Introduction to Operations Management 1Saba Bahouth – UCO

What is Operations Management? 2Saba Bahouth – UCO Production is the creation of goods and services Operations management is the set of activities that creates value in the form of goods and services by transforming input into output. Operations management is the science and art of ensuring that goods and services are created and delivered successfully to customers. Operations Management is the management of systems or processes that create goods and/or provide services (Stevenson) OM’s principles help one to view a business as a total system: activities are coordinated vertically and horizontally across functions. Operations Management affects: – Companies’ ability to compete – Nation’s ability to compete internationally

A simple system Saba Bahouth – UCO3 Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added

4Saba Bahouth – UCO © 1995 Corel Corp. Marketing Operations Finance © 1995 Corel Corp.

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Function vs. Process Saba Bahouth – UCO6

Customer Benefit Package 7Saba Bahouth – UCO

8 Percentage of Job Creation: 80 – 20 Percentage of Output: 70% of what we export Productivity:

Basic Differences (But Cliches!) Saba Bahouth – UCO9 Manufacturing Labor content low Mechanization / Automation high Customer contact low Can be resold Can be easily inventoried Easy to evaluate work Quality easily measurable Selling is distinct from production Product is transportable Site of facility important for cost Easy to patent Service Labor content high Mechanization / Automation low Customer contact high Reselling unusual Difficult to inventory Difficult to evaluate work Quality difficult to measure Selling is part of service provider Product is not transportable Site of facility important for contact Difficult to patent

10 Evolution of Operations Management Industrial revolution (1770’s) – Steam Engine; Coal and Iron; Standard parts and Products; Mass Production; Economies of Scale. Later: refinement of Steel (1855 by Henry Bessemer) Scientific management (1911) – Frederick Taylor:The Principles of Scientific Management (1911) – Henry Ford introduced “Mass Production” by using Assembly Lines and: Frederick Taylor’s principles Eli Whitney’s ideas of Interchangeable Parts (late 1700) Adam Smith’s ideas of Division of Labor (The Wealth of Nations – 1776) – Frank and Lillian Gilbreth (motion studies); Henry Gantt (scheduling) Human relations movement – Gilbreths (Human Factor-1920s); Elton Mayo (Motivation/Productivity-1930s); Abraham Maslow (Motivational Theory-1940s); Douglas McGregor (Theory X / Theory Y-1960s); William Ouchi (Theory Z-1970s) Decision models / Management Science / Quantitative Approaches Influence of Japanese manufacturers – Continuous Quality Improvement; Teams; Empowerment; Customer Satisfaction; JIT Saba Bahouth – UCO

Tools for Decision Making in Operations Saba Bahouth – UCO11 Models: Quantitative approaches: Analysis of trade-offs / Establishing priorities: Systems approach: Performance Metrics: Profit; Productivity; Quality; Inventory; Schedule; Costs Inventory models: Harris-1915 Queuing Techniques: Erlang-1920s Linear programming: Dantzig-1940s Project models: Late 1950s Statistical models / Forecasting Inventory models: Harris-1915 Queuing Techniques: Erlang-1920s Linear programming: Dantzig-1940s Project models: Late 1950s Statistical models / Forecasting Physical Schematic Mathematical Physical Schematic Mathematical Pareto Phenomenon; Break even Analysis Pareto Phenomenon; Break even Analysis No Sub-optimization The whole is greater than the sum of the parts No Sub-optimization The whole is greater than the sum of the parts Next Slide

Models Saba Bahouth – UCO12 Three commonly known types of models: 1.Physical Models 2.Schematic Models 3.Mathematical Models Three commonly known types of models: 1.Physical Models 2.Schematic Models 3.Mathematical Models Breakeven Mathematical Model s We can find the break-even point by developing a simple mathematical model. Let x be the sales volume at the break-even point. Then Total cost = 100, xTotal revenue = 20x. Setting the total revenue equal to total cost we have 100, x = 20x Hence:x = 12,500. If sales are less than 12,500 units, the firm will incur a loss; If sales are more than 12,500, a profit will be realized. Breakeven Mathematical Model s We can find the break-even point by developing a simple mathematical model. Let x be the sales volume at the break-even point. Then Total cost = 100, xTotal revenue = 20x. Setting the total revenue equal to total cost we have 100, x = 20x Hence:x = 12,500. If sales are less than 12,500 units, the firm will incur a loss; If sales are more than 12,500, a profit will be realized. $ Quantity x Costs Revenues

13 Trends in Business Operations – The Internet, e-commerce, e-businessMiddle man; ERP – Management of technologyFederal Labs – GlobalizationNAFTA – Miata – US vs Japan Cars – Management of supply chainsLow Bids vs Partnerships - JIT – Outsourcing – AgilityOn time vs Fast Delivery - Thailand - Singapore – Ethical behaviorLow Cost vs Environment - Water Bottles – Operations strategyElectronics VCR/HDTV - Lee Iacocca 1 – Working with fewer resources – LeanStandard Products vs Mass Customization – Revenue management – Process analysis and improvementReengineering: Michael Hammer – Increased regulation and product liability Saba Bahouth – UCO