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Introduction to Operations Management

McGraw-Hill/Irwin

Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
  Define the term operations management Identify the three major functional areas of organizations and describe how they interrelate Compare and contrast service and manufacturing operations Describe the operations function and the nature of the operations managers job

 

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Learning Objectives
 Differentiate between design and operation of production systems  Describe the key aspects of operations management decision making  Briefly describe the historicalevolution of operations management  Identify current trends that impact operations management

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Operations Management
 Operations Management is: The management of systems or processes that create goods and/or provide services  Operations Management affects:
 Companies ability to compete  Nations ability to compete internationally

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The Organization
Figure 1.1

The Three Basic Functions

Organization

Finance

Operations

Marketing

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ValueValue-Added Process
Figure 1.2

The operations function involves the conversion of inputs into outputs

Value added
Inputs Land Labor Capital Transformation/ Conversion process
Feedback

Outputs Goods Services

Control
Feedback Feedback

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ValueValue-Added & Product Packages

 Value-added is the difference between the cost of inputs and the value or price of outputs.  Product packages are a combination of goods and services.  Product packages can make a company more competitive.

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GoodsGoods-service Continuum
Figure 1.3

Goods

Service Surgery, teaching Song writing, software development Computer repair, restaurant meal

Automobile Repair, fast food Home remodeling, retail sales Automobile assembly, steel making

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Food Processor
Table 1.2

Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Processing
Cleaning Making cans Cutting Cooking Packing Labeling

Outputs
Canned vegetables

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Hospital Process
Table 1.2

Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Processing
Examination Surgery Monitoring Medication Therapy

Outputs
Healthy patients

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Manufacturing or Service?

Tangible

Act

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Production of Goods vs. Delivery of Services

 Production of goods tangible output  Delivery of services an act  Service job categories
       Government Wholesale/retail Financial services Healthcare Personal services Business services Education
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Scope of Operations Management

 Operations Management includes:
         Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities Supply chain management And more . . .
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Types of Operations
Table 1.4

Operations
Goods Producing Storage/Transportation

Examples
Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites
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Exchange Entertainment Communication

Figure 1.4

U.S. Manufacturing vs. Service Employment

Year Mfg. Service 45 79 21 90 Mfg. 50 72 28 80 Service 55 72 28 70 60 68 32 60 65 64 36 50 70 64 36 40 75 58 42 30 80 44 46 20 85 43 57 10 90 35 65 0 95 25 75 45 50 55 60 65 70 75 80 85 90 95 00 02 05 00 30 70 Year 25 75

02

Percent

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Decline in Manufacturing Jobs

 Productivity
 Increasing productivity allows companies to maintain or increase their output using fewer workers

 Outsourcing
 Some manufacturing work has been outsourced to more productive companies

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Why Manufacturing Matters

 Over 18 million workers in manufacturing jobs  Accounts for over 70% of value of U.S. exports  Average full-time compensation about 20% higher than average of all workers  Manufacturing workers more likely to have benefits  Productivity growth in manufacturing in the last 5 years is more than double U.S. economy
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Why Manufacturing Matters

 More than half of the total R&D performed is in the manufacturing industries  Manufacturing workers in California earn an average of about $25,000 more a year than service workers  When a California manufacturing job is lost, an average of 2.5 service jobs are lost

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Challenges of Managing Services

 Service jobs are often less structured than manufacturing jobs  Customer contact is higher  Worker skill levels are lower  Services hire many low-skill, entry-level workers  Employee turnover is higher  Input variability is higher  Service performance can be affected by workers personal factors

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Operations Management Decision Making

      Models Quantitative approaches Analysis of trade-offs Systems approach Establishing priorities Ethics

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Key Decisions of Operations Managers

 What
What resources/what amounts

 When
Needed/scheduled/ordered

 Where
Work to be done

 How
Designed

 Who
To do the work
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Decision Making
System Design
capacity location arrangement of departments product and service planning acquisition and placement of equipment

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Decision Making
System operation
personnel inventory scheduling project management quality assurance

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Decision Making
    Models Quantitative approaches Analysis of trade-offs Systems approach

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Models
A model is an abstraction of reality.
Physical Schematic Mathematical

Tradeoffs

What are the pros and cons of models?

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Models Are Beneficial

Easy to use, less expensive Require users to organize Increase understanding of the problem Enable what if questions Consistent tool for evaluation and standardized format  Power of mathematics     

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Limitations of Models
 Quantitative information may be emphasized over qualitative  Models may be incorrectly applied and results misinterpreted  Nonqualified users may not comprehend the rules on how to use the model  Use of models does not guarantee good decisions

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Quantitative Approaches
Linear programming Queuing Techniques Inventory models Project models Statistical models

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Analysis of Trade-Offs Trade Decision on the amount of inventory to stock

 Increased cost of holding inventory

Vs.
 Level of customer service

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Systems Approach
The whole is greater than the sum of the parts.

Suboptimization

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Pareto Phenomenon
A few factors account for a high percentage of the occurrence of some event(s). 80/20 Rule - 80% of problems are caused by 20% of the activities. How do we identify the vital few?

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Ethical Issues
         Financial statements Worker safety Product safety Quality Environment Community Hiring/firing workers Closing facilities Workers rights
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Business Operations Overlap

Figure 1.5

Operations

Marketing

Finance

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Operations Interfaces
Industrial Engineering Distribution Maintenance

Purchasing

Operations

Public Relations

Legal Personnel Accounting MIS

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Table 1.7

Historical Evolution of Operations Management

 Industrial revolution (1770s)  Scientific management (1911)

 Mass production  Interchangeable parts  Division of labor

 Human relations movement (1920-60)  Decision models (1915, 1960-70s)  Influence of Japanese manufacturers
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Trends in Business
 Major trends
       The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior

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Management Technology
 Technology: The application of scientific discoveries to the development and improvement of goods and services  Product and service technology  Process technology  Information technology

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Simple Product Supply Chain

Figure 1.7 Suppliers Suppliers

Direct Suppliers

Producer

Distributor

Final Consumer

Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

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A Supply Chain for Bread

Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

Value Added
$0.15 $0.08 $0.15 $0.08 $0.54 $0.08 $0.21 $1.29

Value of Product
$0.15 $0.23 $0.38 $0.46 $1.00 $1.08 $1.29

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Other Important Trends

       Ethical behavior Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production

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