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Operations Operations ManagementManagement

IntroductionIntroductionChapter 1 Chapter 1

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OutlineOutline WHAT IS OPERATIONS MANAGEMENT?

ORGANIZING TO PRODUCE GOODS AND SERVICES

WHY STUDY OM?

WHAT OPERATIONS MANAGERS DO

WHERE ARE THE OM JOBS?

OPERATIONS IN THE SERVICE SECTOR

EXCITING NEW TRENDS IN OPERATIONS MANAGEMENT

THE PRODUCTIVITY ISSSUE

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Learning ObjectivesLearning ObjectivesWhen you complete this chapter, you should be able to :

Identify or Define: Production and productivity Operations Management (OM) What operations managers do Services

Describe or Explain: Career opportunities in operations management The future of the discipline Measuring productivity

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What Is Operations Management?What Is Operations Management?

Production is the creation of goods and services

Operations management is the set of activities that creates value in the form of goods and services by transforming inputs into outputs

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Significant Events in OMSignificant Events in OM Division of labor (Smith, 1776) Standardized parts (Whitney, 1800) Scientific management (Taylor, 1881) Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916) Motion study (the Gilbreths, 1922) Quality control (Shewhart, 1924)

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Significant Events - ContinuedSignificant Events - Continued CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD Flexible manufacturing systems (FMS) Manufacturing automation protocol (MAP) Computer integrated manufacturing (CIM) Enterprise Resource Planning (ERP) Customer Relations Management (CRM)

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The Economic System The Economic System Transforms Inputs to OutputsTransforms Inputs to Outputs

The economic system transforms inputs to outputs at about an annual 2.5% increase in productivity (capital 38% of 2.5%), labor (10% of 2.5%), management (52% of 2.5%)

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

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Characteristics of GoodsCharacteristics of Goods Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction © 1995 Corel Corp.

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Characteristics of ServiceCharacteristics of Service Intangible product Produced & consumed at

same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed

© 1995 Corel Corp.

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Goods Versus ServicesGoods Versus Services

Can be resold Can be inventoried

Some aspects of quality measurable

Selling is distinct from production

Reselling unusual Difficult to

inventory Quality difficult to

measure Selling is part of

service

GoodsGoods ServiceService

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Goods Versus Services - Goods Versus Services - ContinuedContinued

Product is transportable

Site of facility important for cost

Often easy to automate

Revenue generated primarily from tangible product

Provider, not product is transportable

Site of facility important for customer contact

Often difficult to automate

Revenue generated primarily from intangible service.

GoodsGoods ServiceService GoodsGoods ServiceService

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Organizing to Produce Goods and Organizing to Produce Goods and ServicesServices

Essential functions: Marketing – generates demand Operations –creates the product Finance/accounting – tracks organizational

performance, pays bills, collects money

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Functions - BankFunctions - Bank

Operations Finance/Accounting

Marketing

CheckClearing

TellerScheduling

Transactions

ProcessingSecurity

Commercial Bank© 1984-1994 T/Maker Co.

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Functions - ManufacturerFunctions - Manufacturer

Operations Finance/Accounting

Marketing

ProductionControl

Manufacturing QualityControl

Purchasing

Manufacturing

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Organizational ChartsOrganizational Charts

Commercial Bank

OperationsTeller SchedulingCheck ClearingTransactions processingFacilities design/layoutVault operationsMaintenanceSecurity

FinanceInvestmentsSecurityReal Estate

Accounting

Auditing

MarketingLoans Commercial Industrial Financial Personal Mortgage

Trust Department

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Organizational ChartsOrganizational ChartsManufacturing

OperationsFacilities: Construction:maintenanceProduction & inventory control Scheduling: materials control

Supply-chain managementManufacturing Tooling, fabrication,assemblyDesign Product development and design Detailed product specificationsIndustrial engineering Efficient use of machines, space, and personnelProcess analysis Development and installation of production tools and equipment

Finance & AccountingDisbursements/credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issues and recall

MarketingSales promotionsAdvertisingSalesMarket research

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Why Study OM?Why Study OM?

OM is one of three major functions (marketing, finance, and operations) of any organization.

We want (and need) to know how goods and services are produced.

We want to understand what operations managers do.

OM is such a costly part of an organization.

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What Operations Managers DoWhat Operations Managers Do

Plan - Organize - Staff - Lead - Control

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Where Are the OM Jobs?Where Are the OM Jobs? Technology/methods Facilities/space utilization Strategic issues Response time People/team development Customer service Quality Cost reduction Inventory reduction Productivity improvement

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Measure of process improvement Represents output relative to input

Only through productivity increases can our standard of living improve

ProductivityProductivity

ProductivityProductivityProductivityProductivity UnitsUnits producedproducedUnitsUnits producedproducedInput usedInput usedInput usedInput used= = = =

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Multi-Product Productivity Multi-Product Productivity

Productivity =

Output

Labor + material + energy + capital + misc

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Measurement ProblemsMeasurement Problems

Quality may change while the quantity of inputs and outputs remains constant

External elements may cause an increase or decrease in productivity

Precise units of measure may be lacking

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Productivity VariablesProductivity Variables

Labor - contributes about 10% of the annual increase

Capital - contributes about 32% of the annual increase

Management - contributes about 52% of the annual increase

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Key Variables for Improved Labor Key Variables for Improved Labor ProductivityProductivity

Basic education appropriate for the labor force

Diet of the labor force Social overhead that makes labor available Maintaining and enhancing skills in the midst

of rapidly changing technology and knowledge

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Service ProductivityService Productivity

Typically labor intensive Frequently individually processed Often an intellectual task performed by

professionals Often difficult to mechanize Often difficult to evaluate for quality

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New Challenges in OMNew Challenges in OM

Local or national focus Batch shipments Low bid purchasing

Lengthy product development

Standard products Job specialization

Global focus Just-in-time Supply chain

partnering Rapid product

development, alliances

Mass customization Empowered

employees, teams

FromFrom ToTo

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Changing Challenges for the Changing Challenges for the Operations ManagerOperations Manager

Past Causes Future Local or national focus

Low-cost, reliable worldwide communication and transportation networks

Global Focus

Batch (large) shipments

Cost of capital puts pressure on reducing investment in inventory

Just-in-time shipments

Low-bid purchasing

Quality emphasis requires that suppliers be engaged in product improvement

Supply-chain partners

Lengthy product development

Shorter life cycles, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs

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Changing Challenges for the Changing Challenges for the Operations ManagerOperations Manager

Past Causes Future Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization

Job specialization

Changing sociocultural milieu. Increasingly a knowledge and information society.

Empowered employees, teams, and lean production

Low cost focus

Environmental issues, ISO 14000, increasing disposal costs

Environmentally sensitive production, Green manufacturing, recycled materials, remanufacturing