Lesson 02 Operations Management the management (planning, controlling, executing) of systems or processes that create goods or services Goods Services Inputs Transformation process

Goods Goods manufacturing a product (e.g. golf ball, refrigerator, electronic equipment, lawn mowers, pencils, food/cereal, automobiles, tires, etc.) Characteristics Physical, durable product Output can be inventoried Low customer contact Long response time Regional, national or International markets Large facilities Capital intensive Quality easily measured

Services Services act oriented (e.g. government, wholesale/retail, financial, healthcare, personal services, business services, education, etc.) Characteristics Intangible, perishable product Output cannot be inventoried High customer contact Short response time Local markets Small facilities Labor intensive Quality not easily measured

What about McDonald’s?

High Comparison: Goods & Service Businesses DifferencesGoodsServices OutputTangibleIntangible Customer contactLowHigh Uniformity of inputHighLow Labor contentLowHigh Uniformity of outputHighLow Productivity measurementEasyDifficult Opportunity to correct quality problemsHighLow

Automobile assembly, steel making Home remodeling, retail sales Automobile Repair, fast food Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching Crossing the Line

Supply Chain Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service Suppliers’ suppliers Suppliers’ suppliers Direct suppliers Direct suppliers Producer Distributor Final Customers Final Customers Supply Chain for bread field to supermarket

Domestic US Jobs YearMfg.Service 2575 U.S. Manufacturing vs. Service Employment Productivity Increasing productivity allows companies to maintain or increase their output using fewer workers Technology/Robotics More powerful computers and robotics create the need for fewer workers Outsourcing Some manufacturing work has been outsourced to more productive companies Where are all the production jobs going?

Core of all manufacturing business organizations 35% of all jobs are in OM customer service quality assurance production planning and control scheduling inventory management warehouse management Interrelates with all other business organizations So, Why Study OM?

Organization Finance Operations Marketing Budgeting Economic analysis of investment proposals Provision of funds Accounting Selling and Promoting Assess customer needs Provide information on new customer needs Communicating realistic “lead times” to customers Distribution and Warehousing Industrial Engineering Maintenance (facilities, equipment) Personnel/Human Resources Purchasing & Quality Assurance Management Information Systems 3 Basic Functional Organizational Areas

Finance Marketing Operations Overlap and require a tremendous amount of interaction/communication 3 Basic Functional Organizational Areas

Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal Interfaces with Other Departments

Forecasting Capacity Planning Scheduling Managing Inventory Purchasing Manufacturing Personnel Assuring Quality Industrial Engineering Distribution Facilities and Location Planning Accounting Public Relations Elements of Operations Management

Value Added is the difference between the cost of inputs and the value or price of outputs. The transformation process must add value for an organization to be profitable/viable. Value Added Inputs Workers Managers Equipment Facilities Materials Services Land Energy Transformations Outputs Goods Services Control Feedback Value added

Transformations PhysicalGoods Producing (manufacturing, farming, mining, construction, power generation) LocationTransport / Storage (Warehousing, trucking, hotels, airlines) ExchangeRetail (Wal-Mart, Dillard's, etc.) PhysiologicalHealthcare (Hospitals, doctors, dentists) PsychologicalEntertainment (Films, radio, television, performing arts, recording industry) InformationalCommunications (Newspapers, radio, telephone, satellites)

The greater the value added the more funds that are available for an organization to invest in research and development new facilities and equipment growth employee programs viability Value Added

Inputs Fresh Sardines Metal Sheets Water Energy Building Labor Equipment Processing Cleaning Making Cans Cutting Cooking Packing Labeling Outputs Canned Sardines Food Processor Value Added

Inputs Examination Surgery Monitoring Medication Therapy Processing Doctors Nurses Hospital Facility Medical Supplies Equipment Laboratories Outputs Healthy Patients Healthcare Value Added

Designing/Operating the Transformation

Designing/Operating the Transformation

The chief role of the operations manager is to be a planner and a decision maker with respect to the previously mentioned areas. Some of the decision making tools at an operations managers disposal will be discussed as part of this course. Listed in the following few slides is an overview of some of the methodologies we will discuss. Role of the Operations Manager What - What resources/what amounts When - Needed/scheduled/ordered Where - Work to be done How - Designed Who - To do the work

Quantitative tools - mathematical models Linear Programming Inventory Models PERT/CPM (Project Evaluation and Review Techniques) StatisticsSimulation Computer Analysis Computer Analysis (Microsoft EXCEL is a very useful tool for creating models to do “what-if” analysis) Models - abstractions of reality Physical Schematics Mathematical Decision Making Tools

Trade-off analysis Evaluating decisions based on other issues such as financial considerations, company policy, etc. (e.g. in considering how much inventory to stock one must consider the financial implications!) Pro-Con analysis Evaluating decisions based on an objective/subjective evaluation of the positive and negative points of the situation under consideration Pro’sCon’s Decision Making Tools

Establish Priorities Prioritize factors which are important to a situation and determine the most important few which most influence the decision Sometimes referred to as the 80/20 rule which basically means that out of all the factors which influence a decision 20% of them will most influence the decision outcome … more commonly known as the Pareto rule. Do not get caught working on problems which are not important … it may show that are not aware of what is most important in your business. Decision Making Tools

Result standardization, conveyors, computers, robotics, automation can produce a car in less than an hour Henry Ford 13 hours to make a car - Can we do it better? Solution Pull chassis down a line with a rope and add parts from strategically placed piles of parts Result 5 hours to make a car Can we do it better (continual improvement)? An Example of Operations Improvement

Recent Trends Influencing OM Global Marketplace for markets, sourcing, finance International Trade Agreements (NAFTA, GATT) Corporate Strategic Planning (integrating OM strategies) Total Quality Management (TQM) programs Flexibility in manufacturing methods and lead time reduction (quick delivery allows cost cutting and cost containment for increased leverage against lower cost global competition Technology (computers, robotics, automation) Re-engineering - rethink how products are designed and manufactured Environmental Issues Corporate downsizing (how to get more done with less because of stock holder pressures and global labor wage pressures Lean production - fewer levels of management

Global Hourly Wage Rates (US$)

Operations Manager Success POM success depends on the familiarity with the techniques discussed in this course. Most modern companies subscribe to the philosophy that knowledge of decision science techniques are critical to their overall business success. Whether your career is in production operations management or not, familiarity and knowledge of these techniques will be beneficial to your career because of the interrelationship between POM and other functional areas of an organization.. FinanceMarketing Production/ Operations

Homework Read and understand all material in the chapter. Discussion and Review Questions Recreate and understand all classroom examples Exercises on chapter web page