Chapter 1 Introduction to Operations and Competitiveness.

Chapter 1

Introduction to Operations and Competitiveness

Production/Operations management (POM) is concerned with the production of goods, services and information. All business enterprises produce goods, services and information. They try to serve in the satisfaction of human need in one way. So production activities are the foundation of a nation’s economic system.

Copyright 2006 John Wiley & Sons, Inc.1-3

Continuum from Goods to Services

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

Ch 1 - 7© 2000 by Prentice-Hall IncRussell/Taylor Oper Mgt 3/e

Historical Events In POM

• Industrial Revolution• Scientific Management• Human Relations• Management Science• Quality Revolution• Information Age• Globalization

Adam Smith, 18. century

Division of Labor, 21. century

Competitive Market Ruleshttp://www.youtube.com/watch?

v=3p1sW9aIQ-Y


Globalization and Competitiveness (cont.)

Trade with China: Percent of each country‘s trade Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,” International Trade

Statistics 2003, World Trade Organization, www.wto.org


Risks of Globalization

• Cultural differences• Supply chain logistics• Safety, security, and stability• Quality problems• Corporate image • Loss of capabilities

James Watt was the most important person especially beginning the industrial revolution.

Job shop production was organized in Whitney’s gun factory as the method of manufacturing in batches.

Charles Babbage provided us too much contribution for management.

Frederic Taylor is the father of management science.

Henry Ford begun job flow production in manufacturing which are called serialized production systems.

http://www.youtube.com/swf/l.swf?video_id=S4KrIMZpwCY

• Harris gave us some important information about inventory control.

• Shewhart used the statistical theory for Quality Control (QC). Computer and Operations Research (OR) are used for business.

• Deeming and Juran presented us Total Quality Management (TQM).

• Toyota used pull system instead of push system (Just-in-Time JIT).

WHY STUDY PRODUCTION/OPERATIONS MANAGEMENT (POM)?

We study POM for four reasons:a. POM is one of the three major functions of any organisations, and it is integrally related to all the other business functions. All organisations market (sell), finance (account), and produce (operate), and it is important to know how the POM segment functions. Therefore, we study how people organise themselves for productive enterprise.b. We study POM because we want to know how goods and services are produced. The production function is the segment of our society that creates the products we use.


Operations As A Basic Function

MARKETING FINANCE

OPERATIONS


Production&Operations As The Technical Core

Operations

Finance

Capital Markets, Stockholders

Marketing

Customers

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c. We study POM to understand what production/ operations managers do. By understanding what these managers do, you can develop the skills necessary to become such a manager. This will help you explore the numerous and lucrative career opportunities in POM.

d. We study POM because it is such a costly part of an organisation. A large percentage of the revenue of most firms is spent in the POM function. Indeed, POM provides a major opportunity for an organisation to improve its profitability and enhance its service to society.

• The production and operations management is also used to denote the wide scope of application. Production operations management or, more simply, operations management include the service industries as well.

• POM is related with system approach;

Ch 1 - 2

The Operations Function & The Field of Operations management

• Operations as a transformation process• Operations as a basic function• Operations as the technical core OM is defined as the design, operation, & improvement of the

production systems that create the firm’s primary products or services.

OM is fuctional fields of business with clear line manegement responsibilities.

• This point is important because operations management is fruquently confused with Operations Research(OR) & Management Science(MS) and Industrial Engineering(IE). This sitiuation is need to support the application of QM to decision making in all fields.

• OM is related with other business function like Management, Finance, & Accounting and etc.

• Because;– Accountants need to understand the basic of Investment

Management, Capital Uti.&labor standarts to develop accurate cost data, perform audits & prepare financial reports. Cost Accountants in particular must be aware of how JIT and CIM work.

– Finance managers can use investment& capital. Concepts to judge the need for capital investment, to forecast cash flow, & to manage current assests. Make or buy,plant expansion etc.

• Marketing specialists need to understand what operations can do relative to meeting customer due dates, product customization,& new product introduction. So Marketing & Operations Management have overlapping interests.

• Human Resource Managers must know how jobs are designed, relationship between standart & incentive plans, & the types of production skills required of the direct workforce.

• Management Information System (MIS) specialist often install OI systems that they themselves design or that are developed as off-the-shelf software by computer companies. As a major business application of computers in POQC .

• Everybody know that entrepreneurs often fail because they run out of working capital due to poor production planning and inventory management.

Because of all these reason The firm’s Corporate Strategy is based on the corporate mission and in essence reflects how the firm will plans to use all its resources and functions to gain competitive advantage. The Operation Strategy specifies how the firm employ its production capabilities to support its corporate strategy.

Within the operations function, management decisions can be divided into three broad areas: Strategic (long term) decisions , Tactical (intermediate decisions) , Operational planning and control (short-term) decisions.

