Chapter 1 Introduction to Operations Management w Operations

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Chapter 1: Introduction to Operations Management w Operations Function w Evolution of Operations and

Chapter 1: Introduction to Operations Management w Operations Function w Evolution of Operations and Supply Chain Management w Globalization w Productivity and Competitiveness w Operations Strategy w Learning Objectives for this Course Copyright 2009, John Wiley & Sons, Inc. 1 -1

What Do Operations and Supply Chain Managers Do? w What is Operations? n a

What Do Operations and Supply Chain Managers Do? w What is Operations? n a function or system that transforms inputs into outputs of greater value w What is a Transformation Process? n n 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 w What is Operations Management? n Deals with design, operation, and improvement of productive systems Copyright 2009, John Wiley & Sons, Inc. 1 -2

Transformation Process w w w Physical: as in manufacturing operations Locational: as in transportation

Transformation Process w w w 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 Copyright 2009, John Wiley & Sons, Inc. 1 -3

Operations as a Transformation Process INPUT • Material • Machines • Labor • Management

Operations as a Transformation Process INPUT • Material • Machines • Labor • Management • Capital TRANSFORMATION PROCESS OUTPUT • Goods • Services Feedback Copyright 2009, John Wiley & Sons, Inc. 1 -4

Operations Function w Operations w Marketing w Finance and Accounting w Human Resources w

Operations Function w Operations w Marketing w Finance and Accounting w Human Resources w Outside Suppliers Copyright 2009, John Wiley & Sons, Inc. 1 -5

How is Operations Relevant to my Major? w Accounting w Information Technology w Management

How is Operations Relevant to my Major? w Accounting w Information Technology w Management w “As an auditor you must understand the fundamentals of operations management. ” w “IT is a tool, and there’s no better place to apply it than in operations. ” w “We use so many things you learn in an operations class— scheduling, lean production, theory of constraints, and tons of quality tools. ” Copyright 2009, John Wiley & Sons, Inc. 1 -6

How is Operations Relevant to my Major? w Economics w Marketing w Finance w

How is Operations Relevant to my Major? w Economics w Marketing w Finance w “It’s all about processes. I live by flowcharts and Pareto analysis. ” w “How can you do a good job marketing a product if you’re unsure of its quality or delivery status? ” w “Most of our capital budgeting requests are from operations, and most of our cost savings, too. ” Copyright 2009, John Wiley & Sons, Inc. 1 -7

Evolution of Operations Management w Craft production n process of handcrafting products or services

Evolution of Operations Management w Craft production n process of handcrafting products or services for individual customers w Division of labor n dividing a job into a series of small tasks each performed by a different worker w Interchangeable parts n standardization of parts initially as replacement parts; enabled mass production Copyright 2009, John Wiley & Sons, Inc. 1 -8

Evolution of Operations Management (cont. ) w Scientific management n systematic analysis of work

Evolution of Operations Management (cont. ) w Scientific management n systematic analysis of work methods w Mass production n high-volume production of a standardized product for a mass market w Lean production n adaptation of mass production that prizes quality and flexibility Copyright 2009, John Wiley & Sons, Inc. 1 -9

Historical Events in Operations Management Era Industrial Revolution Events/Concepts Dates Originator Steam engine Division

Historical Events in Operations Management Era Industrial Revolution Events/Concepts Dates Originator Steam engine Division of labor Interchangeable parts Principles of scientific management 1769 1776 1790 James Watt 1911 Frederick W. Taylor 1911 Frank and Lillian Gilbreth Henry Gantt Time and motion studies Scientific Management Activity scheduling chart Moving assembly line Copyright 2009, John Wiley & Sons, Inc. 1912 1913 Adam Smith Eli Whitney Henry Ford 1 -10

Historical Events in Operations Management (cont. ) Era Human Relations Operations Research Events/Concepts Dates

Historical Events in Operations Management (cont. ) Era Human Relations Operations Research Events/Concepts Dates Originator Hawthorne studies 1930 1940 s 1950 s 1960 s 1947 1951 Elton Mayo Abraham Maslow Frederick Herzberg Douglas Mc. Gregor George Dantzig Remington Rand 1950 s Operations research groups 1960 s, 1970 s Joseph Orlicky, IBM and others Motivation theories Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM MRP, EDI, EFT, CIM Copyright 2009, John Wiley & Sons, Inc. 1 -11

Historical Events in Operations Management (cont. ) Era Events/Concepts Dates Originator JIT (just-in-time) TQM

