# 00[1]. Operations Management

1-1

Operations Operations ManagementManagement

IntroductionIntroduction

PDF created with pdfFactory Pro trial version www.pdffactory.com

http://www.pdffactory.com


1-2

OutlineOutline♦ What is Operations Management?♦ The heritage of Operations Management♦ Why study OM?♦ What Operations Managers do

♦ How this book is organized♦ Organizing to produce goods and services♦Where are the OM jobs?♦Exciting new trends in Operations

Management




1-3

Outline Outline -- ContinuedContinued♦Operations in the service sector

♦ Differences between goods and services♦ Growth of services♦ Service pay

♦The Productivity challenge♦ Productivity measurement♦ Productivity variables♦ Productivity and the Service Sector

♦The challenge of social responsibility




1-4

Learning ObjectivesLearning ObjectivesWhen you complete this chapter, you should

be able to :♦ Identify or Define:

♦ Production and productivity♦ Operations Management (OM)♦ What operations managers do♦ Services




1-5

Learning Objectives Learning Objectives -- continuedcontinuedWhen you complete this chapter, you should

be able to :♦Describe or Explain:

♦ A brief history of operations management♦ Career opportunities in operations management♦ The future of the discipline♦ Measuring productivity




Introduction




1-7

What Is Operations Management?What Is Operations Management?

♦Operations function is the set of activities that creates goods and services by transforming inputs into outputs

♦Production is the creation of goods and services

♦Operations Management is the management of systems or processes that create goods and/or provide services




Operations as a System

Transformation(Conversion)

Process

EnergyMaterials

LaborCapital

Information

Goods orServices

Feedback information forcontrol of process inputsand process technology




1-9

The Economic System The Economic System Transforms Inputs to OutputsTransforms Inputs to Outputs

The economic system transforms inputs to outputs at about an annual 1.7% increase in productivity (capital 38% of 1.7%), labor (10% of 1.7%), management (52% of 1.7%)

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs




ValueValue--AddedAdded

The difference between the cost of inputs and the value or price of outputs.

InputsLandLaborCapital

Transformation/Conversion

process

OutputsGoodsServices

Control

Feedback

FeedbackFeedback

Value added




Heritage of Operations Management




1-12

The Heritage of The Heritage of Operations ManagementOperations Management

Division of labor (Adam Smith 1776 and Charles Babbage 1852)Standardized parts (Whitney 1800)

Scientific Management (Taylor 1881)Coordinated assembly line (Ford, Sorenson/Avery 1913)

Gantt charts (Gantt 1916)Motion study (Frank and Lillian Gilbreth 1922

Quality control (Shewhart 1924; Deming 1950)

Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)




1-13

The Heritage of Operations The Heritage of Operations Management Management -- continuedcontinued

Material requirements planning (Orlicky 1960)Computer aided design (CAD 1970)

Flexible manufacturing system (FMS 1975)Baldrige Quality Awards (1980)

Computer integrated manufacturing (1990)Globalization(1992)

Internet (1995)




1-14

Eli WhitneyEli Whitney

♦ Born 1765; died 1825♦ In 1798, received government

contract to make 10,000 muskets

♦ Showed that machine tools could make standardized parts to exact specifications

♦ Musket parts could be used in any musket




1-15

Frederick W. TaylorFrederick W. Taylor

♦ Born 1856; died 1915♦ Known as ‘father of scientific

management’♦ In 1881, as chief engineer for Midvale

Steel, studied how tasks were done♦ Began first time & motion studies

♦ Contributions♦Created principles related with

efficiency, exception, time study, methods analysis, standards, planning & control

© 1995 Corel Corp.




1-16

Taylor: Management Should Take Taylor: Management Should Take More Responsibility forMore Responsibility for

♦Matching employees to right job♦Providing the proper training♦Providing proper work methods and tools♦Establishing legitimate incentives for work

to be accomplished




1-17

Frank & Lillian Frank & Lillian GilbrethGilbreth♦ Frank (1868-1924); Lillian (1878-1972)♦ Husband-and-wife engineering team♦ Further developed work measurement methods♦ Applied efficiency methods to their home & 12

children!♦ (Book & Movie: “Cheaper by the Dozen,” book:

“Bells on Their Toes”♦ Contributions

♦ Frank: Motion study, methods, therbligs, construction contracting, consulting

♦ Lillian: Fatigues studies, human factor in work, employee selection & training




1-18

♦ Born 1863; died 1947♦ In 1903, created Ford

Motor Company♦ In 1913, first used

moving assembly line to make Model T

♦ Unfinished product moved by conveyor past work station

♦ Paid workers very well for 1911 ($5/day!)

