Operations Management

OverviewOverview Introduction Historical Milestones in OM Factors Affecting OM Today Different Ways of Studying

OM

IntroductionIntroduction Operations management is the

management of an organization’s productive resources or its production system.

A production system takes inputs and converts them into outputs.

The conversion process is the predominant activity of a production system.

The primary concern of an operations manager is the activities of the conversion process.

Organizational ModelOrganizational Model

Marketing

MISEngineering

HRM

QA

Accounting

SalesFinance

OM

Entry-Level Jobs in OMEntry-Level Jobs in OM Purchasing planner/buyer Production (or operations)

supervisor Production (or operations)

scheduler/controller Production (or operations) analyst Inventory analyst Quality specialist

Historical Milestones in OMHistorical Milestones in OM The Industrial Revolution Post-Civil War Period Scientific Management Human Relations and

Behaviorism Operations Research The Service Revolution

The Industrial RevolutionThe Industrial Revolution The industrial revolution developed in

England in the 1700s. The steam engine, invented by James Watt

in 1764, largely replaced human and water power for factories.

Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor.

Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers.

The Industrial RevolutionThe Industrial Revolution The industrial revolution spread from England to

other European countries and to the United Sates. In 1790 an American, Eli Whitney, developed the

concept of interchangeable parts. The first great industry in the US was the textile

industry. In the 1800s the development of the gasoline engine

and electricity further advanced the revolution. By the mid-1800s, the old cottage system of

production had been replaced by the factory system. . . . more

Post-Civil War PeriodPost-Civil War Period During the post-Civil War period great

expansion of production capacity occurred.

By post-Civil War the following developments set the stage for the great production explosion of the 20th century: increased capital and production capacity the expanded urban workforce new Western US markets an effective national transportation system

Scientific ManagementScientific Management Frederick Taylor is known as the father of

scientific management. His shop system employed these steps: Each worker’s skill, strength, and learning ability

were determined. Stopwatch studies were conducted to precisely set

standard output per worker on each task. Material specifications, work methods, and

routing sequences were used to organize the shop. Supervisors were carefully selected and trained. Incentive pay systems were initiated.

Scientific ManagementScientific Management In the 1920s, Ford Motor Company’s

operation embodied the key elements of scientific management: standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts

Human Relations and BehavioralismHuman Relations and Behavioralism

In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production.

Researchers and managers alike were recognizing that psychological and sociological factors affected production.

From the work of behavioralists came a gradual change in the way managers thought about and treated workers.

Operations ResearchOperations Research During World War II, enormous quantities of

resources (personnel, supplies, equipment, …) had to be deployed.

Military operations research (OR) teams were formed to deal with the complexity of the deployment.

After the war, operations researchers found their way back to universities, industry, government, and consulting firms.

OR helps operations managers make decisions when problems are complex and wrong decisions are costly.

The Service RevolutionThe Service Revolution The creation of services organizations

accelerated sharply after World War II. Today, more than two-thirds of the US workforce

is employed in services. About two-thirds of the US GDP is from services. There is a huge trade surplus in services. Investment per office worker now exceeds the

investment per factory worker. Thus there is a growing need for service

operations management.

The Computer RevolutionThe Computer Revolution Explosive growth of computer and

communication technologies Easy access to information and the availability of

more information Advances in software applications such as

Enterprise Resource Planning (ERP) software Widespread use of email More and more firms becoming involved in E-

Business using the Internet Result: faster, better decisions over greater

distances

Today's Factors Affecting OMToday's Factors Affecting OM

Global Competition Quality, Customer Service, and Cost

Challenges Rapid Expansion of Advanced

Technologies Continued Growth of the Service Sector Scarcity of Operations Resources Social-Responsibility Issues

Studying Operations Management

Studying Operations Management

Operations as a System

Decision Making in OM

Operations as a SystemOperations as a System

InputsInputs OutputsOutputsConversionSubsystemConversionSubsystem

Production System

ControlSubsystem

ControlSubsystem

Inputs of an Operations System

Inputs of an Operations System

External Legal, Economic, Social,

Technological Market

Competition, Customer Desires, Product Info.

