Introduction to Operations Management

McGraw-Hill/Irwin

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

What is operations?
The part of a business organization that is responsible for producing goods or services

How can we define operations management?

The management of systems or processes that create goods and/or provide services

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Goods are physical items that include raw materials, parts, subassemblies, and final products. Automobile Computer Oven Shampoo Services are activities that provide some combination of time, location, form or psychological value. Air travel Education Haircut Legal counsel
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Supply Chain a sequence of activities and organizations involved in producing and delivering a good or service

Suppliers suppliers

Direct suppliers

Producer

Distributor

Final Customers

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Organization

Marketing

Operations

Finance

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Value-Added

Inputs: Land Labor Capital Information

Transformation/ Conversion Process

Measurement and Feedback

Outputs: Goods Services

Measurement and Feedback

Measurement and Feedback

Control Feedback = measurements taken at various points in the transformation process Control = The comparison of feedback against previously established standards to determine if corrective action is needed.
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Products are typically neither purely service- or purely goods-based.

Goods

Services
Surgery, Teaching
Songwriting, Software Development Computer Repair, Restaurant Meal Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

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Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.

Goods

Services

Tangible

Act-Oriented
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1. Degree of 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

9. Evaluation of work
10. Ability to patent design
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1. 2.

3.
4. 5. 6. 7.

Jobs in services are often less structured than in manufacturing Customer contact is generally much higher in services compared to manufacturing In many services, worker skill levels are low compared to those of manufacturing employees Services are adding many new workers in low-skill, entry-level positions Employee turnover is high in services, especially in low-skill jobs. Input variability tends to be higher in many service environments than in manufacturing. Service performance can be adversely affected by many factors outside of the managers control. (e.g., employee and customer attitudes)

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Process: 1 or more actions that transform inputs into outputs

Three Categories of Business Processes: Upper-management processes Operational processes Supporting processes These govern the operation of the entire organization. These are core processes that make up the value stream. These support the core processes.

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Operations & Supply Chains

>

Sales & Marketing

Supply

Demand

Wasteful Costly

Supply

<

Demand

Opportunity Loss Customer Dissatisfaction

Supply

Demand

Ideal
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Four Sources of Variation:

Variety of goods or services being offered Structural variation in demand Random variation The greater the variety of goods and services offered, the greater the variation in production or service requirements. These are generally predictable. They are important for capacity planning. Natural variation that is present in all processes. Generally, it cannot be influenced by managers. Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action.

Assignable variation

Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays & shortages, poor quality, & inefficient work systems.

The scope of operations management ranges across the organization.

The operations function includes many interrelated activities such as:
Forecasting Capacity planning Facilities and layout Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .

The Operations Function consists of all activities directly related to producing goods or providing services.

A primary function of the operations manager is to guide the system by decision making.
System Design Decisions System Operation Decisions

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 System Design Capacity Facility location Facility layout Product and service planning Acquisition and placement of equipment These are typically strategic decisions that usually require L-T commitment of resources determine parameters of system operation
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 System Operation These are generally tactical and operational decisions Management of personnel Inventory management and control Scheduling Project management Quality assurance Operations managers spend more time on system operation decision than any other decision area They still have a vital stake in system design
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 Why is the United Stated losing manufacturing jobs?

What can we do about it?

 Every aspect of business affects or is affected by

operations

Many service jobs are closely related to operations Financial services Marketing services Accounting services Information services
There is a significant amount of interaction and

collaboration amongst the functional areas

world in which we live

It provides an excellent vehicle for understanding the

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Whats missing from this picture?

Operations Supporting Functions

 Why is strategic planning so important? How long a timeframe should it cover?

 Why do they exist? Why should you join one while in school?

 Most operations decisions involve many alternatives that can

have quite different impacts on costs or profits

Typical operations decisions include: What: What resources are needed, and in what amounts? When: When will each resource be needed? When should the

work be scheduled? When should materials and other supplies

be ordered?
Where: Where will the work be done? How: How will he product or service be designed? How will

the work be done? How will resources be allocated?

Who: Who will do the work?
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 Modeling is a key tool used by all decision makers Model - an abstraction of reality; a simplification of

something.

Common features of models:

They are simplifications of real-life phenomena

They omit unimportant details of the real-life

systems they mimic so that attention can be focused on the most important aspects of the real-life system
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 Types of Models: Physical Models

Look like their real-life counterparts

Schematic Models

Look less like their real-life counterparts than

physical models
Mathematical Models
Do not look at all like their real-life counterparts
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1. Models are generally easier to use and less

expensive than dealing with the real system

2. Require users to organize and sometimes quantify

information
3. Increase understanding of the problem

4. Enable managers to analyze What if? questions

5. Serve as a consistent tool for evaluation and provide

a standardized format for analyzing a problem

6. Enable users to bring the power of mathematics to

bear on a problem.

