Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Operations and Competitiveness Operations Management - 5 th Edition Chapter 1 Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc.1-2 Lecture Outline  What Do Operations Managers Do?  Operations Function  Evolution of Operations Management  Operations Management and E–Business  Globalization and Competitiveness  Primary Topics in Operations Management  Learning Objectives for this Course

Copyright 2006 John Wiley & Sons, Inc.1-3 What Do Operations Managers Do?  What is Operations? a function or system that transforms inputs into outputs of greater value a function or system that transforms inputs into outputs of greater value  What is a Transformation Process? a series of activities along a value chain extending from supplier to customer a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated activities that do not add value are superfluous and should be eliminated  What is Operations Management? design, operation, and improvement of productive systems design, operation, and improvement of productive systems

Copyright 2006 John Wiley & Sons, Inc.1-4  Physical: as in manufacturing operations  Locational: as in transportation operations  Exchange: as in retail operations  Physiological: as in health care  Psychological: as in entertainment  Informational: as in communication Transformation Process

Copyright 2006 John Wiley & Sons, Inc.1-5 INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Feedback Operations as a Transformation Process

Copyright 2006 John Wiley & Sons, Inc.1-6 Operations Function  Operations  Marketing  Finance and Accounting  Human Resources  Outside Suppliers

Copyright 2006 John Wiley & Sons, Inc.1-7 How is Operations Relevant to my Major?  Accounting  Information Technology  Management  “As an auditor you must understand the fundamentals of operations management.”  “IT is a tool, and there’s no better place to apply it than in operations.”  “We use so many things you learn in an operations class— scheduling, lean production, theory of constraints, and tons of quality tools.”

Copyright 2006 John Wiley & Sons, Inc.1-8 How is Operations Relevant to my Major?  Economics  Marketing  Finance  “It’s all about processes. I live by flowcharts and Pareto analysis.”  “How can you do a good job marketing a product if you’re unsure of its quality or delivery status?”  “Most of our capital budgeting requests are from operations, and most of our cost savings, too.”

Copyright 2006 John Wiley & Sons, Inc.1-9 Evolution of Operations Management  Craft production process of handcrafting products or services for individual customers process of handcrafting products or services for individual customers  Division of labor dividing a job into a series of small tasks each performed by a different worker dividing a job into a series of small tasks each performed by a different worker  Interchangeable parts standardization of parts initially as replacement parts; enabled mass production standardization of parts initially as replacement parts; enabled mass production

Copyright 2006 John Wiley & Sons, Inc.1-10  Scientific management systematic analysis of work methods systematic analysis of work methods  Mass production high-volume production of a standardized product for a mass market high-volume production of a standardized product for a mass market  Lean production adaptation of mass production that prizes quality and flexibility adaptation of mass production that prizes quality and flexibility Evolution of Operations Management (cont.)

Copyright 2006 John Wiley & Sons, Inc.1-11 Historical Events in Operations Management EraEvents/ConceptsDatesOriginator Industrial Revolution Steam engine1769 James Watt Division of labor1776 Adam Smith Interchangeable parts1790 Eli Whitney Scientific Management Principles of scientific management 1911 Frederick W. Taylor Time and motion studies1911 Frank and Lillian Gilbreth Activity scheduling chart1912 Henry Gantt Moving assembly line1913 Henry Ford

Copyright 2006 John Wiley & Sons, Inc.1-12 Historical Events in Operations Management (cont.) EraEvents/ConceptsDatesOriginator Human Relations Hawthorne studies1930Elton Mayo Motivation theories 1940sAbraham Maslow 1950sFrederick Herzberg 1960sDouglas McGregor Operations Research Linear programming1947George Dantzig Digital computer1951Remington Rand Simulation, waiting line theory, decision theory, PERT/CPM 1950s Operations research groups MRP, EDI, EFT, CIM 1960s, 1970s Joseph Orlicky, IBM and others

Copyright 2006 John Wiley & Sons, Inc.1-13 Historical Events in Operations Management (cont.) EraEvents/ConceptsDatesOriginator Quality Revolution JIT (just-in-time)1970sTaiichi Ohno (Toyota) TQM (total quality management) 1980s W. Edwards Deming, Joseph Juran Strategy and operations 1990s Wickham Skinner, Robert Hayes Business process reengineering 1990s Michael Hammer, James Champy

