Copyright 2006 John Wiley & Sons, Inc. Chapter 1 Introduction to Operations and Competitiveness To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

Welcome to BA 3304 Instructor: Dr. Burns Spring 2016 SEMESTER Telephone: Off hrs: by appointment Website: burns.ba.ttu.edu © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-3 My web site From there you can navigate to the BA 3304 WEBPAGE © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-4 Prerequisites  STATISTICS Basic Statistical Concepts Basic Statistical Concepts  COMPUTER LITERACY MS Excel MS Excel MS Word MS Word © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-5 Seating  The seat you sit in on the second session of class will be your seat for the duration of the class  A seating chart will be ‘made-up’ then  Attendance will be taken every day  Attendance/Participation will be worth 15% of your course grade © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-6 Survey  will hand it out… © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Copyright 2006 John Wiley & Sons, Inc. 1-7

1-8 Requirements/Pedagogy  Two EXAMS and a FINAL EXAM  Three homework sets Collected the day before we do our review Collected the day before we do our review TO GET US READY TO TAKE THE EXAMS TO GET US READY TO TAKE THE EXAMS  Three Reviews Performed the day before we take the exams Performed the day before we take the exams TO GET US READY TO TAKE THE EXAMS TO GET US READY TO TAKE THE EXAMS © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-9 Grading  The homework is worth a total of 25% (10, 10, 5) (10, 10, 5)  Each EXAM is worth 20% {There are two EXAMS} {There are two EXAMS}  The FINAL is worth 20%  Attendance and participation is worth 15% © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-10 Grades  A  B  C  97.5-on up---A+  A  A- © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-11 Class Pedagogy  Won’t show any movies  Video clips are OK, however  PowerPoint  Simulations, where possible  Lectures--more informal  Interactive discussions © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

About your professor…..  Have taught this course for more than 20 years  Finds the content of this course fascinating  …..my view of this course and the world… 1-12 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-13 The 100 best jobs today (US News Rankings – 2015)  jobs/rankings/the-100-best-jobs jobs/rankings/the-100-best-jobs jobs/rankings/the-100-best-jobs © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-14 Questions  How big is the U.S. economy in terms of GDP? What is the world-wide GDP?  How big is the U.S. population in relation to the rest of the world?  What percentage of worldwide nonrenewable resources are consumed just in the U.S. alone? © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-15 More questions  Is the U.S. leadership in terms of material standard of living sustainable? What does it take to make it sustainable? What does it take to make it sustainable?  What is causing the devaluation of the dollar? Will that devaluation continue?  Is there anything good that comes from devaluation of the dollar?  What’s bad about the $ devaluation? © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-16 What are some of the biggest problems our country (U.S.A.) faces?  The war on terror  Mexican border out of control  The national debt; the budget and trade deficits  Many, many new jobs are needed 94 million Americans out of work 94 million Americans out of work  Contributions to global warming  Health care is too expensive © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-17 What solutions do you foresee to America’s problems?  Massive Jobs growth (particularly high-value jobs) and Immigration of tax-paying, foreign professionals  Strong productivity growth  Sell Resources owned by the Federal Gov. Oil on Federally-owned lands Oil on Federally-owned lands Gas on Federally-owned lands Gas on Federally-owned lands Coal on Federally-owned lands Coal on Federally-owned lands Uranium on Federally-owned lands Uranium on Federally-owned lands Electricity (solar and wind farms on federally-owned land) Electricity (solar and wind farms on federally-owned land)  Drastically reduce the size of the federal government  BUY AMERICAN © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-18 The National Debt  Officially, $18,904,325,678, as of today accumulating at the rate of $3.5 billion per day-- $139,250 per taxpayer  According to Kotlikoff, the fiscal gap is a stunning $65.9 trillion—that is more than twice the total net worth of the entire country  Social Security and Medicare liabilities are estimated at $40 trillion  No plans for accommodation of the retirements in 77 million baby boomers beginning now, but becoming substantial after 2014 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-19 Solutions--Kotlikoff © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-20 Competitiveness  The opportunities are huge  There will be massive change  You can exploit that change to create wealth © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-21 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-22 What are some OM entry-level titles?  PROJECT MANAGER  BUSINESS PROCESS ANALYST  INVENTORY ANALYST  PROJECT COORDINATOR  UNIT SUPERVISOR  SUPPLY CHAIN ANALYST  MATERIALS MANAGER  QUALITY ASSURANCE SPECIALIST  PRODUCTION SCHEDULER  LOGISTICS PLANNER © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-23 Competitiveness, Productivity, Leanness, Agility and Maturity  That’s what this course is about  Creating wealth through production of goods and services © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-24 An Assessment using a methodology that Assimilates Three World Views  Statistics/Forecasting  Dynamic modeling/simulation  Systems Thinking © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-25 THE PROBLEM Revisited  Reduce the outflow (federal expenditures) to a minimum  Increase the inflow (federal revenues) to a maximum, without raising taxes  As some optimists predict (AAAS,2005) federal deficits must register a turn around in the trend and start to decline from the current 3+% of GDP down to a healthy 1% © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-26 Possible Solutions to the Growing Deficit and National Debt  Open up federal lands in Colorado, Wyoming, Utah, Nevada and Alaska to oil exploration and production  Open up the outer continental shelf to aggressive oil exploration  Export our hugely abundant uranium resources for energy usage © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-27 Summary  Debt service is growing; revenues aren’t  Our highest priority as a country should be the reduction and pay-down of the national debt  To pay down the national debt, we must stay focused on that national priority  The citizenry of a country are NOT FREE if that country is deeply in debt © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

