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1-1 Introduction to Operations Management
William J. Stevenson
Operations Management
8th edition
1-2 Introduction to Operations Management
CHAPTER1
Introduction to Operations Management
McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights
reserved.
1-3 Introduction to Operations Management
Operations ManagementOperations Management
The management of systems or processes that create goods and/or provide services
Organization
Finance Operations Marketing
Figure 1.1
1-4 Introduction to Operations Management
Value-AddedValue-Added
The difference between the cost of inputs and the value or price of outputs.
Inputs Land Labor Capital
Transformation/Conversion
process
Outputs Goods Services
Control
Feedback
FeedbackFeedback
Value added
Figure 1.2
1-5 Introduction to Operations Management
Steel productionAutomobile fabrication
Home remodelingRetail sales
Auto RepairAppliance repair
Maid ServiceManual car wash
TeachingLawn mowing
High percentage goodsLow percentage service
Goods-service ContinuumGoods-service Continuum
Low percentage goodsHigh percentage service
Figure 1.3
1-6 Introduction to Operations Management
Food ProcessorFood Processor
Inputs Processing Outputs
Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans
Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment
Table 1.2
1-7 Introduction to Operations Management
Hospital ProcessHospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy patientsHospital Surgery
Medical Supplies MonitoringEquipment MedicationLaboratories Therapy
Table 1.2
1-8 Introduction to Operations Management
Manufacturing or Service?Manufacturing or Service?
Tangible Act
1-9 Introduction to Operations Management
Production of Goods vs. Delivery of ServicesProduction of Goods vs. Delivery of Services
Production of goods – tangible output Delivery of services – an act Service job categories
Government Wholesale/retail Financial services Healthcare Personal services Business services Education
1-10 Introduction to Operations Management
Key DifferencesKey Differences
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
1-11 Introduction to Operations Management
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
1-12 Introduction to Operations Management
Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .
Scope of Operations ManagementScope of Operations Management
1-13 Introduction to Operations Management
The operations function Consists of all activities directly related to
producing goods or providing services
1-14 Introduction to Operations Management
Types of OperationsTypes of OperationsTable 1.4
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
1-15 Introduction to Operations Management
U.S. Manufacturing vs. Service Employment
0
20
40
60
80
100
45 50 55 60 65 70 75 80 85 90 95 00
Year
Perc
ent
Year Mfg. Service45 79 2150 72 2855 72 2860 68 3265 64 3670 64 3675 58 4280 44 4685 43 5790 35 6595 32 6800 30 70
Figure 1.4
1-16 Introduction to Operations Management
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
Table 1.6
1-17 Introduction to Operations Management
Key Decisions of Operations ManagersKey Decisions of Operations Managers
WhatWhat resources/what amounts
WhenNeeded/scheduled/ordered
WhereWork to be done
HowDesigned
WhoTo do the work
1-18 Introduction to Operations Management
Decision MakingDecision Making
System Design– capacity– location– arrangement of departments– product and service planning– acquisition and placement of
equipment
1-19 Introduction to Operations Management
Decision MakingDecision Making
System operation– personnel– inventory– scheduling– project
management– quality assurance
1-20 Introduction to Operations Management
Decision MakingDecision Making
Models Quantitative approaches Analysis of trade-offs Systems approach
1-21 Introduction to Operations Management
ModelsModels
A model is an abstraction of reality.
– Physical– Schematic– Mathematical
What are the pros and cons of models?
Tradeoffs
1-22 Introduction to Operations Management
Models Are BeneficialModels Are Beneficial
Easy to use, less expensive Require users to organize Systematic approach to problem solving Increase understanding of the problem Enable “what if” questions Specific objectives Consistent tool Power of mathematics Standardized format
1-23 Introduction to Operations Management
Quantitative ApproachesQuantitative Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
1-24 Introduction to Operations Management
Systems ApproachSystems Approach
“The whole is greater than the sum of the parts.”
SuboptimizationSuboptimization
1-25 Introduction to Operations Management
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?
1-26 Introduction to Operations Management
Business Operations OverlapBusiness Operations Overlap
Operations
Finance
Figure 1.5
Marketing
1-27 Introduction to Operations Management
Operations InterfacesOperations Interfaces
Public Relations
Accounting
IndustrialEngineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Legal
1-28 Introduction to Operations Management
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
1-29 Introduction to Operations Management
Trends in BusinessTrends in Business
Major trends The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Agility
1-30 Introduction to Operations Management
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
1-31 Introduction to Operations Management
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
1-32 Introduction to Operations Management
Other Important TrendsOther 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