Chapter 1 Introduction to OM Agora Vs/ Meena Bazaar Vs. PQS Boeing missed production deadline … Walmart Vs. Sears/JC Penny in retail Why some companies succeed While others fail

Operations Management Managing that part of the organization responsible for producing goods and services Management of systems or processes that create goods and/or provide services Operations Examples Goods Producing Farming, mining, construction manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, banking, renting, leasing, library, loans Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and television, newscasts, telephone, satellites

Organization’s Basic Functions Finance Secure Fin. Resources Budgeting Funding … Operations Producing Marketing Assess Customer needs Selling & Promoting … OM in the news Productivity Quality E-business Global Competition Customer Service Competitiveness?

Value-added = Value or price of outputs – Cost of inputs Value-Added Process Value-added = Value or price of outputs – Cost of inputs

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

Food Processor Hospital Process Inputs Processing Outputs Raw Vegetables Metal Sheets Water Energy Labor Building Equipment Cleaning Making cans Cutting Cooking Packing Labeling Canned vegetables Scraps! Hospital Process Inputs Processing Outputs Doctors, nurses Hospital Medical Supplies Equipment Laboratories Examination Surgery Monitoring Medication Therapy Healthy patients

Products/Goods-service Continuum Tangible Act Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Grameen Cell phone Product/Service? Home remodeling, retail sales Automobile assembly, steel making Product packages = Good(s) + service(s) Make a company more competitive- more value to customers

Goods Production & Service Delivery Production of goods Tangible output Production oriented Delivery of services An act Service job categories Government Wholesale/retail Financial services Healthcare Personal services Business services Education Yet operations are similar!

Goods vs Service- Key differences Example! Goods vs Service- Key differences Characteristic Goods Service 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 usual

Scope of Operations Management Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating & Training employees Deciding where to locate facilities Supply chain management And more . . . Example!

Decline in Manufacturing Jobs in US! Increase of Service 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 Bangladesh!

Manufacturing Matters More than half of the total R&D performed is in the manufacturing industries When a California manufacturing job is lost, an average of 2.5 service jobs are lost Accounts for most exports What about Outsourcing

Managing Services is Challenging Service jobs are often less structured than manufacturing jobs Customer contact is higher 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

Business Operations Overlap Finance Marketing The operations function involves the conversion of inputs into outputs

Operations interfaces with supporting functions Public Relations Accounting Production Operations Marketing Personnel Purchasing Distribution MIS Legal Lead time

OM- Planning and Decision Making Key Decisions of Op. Managers What resources/amounts When needed/scheduled/ordered Where work-location How Designed/Done Who worker Alternatives & Impact on Cost Profit Goal Mission, Vision …. What What resources/what amounts When Needed/scheduled/ordered Where Work to be done How Designed Who To do the work

Decision Making … (Level) System Design Capacity Location Arrangement of departments Product and service planning Acquisition and placement of equipment System operation Personnel Inventory Scheduling Project Management Quality Assurance

Establishing priorities How to make decisions Models Quantitative approaches Analysis of trade-offs Establishing priorities Ethics Systems approach Different approaches to make informed decision.

Models Tradeoffs An abstraction of reality. A simplified version (typically) Physical ~ Crash test Schematic ~ Blueprints Mathematical ~ Statistical Tradeoffs Models are not perfect Pros and cons of models

Advantages 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 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 Vs. Qualitative Approaches

Analysis of Trade-Offs Decision on the amount of inventory to stock Customer Level of customer service Cost Inventory

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

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

Ethical Issues Consider how a decision will affect Shareholders ~ Financial statements Management Employees ~ Worker safety, Hiring/firing workers, Worker’s rights Customer ~ Quality, Product safety Community ~ Closing facilities Environment ~ Product safety

Historical Evolution of Operations Management Industrial revolution (1770’s) End of craft production Introduction of Machine Power Scientific management (1911) & Ford Model T Mass production Interchangeable parts Division of labor Human relations movement (1920-60)~ Hawthorne Decision models (1915, 1960-70’s)~ IM Models, SPC Influence of Japanese manufacturers (After WWII) Quality revolution

Current trends in Business Major Trends The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Other Trends Ethical behavior Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production Agility

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

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

A Supply Chain for Bread

A Supply Chain for Bread Stage of Production Value Added Value of Product Farmer produces and harvests wheat $0.15 Wheat transported to mill $0.08 $0.23 Mill produces flour $0.38 Flour transported to baker $0.46 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

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