Copyright 2006 John Wiley & Sons, Inc.1-14 Historical Events in Operations Management (cont.) EraEvents/ConceptsDatesOriginator GlobalizationWTO, European Union, and other trade agreements 1990s 2000s Numerous countries and companies Internet Revolution Internet, WWW, ERP, supply chain management 1990sARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE, PeopleSoft E-commerce2000sAmazon, Yahoo, eBay, and others

Copyright 2006 John Wiley & Sons, Inc.1-15 Continuum from Goods to Services Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

Copyright 2006 John Wiley & Sons, Inc.1-16 Operations Management and E-Business Categories of E-Commerce Business Consumer BusinessConsumer B2B Commerceone.com B2C Amazon.com C2B Priceline.com C2C eBay.com

Copyright 2006 John Wiley & Sons, Inc.1-17 An Integrated Value Chain  Value chain: set of activities that create and deliver products to customer ManufacturerSupplierCustomer Flow of information (customer order) ManufacturerSupplierCustomer Flow of information (customer order) Flow of product (order fulfillment)

Copyright 2006 John Wiley & Sons, Inc.1-18 Impact of E-Business on Operations Management   Comparison shopping by customers   Direct contact with customers   Business processes conducted online   Customer expectations escalate; quality must be maintained and costs lowered   No more guessing about demand is necessary; inventory costs go down; product and service design improves; build to-order products and services is made possible   Transaction costs are lower; customer support costs decrease; e-procurement saves big bucks Benefits of E-BusinessImpact on Operations

Copyright 2006 John Wiley & Sons, Inc.1-19 Impact of E-Business on Operations Management (cont.)   Access to customers worldwide   Middlemen are eliminated   Access to suppliers worldwide   Demand increases; order fulfillment and logistics become major issues; production moves overseas   Logistics change from delivering to a store or distribution center to delivering to individual homes; consumer demand is more erratic and unpredictable than business demand   Outsourcing increases; more alliances and partnerships among firms are formed; supply is less certain; global supply chain issues arise Benefits of E-BusinessImpact on Operations

Copyright 2006 John Wiley & Sons, Inc.1-20 Impact of E-Business on Operations Management (cont.)   Online auctions and e- marketplaces   Better and faster decision making   Competitive bidding lowers cost of materials; supply needs can be found in one location   More timely information is available with immediate access by all stakeholders in decision- making process; customer orders and product designs can be clarified electronically; electronic meetings can be held; collaborative planning is facilitated Benefits of E-BusinessImpact on Operations

Copyright 2006 John Wiley & Sons, Inc.1-21 Impact of E-Business on Operations Management (cont.)   IT synergy   Expanded supply chains   Productivity increases as information can be shared more efficiently internally and between trading partners   Order fulfillment, logistics, warehousing, transportation and delivery become focus of operations management; risk is spread out; trade barriers fall Benefits of E-BusinessImpact on Operations

Copyright 2006 John Wiley & Sons, Inc.1-22 Globalization and Competitiveness  Favorable cost  Access to international markets  Response to changes in demand  Reliable sources of supply  14 major trade agreements in 1990s  Peak: 26% in 2000 World Trade Compared to World GDP Source: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization,

Copyright 2006 John Wiley & Sons, Inc.1-23 Globalization and Competitiveness (cont.) Hourly Wage Rates for Selected Countries Source: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, Germany: $26.18 USA: $21.33 Taiwan: $5.41 Mexico: $2.38 China: $0.50

Copyright 2006 John Wiley & Sons, Inc.1-24 Globalization and Competitiveness (cont.) Trade with China: Percent of each country‘s trade Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,” International Trade Statistics 2003, World Trade Organization,

Copyright 2006 John Wiley & Sons, Inc.1-25 Risks of Globalization  Cultural differences  Supply chain logistics  Safety, security, and stability  Quality problems  Corporate image  Loss of capabilities

Copyright 2006 John Wiley & Sons, Inc.1-26 Competitiveness and Productivity  Competitiveness degree to which a nation can produce goods and services that meet the test of international markets degree to which a nation can produce goods and services that meet the test of international markets  Productivity ratio of output to input ratio of output to input  Output sales made, products produced, customers served, meals delivered, or calls answered sales made, products produced, customers served, meals delivered, or calls answered  Input labor hours, investment in equipment, material usage, or square footage labor hours, investment in equipment, material usage, or square footage

Copyright 2006 John Wiley & Sons, Inc.1-27 Measures of Productivity Competitiveness and Productivity (cont.)

