CH 1 Introduction to Operations Management Learning Objectives

CH 1: Introduction to Operations Management • Learning Objectives • After this lecture, students will be able to 1. Define the terms operations management and supply chain 2. Identify the three major functional areas of organizations and describe how they interrelated 3. Identify similarities and differences between production and service operations 4. Explain the key aspects of operations management decision making 5. Explain the need to manage the supply chain

Outline ▶ Definition of Operations Management (OM) ▶ Organizational Functions ▶ Why Study OM? ▶ Significant Events in OM ▶ Goods Versus Services ▶ Measuring productivity

What Is Operations Management? • Production is the creation of goods and services • Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs

• Operations management: • The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s products and services

Operations Interfaces

Organizing to Produce Goods and Services • Essential functions: 1. Marketing – generates demand 2. Production/operations – creates the product 3. Finance/accounting – tracks how well the organization is doing, pays bills, collects the money 4. Human Resources – provides labor, employs, assigns and gives training.

Why Study OM? 1. OM is one of four major functions of any organization, we want to study how people organize themselves for productive enterprise 2. We want (and need) to know how goods and services are produced 3. We want to understand what operations managers do 4. OM is such a costly part of an organization

The Strategic Decisions 1. Design of goods and services – Defines what is required of operations – Product design determines quality, sustainability and human resources 2. Managing quality – Determine the customer’s quality expectations – Establish policies and procedures to identify and achieve that quality

The Strategic Decisions 3. Process and capacity design ▶ ▶ How is a good or service produced? Commits management to specific technology, quality, resources, and investment. 4. Location strategy ▶ ▶ Nearness to customers, suppliers, and talent. Considering costs, infrastructure, logistics, and government.

The Strategic Decisions 5. Layout strategy ▶ ▶ Integrate capacity needs, personnel levels, technology, and inventory Determine the efficient flow of materials, people, and information. 6. Human resources and job design ▶ ▶ Recruit, motivate, and retain personnel with the required talent and skills. Integral and expensive part of the total system design.

The Strategic Decisions 7. Supply-chain management ▶ ▶ Integrate supply chain into the firm’s strategy. Determine what is to be purchased, from whom, and under what conditions. 8. Inventory management ▶ ▶ Inventory ordering and holding decisions. Optimize considering customer satisfaction, supplier capability, and production schedules.

The Strategic Decisions 9. Scheduling ▶ Determine and implement intermediate- and short-term schedules. ▶ Utilize personnel and facilities while meeting customer demands. 10. Maintenance ▶ Consider facility capacity, production demands, and personnel. ▶ Maintain a reliable and stable process.

Operations for Goods and Services ▶ Manufacturers produce tangible product, services often intangible ▶ Operations activities often very similar ▶ Distinction not always clear ▶ Few pure services

Differences Between Goods and Services • Production of goods (goods oriented) – Tangible products • Automobile • Refrigerator • Services (TV and auto repair, lawn care) • • • Government Regulatory bodies, FAA, FDA Wholesale/retail Financial services Education

Goods vs. Service Operations (Cont) • Differences 1. 2. 3. 4. 5. 6. 7. 8. Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity Production and delivery Quality assurance Amount of inventory

Manufacturing vs. Service Characteristic Output Customer contact Uniformity of output Labor content Uniformity of input Measurement of productivity Opportunity to correct quality problems Manufacturing Tangible Low High Easy Service Intangible High Low Difficult Easy Difficult

Historical Evolution of Operations Management • Industrial revolution (1770’s) • Scientific management (1911) – Mass production – Interchangeable parts – Division of labor • Human relations movement (1920 -60) – Unemployment insurance – Pension plans • Decision models (1915, 1960 -70’s) • Influence of Japanese manufacturers (1970 -1990)

The Industrial Revolution • • The industrial revolutiondeveloped in England in the 1700 s. • • The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories. • • Adam Smith’s The Wealth of Nationsin 1776 touted the economic benefits of the specialization of labor. • • Thus the late-1700 s factories had not only machine power but also ways of planning and controlling the tasks of workers.