Historical Events in Operations Management (cont. ) Era Events/Concepts Dates Originator JIT (just-in-time) TQM (total quality management) Quality Strategy and Revolution operations Business process reengineering Copyright 2009, John Wiley & Sons, Inc. 1970 s 1980 s 1990 s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy 1 -12

Historical Events in Operations Management (cont. ) Era Events/Concepts Dates Originator Globalization WTO, European

Historical Events in Operations Management (cont. ) Era Events/Concepts Dates Originator Globalization WTO, European Union, and other trade agreements Internet, WWW, ERP, supply chain management 1990 s 2000 s Numerous countries and companies 1990 s E-commerce 2000 s ARPANET, Tim Berners-Lee, SAP, i 2 Technologies, ORACLE, People. Soft Amazon, Yahoo, e. Bay, and others Internet Revolution Copyright 2009, John Wiley & Sons, Inc. 1 -13

Evolution of Operations and Supply Chain Management (cont. ) w Supply chain management of

Evolution of Operations and Supply Chain Management (cont. ) w Supply chain management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners Copyright 2009, John Wiley & Sons, Inc. 1 -14

Globalization and Competitiveness w Why “go global”? n n n favorable cost access to

Globalization and Competitiveness w Why “go global”? n n n favorable cost access to international markets response to changes in demand reliable sources of supply latest trends and technologies w Increased globalization n results from the Internet and falling trade barriers Copyright 2009, John Wiley & Sons, Inc. 1 -15

Globalization and Competitiveness (cont. ) Hourly Compensation Costs for Production Workers Source: U. S.

Globalization and Competitiveness (cont. ) Hourly Compensation Costs for Production Workers Source: U. S. Bureau of Labor Statistics, 2005. Copyright 2009, John Wiley & Sons, Inc. 1 -16

Risks of Globalization w Cultural differences w Supply chain logistics w Safety, security, and

Risks of Globalization w Cultural differences w Supply chain logistics w Safety, security, and stability w Quality problems w Corporate image w Loss of capabilities Copyright 2009, John Wiley & Sons, Inc. 1 -17

Globalization and Competitiveness (cont. ) World Population Distribution Source: U. S. Census Bureau, 2006.

Globalization and Competitiveness (cont. ) World Population Distribution Source: U. S. Census Bureau, 2006. Copyright 2009, John Wiley & Sons, Inc. 1 -18

Globalization and Competitiveness (cont. ) Trade in Goods as % of GDP (sum of

Globalization and Competitiveness (cont. ) Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP, valued in U. S. dollars) Copyright 2009, John Wiley & Sons, Inc. 1 -19

Productivity and Competitiveness w Competitiveness n degree to which a nation can produce goods

Productivity and Competitiveness w Competitiveness n degree to which a nation can produce goods and services that meet the test of international markets w Productivity n ratio of output to input w Output n sales made, products produced, customers served, meals delivered, or calls answered w Input n labor hours, investment in equipment, material usage, or square footage Copyright 2009, John Wiley & Sons, Inc. 1 -20

Productivity and Competitiveness (cont. ) Measures of Productivity Copyright 2009, John Wiley & Sons,

Productivity and Competitiveness (cont. ) Measures of Productivity Copyright 2009, John Wiley & Sons, Inc. 1 -21

Productivity and Competitiveness (cont. ) Average Annual Growth Rates in Productivity, 1995 -2005. Source:

Productivity and Competitiveness (cont. ) Average Annual Growth Rates in Productivity, 1995 -2005. Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons. January 2007, p. 28. Copyright 2009, John Wiley & Sons, Inc. 1 -22

Productivity and Competitiveness (cont. ) Average Annual Growth Rates in Output and Input, 1995

Productivity and Competitiveness (cont. ) Average Annual Growth Rates in Output and Input, 1995 -2005 Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons, January 2007, p. 26. Copyright 2009, John Wiley & Sons, Inc. Dramatic Increase in Output w/ Decrease in Labor Hours 1 -23

Strategy and Operations w Strategy n Provides direction for achieving a mission w Five

Strategy and Operations w Strategy n Provides direction for achieving a mission w Five Steps for Strategy Formulation n Defining a primary task l n Assessing core competencies l n l What qualifies an item to be considered for purchase? What wins the order? Positioning the firm l n What does the firm do better than anyone else? Determining order winners and order qualifiers l n What is the firm in the business of doing? How will the firm compete? Deploying the strategy Copyright 2009, John Wiley & Sons, Inc. 1 -24

Strategic Planning Mission and Vision Voice o f the Busines s Marketing Strategy Corporate

Strategic Planning Mission and Vision Voice o f the Busines s Marketing Strategy Corporate Strategy Operations Strategy Copyright 2009, John Wiley & Sons, Inc. the Voice of r Custome Financial Strategy 1 -25

