OPSM 301 Operations Management Koç University OPSM 301 Operations Management Class 1: Introduction: What is operations management? Chapter 1 Zeynep Aksin zaksin@ku.edu.tr

What is the OPSM301 course about? The role of the operations function may be defined as the design, operation, and improvement of the production system that creates the firm’s primary products and services We will study how organisations “actually do things” 

Operations as a Competitive Weapon Dell Computers Innovative Supply Chain Strategy (direct model) Southwest Airlines Leader in lowfare flights, by elimination of all waste Zara Can deliver new styles in 3-6 weeks (compared to 5-12 months for competitors) Tansas Markets (now part of Migros) Inventory Control system cuts stock-outs to 7.2% from 19% Vestel Durable Goods Distribution optimization leads to increased customer satisfaction as well as lower costs

Supply Chain of a Typical Original Equipment Manufacturer

Management Decisions Strategic (long-term) decisions Tactical (intermediate-term) decisions Operational planning and control (short-term) decisions

A Process Management Perspective We all manage processes... Process Management Information structure Network of Activities and Buffers Inputs Outputs Flow units (customers, data, material, cash, etc.) Goods Services Labor & Capital Resources

Process Management A business process is a network of activities performed by resources that transforms inputs into outputs… Process Management is a set of managerial policies specifying how a process should be operated over time...

Products Products are the desired set of process outputs Product Types Goods versus Services Product Attributes Cost Delivery response time Variety Quality

Inputs-Outputs Tangible Inputs Intangible Inputs Tangible Outputs People Raw material Intangible Inputs Information Time Tangible Outputs Buildings Cars Intangible Outputs Outgoing patient (hospital) Delivered message (advertising company)

Transformations Physical--manufacturing Locational--transportation Exchange--retailing Storage--warehousing Physiological--health care Informational--telecommunications

All Managers are Ops Managers! All managers must transform inputs into outputs Example: Accounting Manager Inputs: data, information, labor Transformation: application of accounting principles and knowledge Outputs: accounting reports, knowledge of performance, ... Therefore, all managers are in some sense Operations managers All managers have an “operation” to run

Operations Management Value Proposition System Design Planning & Control Product/Service Design Process Selection TQM Facility location Facility Layout JIT Operations Strategy Operation Priorities Cost Quality Delivery Flexibility Innovation Service Aggregate Planning Inventory Systems Project Management Scheduling MRP Statistical Process Control

Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 1995 Corel Corp.

Characteristics of Service Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed © 1995 Corel Corp.

Goods Contain Services / Services Contain Goods Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Counseling 25 50 75 100 Percent of Product that is a Good Percent of Product that is a Service

Development of the Service Economy 1850 75 1900 25 50 75 2000 40 50 60 70 1970 75 80 85 90 95 2000 Percent United States Canada France Italy Britain Japan W Germany 1970 2000 Services Industry Farming 250 200 150 100 50 80 %70 60 40 30 20 10 U.S. Employment, % Share Services as a Percent of GDP U.S. Exports of Services In Billions of Dollars Year 2000 data is estimated

Units produced Productivity = Input used Productivity Measure of process improvement Represents output relative to input Only through productivity increases can our standard of living improve Productivity Units produced Input used = You might also ask them to consider what happens as the rate of productivity improvement approaches zero. Does this simply mean that the standard of living ceases to rise, or are there more ominous manifestations?

Multi-Product (Total Factor) Productivity Output Labor + material + energy + capital + miscellaneous

Example 1 Mis Hali cleaned 65 rugs in October, consuming the following resources: Labor: 520 hours at 13 YTL per hour Solvent: 100 liters at 5 YTL per liter Machine rental: 20 days at 50 YTL per day a. What is the labor productivity per dollar? (0.0096 ) b. What is the total factor productivity? (0.00787)

Example 2 Because of its excellent location and products, a bakery in Sariyer experienced a 25% increase in demand in the last year. Customers are unable to find the product of their choice on many occasions. Space limitations preclude the possibility of adding another oven. A new process is proposed by an employee which allows several loaves to be baked simultaneously, however requires additional manpower. If the bakery made 1500 loaves this time last year with a labor productivity of 2.344 loaves per labor hour, how many workers will the bakery need to add, assuming each worker works 160 hours per month. (1 worker)

Significant Events in Operations Management