1-1 Operations Management Introduction - Chapter 1

1-2 Outline  What is Operations Management?  Why Study OM?  Production vs. Service Organizations.  Operations Management Decisions.  Heritage of OM.  Recent Developments & Challenges.  Productivity.

1-3 What Is Operations Management?  Book definition (not as good): The set of activities that creates goods and services by transforming inputs into outputs.  Operations management is the management of systems that produce goods and provide services.  It includes planning, designing and operating systems to achieve goals of the organization.

1-4 Transforming Inputs to Outputs Production or Service System Land, Labor, Capital, Materials, Equipment, Management Goods and Services Inputs ProcessOutputs

1-5 Examples  Auto factories (assembly plants)  Job shops (printing)  Fast food restaurants  Hospitals  Airlines  Movie theaters  Grocery stores ProductionService Production Service

1-6 Why Study OM?  OM is one of three major functions of any organization ( Marketing, Finance, and Operations ).  We should know how goods and services are produced.  OM is such a costly part of an organization.  Jobs!

1-7 Organizational Functions  Marketing.  Generates demand.  Operations.  Creates product or service.  Finance/Accounting.  Obtains funds & tracks money.

1-8 Characteristics of Goods  Tangible product.  Consistent inputs and outputs.  Production separate from consumption.  Can be inventoried.  Low customer interaction.

1-9 Characteristics of Service  Intangible product.  Variable inputs and outputs (people!).  Production and consumption at same place and time.  No inventories.  High customer interaction.

1-10 Goods Contain Services & Services Contain Goods Automobile Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Consulting Service Counseling % of Product that is a Good% of Product that is a Service

1-11 OM Jobs

1-12 Operations Management for a Manufacturer Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Control Purchasing

1-13 Operations Management for an Airline Operations Finance/ Accounting Marketing Ground Support Flight Operations Facility Maintenance Catering

1-14 Critical Decisions for OM  Product & service design.  Quality management.  Process design.  Capacity & location of facilities.  Layout of facilities.  Human resources & Job design.  Supply-chain management.  Inventory management.  Scheduling.  Maintenance.

1-15 Skills and Knowledge Needed  Knowledge of production and service processes.  Knowledge of basic OM principles.  Analytical Tools:  Forecasting  Decision-Making  Linear Programming  Break-even analysis  Inventory control  Waiting lines (queueing)

1-16 Heritage of OM  Prior to 1700’s - Most products custom-made on a small scale with local distribution.  Local craftsmen.  Products were handmade and unique.  Industrial Revolution  Mechanized production and distribution.  Allowed mass production and wider distribution.  Fostered division of labor.

1-17 Industrial Revolution  Key developments:  Steam engine (1769).  Interchangeable parts (1798).  Machine tools (1798).  Results:  Production increased.  Prices decreased.  Workers replaced by machines.  Need to manage complex production systems.

1-18 Scientific Management  Study production systems scientifically to improve them (beginning in 1880’s).  There are ‘scientific laws’ for production systems that can be used to improve (optimize) production.  Work smarter, not harder.  Management is responsible for productivity.

1-19 Related Fields  Operations Management.  Industrial Engineering.  Social and psychological factors.  Operations Research/Management Science (Mathematical modeling).  Logistics.

1-20 Eli Whitney  Born 1765; died  Invented cotton ‘gin’.  Received government contract to make 10,000 muskets (1798).  Showed machine tools could make standardized parts.

1-21 Recent Developments for OM  Information technology: (computers, bar codes, EDI, internet, wireless, etc.)  Just-In-Time systems.  Quality emphasis.  Service economy.  Globalization.  Environmental concerns.  Security.

Services Industry Farming 80% 40% 0 U.S. Employment, % Share Development of the Service Economy

1-23 Most Jobs are in Services 2Agriculture 25Manufacturing, construction and mining 21Retail & Wholesale 24Professional Services % of JobsSector Utilities & transportation Other Services (finance, real estate, hospitality, etc.) 7 21

1-24  Used to measure of process improvement.  Amount of output relative to input.  Productivity increases improve standard of living.  From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate. Productivity = Productivity Inputs used Units produced

1-25 How Would You Measure Productivity for A Restaurant?  Amount of output (????) per input (????).  Output:  Number of meals served?  Number of tables served?  Number of satisfied customers?  Input:  Lbs. of food?  Number of employees?  Number of tables?

1-26  Output is easy to measure with one product.  Input may have many components.  Parts and subassemblies.  Labor.  Equipment.  Knowledge.  etc. Productivity = Productivity for One Product Inputs used Units produced

1-27 Productivity Variables Output Labor + material + energy + capital + miscellaneous Productivity =  Use a common measure to combine different inputs - usually $.

1-28 Productivity Measurement Problems  Quality of output should be considered.  If you produce more, but of lower quality, does productivity rise?  External elements may change productivity.  Wireless communication may raise productivity.  Precise units of measure may be lacking.

1-29 How Would You Measure Productivity for UM - St. Louis? Productivity = Inputs used Units produced  What is output?  How is it measured?  What is input?  How is it measured?

1-30 How Would You Measure Productivity for:  A builder of new homes?  An automobile mechanic?  A hospital?  A fire department?  A restaurant?