Chapter 1

Introduction to Operations and Supply Chain Management

Operations Management - 6th Edition
Roberta Russell & Bernard W. Taylor, III

Copyright 2009 John Wiley & Sons, Inc.

Beni Asllani University of Tennessee at Chattanooga

Lecture Outline
What Operations and Supply Chain Managers Do Operations Function Evolution of Operations and Supply Chain Management Globalization and Competitiveness Operations Strategy and Organization of the Text Learning Objectives for This Course
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What Operations and Supply Chain Managers Do

What is Operations Management?

design, operation, and improvement of productive systems

a function or system that transforms inputs into outputs of greater value a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated

What is Operations?

What is a Transformation Process?

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Transformation Process
Physical: as in manufacturing operations Locational: as in transportation or warehouse operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication
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Operations as a Transformation Process

INPUT Material Machines Labor Management Capital

TRANSFORMATION PROCESS

OUTPUT Goods Services

Feedback & Requirements Copyright 2009 John Wiley & Sons, Inc. 1-5

Operations Function
Operations Marketing Finance and Accounting Human Resources Outside Suppliers
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How is Operations Relevant to my Major?

Accounting
As an auditor you must understand the fundamentals of operations management. IT is a tool, and theres no better place to apply it than in operations. We use so many things you learn in an operations class scheduling, lean production, theory of constraints, and tons of quality tools.
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Information Technology Management

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How is Operations Relevant to my Major? (cont.)

Economics Marketing
Its all about processes. I live by flowcharts and Pareto analysis. How can you do a good job marketing a product if youre unsure of its quality or delivery status? Most of our capital budgeting requests are from operations, and most of our cost savings, too.
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Finance

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Evolution of Operations and Supply Chain Management

Craft production

process of handcrafting products or services for individual customers dividing a job into a series of small tasks each performed by a different worker standardization of parts initially as replacement parts; enabled mass production

Division of labor

Interchangeable parts

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Evolution of Operations and Supply Chain Management (cont.)

Scientific management

systematic analysis of work methods

high-volume production of a standardized product for a mass market adaptation of mass production that prizes quality and flexibility
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Mass production

Lean production

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Historical Events in Operations Management

Era
Industrial Revolution

Events/Concepts
Steam engine Division of labor Interchangeable parts Principles of scientific management

Dates
1769 1776 1790

Originator
James Watt

Adam Smith Eli Whitney Frederick W. Taylor

Frank and Lillian Gilbreth Henry Gantt Henry Ford

1911
1911 1912 1913

Time and motion studies Scientific Management Activity scheduling chart Moving assembly line

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Historical Events in Operations Management (cont.)

Era
Human Relations

Events/Concepts
Hawthorne studies Motivation theories Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM MRP, EDI, EFT, CIM

Dates
1930 1940s 1950s 1960s 1947 1951 1950s 1960s, 1970s

Originator
Elton Mayo Abraham Maslow Frederick Herzberg Douglas McGregor George Dantzig Remington Rand Operations research groups Joseph Orlicky, IBM and others
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Operations Research

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Historical Events in Operations Management (cont.)

Era Events/Concepts Dates Originator
1970s 1980s 1980s 1990s 1990s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy GE, Motorola JIT (just-in-time) TQM (total quality management) Strategy and Quality Revolution operations Business process reengineering Six Sigma

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Historical Events in Operations Management (cont.)

Era
Internet Revolution

Events/Concepts

Dates Originator
ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE Amazon, Yahoo, eBay, Google, and others Numerous countries and companies

Internet, WWW, ERP, 1990s supply chain management

E-commerce

2000s

Globalization WTO, European Union, 1990s and other trade 2000s agreements, global supply chains, outsourcing, BPO, Services Science
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Evolution of Operations and Supply Chain Management (cont.)

Supply chain management

management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners

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Globalization and Competitiveness

Why go global?

favorable cost access to international markets response to changes in demand reliable sources of supply latest trends and technologies results from the Internet and falling trade barriers
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Increased globalization

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Globalization and Competitiveness (cont.)

Hourly Compensation Costs for Production Workers Source: U.S. Bureau of Labor Statistics, 2005.
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Globalization and Competitiveness (cont.)

World Population Distribution Source: U.S. Census Bureau, 2006.

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Globalization and Competitiveness (cont.)

Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
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Productivity and Competitiveness

Competitiveness

degree to which a nation can produce goods and services that meet the test of international markets
ratio of output to input sales made, products produced, customers served, meals delivered, or calls answered labor hours, investment in equipment, material usage, or square footage

Productivity

Output

Input

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Productivity and Competitiveness (cont.)

Measures of Productivity

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Productivity and Competitiveness (cont.)

Average Annual Growth Rates in Productivity, 1995-2005. Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons. January 2007, p. 28.
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Productivity and Competitiveness (cont.)

Average Annual Growth Rates in Output and Input, 1995-2005 Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons, January 2007, p. 26. Copyright 2009 John Wiley & Sons, Inc.

Dramatic Increase in Output w/ Decrease in Labor Hours

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Productivity and Competitiveness (cont.)

Retrenching

productivity is increasing, but both output and input decrease with input decreasing at a faster rate

Assumption that more input would cause output to increase at the same rate

certain limits to the amount of output may not be considered output produced is emphasized, not output sold; increased inventories
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Strategy and Operations

Strategy

Provides direction for achieving a mission Defining a primary task

Five Steps for Strategy Formulation

What is the firm in the business of doing? What does the firm do better than anyone else? What qualifies an item to be considered for purchase? What wins the order? How will the firm compete?

Assessing core competencies

Determining order winners and order qualifiers

Positioning the firm

Deploying the strategy

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Strategic Planning
Mission and Vision

Corporate Strategy

Marketing Strategy
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Operations Strategy

Financial Strategy
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Order Winners and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47 Copyright 2009 John Wiley & Sons, Inc. 1-27

Positioning the Firm

Cost Speed Quality Flexibility

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Positioning the Firm: Cost

Waste elimination

relentlessly pursuing the removal of all waste

Examination of cost structure

looking at the entire cost structure for reduction potential

providing low costs through disciplined operations

Lean production

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Positioning the Firm: Speed

fast moves, fast adaptations, tight linkages Internet

conditioned customers to expect immediate responses always competed on speed (McDonalds, LensCrafters, and Federal Express) time-based competition: build-to-order production and efficient supply chains

Service organizations

Manufacturers

Fashion industry

two-week design-to-rack lead time of Spanish retailer, Zara

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Positioning the Firm: Quality

Minimizing defect rates or conforming to design specifications; please the customer Ritz-Carlton - one customer at a time

Service system is designed to move heaven and earth to satisfy customer Every employee is empowered to satisfy a guests wish Teams at all levels set objectives and devise quality action plans Each hotel has a quality leader
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Positioning the Firm: Flexibility

ability to adjust to changes in product mix, production volume, or design National Bicycle Industrial Company

offers 11,231,862 variations delivers within two weeks at costs only 10% above standard models mass customization: the mass production of customized parts

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Policy Deployment
Policy deployment

translates corporate strategy into measurable objectives action plans generated from the policy deployment process

Hoshins

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Policy Deployment

Derivation of an Action Plan Using Policy Deployment

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Balanced Scorecard
Balanced scorecard

measuring more than financial performance

finances customers processes learning and growing

Key performance indicators

a set of measures that help managers evaluate performance in critical areas

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Balanced Scorecard
Balanced Scorecard Worksheet

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Balanced Scorecard

Radar Chart

Dashboard

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Operations Strategy
Services Products Human Resources Process and Technology

Capacity

Quality

Facilities

Sourcing

Operating Systems

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Organization of This Text: Part I Operations Management

Intro. to Operations and Supply Chain Management: Quality Management: Statistical Quality Control: Product Design: Service Design: Processes and Technology: Facilities: Human Resources: Project Management:
Copyright 2009 John Wiley & Sons, Inc.

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9

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Organization of This Text: Part II Supply Chain Management

Supply Chain Strategy and Design: Global Supply Chain Procurement and Distribution: Forecasting: Inventory Management: Sales and Operations Planning: Resource Planning: Lean Systems: Scheduling:
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Chapter 10 Chapter 11 Chapter 12 Chapter 13

Chapter 14 Chapter 15 Chapter 16 Chapter 17

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Learning Objectives of this Course

Gain an appreciation of strategic importance of operations and supply chain management in a global business environment Understand how operations relates to other business functions Develop a working knowledge of concepts and methods related to designing and managing operations and supply chains Develop a skill set for quality and process improvement
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Copyright 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein. Copyright 2009 John Wiley & Sons, Inc. 1-42