1-28 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Chapter 1 Introduction to Operations and Supply Chain Management Russell and Taylor Operations and Supply Chain Management, 8th Edition

Lecture Outline  The Operations Function The Operations Function The Operations Function  The Evolution of Operations and Supply Chain Management The Evolution of Operations and Supply Chain Management The Evolution of Operations and Supply Chain Management  Globalization Globalization  Productivity and Competitiveness Productivity and Competitiveness Productivity and Competitiveness  Strategy and Operations Strategy and Operations Strategy and Operations  Organization of the Text Organization of the Text Organization of the Text  Learning Objectives of this Course Learning Objectives of this Course Learning Objectives of this Course 1-30 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Learning Objectives  Describe what the operations function is and how it relates to other business functions.  Discuss the key factors that have contributed to the evolution of operations and supply chain management.  Discuss how and why businesses operate globally, and the importance of globalization in supply chain management.  Calculate and interpret productivity measures used for measuring competitiveness.  Discuss the importance of operations and supply chain management to a firm’s strategy, and the process of developing, aligning and deploying strategy © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Operations Management What is Operations Management?What is Operations Management? design, operation, and improvement of productive systems design, operation, and improvement of productive systems What is Operations?What is Operations? a function or system that transforms inputs into outputs of greater value a function or system that transforms inputs into outputs of greater value  What is a Value Chain? a series of activities from supplier to customer that add value to a product or service a series of activities from supplier to customer that add value to a product or service 1-32 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Transformation Process A series of activities along a value chain extending from supplier to customerA series of activities along a value chain extending from supplier to customer Activities that do not add value are superfluous and should be eliminatedActivities that do not add value are superfluous and should be eliminated 1-33 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Transformation Process Physical: as in manufacturing operationsPhysical: as in manufacturing operations Locational: as in transportation or warehouse operationsLocational: as in transportation or warehouse operations Exchange: as in retail operationsExchange: as in retail operations Physiological: as in health carePhysiological: as in health care Psychological: as in entertainmentPsychological: as in entertainment Informational: as in communicationInformational: as in communication 1-34 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Operations as a Transformation Process 1-35 INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Feedback & Requirements © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

The Operations Function  Organizing work  Selecting processes  Arranging layouts  Locating facilities  Designing jobs  Measuring performance  Controlling quality  Scheduling work  Managing inventory  Planning production © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Operations Function  Operations  Marketing  Finance and Accounting  Human Resources  Suppliers 1-37 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Sample Organizational Structure C3-38 CEO Chief Executive Officer CIO Chief Information Officer CFO Chief Financial Officer COO Chief Operating Officer VP Human Resources VP Operations VP Supply Chain Management VP Marketing © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

How is Operations Relevant to my Major?  Accounting  Information Technology  Management  “As an auditor you must understand the fundamentals of operations management.”  “IT is a tool, and there’s 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.” 1-39 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

