Operations Management Contemporary Concepts and Cases Chapter One The Operations Function McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Outline Why Study Operations Management? Definitions of Operations Management and Supply Chains Decisions at Pizza U.S.A. Operations Decisions - A Framework Cross-Functional Decision Making Operations as a Process Contemporary Operations Themes

Why Study Operations Management? Cross-functional nature of decisions Operations is a major function in every organization Principles of process thinking can be applied across the business Operations Management is an interesting and challenging field of study

Definition of Operations Management The operations function of an organization is responsible for producing and delivering goods or services of value to customers of the organization. Operations managers make decisions to manage the transformation process that converts inputs into desired finished goods or services.

Key Points in OM Definition Decisions: The operations manager must decide: Process, quality, capacity, inventory Function: Major functional areas in organizations: Operations, marketing, finance Process: planning and controlling the transformation process and its interfaces Expansion of these points follows on the next slides.

Major Decisions at Pizza USA A Framework for OM Process How to produce & deliver? Quality Criteria, measurement & process for achieving? Capacity Physical facilities & labor? Inventory What, when & how much?

Definition of Supply Chain Network of manufacturing and service operations that supply one another From raw materials through manufacturing to the end consumer Flows of materials, money, and information Links operations across organizations

Cross-Functional Decision Making Operations as the primary function. Other primary functions: Marketing Finance Supporting functions: all others Major cross-functional decision making relationships (See Table 1.2)

Operations as a Process Transformation (Conversion) Process Input Output

Operations as a Process Transformation Fabrication Transformation Assembly Input Output Fabrication: making the parts Assembly: putting the parts together

Operations as a Process (Figure 1.1) Energy Transformation (Conversion) Process Materials Labor Goods or Services Capital Feedback information for control of process inputs and process technology Information

Relation of Operations to its Environment (Figure 1.2) SOCIETY GOVERNMENT External Environment CUSTOMERS COMPETITORS Human Resources Marketing Accounting Finance MIS Engineering Operations transformation system Suppliers

Contemporary Operations Themes Service and Manufacturing (differences and implications) Customer-Directed Operations Lean Operations Integration of Operations withOther Functions Environmental Concerns and Sustainability Supply Chain Management Globalization of Operations

Environmental Concerns “Volkswagen, Germany’s biggest car maker, was reported to be setting aside DM1 billion ($470m) to pay for compliance with a European directive that will come into force in 2007 forcing car makers to pay for recycling their vehicles. New cars will be required to be 85% recyclable.” The Economist, 15 February 2001 See: www.arn.nl/english to learn what the Netherlands has done to implement this directive.

Globalization: Who took my job? Early 1990s Small town near Charlotte, NC Aluminum smelter closed after 50 years Only significant industry in town In many families, several generations had worked there; now all out of work Who caused plant to close?

Miklós Németh WHO!? 1-16

U.S. production of aluminum dropped dramatically in the early 1990s because Russia dumped aluminum on the world market. Why? The opening of the Hungarian border on May 2, 1989 led to the fall of the Berlin Wall in November 1989… …which led to the breakup of the Soviet Union in 1991…

…which caused Russia to downsize their military… …which gave Russia overcapacity in aluminum production… …which caused Russia to dump aluminum in the world markets… …which led to the closing of U.S. smelters such as the one near Charlotte, NC.

Miklós Németh The Hungarian Prime Minister who opened the Hungarian border on May 2, 1989 1-19

Moral of the Story In an age of globalization, you never know who will be the competition or who is doing something that will affect your job or your life. The aluminum workers in North Carolina had never heard of Miklós Németh, but he ultimately cost them their jobs. 1-20

Summary Why Study Operations Management? Definition of Operations Management and Supply Chains Decisions at Pizza U.S.A. Operations Decisions - A Framework Cross-Functional Decision Making Operations as a System Contemporary Operations Themes

End of Chapter One