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Operations and CompetitivenessOperations Management - 5thEdition
Chapter 1
Roberta Russell & Bernard W. Taylor, III
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Lecture outline
What do operations managers do?
Operations function
Evolution of operations management Operations management and ebusiness
Globalization and competitiveness
Primary topics in operations management
Learning objectives for this course
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What Do OperationsManagers Do?
What is operations? a function or system that transforms inputs into
outputs of greater value
What is a transformation process? a series of activities along a value chain
extending from supplier to customer
activities that do not add value are superfluous
and should be eliminated What is operations management?
design, operation, and improvement ofproductive systems
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Transformation Process
Physical: as in manufacturing operations
Locational: as in transportation
operations Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment Informational: as in communication
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INPUTMaterial
MachinesLaborManagement
Capital
TRANSFORMATIONPROCESS
OUTPUT
GoodsServices
Feedback
Operations as aTransformation Process
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Operations Function
Operations
Marketing
Finance
andaccounting
Humanresources
Outsidesuppliers
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How is operations relevant to mymajor?
Accounting
InformationTechnology
Management
As an auditor you must
understand the fundamentals ofoperations management.
IT is a tool, and theres no betterplace to apply it than inoperations.
We use so many things you
learn in an operations classscheduling, lean production,theory of constraints, and tons ofquality tools.
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How is operations relevant to mymajor?
Economics
Marketing
Finance
Its all about processes. Ilive by flowcharts andPareto analysis.
How can you do a goodjob marketing a product ifyoure unsure of its qualityor delivery status?
Most of our capitalbudgeting requests arefrom operations, and mostof our cost savings, too.
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Evolution of OperationsManagement
Craft production
process of handcrafting products orservices for individual customers
Division of labor dividing a job into a series of small tasks
each performed by a different worker
Interchangeable parts
standardization of parts initially asreplacement parts; enabled massproduction
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Scientific management systematic analysis of work methods
Mass production high-volume production of a
standardized product for a massmarket
Lean production adaptation of mass production that
prizes quality and flexibility
Evolution of OperationsManagement (cont.)
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Historical Events inOperations Management
Era Events/Concepts Dates Originator
Industrial
Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney
ScientificManagement
Principles of scientific
management1911 Frederick W. Taylor
Time and motion studies 1911Frank and Lillian
GilbrethActivity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford
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Historical Events inOperations Management
(cont.)Era Events/Concepts Dates Originator
HumanRelations
Hawthorne studies 1930 Elton Mayo
Motivation theories 1940s Abraham Maslow1950s Frederick Herzberg
1960s Douglas McGregor
OperationsResearch
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waitingline theory, decision
theory, PERT/CPM
1950sOperations researchgroups
MRP, EDI, EFT, CIM1960s,1970s
Joseph Orlicky, IBM
and others
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Historical Events inOperations Management
(cont.)
Era Events/Concepts Dates Originator
Quality
Revolution
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total qualitymanagement)
1980s W. Edwards Deming,Joseph Juran
Strategy and
operations1990s
Wickham Skinner,
Robert HayesBusiness process
reengineering 1990s
Michael Hammer,
James Champy
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Historical Events in OperationsManagement (cont.)
Era Events/Concepts Dates OriginatorGlobalization WTO, European Union,
and other tradeagreements
1990s
2000s
Numerous countries
and companies
InternetRevolution
Internet, WWW, ERP,supply chainmanagement
1990s ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE,PeopleSoft
E-commerce 2000s Amazon, Yahoo,
eBay, and others
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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.
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Operations Managementand E-Business
Categories of E-Commerce
Business
Consumer
Business Consumer
B2BCommerceone.com
B2C
Amazon.com
C2BPriceline.com
C2CeBay.com
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An Integrated Value Chain
Value chain: set of activities that create anddeliver products to customer
Manufacturer SupplierCustomer
Flow of information (customer order)
Manufacturer SupplierCustomer
Flow of information (customer order)
Flow of product (order fulfillment)
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Impact of E-Business onOperations Management
Comparison shopping
by customers
Direct contact withcustomers
Business processesconducted online
Customer expectations escalate;
quality must be maintained andcosts lowered
No more guessing about demandis necessary; inventory costs godown; product and service designimproves; build to-order products
and services is made possible Transaction costs are lower;
customer support costs decrease;e-procurement saves big bucks
Benefits of E-Business Impact on Operations
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Impact of E-Business onOperations Management (cont.)
Access to customers
worldwide
Middlemen areeliminated
Access to suppliersworldwide
Demand increases; order fulfillment
and logistics become major issues;production moves overseas
Logistics change from delivering to astore or distribution center todelivering to individual homes;consumer demand is more erratic and
unpredictable than business demand Outsourcing increases; more alliances
and partnerships among firms areformed; supply is less certain; globalsupply chain issues arise
Benefits of E-Business Impact on Operations
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Impact of E-Business onOperations Management (cont.)