Henry FordHenry Ford

‘‘Make them all alike!’




1-19

W. Edwards DemingW. Edwards Deming

♦ Born 1900; died 1993♦ Engineer & physicist♦ Credited with teaching Japan

quality control methods in post-WW2

♦ Used statistics to analyze process

♦ His methods involve workers in decisions




1-20

OthersOthers

♦ Henry Gantt (1861-1919)♦Gantt charts, incentive pay schemes, humanistic

approach to labour, training♦ Carl G. Barth (1860-1919)

♦Mathematical analysis, slide rule, feeds and speeds studies, consulting to automobile industry

♦ Harrington Emerson (1885-1931)♦Principles of efficiency, million-dollars-a-day

savings in railroads, methods of control




1-21

Contributions FromContributions From

♦Human factors♦ Industrial engineering♦Management science♦Biological science♦Physical sciences♦ Information science




1-22

Figure 1.1Figure 1.1




1-23

Significant Events in OMSignificant Events in OM

♦ Division of labor (Smith, 1776)♦ Standardized parts (Whitney, 1800)♦ Scientific management (Taylor, 1881)♦ Coordinated assembly line (Ford 1913)♦ Gantt charts (Gantt, 1916)♦ Motion study (the Gilbreths, 1922)♦ Quality control (Shewhart, 1924)




1-24

Significant Events Significant Events -- ContinuedContinued

♦ CPM/PERT (Dupont, 1957)♦ MRP (Orlicky, 1960)♦ CAD♦ Flexible manufacturing systems (FMS)♦ Manufacturing automation protocol (MAP)♦ Computer integrated manufacturing (CIM)




Significance & Scope of Operations Management




1-26

Why Study OM?Why Study OM?♦OM is one of three major functions

(marketing, finance, and operations) of any organization

♦We want (and need) to know how goods and services are produced

♦We want to know what operations managers do

♦OM is such a costly part of an organization




Business Operations OverlapBusiness Operations Overlap

Operations

FinanceMarketing




Relation of Operations to its Environment

Operations transformation systemSuppliers

HumanResources Marketing

Accounting Finance MIS

Engineering

SOCIETY

GOVERNMENT

ExternalEnvironment

CUSTOMERS

COMPETITORS







1-30

Options for Increasing Options for Increasing ContributionContribution

MarketingOption

Finance &Accounting

Option

OM Option

Current SalesRevenue :

+50%

FinanceCosts: -50%

ProductionCosts: -20%

Sales $100,000 $150,000 $100,000 $100,000Cost ofGoods Sold

-80,000 -120,000 -80,000 -64,000

GrossMargin

20,000 30,000 20,000 36,000

FinanceCosts

-6,000 -6,000 -3,000 -6,000

14,000 24,000 17,000 30,000Taxes @25%

-3,500 -6,000 -4,250 -7,500

Contribution 10,500 18,000 12,750 22,500




Scope of Operations Management




Types of OperationsTypes of Operations

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/Transportation Warehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, banking,renting, leasing, library, loans

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and televisionnewscasts, telephone, satellites




Responsibilities of Operations ManagementResponsibilities of Operations Management

Products & services

Planning– Capacity– Location–– Make or buy– Layout– Projects– Scheduling

Controlling/Improving– Inventory– Quality

Organizing– Degree of centralization– Process selection

Staffing– Hiring/laying off– Use of Overtime

Directing– Incentive plans– Issuance of work orders– Job assignments

– Costs– Productivity




Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal







1-36

Ten Critical DecisionsTen Critical Decisions♦ Service, product design……………………………...♦ Quality management………………………………….♦ Process, capacity planning & design……………...♦ Location …………….………………………………….♦ Layout & Material Handling planning & design….♦ Human resources, job design………………………♦ Supply-chain management………………………….♦ Inventory management ………………………………♦ Scheduling …………………………………………….♦ Maintenance …………………...................................




1-37

Ten Critical DecisionsTen Critical Decisions♦ Forecasting ……………..……………………..♦ Employee Motivation………………………....♦ Process, capacity design…….……………..♦ Location …………….…………..……………..♦ Layout design ………………….……………..♦ Human resources, job design.……………..♦ Supply-chain management…..……………..♦ Inventory management ……….……………..♦ Scheduling ……………………..……………..♦ Maintenance …………………...……………..




