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

11

Introduction to Operations

Management

1-2

Decision MakingDecision Making

Models Quantitative approaches Analysis of trade-offs Systems approach

1-3

ModelsModels

A model is an abstraction of reality.

– Physical– Schematic– Mathematical

What are the pros and cons of models?

Tradeoffs

1-4

Models Are BeneficialModels 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

1-5

Limitations of ModelsLimitations 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

1-6

Quantitative ApproachesQuantitative Approaches

• Linear programming

• Queuing Techniques

• Inventory models

• Project models

• Statistical models

1-7

Analysis of Trade-OffsAnalysis of Trade-Offs

Decision on the amount of inventory to stock Increased cost of holding inventory

Vs. Level of customer service

1-8

Systems ApproachSystems Approach

“The whole is greater than the sum of the parts.”

SuboptimizationSuboptimization

1-9

Pareto PhenomenonPareto 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?

1-10

Ethical IssuesEthical Issues

Financial statements Worker safety Product safety Quality Environment Community Hiring/firing workers Closing facilities Worker’s rights

1-11

Business Operations OverlapBusiness Operations Overlap

Operations

Finance

Figure 1.5

Marketing

1-12

Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal

1-13

Historical Evolution of Operations Historical Evolution of Operations ManagementManagement

Industrial revolution (1770’s) Scientific management (1911)

Mass production Interchangeable parts Division of labor

Human relations movement (1920-60) Decision models (1915, 1960-70’s) Influence of Japanese manufacturers

Table 1.7

1-14

Trends in BusinessTrends in Business

Major trends The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior

1-15

Management TechnologyManagement Technology

Technology: The application of scientific discoveries to the development and improvement of goods and services

Product and service technology Process technology Information technology

1-16

Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainSimple Product Supply ChainFigure 1.7

Supply Chain: A sequence of activitiesAnd organizations involved in producingAnd delivering a good or service

1-17

Stage of Production Value Added

Value of Product

Farmer produces and harvests wheat $0.15 $0.15

Wheat transported to mill $0.08 $0.23

Mill produces flour $0.15 $0.38

Flour transported to baker $0.08 $0.46

Baker produces bread $0.54 $1.00

Bread transported to grocery store $0.08 $1.08

Grocery store displays and sells bread $0.21 $1.29

Total Value-Added $1.29

A Supply Chain for BreadA Supply Chain for Bread

1-18

Other Important TrendsOther Important Trends

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