Online auctions and e-
marketplaces
Better and fasterdecision making
Competitive bidding lowers cost
of materials; supply needs can befound in one location
More timely information isavailable with immediate accessby all stakeholders in decision-making process; customer orders
and product designs can beclarified electronically; electronicmeetings can be held;collaborative planning isfacilitated
Benefits of E-Business Impact on Operations
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Impact of E-Business onOperations Management (cont.)
IT synergy
Expanded supplychains
Productivity increases as
information can be shared moreefficiently internally andbetween trading partners
Order fulfillment, logistics,warehousing, transportation anddelivery become focus of
operations management; risk isspread out; trade barriers fall
Benefits of E-Business Impact on Operations
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Globalization andCompetitiveness
Favorable cost
Access to internationalmarkets
Response to changesin demand
Reliable sources ofsupply
14 major tradeagreements in 1990s
Peak: 26% in 2000World Trade Compared to World GDPSource:Real GDP and Trade Growth of OECD Countries, 200103, International Trade Statistics 2003, World Trade Organization,
www.wto.org
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Globalization andCompetitiveness (cont.)
Hourly Wage Rates for Selected CountriesSource:International Comparisons of Hourly Compensation Costs for Production Workers inManufacturing, Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.
Germany: $26.18
USA: $21.33
Taiwan: $5.41
Mexico: $2.38
China: $0.50
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Globalization andCompetitiveness (cont.)
Trade with China: Percent of each countrys 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
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Risks of Globalization
Cultural differences
Supply chain logistics
Safety, security, andstability
Quality problems
Corporate image
Loss of capabilities
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Competitiveness andProductivity Competitiveness
degree to which a nation can produce goods andservices that meet the test of international markets
Productivity ratio of output to input
Output sales made, products produced, customers served,
meals delivered, or calls answered Input
labor hours, investment in equipment, materialusage, or square footage
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Measures of Productivity
Competitiveness andProductivity (cont.)
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Changes in Productivity forSelect Countries
Internet-enabledproductivity
- Dot com bust- 9/11 terrorist attacks
Source:International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau of LaborStatistics, U.S. Department of Labor, September 2003. U.S. figures for 20022003 from Major Sector Productivity andCosts Index, Bureau of Labor Statistics, U.S. Department of Labor, March 2004
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Become efficient output increases with little or no increase in input
Expand both output and input grow with output growingmore rapidly
Achieve breakthroughs output increases while input decreases
Downsize
output remains the same and input is reduced Retrench
both output and input decrease, with inputdecreasing at a faster rate
Productivity Increase
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Competitiveness andProductivity
Productivity as a Function of Inputs and Outputs, 20012002Source:International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau of LaborStatistics, U.S. Department of Labor, September 2003
BreakthroughPerformance
More Efficient
Retrench
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Global Competitiveness Ranking
1. Finland2. United States3. Sweden
4. Denmark5. Taiwan6. Singapore7. Switzerland
8. Iceland9. Norway10.Australia
Source: Global Competitiveness Report20032004, World Economic Forum,January 2004, www.weforum.org
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OperationsOriented Barriersto Entry
Economies of Scale
Capital Investment
Access to Supply and DistributionChannels
Learning Curve
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Primary Topics inOperations Management
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Primary Topics in OperationsManagement (cont.)
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Operations Strategy
Strategy: Chapter 2 Maintaining an operations strategy to support firms
competitive advantage
Quality: Chapters 3 and 4 Focusing on quality in operational decision making
Product and Services: Chapter 5 Designing quality products and services
Processes, Technologies, and Capacity:Chapter 6 Setting up process so that it works smoothly and
efficiently
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Operations Strategy (cont.)
Facilities: Chapter 7
Setting up facility so that it works smoothlyand efficiently
Human Resources: Chapter 8
Designing jobs and work to produce qualityproducts
Project Management: Chapter 9
Managing complex projects
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Supply Chain Management
Supply Chain: Chapter 10 Managing supply chain
Forecasting: Chapter 11 Predicting customer demand
Aggregate Planning: Chapter 12 How much to produce and when to produce
it Inventory Management: Chapter 13
How much to order and when to order
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Supply Chain Management(cont.) Resource Planning: Chapter 14
Planning capacity and other resources
Lean Production: Chapter 15 Designing efficient production lines
Scheduling: Chapter 16 Job and task assignments
Waiting Lines: Chapter 17 Minimizing waiting time of customers and
products
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Learning Objectives of thisCourse Gain an appreciation of strategic importance of
operations in a global business environment
Understand how operations relates to other
business functions Develop a working knowledge of concepts and
methods related to designing and managingoperations
Develop a skill set for quality and processimprovement