INTRODUCTION to Operation Management Chapter 1, The Operations Function 4e, Schroeder McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Outline Why Study Operations Management? Definition of Operations Management Decisions at Pizza U.S.A. Operations Decisions - A Framework Cross-Functional Decision Making Operations as a Process Contemporary Operations Themes 1-2

Why Study Operations Management? Every decision is cross-functional in nature. Operations is a major function in every organization. The principles of process thinking can be applied across the business. Operations Decisions - A Framework Operations Management is an interesting and challenging field of study. 1-3

Definition of Operations Management Operations is responsible for supplying the product or service of the organization. Operations managers provide value for the customer at the lowest cost by making decisions for the operations function and by managing the transformation process. 1-4

Key Points in OM Definition 1. Decisions the operations manager must make: Process, quality, capacity, inventory 2. Functions in the organization. Operations, marketing, finance 3. Process: planning and controlling the transformation process and its interfaces Expansion of these points follows on the next slides. 1-5

Major Decisions at Pizza USA A Framework for OM Process How to produce & deliver Quality Criteria, measurement & process for achieving Capacity Physical facilities & labor Inventory What, when & how much? 1-6

Cross-Functional Decision Making Operations as the primary function. Other primary functions: Marketing Finance Supporting functions: all others Major cross-functional decision making relationships (See Table 1.1) 1-7

Operations as a Process Transformation (Conversion) Process Input Output 1-8

Operations as a Process Transformation Fabrication Transformation Assembly Input Output Fabrication: making the parts Assembly: putting the parts together 1-9

Operations as a Process (Figure 1.1) Energy Transformation (Conversion) Process Materials Labor Goods or Services Capital Feedback information for control of process inputs and process technology Information 1-10

Relation of Operations to its Environment (Figure 1.2) SOCIETY GOVERNMENT External Environment CUSTOMERS COMPETITORS Human Resources Marketing Accounting Finance MIS Engineering Operations transformation system Suppliers 1-11

Contemporary Operations Themes Service and Manufacturing (differences and implications) Customer-Directed Operations Lean Operations Integration of Operations and Other Functions Environmental Concerns Supply Chain Management Globalization of Operations 1-12

Environmental Concerns “Volkswagen, Germany’s biggest car maker, was reported to be setting aside DM1 billion ($470m) to pay for compliance with a European directive that will come into force in 2007 forcing car makers to pay for recycling their vehicles. New cars will be required to be 85% recyclable.” --The Economist, 15 February 2001 See: www.arn.nl 1-13

Globalization: Who took my job? Early 1990s Small town near Charlotte, NC Aluminum smelter closed after 50 years Only significant industry in town In many families, several generations had worked there. Now all out of work. Who caused it to close? 1-14

Miklós Németh WHO!?!?!? 1-15

U.S. production of aluminum dropped dramatically in the early 1990s because the Russians dumped aluminum on the world market. Why? The opening of the Hungarian border, 2 May 1989, led to the fall of the Berlin Wall in November, 1989, which led to the breakup of the Soviet Union in 1991, which caused them to downsize their military, which gave them overcapacity in aluminum production, which caused them to dump in the world markets, which led to the closing of U.S. smelters such as the one near Charlotte, NC. 1-16

Was the Hungarian Prime Minister who opened the border on 2 May 1989. Miklós Németh Was the Hungarian Prime Minister who opened the border on 2 May 1989. 1-17

Moral of the Story In an age of globalization, you never know who will be the competition or who is doing something that will affect your job or your life. The aluminum workers in NC had never heard of Miklós Németh, but he ultimately cost them their jobs. 1-18

Summary Why Study Operations Management? Definition of Operations Management Decisions at Pizza U.S.A. Operations Decisions - A Framework Cross-Functional Decision Making Operations as a System Contemporary Operations Themes 1-19

End of Chapter One 1-20