Operations Management
OverviewOverview Introduction Historical Milestones in OM Factors Affecting OM Today Different Ways of Studying
OM
IntroductionIntroduction Operations management is the
management of an organization’s productive resources or its production system.
A production system takes inputs and converts them into outputs.
The conversion process is the predominant activity of a production system.
The primary concern of an operations manager is the activities of the conversion process.
Organizational ModelOrganizational Model
Marketing
MISEngineering
HRM
QA
Accounting
SalesFinance
OM
Entry-Level Jobs in OMEntry-Level Jobs in OM Purchasing planner/buyer Production (or operations)
supervisor Production (or operations)
scheduler/controller Production (or operations) analyst Inventory analyst Quality specialist
Historical Milestones in OMHistorical Milestones in OM The Industrial Revolution Post-Civil War Period Scientific Management Human Relations and
Behaviorism Operations Research The Service Revolution
The Industrial RevolutionThe Industrial Revolution The industrial revolution developed in
England in the 1700s. The steam engine, invented by James Watt
in 1764, largely replaced human and water power for factories.
Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor.
Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers.
The Industrial RevolutionThe Industrial Revolution The industrial revolution spread from England to
other European countries and to the United Sates. In 1790 an American, Eli Whitney, developed the
concept of interchangeable parts. The first great industry in the US was the textile
industry. In the 1800s the development of the gasoline engine
and electricity further advanced the revolution. By the mid-1800s, the old cottage system of
production had been replaced by the factory system. . . . more
Post-Civil War PeriodPost-Civil War Period During the post-Civil War period great
expansion of production capacity occurred.
By post-Civil War the following developments set the stage for the great production explosion of the 20th century: increased capital and production capacity the expanded urban workforce new Western US markets an effective national transportation system
Scientific ManagementScientific Management Frederick Taylor is known as the father of
scientific management. His shop system employed these steps: Each worker’s skill, strength, and learning ability
were determined. Stopwatch studies were conducted to precisely set
standard output per worker on each task. Material specifications, work methods, and
routing sequences were used to organize the shop. Supervisors were carefully selected and trained. Incentive pay systems were initiated.
Scientific ManagementScientific Management In the 1920s, Ford Motor Company’s
operation embodied the key elements of scientific management: standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts
Human Relations and BehavioralismHuman Relations and Behavioralism
In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production.
Researchers and managers alike were recognizing that psychological and sociological factors affected production.
From the work of behavioralists came a gradual change in the way managers thought about and treated workers.
Operations ResearchOperations Research During World War II, enormous quantities of
resources (personnel, supplies, equipment, …) had to be deployed.
Military operations research (OR) teams were formed to deal with the complexity of the deployment.
After the war, operations researchers found their way back to universities, industry, government, and consulting firms.
OR helps operations managers make decisions when problems are complex and wrong decisions are costly.
The Service RevolutionThe Service Revolution The creation of services organizations
accelerated sharply after World War II. Today, more than two-thirds of the US workforce
is employed in services. About two-thirds of the US GDP is from services. There is a huge trade surplus in services. Investment per office worker now exceeds the
investment per factory worker. Thus there is a growing need for service
operations management.
The Computer RevolutionThe Computer Revolution Explosive growth of computer and
communication technologies Easy access to information and the availability of
more information Advances in software applications such as
Enterprise Resource Planning (ERP) software Widespread use of email More and more firms becoming involved in E-
Business using the Internet Result: faster, better decisions over greater
distances
Today's Factors Affecting OMToday's Factors Affecting OM
Global Competition Quality, Customer Service, and Cost
Challenges Rapid Expansion of Advanced
Technologies Continued Growth of the Service Sector Scarcity of Operations Resources Social-Responsibility Issues
Studying Operations Management
Studying Operations Management
Operations as a System
Decision Making in OM
Operations as a SystemOperations as a System
InputsInputs OutputsOutputsConversionSubsystemConversionSubsystem
Production System
ControlSubsystem
ControlSubsystem
Inputs of an Operations System
Inputs of an Operations System
External Legal, Economic, Social,
Technological Market
Competition, Customer Desires, Product Info.
