Chapter 1

Introduction

John Butler

Ph.D. University of Texas Previously at Ohio State Office

GWI 550 jbutler5@tulane.edu 865-5442

Office Hours Tuesday & Thursday 2:00 – 3:00 pm By appointment

Operations Management (OM)

The design, operation, and improvement of the systems that create and deliver the firm’s primary products and services The “M” is important

Not just tools or engineering We’re talking about decisions

Strategic (long term) Tactical (intermediate) Operational (short term)

Why bother? Lloyd

Part of Business Education

Cross Functional Applications

Systematic View of Organizational Processes

Job Opportunities

Key Terms

Efficiency Do it with the least number of

resources Effectiveness

Do it right Maximize value to the firm

Tradeoff?

Value Quality / Price How can we increase value?

Managing the Value Chain

Transformation Process

A use of resources to transform inputs into desired outputs Physical - manufacturing Locational – transportation Exchange – retailing Storage – warehousing Physiological – health care Informational – telecommunications

Example : Tulane

Tulane

Resources•Teachers•Books•Classrooms

TransformationProcess•Impart knowledge & skills

Inputs

HighSchoolGrads

Outputs

EducatedIndividuals

Goods & Services

Tangible vs. Intangible Services rely on interaction with

customer to produce McDonalds makes “stuff” but is

classified in service industry Customers are on the shop floor

Shades of gray

Where Do We “Operate”?

Manufacturing Typically group operations in one

department Vertical

Service Firm Operations scattered throughout firm Bank, Airlines Horizontal

OperationsOperations

Plant Manager

Plant Manager

OperationsManager

OperationsManager

DirectorDirector

Finance MarketingOperationsOperations

Plant Manager

Plant Manager

OperationsManager

OperationsManager

DirectorDirector

Finance MarketingFinance Marketing

Operations as Service

Every company is really in the service business Core services

basic things that customers want from products they purchase

Value-added services differentiate the organization from

competitors build relationships that bind customers to

the firm in a positive way

Core Services

Traditional OM performance measures Quality Flexibility Speed Price (Cost reduction)

Value-added Services

Information Support internal or external group

Problem Solving Support internal or external group

Sales Support Helping marketing close the deal

Field Support Fix items or replenish inventory

OM’s Role in A Company

Not perceived as glamorous Many C-level execs are not OM literate

But … Operations account for 60-80% of the

direct expenses that burden a firm’s profit

Synergies must exist with other functional areas of the organization for firm to succeed

1ST Industrial Revolution

1776: US Democracy, Law & Culture Adam Smith: Wealth of Nations James Watt: 1st Steam Engine Sold

Automation 1790: First Advanced Textile Mill 1801: Eli Whitney

Interchangeable Parts England becomes the 1st industrial

nation.

OM History: 2nd Industrial Revolution

1840+ Use of Coal Iron Mfg. Mass Production/ Distribution /

Communication Railroad

Evolution of Managers, Accounting Standards

Scientific Management: Frederick Tayor, Henry Ganntt

Steel, Andrew Carnegie & Scale

I believe the true road to preeminent success in any line is to make yourself master in that line

Focus: Details/Steel Horizontal/Vertical Integration

The Model-T, Henry Ford & Speed

1908: Moving Assembly Line work specialization

Labor time/car from 12.5 to 1.5 hours, price from $850 to $290

Post WWII

Multidisciplinary team approach to complex problems: Dupont: a centrally governed multi-

departmental structure for effective integration

GM: Alfred Sloan reorganizes GM into a multi-divisional, decentralized structure; effective market segmentation, demand forecasting & inventory tracking

market share increase

New Practices in OM

JIT/Lean Manufacturing Manufacturing Strategy Paradigm

Use as a strategic lever TQM Business Process Reengineering Supply Chain Management E-commerce

Going Forward

Effectively consolidating the operations resulting from mergers

Developing flexible supply chains to enable mass customization of products and services

Managing global supplier, production and distribution networks

Increased “commoditization” of suppliers Make efficient use of Internet technology