McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 1 Introduction to Operations Management

1-2 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

1-3 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

1-4 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

1-5 The Organization The Three Basic Functions Organization Finance Operations Marketing Figure 1.1 Product Development

1-6 Value-Added Process The operations function involves the conversion of inputs into outputs Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added Figure 1.2

1-7 Automobile assembly, steel making Home remodeling, retail sales Automobile Repair, fast food Goods-service Continuum Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

1-8 Operations Example Food Processor InputsProcessing Outputs Raw VegetablesCleaning Canned vegetables Metal SheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

1-9 Operations Example Hospital Process InputsProcessingOutputs Doctors, nursesExaminationHealthy patients HospitalSurgery Medical SuppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.2

1-10 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

1-11 Goods vs Service CharacteristicGoodsService Customer contactLowHigh Uniformity of inputHighLow Labor contentLowHigh Uniformity of outputHighLow OutputTangibleIntangible Measurement of productivityEasyDifficult Opportunity to correct problemsHighLow InventoryMuchLittle EvaluationEasierDifficult PatentableUsuallyNot usual

1-12  Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating employees  Deciding where to locate facilities  Supply chain management  And more... Scope of Operations Management

1-13 Types of Operations Table 1.4 OperationsExamples Goods ProducingFarming, mining, construction, manufacturing, power generation Storage/TransportationWarehousing, trucking, mail service, moving, taxis, buses, hotels, airlines ExchangeRetailing, wholesaling, banking, renting, leasing, library, loans EntertainmentFilms, radio and television, concerts, recording CommunicationNewspapers, radio and television newscasts, telephone, satellites

1-14 Figure 1.4

1-15 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

1-16 Why Manufacturing Matters  Over 18 million workers in manufacturing jobs  Accounts for over 70% of value of U.S. exports  Average full-time compensation about 20% higher than average of all workers  Manufacturing workers more likely to have benefits

1-17 Why Manufacturing Matters  More than half of the total R&D performed is in the manufacturing industries  Manufacturing workers in California earn an average of about $25,000 more a year than service workers  When a California manufacturing job is lost, an average of 2.5 service jobs are lost

1-18 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

1-19 Key Decisions of Operations Managers  What What resources/what amounts  When Needed/scheduled/ordered  Where Work to be done  How Designed  Who To do the work

1-20 Decision Making System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment

1-21 Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance

1-22 Models: Decision Making Tools A model is an abstraction of reality. – Physical – Schematic – Mathematical What are the pros and cons of models? Tradeoffs

1-23 Ethical Issues  Financial statements  Worker safety  Product safety  Quality  Environment  Community  Hiring/firing workers  Closing facilities  Worker’s rights

1-24 Historical Evolution of Operations Management  Industrial revolution (1770’s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement ( )  Decision models (1915, ’s)  Influence of Japanese manufacturers Table 1.7

1-25 Trends in Business  Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility  Ethical behavior

1-26 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

1-27 Other Important Trends  Ethical behavior  Operations strategy  Working with fewer resources  Revenue management  Process analysis and improvement  Increased regulation and product liability  Lean production

1-28 Management Occupations top top Wage Estimates Occupati on Cod e Occupation Title (click on the occupation title to view an occupational profile) Employmen t (1)(1) Median Ho url y Mean Ho urly Mean Annu al (2) (2) Mean R S E ( 3 ) ( 3 ) Management Occupations5,960,560$37.32$42.52$88, % General and Operations Managers1,663,810$39.17$45.90$95, % Industrial Production Managers153,950$36.34$39.41$81, % Purchasing Managers69,300$36.67$39.16$81, % Transportation, Storage, and Distribution Managers 84,870$33.23$36.12$75, % Engineering Managers187,410$48.44$50.71$105, % Managers, All Other340,720$38.06$40.16$83, % Bureau of Labor Management