1-38

The Critical DecisionsThe Critical Decisions

♦Quality management♦ Who is responsible for quality?♦ How do we define quality?

♦Service and product design♦ What product or service should we offer?♦ How should we design these products and

services?




1-39

The Critical Decisions The Critical Decisions -- ContinuedContinued

♦Process and capacity design♦ What processes will these products require and in

what order?♦ What equipment and technology is necessary for

these processes?♦Location

♦ Where should we put the facility♦ On what criteria should we base this location

decision?




1-40


♦Layout design♦ How should we arrange the facility?♦ How large a facility is required?

♦Human resources and job design♦ How do we provide a reasonable work

environment?♦ How much can we expect our employees to

produce?




1-41


♦Supply chain management♦ Should we make or buy this item?♦ Who are our good suppliers and how many should

we have?♦ Inventory, material requirements planning,

JIT “just-in-time” inventory, ♦ How much inventory of each item should we have?♦ When do we re-order?




1-42


♦ Intermediate, short term, and project scheduling♦ Is subcontracting production a good idea?♦ Are we better off keeping people on the payroll

during slowdowns?♦Maintenance

♦ Who is responsible for maintenance?







Operations Manager

Role & Responsibilities




1-45

What Operations Managers DoWhat Operations Managers Do

♦Plan♦Organize

♦ Staff♦Lead

♦Control




Key Decisions of Operations Managers

♦WhatWhat resources/what amounts

♦WhenNeeded/scheduled/ordered

♦WhereWork to be done

♦HowDesigned

♦WhoTo do the work




Role of Operations Manager

1. Managing a cost centre2. Managing the short and long term3. Manager of technology4. Coordinating the whole5. Managing the work and money flow6. Using the common denominator of time7. Tangible outputs 8. Linking the thinking and doing ends of a business9. Managing complexity




Examples of Operations Function




1-49

Organizational FunctionsOrganizational Functions

♦Marketing♦ Gets customers

♦Operations♦ creates product or service

♦Finance/Accounting♦ Obtains funds♦ Tracks money




1-50

Functions Functions -- BankBank

Operations Finance/Accounting

Marketing

CheckClearing

TellerScheduling

TransactionsProcessing

Security

Commercial Bank© 1984-1994 T/Maker Co.




1-51

Functions Functions -- AirlineAirline


Marketing

GroundSupport

FlightOperations

FacilityMaintenance Catering

Airline© 1984-1994 T/Maker Co.




1-52

Functions Functions -- ManufacturerManufacturer


Marketing

ProductionControl

Manufacturing QualityControl Purchasing

Manufacturing




1-53

Organizational ChartsOrganizational Charts

Commercial Bank

OperationsTeller SchedulingCheck ClearingTransactions processingFacilities design/layoutVault operationsMaintenanceSecurity

FinanceInvestmentsSecurityReal Estate

Accounting

Auditing

MarketingLoans

CommercialIndustrialFinancialPersonalMortgage

Trust Department




1-54

Organizational ChartsOrganizational ChartsAirline

OperationsGround support equipmentMaintenanceGround Operations

Facility maintenanceCatering

Flight OperationsCrew schedulingFlyingCommunicationsDispatching

Management science

Finance & Accounting

AccountingPayablesReceivablesGeneral LedgerFinanceCash controlInternational exchange

MarketingTraffic administrationReservationsSchedulesTariffs (pricing)SalesAdvertising




1-55

Organizational ChartsOrganizational ChartsManufacturing

OperationsFacilities:

Construction:maintenanceProduction & inventory control

Scheduling: materials controlSupply-chain managementManufacturing

Tooling, fabrication,assemblyDesign

Product development and designDetailed product specifications

Industrial engineeringEfficient use of machines, space, and personnel

Process analysisDevelopment and installation of production tools

and equipment

Finance & Accounting

Disbursements/creditsReceivablesPayablesGeneral ledger

Funds ManagementMoney marketInternational

exchangeCapital requirements

Stock issueBond issues and

recall

MarketingSales promotionsAdvertisingSalesMarket research




1-56

Where Are the OM Jobs?Where Are the OM Jobs?♦Technology/methods♦Facilities/space utilization♦Strategic issues♦Response time♦People/team development♦Customer service♦Quality♦Cost reduction♦ Inventory reduction♦Productivity improvement




