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chapter 1 Introduction
Introduction to
to Operations
Operations
Management
PowerPoint
Management Presentation
by
Charlie
Cook
© The McGraw-Hill Companies, Inc., 2003
 Chapter
Chapter Objectives
Objectives
• Introduce and define operations management (OM) in
terms of its contribution and the activities it involves.
• Describe how operations contributes to the overall
betterment of society.
• Present operations as a function that addresses
issues in both manufacturing and services.
• Show how operations management is gaining more
recognition both internally and externally to an
organization.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–2

 Chapter
Chapter Objectives
Objectives (cont’d)
(cont’d)
• Demonstrate how the operations management
function interacts with the other functional areas within
an organization.
• Present a brief history of operations management as a
field and its evolution to its current role in an
organization.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–3

 Managerial
Managerial Issues
Issues
• Shift in balance of power to consumers
–Globalization of business and markets
–E-commerce
• Achieving higher levels of productivity
–Creating higher quality products
–Delivering better customer service
–Achieving shorter delivery times
–Reducing labor and material costs

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–4

 What
What Is
Is Operations
Operations Management?
Management?
• Operations Management
–Management of the conversion process which
transforms inputs such as raw material and
labor into outputs in the form of finished goods
and services.

Inputs Outputs
(customers Transformation Process (goods
and/or (components) and
materials) services)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–5

 Role
Role of
of OM
OM within
within an
an Organization
Organization

Exhibit 1.1
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–6
 Top-down
Top-down Approach
Approach to
to OM
OM Strategy
Strategy
• Operations Strategy Decisions
–Strategic (long-range)
• Needs of customers
(capacity planning)
–Tactical (medium-range)
• Efficient scheduling of
resources
–Operational planning
and control (short-range)
• Immediate tasks and
activities

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–7

 An
An Operational-Level
Operational-Level OM
OM Perspective
Perspective
• OM’s function focuses on adding value
through the transformation process
(technical core) of converting inputs into
outputs.
–Physical: manufacturing
–Locational: transportation
–Exchange:retailing
–Storage: warehousing
–Physiological: health care
–Informational: telecommunications

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–8

 The
The Transformation
Transformation Process
Process within
within OM
OM

Exhibit 1.2
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–9
 Input-Transformation-Output
Input-Transformation-Output
Relationships
Relationships for
for Typical
Typical Systems
Systems

Exhibit 1.3
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–10
 OM’s
OM’s Contributions
Contributions to
to Society
Society
• Higher Standard of Living
–Ability to increase productivity
–Lower cost of goods and services
• Better Quality Goods and Services
–Competition increases quality
• Concern for the Environment
–Recycling and concern for air and water quality
• Improved Working Conditions
–Better job design and employee participation

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–11

 Annual
Annual Change
Change inin Productivity
Productivity in
in
the
the United
United States
States (1980-2000)
(1980-2000)

Source: Economic Report of the President, United States

Government Printing Office, Washington, DC. January, 2001.
Exhibit 1.4
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–12
 Services
Services as
as aa Percent
Percent of
of Gross
Gross Domestic
Domestic
Product
Product (GDP)
(GDP) for
for Different
Different Countries
Countries

Source: The World Factbook 2000, Central

Intelligence Agency, Washington, DC.
Exhibit 1.5
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–13
 The
The Emergence
Emergence of
of OM
OM
• Application of OM to Service Operations
–Batch cooking operations at McDonald’s
–Just-in-Time (JIT) at Northern Telecomm, Inc.
–Automatic inventory replenishment at Wal-Mart

Service Product Good

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–14

 Growth
Growth in
in Services
Services in
in the
the United
United States
States

Source: Handbook of U.S. Labor Statistics, edited by Eva E. Jacobs, Exhibit 1.6
1-6 Fifth Edition, Bernan Press, 2001, Table 2-1, pp. 161–164.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–15
 Differences
Differences Between
Between
Goods
Goods and
and Services
Services

• Goods • Services
–Tangible –Intangible
–Can be –Cannot be
inventoried inventoried
–No interaction –Direct interaction
between between
customer and customer and
process process

Exhibit 1.7
1-6 Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–16
 Most
Most Products
Products Are
Are aa “Bundle”
“Bundle”
of
of Goods
Goods and
and Services
Services

