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1-1 Introduction to Operations Management

William J. Stevenson

Operations Management

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1-2 Introduction to Operations Management

HAPTER

1

Introduction toOperations Management

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright 2005 by he M!"ra#$%ill Companies, &n!. 'll rights

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1-5 Introduction to Operations Management

This strategy is based on the corporate mission, and in essence reflects how the firm

plans to use all its resources and functions (marketing, finance, and operations) to

gain competitive advantage. The operations strategy specifies how the firm will employ

its production capabilities to support its corporate strategy. (We will discuss the extent

to which operations influences corporate strategy in subsequent chapters.)

perations management deals with the direct production resources of the firm. Theseresources may be thought of as the five !"s of operations management # !eople,

!lants, !arts, !rocesses, and !lanning and control systems. The peopleare the direct

and indirect work force, the plants include the factories or service branches where

production is carried out$ the partsinclude the materials (or in the case of services, the

supplies) that go through the system% theprocessinclude the equipment and the steps

by which production is accomplished$ and the planning and control systems are theprocedures and information used by management to operate the system.

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1-6 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

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1-7 Introduction to Operations Management

Why Study OperationsWhy Study Operations

Management?Management?&ou may be wondering why you need to study operation

'anagement. There are number of very good reasons.. perations 'anagement activities are at the core of all business

organiations, regardless of what business they are in.

*.+- or more of all obs are in operations management related

areas such as customer services, quality assurance, production

planning, and control scheduling, ob design, inventorymanagement, and many more.

/.0ctivities in all of the other areas of business organiations, such

as finance, accounting, human resources, logistics, marketing,

purchasing as well as other all interrelated with operation

management activities.1.2o it is essential for these people to have basic understanding of

operations management

+.0lso you will learn how to use a range of quantitative tools that

enhance managerial decision making

O

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1-8 Introduction to Operations Management

Functions within the businessFunctions within the business

organiationsorganiations

The management of systems or processesthat create goods and/or provide services

rganiation

3inance perations 'arketing

Figure 1.1

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1-9 Introduction to Operations Management

Business Operations OverlapBusiness Operations Overlap

Operations

Finance

Figure 1.5

Marketing

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1-10 Introduction to Operations Management

Value-AeValue-Ae

The difference between the cost of inputsand the value or price of outputs.

Inputs Land

Labor

Capital

Transformation/

Conversion

process

Outputs

Goods

Services

Control

Feedback

FeedbackFeedback

Value added

Figure 1.

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1-11 Introduction to Operations Management

Operations !nterfacesOperations !nterfaces

u!lic

"elations

Accounting

#ndustrial

$ngineering

Operations

Maintenance

ersonnel

urchasing

Distri!ution

M#S

%egal

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1-12 Introduction to Operations Management

Steel production

Automobile fabrication

Home remodeling

Retail sales

Auto Repair

Appliance repair

Maid Service

Manual car wash

Teaching

Lawn mowing

High percentage goods

Low percentage service

Goods-ser!ice "ontinuumGoods-ser!ice "ontinuum

Low percentage goods

High percentage service

3igure ./

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1-13 Introduction to Operations Management

Manufacturing or Service"Manufacturing or Service"

Tangible Act

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1-14 Introduction to Operations Management

T#pes of OperationsT#pes of OperationsTable 1.!

Operations "#amples$oods %roducing Farming& mining& construction&

manufacturing& power generation

Storage'Transportation Warehousing& truc(ing& mail

service& moving& ta#is& buses&hotels& airlines

"#change )etailing& wholesaling& ban(ing&

renting& leasing& librar*& loans

"ntertainment Films& radio and television&concerts& recording

+ommunication ,ewspapers& radio and television

newscasts& telephone& satellites

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1-15 Introduction to Operations Management

$oo Processor$oo Processor

-nputs %rocessing Outputs

)aw egetables +leaning +anned

vegetablesMetal Sheets Ma(ing cans

Water +utting"nerg* +oo(ing/abor %ac(ing0uilding /abeling

"uipment

Table 1.

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1-16 Introduction to Operations Management

Hospital ProcessHospital Process

-nputs %rocessing Outputs

2octors& nurses "#amination 3ealth*

patients3ospital Surger*Medical Supplies Monitoring"uipment Medication/aboratories Therap*

Table 1.