Latest Trends in Operations Management




Trends in Business♦Major trends

♦ The Internet, e-commerce, e-business♦ Management technology♦ Globalization♦ Management of supply chains♦ Agility




Other Important Trends♦Ethical behavior♦Operations strategy♦Working with fewer resources♦Cost control and productivity♦Quality and process improvement♦ Increased regulation and product liability♦Lean production




New Operations Themes

♦ Service and Manufacturing (differences and implications)

♦ Customer-Directed Operations♦ Continuous Improvement♦ Time Reduction♦ Integration of Operations and Other Functions♦ Environmental Concerns♦ Globalization of Operations




1-61

New Challenges in OMNew Challenges in OM

♦ Local or national focus♦ Batch shipments♦ Low bid purchasing

♦ Lengthy product development

♦ Standard products♦ Job specialization

♦ Global focus♦ Just-in-time♦ Supply chain

partnering♦ Rapid product

development, alliances

♦ Mass customization♦ Empowered

employees, teams

FromFrom ToTo




1-62

Changing Challenges for the Changing Challenges for the Operations ManagerOperations Manager

Past Causes FutureLocal ornationalfocus

Low-cost, reliableworldwide communicationand transportationnetworks

Global Focus

Batch(large)shipments

Cost of capital putspressure on reducinginvestment in inventory

Just-in-time shipments

Low-bidpurchasing

Quality emphasis requiresthat suppliers be engagedin product improvement

Supply-chain partners




1-63

Changing Challenges for the Changing Challenges for the Operations ManagerOperations Manager

Past Causes FutureLengthyproductdevelopment

Shorter life cycles, rapidinternationalcommunications, computer-aided design, andinternational collaboration

Rapid productdevelopment

Standardizedproducts

Affluence and worldwidemarkets; increasingly flexibleproduction processes

Mass customization

Jobspecialization

Changing socioculturalmilieu. Increasingly aknowledge and informationsociety.

Empoweredemployees, teams,and lean production




Goods versus Services




Steel productionAutomobile fabrication

Home remodelingRetail sales

Auto RepairAppliance repair

Maid ServiceManual car wash

TeachingLawn mowing

High percentage goodsLow percentage service

GoodsGoods--service Continuumservice Continuum

Low percentage goodsHigh percentage service




1-66

Goods Contain Services & Goods Contain Services & Services Contain GoodsServices Contain Goods

0 25 50 75 100255075100

AutomobileComputerInstalled Carpeting

Fast-food MealRestaurant Meal

Auto RepairHospital Care

Advertising AgencyInvestment Management

Consulting ServiceCounseling

Percent of Product that is a Good Percent of Product that is a Service




1-67

Characteristics of GoodsCharacteristics of Goods

♦ Tangible product♦ Consistent product

definition♦ Production usually

separate from consumption

♦ Can be inventoried♦ Low customer

interaction




Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetablesMetal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment




1-69

Characteristics of ServiceCharacteristics of Service

♦ Intangible product♦ Produced & consumed at

same time♦ Often unique♦ High customer interaction♦ Inconsistent product

definition♦ Often knowledge-based♦ Frequently dispersed




Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy




1-71

Goods Versus ServicesGoods Versus Services

♦Can be resold♦Can be inventoried

♦Some aspects of quality measurable

♦Selling is distinct from production

♦Reselling unusual♦Difficult to

inventory♦Quality difficult to

measure♦Selling is part of

service

GoodsGoods ServiceService




1-72

Goods Versus Services Goods Versus Services --ContinuedContinued

♦ Product is transportable

♦ Site of facility important for cost

♦ Often easy to automate

♦ Revenue generated primarily from tangible product

♦ Provider, not product is transportable

♦ Site of facility important for customer contact

♦ Often difficult to automate

♦ Revenue generated primarily from intangible service.

GoodsGoods ServiceService




Manufacturing vs ServiceManufacturing vs Service

Characteristic Manufacturing ServiceOutput

Customer contact

Uniformity of input

Labor content

Uniformity of output

Measurement of productivity

Opportunity to correct

Tangible

Low

High

Low

High

Easy

High

Intangible

High

Low

High

Low

Difficult

Lowquality problems

High




Documents

# 00[1]. Operations Management