Primary Resources Materials, Personnel, Capital, Utilities
Conversion SubsystemConversion Subsystem Physical (Manufacturing) Locational Services
(Transportation) Exchange Services (Retailing) Storage Services (Warehousing) Other Private Services
(Insurance) Government Services (Federal)
Outputs of an Operations SystemOutputs of an Operations System
Direct Products Services
Indirect Waste Pollution Technological Advances
Production as an Organization FunctionProduction as an Organization Function
Companies cannot compete with marketing, finance, accounting, and engineering alone.
We focus on OM as we think of global competitiveness, because that is where the vast majority of a firm’s workers, capital assets, and expenses reside.
To succeed, a firm must have a strong operations function teaming with the other organization functions.
Decision Making in OMDecision Making in OM
Strategic DecisionsOperating DecisionsControl Decisions
Strategic DecisionsStrategic Decisions These decisions are of strategic
importance and have long-term significance for the organization.
Examples include deciding: the design for a new product’s production
process where to locate a new factory whether to launch a new-product
development plan
Operating DecisionsOperating Decisions These decisions are necessary if the
ongoing production of goods and services is to satisfy market demands and provide profits.
Examples include deciding: how much finished-goods inventory to carry the amount of overtime to use next week the details for purchasing raw material next
month
Control DecisionsControl Decisions These decisions concern the day-to-day
activities of workers, quality of products and services, production and overhead costs, and machine maintenance.
Examples include deciding: labor cost standards for a new product frequency of preventive maintenance new quality control acceptance criteria
What Controls the Operations System?What Controls the Operations System?
Information about the outputs, the conversions, and the inputs is fed back to management.
This information is matched with management’s expectations
When there is a difference, management must take corrective action to maintain control of the system
IMPORTANCE OF OM FOR CONSUMERS
IMPORTANCE OF OM FOR CONSUMERS
Benefits of Higher Productivity
Better and Reliability Quality
Reasonable Price
Satisfactory Service
Timely and Speedy delivery of Goods / Services
IMPORTANCE OF OM FOR INVESTORS
IMPORTANCE OF OM FOR INVESTORS
Prosperity of Enterprise
Higher Return on Investment
Capital Appreciation
Market Value of Securities Governed by Earning Power and Asset Value of Enterprise
IMPORTANCE OF OM FOR COMMUNITY
IMPORTANCE OF OM FOR COMMUNITY
Economic and Social Stability
Citizens of Community have Both Pride and Satisfaction
IMPORTANCE OF OM FOR SUPPLIERS
IMPORTANCE OF OM FOR SUPPLIERS
Effective Cooperation
Best Intercommunication and Mutual Confidence Between Business Buyers and Suppliers
Satisfaction of Enduring Partnership Between Enterprise and Suppliers
IMPORTANCE OF OM FOR EMPLOYEES
IMPORTANCE OF OM FOR EMPLOYEES
Better Remuneration
Stable Employment
Security of Job
Better Working Conditions
Enhanced Personal Satisfaction Through Sense of Achievement
Productivity and Satisfaction are Closely Linked
IMPORTANCE OF OM FOR THE NATION
IMPORTANCE OF OM FOR THE NATION
Good Operations Management Leads Higher Economy
Sense of Pride Among the Nations
Higher GDP Growth Rate
National Prosperity
SCOPE OF OPERATIONS MANAGEMENT
SCOPE OF OPERATIONS MANAGEMENT
OM not Confined to Management of Plant Level Manufacturing Practices
OM Calls for Inter-related Actions Covering all Operational Activities Responsive for Changing Circumstances
Such Activities Include :
Quick response to Market Needs
Reduction in Lead Time Between Production Design to Actual Production
ACTIVITIES INCLUDED UNDER OM
ACTIVITIES INCLUDED UNDER OM
Product Planning and Development
Production Administration Involving :
Production Engineering (Plant Setup)
Production Planning
Production Control
Execution of Plans, Policies and Decisions Involved in :
Actual Conversion
Direction and Motivation of People
Dependent Services and Deptts e.g. Standardization, Specialization, Inspection, QC, Inventory Management, R&D, Diversification, Emp. Amenities