• We have omitted in the notes the theoretical treatments and have concentrated on providing an easy-to-read, easy-to-understand treatment of the basic POM knowledge. In other words, our aim was to give students a solid understanding of the analytical tools necessary to solve production/operations problems.

• Finaly the purpose of production/operations is to satisfy people’s wants.

• And then we can define; PO System.


Operations As A Transformation Process

OUTPUT

MaterialMachinesLaborManagementCapital

Goods or Services

INPUT Transformationprocess

Feedback

To produce goods and services various form of inputs are brought together in

a transformation system.

WHAT IS PRODUCTION& OPERATIONS SYSTEM

• A production/operations system is a configuration of resources combined for the provision of goods or services.

• A production/operations system is that part of the organization that exists primarily to generate and produce the organization products, i.e. goods or services.

.

• RESOURCES İN PRODUCTİON/OPERATİONS SYSTEMS

• Managers in production and operations functions practice production/operations management. They do not practice behavioural science, quantitative methods or systems analysis, although they utilise these underlying disciplines. Likewise doctors do not practice biology, although they know how to use biological methods. While methodologies are certainly important, they are not essence of POM.

• PO managers are principally concerned with the use of physical resources;

Therefore we shall take a physical view of PO systems and

concentrate on the physical resources used by the system which for convenience will be categorized as follows:

• Materials, i.e. the physical items consumed or converted by the system, e.g. raw materials, fuel, indirect materials.

• Capital, i.e. the physical items equipment and facilities, used by the system, e.g. plant, tools, vehicles, buildings.

• Human Resources, i.e. the people, workers and managers, who provide or contribute to the operation of the system, without which neither machine nor materials are effectively used.


Transformation Processes

• Physical (manufacturing)• Locational (transport/storage)• Exchange (retail)• Physiological (healthcare)• Psychological (entertainment)• Informational (communications)

We know real production problems began to physical production in the industrial revaluation.

For this reason the knowledge about the field is known as production management.

And then service business came in to our life So it has been seen that production management concepts and tools could be easily applied in all types of enterprises.

In 1940 Operations Research Techniques were developed and computer became economical. Computers come along to give managers up-to-the-minute information about markets costs, production levels and inventories.

Machines with linked computers that are responsible for changing them over from one job to another.

Manufacturers began installing logic units in equipment.

Computers are the driving force in the long-wave changeover of manufacturing technology. The grouping of computer-controlled machines and development of industrial robots have now given production systems the flexibility to receive and respond to on line information. With robots, flexible manufacturing can deliver customized products.

Robots and flexible production system are reducing the demand for low skilled direct labor.Offsetting this surplus of untrained workers is the growing need for more technically trained control and maintenance personnel.

Retraining is needed to prepare low-skilled workers for the emerging more sophisticated fields of work. Learning organization is new important concept to manufacturing. Business of the future will be more active involving specialty items (high-tech metals) and advanced information and communications services.

A change in management technology is necessary Because traditional old approach do not provide appropriate support for new kind of manufacturing systems developed often The mid 1980, New manufacturing technology cannot be used without changes in management technology.

By the year 2020, about 85-90 percent of workforce will most likely be engaged in nonmanufacturing activities. Now about 70 percent of world workforce are engaged in service activities . High-technology system (e.g. electronic, fiber optics, laser) will play en major role.

• In the 1940s, nobody have guessed how much manufacturing technology would change by 1990. Using robots, in 1990 factories doubled output-with half as many blue-color workers-to match growth in consumer fueled by sharply lower costs and higher quality.

• We can say some new concepts: • Smart Customer• Smart factories • “Smart Customers interact with smart factories to help design the

goods and services that they want.”

The idea that the customer can use computer to intent out directly with the production process was suggested by Chrysler Coo. in 1960.

Customers in 1990 dial the production process directly on their computerized telephones to set down their design specifications.

For the particular varieties of the company’s product that they desire to purchase.

Companies have invented a variety of competing and co-operative strategies to fit their own unique situations. Some of the competitive approaches are continuous quality improvement, being first bringing new products to market increasing the firm’s value-added and so on.

Competition relentlessly seeks to improve both manufacturing and management.

Technology and telecommunication have been brighten some new approach for business.

Now we can write these two points as follows: 1) Changes in manufacturing technology- the use of information networks by people and computer driven equipment.2) Changes in management technology- the managing of manufacturing technology for example JIT and Kanban, reengineering etc.As in all of these waves of technological change, there are new tactical production concepts and new strategic concepts that must be understood for the strategic production planning.

Because of global changes in business there are five main elements that capture the changing in manufacturing that are taking place.1) There are fewer workers on the line.2) There are fewer supervisors for the line.3) More smart machines.4) More workers engaged in planning systems.5) More workers designing hardware and software.