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1-17 Introduction to Operations Management

Prouction of %oos vs& 'eliver# of ServicesProuction of %oos vs& 'eliver# of Services

roduction of goods & tangi!le output Delivery of services & an act

Service 'o! categories

(overnment )holesale*retail

Financial services

+ealthcare ersonal services

,usiness services

$ducation

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1-18 Introduction to Operations Management

Manufacturing vs Service( )e#Manufacturing vs Service( )e#

'i*erences'i*erences

+haracteristic Manufacturing ServiceOutput

+ustomer contact

4niformit* of input

/abor content

4niformit* of output

Measurement of productivit*

Opportunit* to correct

Tangible

/ow

3igh/ow

3igh

"as*3igh

-ntangible

3igh

/ow3igh

/ow

2ifficult/ow

mount of inventor*

ualit* problems3igh

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1-19 Introduction to Operations Management

-he operations function Consists of all activities directly related to

producing goods or providing services

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1-20 Introduction to Operations Management

Responsi+ilities of Operations ManagementResponsi+ilities of Operations Management

%roducts 6 services

%lanning& +apacit*

& /ocation

&

& Ma(e or bu*& /a*out

& %ro7ects

& Scheduling

+ontrolling'-mproving& -nventor*& 8ualit*

Organi9ing& 2egree of centrali9ation

& %rocess selection

Staffing

& 3iring'la*ing off& 4se of Overtime

2irecting& -ncentive plans

& -ssuance of wor( orders& Job assignments

& +osts

& %roductivit*

Table 1.:

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1 21 Introduction to Operations Management

MoelsMoels

model is an abstraction of realit*.

&%h*sical

&Schematic

&Mathematical

!at are t!e pros and cons of models"

Tradeoffs

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1 22 Introduction to Operations Management

The model is an abstract of realit*. That is to sa*& a model presents a

simplified& incomplete version of something& e.g. a child;s to* car is a

model of a real automobile.

Models are sometimes classified as %3

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1 23 Introduction to Operations Management

;enerally easy to use and less expensive than dealing directly with

the actual situation. 'odel requires users to organie and quantify information and in

the process, often indicate areas where additional information is

needed. !rovide systematic approach to problem solving

:nderstanding of problem They enable manage to ask equire users to be very specific about obectives 2erve as a consistent tool for evaluation. 9nable users to bring the power of mathematics to bear on a

problem !rovide a standardied format for analying a problem

'anagers use models in a variety of ways and for a variety of reasons

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1 24 Introduction to Operations Management

8uantitative information ma* be emphasis

at the e#pense of ualitative information. Models ma* be incorrectl* applied and the

results misinterpreted. Ma* be some users are unable to

comprehend the circumstances under

which the model can be successfull*

emplo*ed. Model building can become an end in itself.

LIMITATIO#S

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1 25 Introduction to Operations Management

)e# 'ecisions of Operations Managers)e# 'ecisions of Operations Managers

)hat)hat resources*what amounts

)hen

eeded*scheduled*ordered

)here

)or/ to !e done

+ow

Designed

)ho

-o do the wor/

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p g

'ecision Ma,ing'ecision Ma,ing

S*stem 2esign&capacit*&location

&arrangement of departments

&product and service planning&acuisition and placement of

euipment

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p g

'ecision Ma,ing'ecision Ma,ing

S*stem operation&personnel&inventor*

&scheduling

&pro7ectmanagement

&ualit* assurance

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p g

'ecision Ma,ing'ecision Ma,ing

Models 0uantitative approaches

Analysis of trade1offs

Systems approach

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p g

Moels Are BenecialMoels Are Benecial

$asy to use2 less e3pensive "equire users to organi4e

Systematic approach to pro!lem solving

#ncrease understanding of the pro!lem $na!le 5what if6 questions

Specific o!'ectives

Consistent tool ower of mathematics

Standardi4ed format

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p g

.uantitative Approac/es.uantitative Approac/es

B /inear programming

B 8ueuing Techniues

B -nventor* models

B %ro7ect models

B Statistical models

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p g

S#stems Approac/S#stems Approac/

CThe ho!e is greater thanthe sum o" the parts.D

Suboptimi$ationSuboptimi$ation

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Pareto P/enomenonPareto P/enomenon

B few factors account for a highpercentage of the occurrence of some

event?s@.

B E' )ule G EH of problems are causedb* H of the activities.

%o& do &e identif' t!e vital fe&"

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Hi i l E l i f O i

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Historical Evolution of OperationsHistorical Evolution of OperationsManagementManagement

#ndustrial revolution 7899;s< Scientific management 78=881?