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 A decision making approach that frequently seeks to

obtain a mathematically optimal solution

Linear programming Queuing techniques Inventory models Project models Forecasting techniques Statistical models

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 System - a set of interrelated parts that must work together The business organization is a system composed of subsystems marketing subsystem operations subsystem finance subsystem The systems approach Emphasizes interrelationships among subsystems Main theme is that the whole is greater than the sum of its parts

The output and objectives of the organization take precedence

over those of any one subsystem

 Industrial Revolution Scientific Management Human Relations Movement

Decision Models and Management Science

Influence of Japanese Manufacturers

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 Pre-Industrial Revolution Craft production - System in which highly skilled workers use

simple, flexible tools to produce small quantities of customized goods

Some key elements of the industrial revolution Began in England in the 1770s Division of labor - Adam Smith, 1776 Application of the rotative steam engine, 1780s Cotton Gin and Interchangeable parts - Eli Whitney, 1792 Standards began to be applied to functions. Management theory and practice did not advance appreciably

during this period

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 Movement was led by efficiency engineer, Frederick Winslow

Taylor
Believed in a science of management based on observation,

measurement, analysis and improvement of work methods, and economic incentives

Management is responsible for planning, carefully selecting and

training workers, finding the best way to perform each job, achieving cooperate between management and workers, and separating management activities from work activities
Emphasis was on maximizing output

 Frank Gilbreth - father of motion studies

UPS uses this to a great extent.

Henry Gantt - developed the Gantt chart scheduling system and

recognized the value of non-monetary rewards for motivating employees

Harrington Emerson - applied Taylors ideas to organization

structure
Henry Ford - employed scientific management techniques to his

factories
Moving assembly line Mass production Division of Labor

 The human relations movement emphasized the importance of

the human element in job design

Lillian Gilbreth worker fatigue

Elton Mayo Hawthorne studies on worker motivation, 1930

Abraham Maslow motivation theory, 1940s; hierarchy of needs, 1954 Frederick Hertzberg Two Factor Theory, 1959 Douglas McGregor Theory X and Theory Y, 1960s

William Ouchi Theory Z, 1981

Maslows Hierarchy of Needs

NEED SELFACTUALIZATION

ESTEEM NEEDS

LOVE, AFFECTION, AND BELONGINGNESS NEEDS

SAFETY NEEDS PHYSIOLOGICAL OR SURVIVAL NEEDS

 Theory X
Workers do not like to work must be controlled

Theory Y
Workers enjoy the physical and mental aspects of work

Theory Z
Lifetime employment, employee problem solving,

consensus building, short-term employment, specialists, individual decision making

 F.W. Harris mathematical model for inventory management, 1915 Dodge, Romig, and Shewart statistical procedures for sampling and

quality control, 1930s

Tippett statistical sampling theory, 1935 Operations Research (OR) Groups OR applications in warfare George Dantzig linear programming, 1947

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 Refined and developed management practices that

increased productivity
Credited with fueling the quality revolution Just-in-Time production

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 Product and Service technology Process technology Information Technology

 Management of technology

Globalization
Competition
Operations strategy Working with fewer resources Revenue management Process analysis and improvement Quality (six sigma?) Cost Agility Lean production

 Economic conditions Innovating Quality problems Risk management Competing in a global economy

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 Sustainability
Using resources in ways that do not harm ecological

systems that support human existence

Sustainability measures often go beyond traditional

environmental and economic measures to include measures that incorporate social criteria in decision making
All areas of business will be affected
Product and service design
Consumer education programs Disaster preparation and response Supply chain waste management Outsourcing decisions

 Packaging

Materials
Water and energy consumption Supply chain

 Ethical issues arise in

many aspects of operations management:

Financial statements Worker safety Product safety Quality The environment The community Hiring and firing workers Closing facilities

Workers rights

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 Utilitarian Principle good should outweigh the bad

Rights principle respect and protect the moral rights

of others
Fairness principle equals are held to the same

standard
Common Good principle common good of the

community
Virtue principle consistent with ideal virtues

Do the right thing Do it the right way Do it at the right time Do it for the right price

 In the past, organizations did little to manage the supply

chain beyond their own operations and immediate suppliers which led to numerous problems:
Oscillating inventory levels Inventory stockouts Late deliveries Quality problems

1. The need to improve operations 2. Increasing levels of outsourcing

3. 4. 5. 6. 7. 8.

Is outsourcing a good or bad thing? Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-business The complexity of supply chains The need to manage inventories

 Customers what products/services do customers want Forecasting predicting timing and volume of customer demand Design incorporating customer wants, manufacturability, and

time to market Capacity planning matching supply and demand Processing controlling quality, scheduling work Inventory meeting demand requirements while managing costs Purchasing evaluating potential suppliers, supporting the needs of operations on purchased goods and services Suppliers monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations Location determining the location of facilities Logistics deciding how to best move information and materials

 What technological change has had

the biggest impact on the global transportation of goods?