So it is necessary a manufacturing system that receives all in formation that exists in the company, on-line and immediately. It has decision making competence based on all relevant information. So we can say that to use Computer Integrated Manufacturing (CIM) will be too important for us.


Summarized;Historical Events In POM

Industrial RevolutionSteam engine 1769 James WattDivision of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney

Scientific ManagementPrinciples 1911 Frederick W. TaylorTime / motion study 1911 Frank & Lillian GilbrethActivity scheduling chart 1912 Henry Gant


Human RelationsHawthorne studies 1930 Elton MayoMotivation theories 1940s Abraham Maslow

1950s Frederick Hertzberg1960s Douglas McGregor

Management ScienceLinear programming 1947 George DantzigDigital computer 1951 Remington RandSimulation, PERT/CPM, 1960 Research groupsWaiting line theoryMRP 1960s Joseph Orlicky, IBM


Quality RevolutionJIT 1970s Taiichi Ohno, ToyotaTQM 1980s W. Edwards Deming,

Joseph Juran, et. al.Reengineering 1990s Hammer, Champy

Information AgeEDI, EFT, 1970s NumerousCIM 1980s individuals and

1990s companiesInternet, World Wide Web 1990s Tim Berners-Lee

Components of e-Manufacturing


Product Technology• Computer-aided design (CAD)

• Creates and communicates designs electronically

• Group technology (GT)• Classifies designs into families for easy retrieval and

modification

• Computer-aided engineering (CAE)• Tests functionality of CAD designs electronically

• Collaborative product commerce (CPC)• Facilitates electronic communication and exchange of

information among designers and suppliers


Product Technology• Product data management (PDM)

• Keeps track of design specs and revisions for the life of the product

• Product life cycle management (PLM)• Integrates decisions of those involved in product

development, manufacturing, sales, customer service, recycling, and disposal

• Product configuration• Defines products “configured” by customers who have

selected among various options, usually from a Web site


Process Technology

• Standard for exchange of product model data (STEP)• Set standards for communication among different CAD vendors;

translates CAD data into requirements for automated inspection and manufacture

• Computer-aided design and manufacture (CAD/CAM)• Electronic link between automated design (CAD) and automated

manufacture (CAM)

• Computer aided process (CAPP)• Generates process plans based on database of similar requirements

• E-procurement• Electronic purchasing of items from e-marketplaces, auctions, or

company websites


Manufacturing Technology

• Automatic guided vehicle (AGV)• Driverless trucks that move material along a specified path; directed

by wire or tape embedded in floor or by radio frequencies

• Automated storage and retrieval system (ASRS)• An automated warehouse; items placed in a storage system and

retrieved by fast-moving stacker cranes; controlled by computer

• Process Control• Continuous monitoring of automated equipment; makes real-time

decisions on ongoing operation, maintenance, and quality

• Computer-integrated manufacturing (CIM)• Automated manufacturing systems integrated through computer

technology; also called e-manufacturing


Information Technology• Business – to –Business (B2B)

• E-transactions between businesses usually via the Internet• Business – to –Consumer (B2C)

• E-transactions between businesses and their customers usually via the Internet

• Internet• A global information system of computer networks that facilitates

communication and data transfer• Intranet

• Communication networks internal to an organization; can also be password (i.e., firewall) protected sites on the Internet


Information Technology

• Extranet• Intranets connected to the Internet for shared access with select

suppliers, customers, and trading partners• Bar Codes

• Series of vertical lines printed on packages that identify item and other information

• Radio Frequency Identification tags (RFID) • Integrated circuit embedded in a tag; can send and receive information; a

“twenty-first century bar code” with read/write capabilities

• Electronic data interchange (EDI) • Computer-to-computer exchange of business documents over a proprietary

network; very expensive and inflexible



• Extensible markup language (XML) • A markup language that facilitates computer–to–computer communication

over the Internet by tagging data before its is sent

• Enterprise resource planning (ERP) • Software for managing key functions of an enterprise, including sales,

marketing, finance, accounting, production, materials management & human resources

• Supply chain management (SCM)• Software to manage flow of goods and information among a network of

suppliers, manufacturers and distributors

• Customer relationship management (CRM)• Software to manage interactions with customers; compiling and analyzing

customer data



• Decision support systems (DSS)• Information system to help managers make decisions; includes

quantitative modeling components and interactive components for what-if analysis

• Expert systems (ES)• A computer system that uses the knowledge of experts to diagnose or

solve a problem

• Artificial intelligence (AI)• Field of study replicating elements of human thought and natural

processes in software; includes expert systems, genetic algorithms, neural networks, and fuzzy logic



GlobalizationWorldwide markets

Numerous individuals and operations and companies Supply chain management Electronic commerce

