Learning Objectives Introduction to OM Introduce and define

Learning Objectives – Introduction to OM • Introduce and define operations management (OM) in terms of its contribution and the activities it involves. • Describe how operations contributes to the overall betterment of society. • Present operations as a function that addresses issues in both manufacturing and services. • Show operations management is gaining more recognition both internally and externally to an organization. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 1

Chapter Objectives (cont’d) • Demonstrate how the operations management function interacts with the other functional areas within an organization. • Present a brief history of operations management as a field and its evolution to its current role in an organization. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 2

Managerial Issues • Shift in balance of power to consumers –Globalization of business and markets –E-commerce • Achieving higher levels of productivity –Creating higher quality products –Delivering better customer service –Achieving shorter delivery times –Reducing labor and material costs Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 3

What Is Operations Management? • Operations Management –Management of the conversion process which transforms inputs such as raw material and labor into outputs in the form of finished goods and services. Inputs (customers and/or materials) Transformation Process (components) Fundamentals of Operations Management 4 e Outputs (goods and services) © The Mc. Graw-Hill Companies, Inc. , 2003 1– 4

Role of OM within an Organization Exhibit 1. 1 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 5

Top-down Approach to OM Strategy • Operations Strategy Decisions –Strategic (long-range) • Needs of customers (capacity planning) –Tactical (medium-range) • Efficient scheduling of resources –Operational planning and control (short-range) • Immediate tasks and activities Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 6

An Operational-Level OM Perspective • OM’s function focuses on adding value through the transformation process (technical core) of converting inputs into outputs. –Physical: manufacturing –Locational: transportation –Exchange: retailing –Storage: warehousing –Physiological: health care –Informational: telecommunications Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 7

The Transformation Process within OM Exhibit 1. 2 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 8

Input-Transformation-Output Relationships for Typical Systems Exhibit 1. 3 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 9

OM’s Contributions to Society • Higher Standard of Living –Ability to increase productivity –Lower cost of goods and services • Better Quality Goods and Services –Competition increases quality • Concern for the Environment –Recycling and concern for air and water quality • Improved Working Conditions –Better job design and employee participation Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 10

Annual Change in Productivity in the United States (1980 -2000) Source: Economic Report of the President, United States Government Printing Office, Washington, DC. January, 2001. Fundamentals of Operations Management 4 e Exhibit 1. 4 © The Mc. Graw-Hill Companies, Inc. , 2003 1– 11

Services as a Percent of Gross Domestic Product (GDP) for Different Countries Source: The World Factbook 2000, Central Intelligence Agency, Washington, DC. Fundamentals of Operations Management 4 e Exhibit 1. 5 © The Mc. Graw-Hill Companies, Inc. , 2003 1– 12

The Emergence of OM • Application of OM to Service Operations –Batch cooking operations at Mc. Donald’s –Just-in-Time (JIT) at Northern Telecomm, Inc. –Automatic inventory replenishment at Wal-Mart Service Fundamentals of Operations Management 4 e Product Good © The Mc. Graw-Hill Companies, Inc. , 2003 1– 13

Growth in Services in the United States 1 -6 Source: Handbook of U. S. Labor Statistics, edited by Eva E. Jacobs, Fifth Edition, Bernan Press, 2001, Table 2 -1, pp. 161– 164. Fundamentals of Operations Management 4 e Exhibit 1. 6 © The Mc. Graw-Hill Companies, Inc. , 2003 1– 14

Differences Between Goods and Services • Goods –Tangible –Can be inventoried –No interaction between customer and process 1 -6 • Services –Intangible –Cannot be inventoried –Direct interaction between customer and process Exhibit 1. 7 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 15

Most Products Are a “Bundle” of Goods and Services Exhibit 1. 8 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 16

An Expanded Definition of Quality • Quality is important in all functional areas of an organization. • Quality is now much more than the technical requirements for manufactured goods. • Service quality (customer relationships) is equally important. Quality Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 17

A New Paradigm for OM • Post-War U. S. Dominance in Manufacturing –Available capacity built to support the war effort –Pent-up demand for consumer goods –Destruction of overseas production capabilities • Proactive Operations Function (Skinner) –Add value to products, increase profit margins. –Compete on dimensions other than costs: • Quality • Speed of delivery • Process flexibility Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 18

The Ever-Changing World of OM • Increased Global Competition –Transformation into a global economy –Pressure to excel on multiple competitive dimensions –Increased emphasis on logistics • Advances in Technology –Information technology (IT) –Internet email and commerce (B 2 B) –Automation and robotics Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 19

Ford’s Global Network to Support the Manufacturing of the Escort Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2 nd ed. (New York: W. W. Norton and Company, 1997), p. 58. Fundamentals of Operations Management 4 e Exhibit 1. 9 © The Mc. Graw-Hill Companies, Inc. , 2003 1– 20

Linking OM to Customers and Suppliers • Benefits of Buffering the Transformation Process –The process was not disturbed by environmental interaction. –The process was often more efficient than input and distribution processes. –Productivity was maximized when processes operated at continuous rates. –Process management skills were different from those of other functional activities. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 21

Linking OM to Customers and Suppliers • Disadvantages of Buffering the Transformation Process –Information lag in interaction with other functional activities. –Lack of communication between customers and the shop floor for problem solving. • Value Chain –Steps an organization requires to produce a good or a service regardless of where they are performed. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 22

The Value Chain and Its Support Functions Exhibit 1. 10 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 23

Line and Staff Jobs in OM Exhibit 1. 11 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 24

Inputs Provided by OM to Other Functional Areas Exhibit 1. 12 Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 25

Historical Development of OM • Prior to 1900 –Cottage industry produced custom-made goods. –Watt’s steam engine in 1785. –Whitney’s standardized gun parts in 1801. –Industrial Revolution began at mid-century. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 26

Historical Development of OM (cont. ) • Scientific Management (Frederick W. Taylor) –Systematic approach to increasing worker productivity through time study, standardization of work, and incentives. –Viewed workers as an interchangeable asset. • Other Management Pioneers –Frank and Lillian Gilbreth • Motion study and industrial psychology –Henry L. Gantt • Scheduling and the Gantt chart Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 27

Historical Development of OM (cont. ) • Moving Assembly Line (1913) –Labor specialization reduced assembly time. • Hawthorne Studies –Yielded unexpected results in the productivity of Western Electric plant workers after changes in their production environment. –Led to recognition of the importance of work design and employee motivation. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 28

Historical Development of OM (cont. ) • Operations Research (Management Science) –Outgrowth of WWII needs for logistics control and weapons-systems design. –Seeks to obtain mathematically optimal (quantitative) solutions to complex problems. • OM Emerges as a Field – 1950– 1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 29

Historical Development of OM (cont. ) • OM Emerges as a Field – 1950– 1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system. • The Marriage of OM and IT –Integrated solutions approaches • Business process reengineering • Supply chain management • Systems integration (SAP) Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 30

Historical Development of OM (cont. ) • Operations Management in Services –OM concepts can apply to both manufacturing and service operations. • Integration of Manufacturing and Services –Conducting world class operations requires compatible manufacturing and service operations. Fundamentals of Operations Management 4 e © The Mc. Graw-Hill Companies, Inc. , 2003 1– 31