Primary Resources Materials, Personnel, Capital, Utilities

Conversion SubsystemConversion Subsystem Physical (Manufacturing) Locational Services

(Transportation) Exchange Services (Retailing) Storage Services (Warehousing) Other Private Services

(Insurance) Government Services (Federal)

Outputs of an Operations SystemOutputs of an Operations System

Direct Products Services

Indirect Waste Pollution Technological Advances

Production as an Organization FunctionProduction as an Organization Function

Companies cannot compete with marketing, finance, accounting, and engineering alone.

We focus on OM as we think of global competitiveness, because that is where the vast majority of a firm’s workers, capital assets, and expenses reside.

To succeed, a firm must have a strong operations function teaming with the other organization functions.

Decision Making in OMDecision Making in OM

Strategic DecisionsOperating DecisionsControl Decisions

Strategic DecisionsStrategic Decisions These decisions are of strategic

importance and have long-term significance for the organization.

Examples include deciding: the design for a new product’s production

process where to locate a new factory whether to launch a new-product

development plan

Operating DecisionsOperating Decisions These decisions are necessary if the

ongoing production of goods and services is to satisfy market demands and provide profits.

Examples include deciding: how much finished-goods inventory to carry the amount of overtime to use next week the details for purchasing raw material next

month

Control DecisionsControl Decisions These decisions concern the day-to-day

activities of workers, quality of products and services, production and overhead costs, and machine maintenance.

Examples include deciding: labor cost standards for a new product frequency of preventive maintenance new quality control acceptance criteria

What Controls the Operations System?What Controls the Operations System?

Information about the outputs, the conversions, and the inputs is fed back to management.

This information is matched with management’s expectations

When there is a difference, management must take corrective action to maintain control of the system

IMPORTANCE OF OM FOR CONSUMERS

IMPORTANCE OF OM FOR CONSUMERS

Benefits of Higher Productivity

Better and Reliability Quality

Reasonable Price

Satisfactory Service

Timely and Speedy delivery of Goods / Services

IMPORTANCE OF OM FOR INVESTORS

IMPORTANCE OF OM FOR INVESTORS

Prosperity of Enterprise

Higher Return on Investment

Capital Appreciation

Market Value of Securities Governed by Earning Power and Asset Value of Enterprise

IMPORTANCE OF OM FOR COMMUNITY

IMPORTANCE OF OM FOR COMMUNITY

Economic and Social Stability

Citizens of Community have Both Pride and Satisfaction

IMPORTANCE OF OM FOR SUPPLIERS

IMPORTANCE OF OM FOR SUPPLIERS

Effective Cooperation

Best Intercommunication and Mutual Confidence Between Business Buyers and Suppliers

Satisfaction of Enduring Partnership Between Enterprise and Suppliers

IMPORTANCE OF OM FOR EMPLOYEES

IMPORTANCE OF OM FOR EMPLOYEES

Better Remuneration

Stable Employment

Security of Job

Better Working Conditions

Enhanced Personal Satisfaction Through Sense of Achievement

Productivity and Satisfaction are Closely Linked

IMPORTANCE OF OM FOR THE NATION

IMPORTANCE OF OM FOR THE NATION

Good Operations Management Leads Higher Economy

Sense of Pride Among the Nations

Higher GDP Growth Rate

National Prosperity

SCOPE OF OPERATIONS MANAGEMENT

SCOPE OF OPERATIONS MANAGEMENT

OM not Confined to Management of Plant Level Manufacturing Practices

OM Calls for Inter-related Actions Covering all Operational Activities Responsive for Changing Circumstances

Such Activities Include :

Quick response to Market Needs

Reduction in Lead Time Between Production Design to Actual Production

ACTIVITIES INCLUDED UNDER OM

ACTIVITIES INCLUDED UNDER OM

Product Planning and Development

Production Administration Involving :

Production Engineering (Plant Setup)

Production Planning

Production Control

Execution of Plans, Policies and Decisions Involved in :

Actual Conversion

Direction and Motivation of People

Dependent Services and Deptts e.g. Standardization, Specialization, Inspection, QC, Inventory Management, R&D, Diversification, Emp. Amenities