Major Historical Developments • • • • Industrial Revolution Late 1700 s Scientific Management Early 1900 s Human Relations Movement 1930 s to 1960 s Management Science Mid-1900 s Computer Age 1970 s Just-In-Time Systems 1980 s Total Quality Management (TQM) 1980 s Reengineering 1980 s Flexibility 1990 s Time-based Competition 1990 s Supply Chain Management 1990 s Global Competition 1990 s Environmental Issues 1990 s Electronic Commerce Late 1990 s – Early 21 st Century

Industrial Revolution Late 1700 s • Replaced traditional craft methods • • Substituted machine power for labor • • Major contributions: • –James Watt (1764): steam engine –Adam Smith (1776): division of labor –Eli Whitney (1790): interchangeable parts

Scientific Management Early 1900 s • Separated ‘planning’ from ‘doing’ • Management’s job was to discover worker’s physical limits through measurement, analysis & observation • Major contributors: –Fredrick Taylor: stopwatch time studies –Henry Ford: moving assembly line

Human Relations Movement 1930 s to 1960 s • Recognition that factors other than money contribute to worker productivity • Major contributions: –Understanding of the Hawthorn effect: Study of Western Electric plant in Hawthorn, Illinois intended to study impact of environmental factors (light & heat) on productivity, but found workers responded to management’s attention regardless of environmental changes –Job enlargement –Job enrichment

Management Science Mid-1900 s • Developed new quantitative techniques for common OM problems: • –Major contributions include: inventory modeling, linear programming, project management, forecasting, statistical sampling, & quality control techniques – Played a large role in supporting American military operations during World War II

Computer Age 1970 s • Provided the tool necessary to support the widespread use of Management Science’s quantitative techniques • – the ability to process huge amounts of data quickly & relatively cheaply • Major contributions include the development of Material Requirements Planning (MRP) systems for production control

Developments: 1980 s Japanese Influence • Just-In-Time (JIT): – Techniques designed to achieve high-volume production using coordinated material flows, continuous improvement, & elimination of waste • Total Quality Management (TQM): – Techniques designed to achieve high levels of product quality through shared responsibility & by eliminating the root causes of product defects • Business Process Reengineering: – ‘Clean sheet’ redesign of work processes to increase efficiency, improve quality & reduce costs

Developments: 1990 s • Flexibility: – Offer a greater variety of product choices on a mass scale (mass customization) • Time-based competition: – Developing new product designs & delivering customer orders more quickly than competitors • Supply Chain Management – Cooperating with suppliers & customers to reduce overall costs of the supply chain & increase responsiveness to customers

Developments: 1990 s • Global competition: • – International trade agreements open new markets for expansion & lower barriers to the entry of foreign competitors (e. g. : NAFTA & GATT) – Creates the need for decision-making tools for facility location, compliance with local regulations, tailoring product offerings to local tastes, managing distribution networks, … • Environmental issues: – Pressure from consumers & regulators to reduce, reuse & recycle solid wastes & discharges to air & water

Electronic Commerce • Internet & related technologies enable new methods of business transactions: – E-tailing creates a new outlet for retail goods & services with global access and 24 -7 availability – Internet provides a cheap network for coordinating supply chain management information • Developing influence of broadband & wireless

Operations Management Decision Making • • • Models Quantitative approaches Analysis of trade-offs Systems approach Establishing priorities Ethics

Help comes from Models • A structure which has been built purposefully to exhibit features and characteristics of some other object. Do not use “thing” or “something” in a definition. • For – Improved understanding and communication – Experimentation – Standardization for analysis • Abstraction vs. computability

Modeling ! • Use models – Physical models (prototypes) – Schematic models (Graphs, charts, pictures) – Mathematical models, • • • Statistical models Inventory models Linear programming Queuing techniques Project management models

What type of models • Simulation models : to test a proposed idea – Monte Carlo Simulation • Optimization models : to create an optimal idea – Linear programming • Pattern recognition models : to recognize a pattern – Statistics, Forecasting, data mining

Production systems classified • Craft Production : System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods. – Carpenter • Lean production : System that uses minimal amounts of resources to produce a high volume of high-quality goods with some variety. – Dell • Mass production: System in which lower-skilled workers use specialized machinery to produce high volumes of standardized goods. – Ford

Key Decisions of Operations Managers • What resources/what amounts • When Needed/scheduled/ordered • Where Work to be done • How Designed • Who To do the work

Decision Making ØSystem Design capacity location arrangement of departments product and service planning acquisition and placement of equipment

System operation – personnel – inventory – scheduling – project management – quality assurance

Contemporary Themes in Operations • These contemporary themes make operations an exciting and interesting place for aspiring managers and those who want the challenge of leadership

Operations New Themes Service and Manufacturing Customer Directed Operations Lean Operations Integration of Operations with Other Functions Environmental concerned of operations Supply Chain Management Concerned Operations • Globalization of Operation • • •

Review questions 1. Define what Operations Management is? 2. Discuss the major functional areas of business organizations 3. Differentiate between design and operation of production systems 4. Describe the key aspects of operations management decision making 5. Briefly describe the historical evolution of operations management