Operations ManagementOperations Management

Professor Beril ToktayProfessor Beril ToktayOperations Management GroupOperations Management Group

College of ManagementCollege of ManagementGeorgia TechGeorgia Tech

Who Am I?Who Am I?

• BS in Industrial Engineering & Math from Bosphorus University

• Taught at INSEAD until last year

• MS in Industrial Engineering from Purdue University

• PhD in Operations Research from MIT

What Will We Do Today?What Will We Do Today?

• How is this course organized?• Why Operations Management?

The First Industrial Revolution (c. 1850)The First Industrial Revolution (c. 1850)

• Textile manufacturing innovations“Flying shuttle” and “Spinning Jenny”

• J. Watt: The steam engine Substituting labor with machines

• A. Smith: Free markets – division of laborFree markets would enhance “quest” for profit Specialization could increase productivity

small scale production

The American System of ManufacturingThe American System of Manufacturing

• Vertical IntegrationConsolidating different operations under one roof

• Interchangeable partsMass-produce parts to tight tolerance & assemble1801 contract for 10,000 muskets for the government

• Unskilled workers

• 1832: 36 enterprises in 10 states with > 250 workersReliance on water power & local distribution system

• Transportation innovationsRailroads are built in western world

• Communication innovationsThe telegraph is established

• Big retailers come to powerSears & Roebuck’s sales soar to $38M in 10 years

• Mass Production: the first vehicles arrive… Henry Ford starts producing Model T

The Second Industrial Revolution (c. 1910)The Second Industrial Revolution (c. 1910)

large scale production

• Principles of Scientific ManagementBook published in 1911 by Fredrick Taylor

• Time and Motion studiesHow much time do workers need to do a task?

• Incentive systemsWhat is the best payment scheme?

• Study how systems can be efficientDeveloped a set of principles that serve efficiency.Planning versus doing.

1910-1920: The Scientific Method (Taylorism)1910-1920: The Scientific Method (Taylorism)

Efficiency is the key!

• Application of Taylor’s methodsThe DuPont Powder company

• More importance to the human elementStudies at the Western Electric Hawthorne plant to understand ergonomics: the human element in manufacturing

• Investment in management educationBetween 1914 and 1940 B-schools grew a lot

1920’s - 1930’s: Taylorism Spreads1920’s - 1930’s: Taylorism Spreads

• Operations Research tools are “born”G.B. Dantzig devises simplex algorithm

• Effort to study complex systemsThe importance of teamwork is introduced

• Mathematical analysis becomes the normScientific methods are applied throughout the organization

• Mathematics solidify the scientific methodSimulation based models, computer usage, scheduling

1940’s - 1960’s: The Golden Era in the U.S.1940’s - 1960’s: The Golden Era in the U.S.

1970’s: Computers and MRP take over1970’s: Computers and MRP take over

ProductionSchedule

ForecastedDemand

Bill of materials

Inventorystatus

MRP (Materials

RequirementPlanning)

MRP automated production…

But, someone has to tell the computers what to analyze!

1980’s: The Japanese Challenge1980’s: The Japanese Challenge

American manufacturing led until the late 70’s, but then…

The methods introduced byJapanese manufacturing firms

outperformed the US …

TQC: Total Quality Control

JIT: Just-In-Time

Higher quality

Less cost

1990’s: The U.S. rises to the challenge1990’s: The U.S. rises to the challenge

Entrepreneurship and the ability to change and re-invent themselves allowed American

firms to move into new areas.

• U.S. firms improve productivity and quality.

• U.S. firms focus on emerging technologies, R&D.

• Growth of the service industry.

• Examples in OM….

Why Operations Management?Why Operations Management?

OM = Designing, operating, and improving the systems that deliver

the firm’s primary products and services

Operations Management = Strategy Execution

Time

FlexibilityQuality

Cost

Strategy ExecutionStrategy Execution

1. What is our strategy?

2. How do we design our operations to support it?

Product / Service Development

Supply Chain Management

Process Design and Management

Strategy ExecutionStrategy Execution

Dell

Southwest

Walmart

Toyota

Amazon

What’s their strategy? How do they execute it?

Organization of CourseOrganization of Course

• Class web site (can link from Webct) http://www.prism.gatech.edu/~bt71/mgt3501/course-page.htm

• Recommended text: Operations Management for Competitive Advantage, 11th Edn, by Chase, Jacobs, and Aquilano.

• Grading: 2 Midterms (20% each), Final (40%), 2 mini-case write-ups (20%). Participation can bump you up if borderline.

• 4-5 person groups for write-ups: Form by Jan 24.• Attendance: Voluntary• Homework: For your own practice.• On-time arrival to class: grade cutoff will drop by 0.04 for each

time that at most 2 people are late to class. • Office hours, T/Th 11-12: Use them!!