Operations management 12th stevenson ch01 introduction to operations management

 The part of a business organization that is responsible for producing goods or services  How can we define operations management?. This is an overview course in operations management

Introduction to Operations Management

Chapter 1

McGraw-Hill/Irwin

Copyright © 2012 by The McGraw-Hill Companies, Inc All rights reserved.

Chapter 1: Learning Objectives

 You should be able to:

1. Define the term operations management

2. Identify the three major functional areas of organizations and describe how they interrelate

3. Identify similarities and differences between production and service operations

4. Describe the operations function and the nature of the operations manager’s job

5. Summarize the two major aspects of process management

6. Explain the key aspects of operations management decision making

7. Briefly describe the historical evolution of operations management

8. Characterize current trends in business that impact operations management

1-2

Instructor Slides

Operations Management

 What is operations?

 The part of a business organization that is responsible for producing goods or

services

 How can we define operations management?

 The management of systems or processes that create goods and/or provide

services

Goods are physical items that include raw materials, parts, subassemblies, and final products.

Operations Management

 This course is designed to acquaint the students with

the area of operations management This is an overview course in operations management where the students will be exposed to the tools used by decision makers in both the service sector as well the manufacturing sector

to improve the decision making process

Supply Chain – a sequence of activities and organizations involved in producing and

delivering a good or service

Supply & Demand

Wasteful Costly

Opportunity Loss Customer Dissatisfaction

Opportunity Loss Customer Dissatisfaction

Supply Chain for Bread

Operations

Finance

Finance Marketing

Marketing

Organization Organization

Basic Functions of the Business Organization

Organization - Operations

 Operations

 The operations function consists of all activities that are directly related to

producing goods or providing services It is the core of most business

organizations because it is responsible for the creation of an organization's goods

or services

Organization - Marketing

 Marketing

 Determine customer wants and needs and communicate those to

Operations (for short term use)

Designers (for long term use)

 Study the competitors/market and suggest new designs or modify design

Business Operations Overlap

Operations

Finance Figure 1.5

Marketing

Operations Interfaces

Public Relations

Accounting

Industrial Engineering

The Transformation Process

Transformation/

Conversion Process

Control Control

Measurement and Feedback Measurement

and Feedback

Measurement and Feedback Value-Added

Feedback = measurements taken at various points in the transformation process Control = The comparison of feedback against previously established standards to determine if corrective action is needed.

Automobile Assembly, Steelmaking

Automobile Assembly, Steelmaking

Products are typically neither purely service- or purely goods-based.

Home Remodeling, Retail Sales

Home Remodeling, Retail Sales

Computer Repair, Restaurant Meal

Computer Repair, Restaurant Meal

Songwriting, Software Development

Songwriting, Software Development

Surgery, Teaching

Surgery, Teaching

Goods-service Continuum

1. Jobs in services are often less structured than in manufacturing

2. Customer contact is generally much higher in services compared to manufacturing

3. In many services, worker skill levels are low compared to those of manufacturing employees

4. Services are adding many new workers in low-skill, entry-level positions

5. Employee turnover is high in services, especially in low-skill jobs

6. Input variability tends to be higher in many service environments than in manufacturing

7. Service performance can be adversely affected by many factors outside of the manager’s control (e.g.,

employee and customer attitudes)

Managing Services is Challenging

Process Management

Process - one or more actions that transform inputs into outputs

Process - one or more actions that transform inputs into outputs

Three Categories of Business Processes:

Upper-management processes These govern the operation of the entire organization.

Operational processes These are core processes that make up the value stream.

Supporting processes These support the core processes.

Process Variation

Four Sources of Variation:

Variety of goods or services being offered The greater the variety of goods and services offered, the greater the variation

in production or service requirements.

Structural variation in demand These are generally predictable They are important for capacity planning.

Random variation Natural variation that is present in all processes Generally, it cannot be

influenced by managers.

Assignable variation Variation that has identifiable sources This type of variation can be reduced,

or eliminated, by analysis and corrective action.

Variations can be disruptive to operations and supply chain processes They may result in additional costs, delays and

shortages, poor quality, and inefficient work systems.

Scope of Operations Management

The operations function includes many interrelated activities such as:

Responsibilities of Operations Management

Products & services

Role of the Operations Manager

The Operations Function consists of all activities directly related to producing

goods or providing services.

A primary function of the operations manager is to guide the system by

decision making.

System Design Decisions

• System Design

– Capacity

– Facility location

– Facility layout

– Product and service planning

– Acquisition and placement of equipment

• These are typically strategic decisions that

• usually require long-term commitment of resources

• determine parameters of system operation

System Operation Decisions

• Operations managers spend more time on system operation decision than any other decision area

• They still have a vital stake in system design

U.S Manufacturing vs Service Employment

 Every aspect of business affects or is affected by operations

 Many service jobs are closely related to operations

 It provides an excellent vehicle for understanding the world in which we live

Why Study OM?

Decision Making

 Most operations decisions involve many alternatives that can have quite different impacts

on costs or profits

 Typical operations decisions include:

 What: What resources are needed, and in what amounts?

 When: When will each resource be needed? When should the work be scheduled? When should materials

and other supplies be ordered?

 Where: Where will the work be done?

 How: How will he product or service be designed? How will the work be done? How will resources be

allocated?

 Who: Who will do the work?

