Introduction to Operations Management 1 Introduction to Operations Management

Learning Objectives Define the term operations management Identify the three major functional areas of organizations and describe how they interrelate Compare and contrast service and manufacturing operations Describe the operations function and the nature of the operations manager’s job

Learning Objectives Differentiate between design and operation of production systems Describe the key aspects of operations management decision making Briefly describe the historical evolution of operations management Identify current trends that impact operations management

Kellogg’s Company Maker of popular cereal, breakfast, and snack products, such as Kellogg’s Corn Flakes, Rice Krispies, Raisin Bran, Pop-Tarts, Eggo Waffles, and Nutri-grain bars Founded in 1906 in Battle Creek, Michigan, by W. K. Kellogg. Adhere to strong quality standards and developing new technologies, such as Waxtite wrappers to keep cereal fresh for long periods of time.

Figure 1.1: Kellogg’s 2006 Sales Around the World (in $ billions)

Kellogg’s Company The supply chain consists of 27 manufacturing plants in the United States and 19 plants in 15 countries around the world, including Australia, Mexico, India, Brazil, and Japan. Key operations decisions must be made throughout Kellogg’s network of plants.

Kellogg’s Company The product mix to manufactured at each plant must decided – example should every plant make every product or should plants be specialized and focus Is it better for Kellogg's to work with smaller, local suppliers for each plant or with larger, national or international suppliers? Inventory decisions and policies must be set for each plant, each distribution center, and each retailer that Kellogg's’ runs, works with, or sells to.

Operations Management Operations Management is: The management of systems or processes that create goods and/or provide services Operations Management affects: Companies’ ability to compete Nation’s ability to compete internationally

The Three Basic Functions The Organization Figure 1.1 The Three Basic Functions Organization Finance Operations Marketing

The operations function involves the conversion of inputs into outputs Value-Added Process Figure 1.2 The operations function involves the conversion of inputs into outputs Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added

Value-Added and Product Packages Value-added elements make the difference between the cost of inputs and the value or price of outputs. Product packages are a combination of goods and services. Product packages can make a company more competitive.

The Goods–Service Continuum Figure 1.3 Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile repair, fast food Home remodeling, retail sales Automobile assembly, steel making

Food Processor Inputs Processing Outputs Raw vegetables Canned vegetables Metal sheets Making cans Water Cutting Energy Cooking Labor Packing Building Labeling Equipment Cleaning

Hospital Inputs Processing Outputs Doctors, nurses Examination Table 1.2 Inputs Processing Outputs Doctors, nurses Examination Treated patients Hospital Surgery Medical supplies Monitoring Equipment Medication Laboratories Therapy

Manufacturing or Service? Tangible Act

Production of Goods vs. Delivery of Services Production of goods – tangible output Delivery of services – an act Service job categories Government Wholesale/retail Financial services Healthcare Personal services Business services Education

Key Differences 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity

Key Differences 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

Goods vs. Service Characteristic Goods Service Table 1.3 Customer contact Low High Uniformity of input Labor content Uniformity of output Output Tangible Intangible Measurement of productivity Easy Difficult Opportunity to correct problems Inventory Much Little Evaluation Easier Patentable Usually Not usually

Scope of Operations Management Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating and training employees Locating facilities Supply chain management And more . . .

Types of Operations Operations Examples Table 1.4 Goods Producing Farming, mining, construction , manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, financial advising, renting or leasing Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and TV newscasts, telephone, satellites

Figure 1.4a

Figure 1.4b Singapore Manufacturing vs. Service Employment

Decline in Manufacturing Jobs Productivity Increasing productivity allows companies to maintain or increase their output using fewer workers Outsourcing Some manufacturing work has been outsourced to more productive companies

Challenges of Managing Services Service jobs are often less structured than manufacturing jobs Customer contact is higher Worker skill levels are lower Services hire many low-skill, entry-level workers Employee turnover is higher Input variability is higher Service performance can be affected by worker’s personal factors

Key Decisions of Operations Managers What What resources/what amounts When Needed/scheduled/ordered Where Work to be done How Designed/Resources allocated Who To do the work

Operations Management Decision Making Models Quantitative approaches Performance metrics Analysis of trade-offs Systems approach Establishing priorities Ethics

Decision Making Models Quantitative approaches Performance metrics Analysis of trade-offs Systems approach Establishing priorities Ethics

Models Tradeoffs A model is an abstraction of reality. – Physical Schematic Mathematical Tradeoffs What are the pros and cons of models?

Models Are Beneficial Easy to use, less expensive Require users to organize Increase understanding of the problem Enable “what if” questions Consistent tool for evaluation and standardized format Power of mathematics

Limitations of Models Quantitative information may be emphasized over qualitative Models may be incorrectly applied and results misinterpreted Nonqualified users may not comprehend the rules on how to use the model Use of models does not guarantee good decisions

Quantitative Approaches Linear programming Queuing techniques Inventory models Project models Statistical models

Performance Metrics To control different aspects of operations Many: Profits Costs Quality Productivity Assets Inventory Schedules Forecast accuracy

Analysis of Trade-Offs Decision on the amount of inventory to stock Increased cost of holding inventory vs. Level of customer service

“The whole is greater than the sum of the parts.” Systems Approach “The whole is greater than the sum of the parts.” Suboptimization

How do we identify the vital few? Establishing Priorities Pareto phenomenon A few factors account for a high percentage of the occurrence of some event(s). 80–20 Rule: 80% of problems are caused by 20% of the activities. How do we identify the vital few?

Ethical Issues Financial statements Worker safety Product safety Quality Environment Community Hiring/firing workers Closing facilities Worker’s rights

Overlap of Business Functions Figure 1.5 Operations Finance Marketing

Operations Interfaces Figure 1.6 Operations Personnel/ Human resources MIS Legal Public Relations Accounting

Historical Summary of Operations Management Industrial revolution (1770s) Scientific management (1911) Mass production Interchangeable parts Division of labor Human relations movement (1920–60) Decision models (1915, 1960–’70s) Influence of Japanese manufacturers

Trends in Business Major trends The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior

Management Technology Technology: The application of scientific discoveries to the development and improvement of goods and services Product and service technology Process technology Information technology

Simple Product Supply Chain Figure 1.7 Suppliers’ Suppliers Direct Suppliers Final Consumer Distributor Producer Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

A Supply Chain for Bread Stage of Production Value Added Value of Product Farmer produces and harvests wheat $0.15 $0.25 Wheat transported to mill $0.08 $0.33 Mill produces flour $0.48 Flour transported to baker $0.56 Baker produces bread $0.54 $1.00 Bread transported to grocery store $1.08 Grocery store displays and sells bread $0.21 $1.29 Total Value-Added

Other Important Trends Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production