How is Operations Relevant to my Major?  Economics  Marketing  Finance  “It’s all about processes. I live by flowcharts and Pareto analysis.”  “How can you do a good job marketing a product if you’re unsure of its quality or delivery status?”  “Most of our capital budgeting requests are from operations, and most of our cost savings, too.” 1-40 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Evolution of Operations and Supply Chain Management  Industrial revolution Craft production Craft production process of handcrafting products or services for individual customers process of handcrafting products or services for individual customers Division of labor Division of labor dividing a job into a series of small tasks each performed by a different worker dividing a job into a series of small tasks each performed by a different worker Interchangeable parts Interchangeable parts standardization of parts that enabled mass production standardization of parts that enabled mass production  Scientific management systematic analysis of work methods systematic analysis of work methods 1-41 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Evolution of Operations and Supply Chain Management  Mass production high-volume production of a standardized product for a mass market high-volume production of a standardized product for a mass market  Quality revolution an emphasis on quality and the strategic role of operations an emphasis on quality and the strategic role of operations  Lean production adaptation of mass production that prizes quality and flexibility adaptation of mass production that prizes quality and flexibility 1-42 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Historical Events in Operations Management EraEvents/ConceptsDatesOriginator Industrial Revolution Steam engine1769 James Watt Division of labor1776 Adam Smith Interchangeable parts1790 Eli Whitney Scientific Management Principles of scientific management 1911 Frederick W. Taylor Time and motion studies1911 Frank and Lillian Gilbreth Activity scheduling chart1912 Henry Gantt Moving assembly line1913 Henry Ford 1-43 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Historical Events in Operations Management EraEvents/ConceptsDatesOriginator Human Relations Hawthorne studies1930Elton Mayo Motivation theories 1940sAbraham Maslow 1950sFrederick Herzberg 1960sDouglas McGregor Operations Research Linear programming1947George Dantzig Digital computer1951Remington Rand Simulation, waiting line theory, decision theory, PERT/CPM 1950s Operations research groups MRP, EDI, EFT, CIM 1960s, 1970s Joseph Orlicky, IBM and others 1-44 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Historical Events in Operations Management EraEvents/Concepts DatesOriginator Quality Revolution JIT (just-in-time)1970sTaiichi Ohno (Toyota) TQM (total quality management) 1980s W. Edwards Deming, Joseph Juran Strategy and operations 1980s Wickham Skinner, Robert Hayes Reengineering1990s Michael Hammer, James Champy Six Sigma1990sGE, Motorola 1-45 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Historical Events in Operations Management EraEvents/ConceptsDatesOriginator Internet Revolution Internet, WWW, ERP, supply chain management 1990sARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE, Dell E-commerce2000sAmazon, Yahoo, eBay, Google, and others GlobalizationWTO, European Union, Global supply chains, Outsourcing, Service Science 1990s 2000s China, India, Emerging economies 1-46 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Historical Events in Operations Management EraEvents/ConceptsDatesOriginator SustainabilityGlobal warming Carbon footprint Green products Corporate social responsibility (CSR) UN Global Compact TodayNumerous companies, statesmen, governments, United Nations, World Economic Forum 1-47 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Evolution of Operations and Supply Chain Management  Supply chain management management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners 1-48 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Supply Chain of a Typical Original Equipment Manufacturer © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Globalization  Why “go global”? favorable cost favorable cost access to international markets access to international markets response to changes in demand response to changes in demand reliable sources of supply reliable sources of supply latest trends and technologies latest trends and technologies  Increased globalization results from the Internet and falling trade barriers results from the Internet and falling trade barriers 1-50 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Hourly Compensation 1-51 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

GDP per Capita 1-52

Trade in Goods, % of GDP 1-53 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