Exhibit 1.8
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–17
 An
An Expanded
Expanded Definition
Definition of
of Quality
Quality
• Quality is important in all functional areas of
an organization.
• Quality is now much more than the technical
requirements for manufactured goods.
• Service quality (customer
relationships) is equally
important.
Quality

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–18

 AA New
New Paradigm
Paradigm for
for OM
OM
• Post-War U.S. Dominance in Manufacturing
–Available capacity built to support the war effort
–Pent-up demand for consumer goods
–Destruction of overseas production capabilities
• Proactive Operations Function (Skinner)
–Add value to products, increase profit margins.
–Compete on dimensions other than costs:
• Quality
• Speed of delivery
• Process flexibility

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–19

 The
The Ever-Changing
Ever-Changing World
World of
of OM
OM
• Increased Global Competition
–Transformation into a global economy
–Pressure to excel on multiple competitive
dimensions
–Increased emphasis on logistics
• Advances in Technology
–Information technology (IT)
–Internet email and commerce (B2B)
–Automation and robotics

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–20

 Ford’s
Ford’s Global
Global Network
Network to
to Support
Support
the
the Manufacturing
Manufacturing of
of the
the Escort
Escort

Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed. Exhibit 1.9
(New York: W.W. Norton and Company, 1997), p. 58.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–21
 Linking
Linking OM
OM to
to Customers
Customers and
and Suppliers
Suppliers
• Benefits of Buffering the Transformation
Process
–The process was not disturbed by
environmental interaction.
–The process was often more efficient than input
and distribution processes.
–Productivity was maximized when processes
operated at continuous rates.
–Process management skills were different from
those of other functional activities.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–22

 Linking
Linking OM
OM to
to Customers
Customers and
and Suppliers
Suppliers
• Disadvantages of Buffering the Transformation
Process
–Information lag in interaction with other
functional activities.
–Lack of communication between customers and
the shop floor for problem solving.
• Value Chain
–Steps an organization requires to produce a
good or a service regardless of where they are
performed.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–23

 The
The Value
Value Chain
Chain and
and Its
Its Support
Support Functions
Functions

Exhibit 1.10
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–24
 Line
Line and
and Staff
Staff Jobs
Jobs in
in OM
OM

Exhibit 1.11
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–25
 Inputs
Inputs Provided
Provided by
by OM
OM to
to
Other
Other Functional
Functional Areas
Areas

Exhibit 1.12
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–26
 Historical
Historical Development
Development of
of OM
OM
• Prior to 1900
–Cottage industry produced custom-made goods.
–Watt’s steam engine in 1785.
–Whitney’s standardized gun parts in 1801.
–Industrial Revolution began at mid-century.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–27

 Historical
Historical Development
Development of
of OM
OM (cont.)
(cont.)
• Scientific Management (Frederick W. Taylor)
–Systematic approach to increasing worker
productivity through time study, standardization
of work, and incentives.
–Viewed workers as an interchangeable asset.
• Other Management Pioneers
–Frank and Lillian Gilbreth
• Motion study and industrial psychology
–Henry L. Gantt
• Scheduling and the Gantt chart

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–28

 Historical
Historical Development
Development of
of OM
OM (cont.)
(cont.)
• Moving Assembly Line (1913)
–Labor specialization reduced assembly time.
• Hawthorne Studies
–Yielded unexpected results in the productivity of
Western Electric plant workers after changes in
their production environment.
–Led to recognition of the importance of work
design and employee motivation.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–29

 Historical
Historical Development
Development of
of OM
OM (cont.)
(cont.)
• Operations Research (Management Science)
–Outgrowth of WWII needs for logistics control
and weapons-systems design.
–Seeks to obtain mathematically optimal
(quantitative) solutions to complex problems.
• OM Emerges as a Field
–1950–1960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–30

 Historical
Historical Development
Development of
of OM
OM (cont.)
(cont.)
• OM Emerges as a Field
–1950–1960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.
• The Marriage of OM and IT
–Integrated solutions approaches
• Business process reengineering
• Supply chain management
• Systems integration (SAP)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–31

 Historical
Historical Development
Development of
of OM
OM (cont.)
(cont.)
• Operations Management in Services
–OM concepts can apply to both manufacturing
and service operations.
• Integration of Manufacturing and Services
–Conducting world class operations requires
compatible manufacturing and service
operations.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–32