For The 21. Century ; World Class Manufacturing Mass customization

Sutainability Green SCM Green Logistic Carbon Foot Print

World Class Manufacturing in Crysler Videohttp://www.youtube.com/watch?v=BNHT3kStYyM&feature=related


TGW (Things Gone Wrong) In First Eight Months Per 100 Cars

the end of 20 century

Chrysler 285GM 256Ford 214Japanese 132

Toyota 55


Quality Of Semiconductors

U.S.Japan

Defective on delivery 16% 0%

Failure after 1000 hrs 14% 1%


Quality Of Room Air Conditioners

U.S.Japan

Fabrication defects 4.4% <0.1%Assembly line defects 63.5% 0.9%Service calls 10.5% 0.6%Warranty cost 2.2% 0.6%

(% of sales)


Quality Of Color TVs

U.S.Japan

Assembly defects 1.4 0.01Service calls 1.0 0.09

(per set)


Globalization will offer us :

• Take advantage of favorable costs• Gain access to foreign markets• Reduced trade barriers• Changing markets


Copyright 2006 John Wiley & Sons, Inc.Copyright 2006 John Wiley & Sons, Inc. 1-1-6161

Hourly Wage RatesHourly Wage Rates

Hourly Wage Rates for Selected CountriesSource: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.

Germany: $26.18Germany: $26.18

USA: $21.33USA: $21.33

Taiwan: $5.41Taiwan: $5.41

Mexico: $2.38Mexico: $2.38

China: $0.50China: $0.50


Growth in Volume of World Trade

World Trade Compared to World GDPSource: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization, www.wto.org


Impact of Trade Agreements


Risks In Globalization

• Weak infrastructure• Distinct languages, customs, trade barriers• Inefficient distribution channels• Instability of governments• Poor economic conditions


In this case we can define Competitiveness ;

The degree to which a nation, can, under demanding and rapidly changing market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens.


Measures Of Competitiveness

• Gross domestic product (GDP)• Import/export ratio• Productivity = output / input


Productivity Increases When Firms

• Become more efficient• Downsize• Expand• Retrench • Achieve breakthroughs


Productivity Rates

Internet-enabled productivityInternet-enabled productivity

- Dot com bust- 9/11 terrorist attacks- Dot com bust- 9/11 terrorist attacks

Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004


Changes In Input and Output

. .

Productivity as a Function of Inputs and Outputs, 2001–2002Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003

Breakthrough Performance

Breakthrough Performance

More EfficientMore Efficient

RetrenchRetrench


Competitive Industries

• Relatively equal in size and resources

• Standardized products and services

• Slow or exponential growth


Measuring Competitiveness

• Number of major players

• Average market share

• Average profit margin


Barriers To Entry

• Economies of scale• Capital investment• Access to supply and distribution channels• Learning curves

• It seems that flexible manufacturing or World Class Manufacturing (WCM) created the need for top management that was oriented towards putting it all together with the systems viewpoint. We know, some enterprises is related with one or two or more business activities.

On the other hand production activities are related with all of them. Finally production/operations management is the study of the principles and quantitative and qualitative tools of decision making in periodic tasks of selecting, designing and updating a productive system and continual tasks of operating controlling and maintaining it.


Issues & Trends In Operations

1. Intense competition2. Global markets, global sourcing,

and global financing3. Importance of strategy4. Product variety and mass customization5. More services


Issues & Trends In Operations

6. Emphasis on quality7. Flexibility8. Advances in technology9. Worker involvement10. Environmental and ethical concerns

Ch 1 - 31©2000 by Prentice-Hall IncRussell/Taylor Oper Mgt 3/e

Primary Topics In Operations Management

• Deploying strategy• Assuring quality• Designing products & services• Planning the production process• Laying out the facility


Primary Topics In Operations Management

• Designing jobs & work• Managing the supply chain• Forecasting demand for products & services• Production planning & scheduling


Organization Of Book

Strategy of productive systems

Designing productive systems

Operating Productive systems


Strategy Of Productive Systems(Some topics for Term Research Project)

1. Introduction to Operations & competitiveness2. Operations strategy3. Forecasting4. Product & Services Design

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Designing Productive Systems

5.Stratrgic Capacity Plannig- Decision Theory6. Process planning, analysis and reengineering7. Facility layout- Lineer programming, Assignment Models8.Location Planning & Controll- Transportation Models9. Supply chain management


Operating Productive Systems

10. Inventory management11. Materials requirements planning12. Quality Control- Total Quality Management13. Just-in-time systems14. Statistical Quality Control15. Project management


Purpose Of Text• Gain an appreciation of the strategic importance of

operations and how operations can provide a competitive advantage in the marketplace

• Understand the relationship between operations and other business functions

• Develop a working knowledge of the concepts and methods related to designing and managing operations

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Chapter 1 Introduction to Operations and Competitiveness.

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