Positioning the Firm w w Cost Speed Quality Flexibility Copyright 2009, John Wiley &

Positioning the Firm w w Cost Speed Quality Flexibility Copyright 2009, John Wiley & Sons, Inc. 1 -26

Positioning the Firm: Cost w Waste elimination n relentlessly pursuing the removal of all

Positioning the Firm: Cost w Waste elimination n relentlessly pursuing the removal of all waste w Examination of cost structure n looking at the entire cost structure for reduction potential w Lean production n providing low costs through disciplined operations Copyright 2009, John Wiley & Sons, Inc. 1 -27

Positioning the Firm: Speed w fast moves, fast adaptations, tight linkages w Internet n

Positioning the Firm: Speed w fast moves, fast adaptations, tight linkages w Internet n conditioned customers to expect immediate responses w Service organizations n always competed on speed (Mc. Donald’s, Lens. Crafters, and Federal Express) w Manufacturers n time-based competition: build-to-order production and efficient supply chains w Fashion industry n two-week design-to-rack lead time of Spanish retailer, Zara Copyright 2009, John Wiley & Sons, Inc. 1 -28

Positioning the Firm: Quality w Minimizing defect rates or conforming to design specifications; please

Positioning the Firm: Quality w Minimizing defect rates or conforming to design specifications; please the customer w Ritz-Carlton - one customer at a time n n Service system is designed to “move heaven and earth” to satisfy customer Every employee is empowered to satisfy a guest’s wish Teams at all levels set objectives and devise quality action plans Each hotel has a quality leader Copyright 2009, John Wiley & Sons, Inc. 1 -29

Positioning the Firm: Flexibility w ability to adjust to changes in product mix, production

Positioning the Firm: Flexibility w ability to adjust to changes in product mix, production volume, or design w National Bicycle Industrial Company n n n offers 11, 231, 862 variations delivers within two weeks at costs only 10% above standard models mass customization: the mass production of customized parts Copyright 2009, John Wiley & Sons, Inc. 1 -30

Policy Deployment w Policy deployment n translates corporate strategy into measurable objectives w Hoshins

Policy Deployment w Policy deployment n translates corporate strategy into measurable objectives w Hoshins n action plans generated from the policy deployment process Copyright 2009, John Wiley & Sons, Inc. 1 -31

Policy Deployment Derivation of an Action Plan Using Policy Deployment Copyright 2009, John Wiley

Policy Deployment Derivation of an Action Plan Using Policy Deployment Copyright 2009, John Wiley & Sons, Inc. 1 -32

Balanced Scorecard w Balanced scorecard n measuring more than financial performance l l finances

Balanced Scorecard w Balanced scorecard n measuring more than financial performance l l finances customers processes learning and growing w Key performance indicators n a set of measures that help managers evaluate performance in critical areas Copyright 2009, John Wiley & Sons, Inc. 1 -33

Balanced Scorecard Worksheet Copyright 2009, John Wiley & Sons, Inc. 1 -34

Balanced Scorecard Worksheet Copyright 2009, John Wiley & Sons, Inc. 1 -34

Balanced Scorecard Radar Chart Copyright 2009, John Wiley & Sons, Inc. Dashboard 1 -35

Balanced Scorecard Radar Chart Copyright 2009, John Wiley & Sons, Inc. Dashboard 1 -35

Organization of This Text: Part I – Operations Management w Intro. to Operations and

Organization of This Text: Part I – Operations Management w Intro. to Operations and Supply Chain Management: w Quality Management: w Statistical Quality Control: w Product Design: w Service Design: w Processes and Technology: w Facilities: w Human Resources: w Project Management: Copyright 2009, John Wiley & Sons, Inc. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 1 -36

Organization of This Text: Part II – Supply Chain Management w Supply Chain Strategy

Organization of This Text: Part II – Supply Chain Management w Supply Chain Strategy and Design: w Global Supply Chain Procurement and Distribution: w Forecasting: w Inventory Management: w Sales and Operations Planning: w Resource Planning: w Lean Systems: w Scheduling: Copyright 2009, John Wiley & Sons, Inc. Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 1 -37

Learning Objectives of this Course w Gain an appreciation of strategic importance of operations

Learning Objectives of this Course w Gain an appreciation of strategic importance of operations and supply chain management in a global business environment w Understand how operations relates to other business functions w Develop a working knowledge of concepts and methods related to designing and managing operations and supply chains w Develop a skill set for quality and process improvement Copyright 2009, John Wiley & Sons, Inc. 1 -38