General Approach to Decision Making

 Modeling is a key tool used by all decision makers

 Model - an abstraction of reality; a simplification of something.

 Common features of models:

They are simplifications of real-life phenomena

They omit unimportant details of the real-life systems they mimic so that attention can be

focused on the most important aspects of the real-life system

1. Models are generally easier to use and less expensive than dealing with the real system

2. Require users to organize and sometimes quantify information

3. Increase understanding of the problem

4. Enable managers to analyze “What if?” questions

5. Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem

6. Enable users to bring the power of mathematics to bear on a problem

Benefits of Models

Systems Approach

 System - a set of interrelated parts that must work together

 The business organization is a system composed of subsystems

marketing subsystem

operations subsystem

finance subsystem

 The systems approach

 Emphasizes interrelationships among subsystems

 Main theme is that the whole is greater than the sum of its parts

 The output and objectives of the organization take precedence over those of any one subsystem

Model Limitations

 Quantitative information may be emphasized at the expense of

qualitative information

 Models may be incorrectly applied and the results misinterpreted

 This is a real risk with the widespread availability of sophisticated, computerized models are placed in the hands of uninformed users.

 The use of models does not guarantee good decisions.

Metrics and Trade-Offs

 A trade-off is giving up one thing in return

for something else

Carrying more inventory (an

expense) in order to achieve a greater level of customer service

Degree of Customization

 Relative to other standardized products and services customized products:

 Tend to be more labor intensive

 Tend to be more time consuming

 Tend to require more highly-skilled people

 Tend to require more flexible equipment

 Have much lower volume of output

 Have higher price tags

 Degree of customization has a significant influence on the entire organization

 Process selection

 Job design

 Affects marketing, sales, accounting, finance, and information systems

Historical Evolution of OM

 Industrial Revolution

 Scientific Management

 Human Relations Movement

 Decision Models and Management Science

 Influence of Japanese Manufacturers

Historical Evolution of Operations Management

 Craft production

 Industrial revolution (1770’s)

 Scientific management (1911)

 Human relations movement (1920-60)

 Workers should be treated with dignity

 Decision models (1915, 1960-70’s)

 Influence of Japanese manufacturers

 JIT, TQM, …

Industrial Revolution

 Pre-Industrial Revolution

 Craft production - System in which highly skilled workers use simple, flexible tools to produce small

quantities of customized goods

 Some key elements of the industrial revolution

 Began in England in the 1770s

 Division of labor - Adam Smith, 1776

 Application of the “rotative” steam engine, 1780s

 Cotton Gin and Interchangeable parts - Eli Whitney, 1792

 Management theory and practice did not advance appreciably during this period

Historical Evolution of Operations Management

 Post Civil War

 Labors coming to the cities

 Increase in capitals by forming joint stock companies

 Separation of capital from employer

 Increase in production

 Improved transportation

Scientific Management

 Believed in a “science of management” based on observation, measurement, analysis and

improvement of work methods, and economic incentives

 Management is responsible for planning, carefully selecting and training workers, finding the

best way to perform each job, achieving cooperate between management and workers, and

separating management activities from work activities

 Emphasis was on maximizing output

 Frank Gilbreth - father of motion studies

 Henry Gantt - developed the Gantt chart scheduling system and recognized the value

of non-monetary rewards for motivating employees

 Harrington Emerson - applied Taylor’s ideas to organization structure

 Henry Ford - employed scientific management techniques to his factories

Moving assembly line

Mass production

Scientific Management - contributors

 The human relations movement emphasized the importance of the human element

in job design

Lillian Gilbreth

Elton Mayo – Hawthorne studies on worker motivation, 1930

Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954

Frederick Hertzberg – Two Factor Theory, 1959

Douglas McGregor – Theory X and Theory Y, 1960s

William Ouchi – Theory Z, 1981

Human Relations Movement

Decision Models & Management Science

 F.W Harris – mathematical model for inventory management, 1915

 Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s

 Tippett – statistical sampling theory, 1935

 Operations Research (OR) Groups – OR applications in warfare

 George Dantzig – linear programming, 1947

Influence of Japanese Manufacturers

 Credited with fueling the “quality revolution

 Just-in-Time production

Key Issues for Operations

Environmental Concerns

 Sustainability

 Using resources in ways that do not harm ecological systems that support human

existence

Sustainability measures often go beyond traditional environmental and economic

measures to include measures that incorporate social criteria in decision making

All areas of business will be affected

Ethical Issues in Operations

The Need for Supply Chain Management

 In the past, organizations did little to manage the supply chain beyond their own

operations and immediate suppliers which led to numerous problems:

 Oscillating inventory levels

 Inventory stockouts

 Late deliveries

 Quality problems

Supply Chain Issues

1 The need to improve operations

2 Increasing levels of outsourcing

3 Increasing transportation costs

4 Competitive pressures

5 Increasing globalization

6 Increasing importance of e-business

7 The complexity of supply chains

8 The need to manage inventories

Elements of Supply Chain Management

 Customers – what products/services do customers want

 Forecasting – predicting timing and volume of customer demand

 Design – incorporating customer wants, manufacturability, and time to market

 Capacity planning – matching supply and demand

 Processing – controlling quality, scheduling work

 Inventory – meeting demand requirements while managing costs

 Purchasing – evaluating potential suppliers, supporting the needs of operations on purchased goods and services

 Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations

 Location – determining the location of facilities

 Logistics – deciding how to best move information and materials