GDP 1-54 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Trade in Goods, % of GDP 1-55 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Manufacturing Output C3-56 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Productivity and Competitiveness  Competitiveness degree to which a nation can produce goods and services that meet the test of international markets degree to which a nation can produce goods and services that meet the test of international markets  Productivity ratio of output to input ratio of output to input  Output sales made, products produced, customers served, meals delivered, or calls answered sales made, products produced, customers served, meals delivered, or calls answered  Input labor hours, investment in equipment, material usage, or square footage labor hours, investment in equipment, material usage, or square footage 1-57 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Measures of Productivity 1-58 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Osborne Industries 1-59 B5*B7 B6*B8 B4/B5 B4/B6 B4/B14 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Percent Change in Input and Output 1-60 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Changes in Productivity C3-61 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Strategy and Operations  How the mission of a company is accomplished  Provides direction for achieving a mission  Unites the organization  Provides consistency in decisions  Keeps organization moving in the right direction 1-62 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Strategy Formulation 1.Defining a primary task What is the firm in the business of doing? What is the firm in the business of doing? 2.Assessing core competencies What does the firm do better than anyone else? What does the firm do better than anyone else? 3.Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What qualifies an item to be considered for purchase? What wins the order? What wins the order? 4.Positioning the firm How will the firm compete? How will the firm compete? 5.Deploying the strategy 1-63 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Strategic Planning 1-64 Mission and Vision Corporate Strategy Operations Strategy Marketing Strategy Financial Strategy Voice of the Business Voice of the Customer © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Order Winners and Order Qualifiers 1-65 Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Positioning the Firm  Cost  Speed  Quality  Flexibility 1-66 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Positioning the Firm: Cost  Waste elimination relentlessly pursuing the removal of all waste relentlessly pursuing the removal of all waste  Examination of cost structure looking at the entire cost structure for reduction potential looking at the entire cost structure for reduction potential  Lean production providing low costs through disciplined operations providing low costs through disciplined operations 1-67 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Positioning the Firm: Speed  Fast moves, Fast adaptations, Tight linkages  Internet Customers expect immediate responses Customers expect immediate responses  Service organizations always competed on speed (McDonald’s, LensCrafters, and Federal Express) always competed on speed (McDonald’s, LensCrafters, and Federal Express)  Manufacturers time-based competition: build-to-order production and efficient supply chains time-based competition: build-to-order production and efficient supply chains  Fashion industry two-week design-to-rack lead time of Spanish retailer, Zara two-week design-to-rack lead time of Spanish retailer, Zara 1-68 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Positioning the Firm: Quality  Minimizing defect rates or conforming to design specifications  Ritz-Carlton - one customer at a time Service system designed to “move heaven and earth” to satisfy customer Service system designed to “move heaven and earth” to satisfy customer Employees empowered to satisfy a guest’s wish Employees empowered to satisfy a guest’s wish Teams set objectives and devise quality action plans Teams set objectives and devise quality action plans Each hotel has a quality leader Each hotel has a quality leader 1-69 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Positioning the Firm: Flexibility  Ability to adjust to changes in product mix, production volume, or design  Mass customization mass production of customized parts mass production of customized parts  National Bicycle Industrial Company offers 11,231,862 variations offers 11,231,862 variations delivers within two weeks at costs only 10% above standard models delivers within two weeks at costs only 10% above standard models 1-70 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Policy Deployment  Policy deployment translates corporate strategy into measurable objectives translates corporate strategy into measurable objectives  Hoshins action plans generated from the policy deployment process action plans generated from the policy deployment process 1-71 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Policy Deployment Derivation of an Action Plan Using Policy Deployment 1-72 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Balanced Scorecard  Balanced scorecard measuring more than financial performance measuring more than financial performance Finances—how should we look to our shareholders? Finances—how should we look to our shareholders? Customers—how should we look to our customers? Customers—how should we look to our customers? Processes—at which business processes must we excel? Processes—at which business processes must we excel? learning and growing—How will we sustain our ability to improve? learning and growing—How will we sustain our ability to improve?  Key performance indicators set of measures to help managers evaluate performance in critical areas set of measures to help managers evaluate performance in critical areas 1-73 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Balanced Scorecard 1-74 Radar Chart Dashboard © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Operations Strategy Products 1-75 ServicesProcessandTechnology Capacity HumanResources Quality Facilities SourcingOperatingSystems © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Operations Strategy Framework

Organization of This Text: Part I – Operations Management 1.Intro. to Operations and Supply Chain Management 2.Quality Management 3.Statistical Quality Control 4.Product Design 5.Service Design 6.Processes and Technology 7.Capacity and Facilities Design 8.Human Resources 9.Project Management 1-77 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

Organization of This Text: Part II – Supply Chain Management 10.Supply Chain Strategy and Design 11.Global Supply Chain Procurement and Distribution 12.Forecasting 13.Inventory Management 14.Sales and Operations Planning 15.Resource Planning 16.Lean Systems 17.Scheduling 1-78 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e

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 creating value along the supply chains  Develop a skill set for continuous improvement 1-79 © 2016 John Wiley & Sons, Inc. - Russell and Taylor 8e