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Introduction to Operations Management

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. 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 managers job

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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

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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 Nations ability to compete internationally

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The OrganizationFigure 1.1

The Three Basic FunctionsOrganization

Finance

Operations

Marketing

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Value-Added ProcessFigure 1.2

The operations function involves the conversion of inputs into outputsValue addedInputs Land Labor Capital Transformation/ Conversion processFeedback

Outputs Goods Services

ControlFeedback Feedback

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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.

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The GoodsService ContinuumFigure 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

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Food ProcessorTable 1.2

InputsRaw vegetables Metal sheets Water Energy Labor Building Equipment

ProcessingCleaning Making cans Cutting Cooking Packing Labeling

OutputsCanned vegetables

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HospitalTable 1.2

InputsDoctors, nurses Hospital Medical supplies Equipment Laboratories

ProcessingExamination Surgery Monitoring Medication Therapy

OutputsTreated patients

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Manufacturing or Service?

Tangible

Act

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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 Education1-12

Key Differences1. 2. 3. 4. 5. Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity

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Key Differences6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

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Table 1.3

Goods vs. ServiceGoodsLow

CharacteristicCustomer contact

ServiceHigh

Uniformity of input Labor content Uniformity of outputOutput Measurement of productivity Opportunity to correct problems

High Low HighTangible Easy High

Low High LowIntangible Difficult Low

Inventory Evaluation Patentable

Much Easier Usually

Little Difficult Not usually1-15

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 . . .1-16

Types of OperationsTable 1.4

OperationsGoods Producing

Examples

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, satellites1-17

Figure 1.4a

U.S. Manufacturing vs. Service EmploymentYear Mfg. Service 45 79 21 90 Mfg. 50 72 28 80 Service 55 72 28 70 60 68 32 60 65 64 36 50 70 64 36 40 75 58 42 30 80 44 46 20 85 43 57 10 90 35 65 0 95 25 75 45 50 55 60 65 70 75 80 85 90 95 00 02 05 00 30 70 Year 25 75

02

Percent

Figure 1.4bSingapore Manufacturing vs. Service Employment90 80 70 60 50 40 30 20 10 0 97 98 99 00 01 02 03 04 05 06 07 Services Manufacturing

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Decline in Manufacturing Jobs Productivity

Increasing productivity allows companies to maintain or increase their output using fewer workers Some manufacturing work has been outsourced to more productive companies

Outsourcing

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Challenges of Managing Services Service jobs are often less structured than manufacturing jobs Customer contact is higher Worker skill levels are lower Services hire many low-skill, entry-level workers Employee turnover is higher Input variability is higher Service performance can be affected by workers personal factors

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Operations Management Decision Making Models Quantitative approaches Performance metrics Analysis of trade-offs Systems approach Establishing priorities Ethics

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Key Decisions of Operations Managers WhatWhat resources/what amounts

WhenNeeded/scheduled/ordered

WhereWork to be done

HowDesigned

WhoTo do the work1-23

Decision MakingSystem Design capacity location arrangement of departments product and service planning acquisition and placement of equipment

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Decision MakingSystem operation personnel inventory scheduling project management quality assurance

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Decision Making Models Quantitative approaches Performance metrics Analysis of trade-offs Systems approach Establishing priorities Ethics

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ModelsA model is an abstraction of reality. Physical Schematic Mathematical

Tradeoffs

What are the pros and cons of models?

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Models Are Beneficial Easy to use, less expensive Require users to organize Increase understanding of the problem Enable what if questions Consistent tool for evaluation and standardized format Power of mathematics

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Limitations of Models Quantitative information may be emphasized over qualitative Models may be incorrectly applied and results misinterpreted Nonqualified users may not comprehend the rules on how to use the model Use of models does not guarantee good decisions

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Quantitative Approaches Linear programming

Queuing techniques Inventory models

Project models Statistical models

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Analysis of Trade-Offs Decision on the amount of inventory to stock

Increased cost of holding inventory

vs.

Level of customer service

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Systems ApproachThe whole is greater than the sum of the parts.

Suboptimization

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Pareto Phenomenon A few factors account for a high percentage of the occurrence of some event(s). 8020 Rule: 80% of problems are caused by 20% of the activities.

How do we identify the vital few?

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Ethical Issues Financial statements Worker safety Product safety Quality Environment Community Hiring/firing workers Closing facilities Workers rights1-34

Business Operations OverlapFigure 1.5

Operations

Finance

Marketing

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Operations InterfacesFigure 1.6Legal Public Relations

Accounting

OperationsPersonnel/ Human resources MIS

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Historical Summary of Operations Management Industrial revolution (1770s) Scientific management (1911)

Mass production Interchangeable parts Division of labor

Human relations movement (192060) Decision models (1915, 196070s) Influence of Japanese manufacturers1-37

Trends in Business Major trends

The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior

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Management Technology Technology: The application of scientific discoveries to the development and improvement of goods and services Product and service technology Process technology Information technology

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Simple Product Supply ChainFigure 1.7 Suppliers Suppliers Direct Suppliers

Producer

Distributor

Final Consumer

Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

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A Supply Chain for BreadStage of ProductionFarmer produces and harvests wheatWheat transported to mill Mill produces flour Flour transported to baker

Value Added$0.15$0.08 $0.15 $0.08

Value of Product$0.25$0.33 $0.48 $0.56

Baker produces breadBread transported to grocery store Grocery store displays and sells bread Total Value-Added

$0.54$0.08 $0.21 $1.29

$1.00$1.08 $1.29

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Other Important Trends Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production

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