans– Issuance of work orders– Job assignments

– Costs– Productivity

Table 1.6

1-22 Introduction to Operations Management

Key Decisions of Operations ManagersKey Decisions of Operations Managers

WhatWhat resources/what amounts

WhenNeeded/scheduled/ordered

WhereWork to be done

HowDesigned

WhoTo do the work

1-23 Introduction to Operations Management

Decision MakingDecision Making

System Design– capacity– location– arrangement of departments– product and service planning– acquisition and placement of

equipment

System operation– personnel– inventory– scheduling– project

management– quality assurance

1-24 Introduction to Operations Management

Decision MakingDecision Making

Models

Quantitative approaches

Analysis of trade-offs

Systems approach

1-25 Introduction to Operations Management

ModelsModels

A model is an abstraction of reality.

– Physical– Schematic– Mathematical

What are the pros and cons of models?

Tradeoffs

1-26 Introduction to Operations Management

ModelsModelsA model is an abstraction of reality. Models are sometimes classified as physical, schematic, or mathematical:

Physical Models: these looks like their real life counterparts. Examples include miniature cars, toy animals, scale-model buildings. Advantages are visual correspondence of reality.

Schematic models: there are more abstract than their physical counterparts: i.e. less resemblance to the physical reality. E.g. graphs, charts, blueprints, pictures and drawings.

Mathematical models: these do not look at all like their real-life counterparts. E.g. numbers, formulas, and symbols. These models are the easiest to manipulate, and are important forms of inputs for computers and calculators.

1-27 Introduction to Operations Management

Models Are BeneficialModels Are Beneficial

Easy to use, less expensive Require users to organize Systematic approach to problem solving Increase understanding of the problem Enable “what if” questions Specific objectives Consistent tool Power of mathematics Standardized format

1-28 Introduction to Operations Management

Analysis of Trade-OffsAnalysis of Trade-Offs

Operation Managers encounter decisions that can be described

are trade-off decisions.

For e.g. in deciding on the amount of inventory to stock, the

manager must take into account the trade-off between the

increased level of customer service that the additional inventory

would yield and the increased costs required to stock that

inventory.

Also in scheduling of overtime to increase output, the manager

must weigh the value of increased output against the higher

cost of overtime.

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A Systems ApproachA Systems Approach

A system can be defined as a set of interrelated parts

that must work together. In any business organization,

the organization can be thought of as a system

composed of subsystems (marketing subsystems,

operations subsystems, finance subsystems etc).

The system approach emphasizes interrelationships

among subsystems, but its main theme is that the

whole is greater than the sum of its individual parts.

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Systems ApproachSystems Approach

“The whole is greater than the sum of the parts.”

SuboptimizationSuboptimization

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Establishing PrioritiesEstablishing PrioritiesIn virtually every situation, managers discover that

certain elements are more important than others.

Recognizing this fact of life enables the managers to direct their efforts to where they will do the most good to avoid wasting time and energy on insignificant elements.

Consider owing a car;

Engine, Tires, Brakes, Electrical System, Cooling System

Scratches, Dents, Piece Of Mould, Seat Covers etc.

1-32 Introduction to Operations Management

Business Operations OverlapBusiness Operations Overlap

Operations

Finance

Looks more like a system than separate components

Marketing

1-33 Introduction to Operations Management

Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal

1-34 Introduction to Operations Management

EthicsEthics

Operations Managers, like all managers, have the responsibility to make ethical decisions. Ethical issues arise in many aspects of operations managers including:

• Worker safety;

• Product safety;

• Quality;

• CSR;

• Decommissioning.

1-35 Introduction to Operations Management

Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainSimple Product Supply ChainFigure 1.7

Supply Chain: A sequence of activitiesAnd organizations involved in producingAnd delivering a good or service

1-36 Introduction to Operations Management

Stage of Production Value Added

Value of Product

Farmer produces and harvests wheat $0.15 $0.15

Wheat transported to mill $0.08 $0.23

Mill produces flour $0.15 $0.38

Flour transported to baker $0.08 $0.46

Baker produces bread $0.54 $1.00

Bread transported to grocery store $0.08 $1.08

Grocery store displays and sells bread $0.21 $1.29

Total Value-Added $1.29

A Supply Chain for BreadA Supply Chain for Bread

1-37 Introduction to Operations Management

DiscussionsDiscussions1. Briefly describe the term operations

management

2. Identify the three major functional areas of business organizations and briefly describe how they interrelate

3. Describe the operations function and the nature of operation manager’s job.

4. List five important differences between goods and service operations.