Copyright 2006 John Wiley & Sons, Inc.1-28 Changes in Productivity for Select Countries Internet-enabled productivity - Dot com bust - 9/11 terrorist attacks - Dot com bust - 9/11 terrorist attacks Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004

Copyright 2006 John Wiley & Sons, Inc.1-29  Become efficient output increases with little or no increase in input output increases with little or no increase in input  Expand both output and input grow with output growing more rapidly both output and input grow with output growing more rapidly  Achieve breakthroughs output increases while input decreases output increases while input decreases  Downsize output remains the same and input is reduced output remains the same and input is reduced  Retrench both output and input decrease, with input decreasing at a faster rate both output and input decrease, with input decreasing at a faster rate Productivity Increase

Copyright 2006 John Wiley & Sons, Inc.1-30 Competitiveness and Productivity Productivity as a Function of Inputs and Outputs, 2001–2002 Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003 Breakthrough Performance More Efficient Retrench

Copyright 2006 John Wiley & Sons, Inc.1-31 Global Competitiveness Ranking  Finland  United States  Sweden  Denmark  Taiwan  Singapore  Switzerland  Iceland  Norway  Australia Source: Global Competitiveness Report 2003–2004, World Economic Forum, January 2004,

Copyright 2006 John Wiley & Sons, Inc.1-32  Economies of Scale  Capital Investment  Access to Supply and Distribution Channels  Learning Curve Operations–Oriented Barriers to Entry

Copyright 2006 John Wiley & Sons, Inc.1-33 Primary Topics in Operations Management

Copyright 2006 John Wiley & Sons, Inc.1-34 Primary Topics in Operations Management (cont.)

Copyright 2006 John Wiley & Sons, Inc.1-35 Operations Strategy  Strategy: Chapter 2 Maintaining an operations strategy to support firm’s competitive advantage Maintaining an operations strategy to support firm’s competitive advantage  Quality: Chapters 3 and 4 Focusing on quality in operational decision making Focusing on quality in operational decision making  Product and Services: Chapter 5 Designing quality products and services Designing quality products and services  Processes, Technologies, and Capacity: Chapter 6 Setting up process so that it works smoothly and efficiently Setting up process so that it works smoothly and efficiently

Copyright 2006 John Wiley & Sons, Inc.1-36  Facilities: Chapter 7 Setting up facility so that it works smoothly and efficiently Setting up facility so that it works smoothly and efficiently  Human Resources: Chapter 8 Designing jobs and work to produce quality products Designing jobs and work to produce quality products  Project Management: Chapter 9 Managing complex projects Managing complex projects Operations Strategy (cont.)

Copyright 2006 John Wiley & Sons, Inc.1-37 Supply Chain Management  Supply Chain: Chapter 10 Managing supply chain Managing supply chain  Forecasting: Chapter 11 Predicting customer demand Predicting customer demand  Aggregate Planning: Chapter 12 How much to produce and when to produce it How much to produce and when to produce it  Inventory Management: Chapter 13 How much to order and when to order How much to order and when to order

Copyright 2006 John Wiley & Sons, Inc.1-38 Supply Chain Management (cont.)  Resource Planning: Chapter 14 Planning capacity and other resources Planning capacity and other resources  Lean Production: Chapter 15 Designing efficient production lines Designing efficient production lines  Scheduling: Chapter 16 Job and task assignments Job and task assignments  Waiting Lines: Chapter 17 Minimizing waiting time of customers and products Minimizing waiting time of customers and products

Copyright 2006 John Wiley & Sons, Inc.1-39 Learning Objectives of this Course  Gain an appreciation of strategic importance of operations in a global business environment  Understand how operations relates to other business functions  Develop a working knowledge of concepts and methods related to designing and managing operations  Develop a skill set for quality and process improvement

Copyright 2006 John Wiley & Sons, Inc.1-40 Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.