Copyright © 2014 by McGraw-Hill Education (Asia). 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

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 Value-Added and Product Packages  Value-added elements make the difference between the cost of inputs and the value or price of outputs.  Product packages are a combination of goods and services.  Product packages can make a company more competitive.

1-8 Automobile assembly, steel making Home remodeling, retail sales Automobile repair, fast food The Goods–Service Continuum Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

1-9 Food Processor InputsProcessing Outputs Raw vegetablesCleaning Canned vegetables Metal sheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

1-10 Hospital InputsProcessingOutputs Doctors, nursesExaminationTreated patients HospitalSurgery Medical suppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.2

1-11 Manufacturing or Service? Tangible Act

1-12 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

1-13 Key Differences 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity

1-14 Key Differences 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

1-15 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 usually Table 1.3

1-16  Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating and training employees  Locating facilities  Supply chain management  And more... Scope of Operations Management

1-17 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, financial advising, renting or leasing EntertainmentFilms, radio and television, concerts, recording CommunicationNewspapers, radio and TV newscasts, telephone, satellites

Figure 1.4a

1-19 Figure 1.4b Singapore Manufacturing vs. Service Employment

1-20 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

1-21 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

1-22 Key Decisions of Operations Managers  What What resources/what amounts  When Needed/scheduled/ordered  Where Work to be done  How Designed/Resources allocated  Who To do the work

1-23 Operations Management Decision Making  Models  Quantitative approaches  Performance metrics  Analysis of trade-offs  Systems approach  Establishing priorities  Ethics

1-24 Decision Making  Models  Quantitative approaches  Performance metrics  Analysis of trade-offs  Systems approach  Establishing priorities  Ethics

1-25 Models A model is an abstraction of reality. – Physical – Schematic – Mathematical What are the pros and cons of models? Tradeoffs

1-26 Models Are Beneficial  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

1-27 Limitations of Models  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

1-28 Quantitative Approaches  Linear programming  Queuing techniques  Inventory models  Project models  Statistical models

1-29 Performance Metrics  To control different aspects of operations  Many:Profits Costs Quality Productivity Assets Inventory Schedules Forecast accuracy

1-30 Analysis of Trade-Offs  Decision on the amount of inventory to stock  Increased cost of holding inventory vs.  Level of customer service

1-31 Systems Approach “The whole is greater than the sum of the parts.” Suboptimization

1-32 Establishing Priorities  Pareto phenomenon  A few factors account for a high percentage of the occurrence of some event(s).  80–20 Rule: 80% of problems are caused by 20% of the activities. How do we identify the vital few?

1-33 Ethical Issues  Financial statements  Worker safety  Product safety  Quality  Environment  Community  Hiring/firing workers  Closing facilities  Worker’s rights

1-34 Overlap of Business Functions Operations Finance Figure 1.5 Marketing

1-35 Operations Interfaces Operations Personnel/ Human resources MIS Legal Public Relations Accounting Figure 1.6

1-36 Historical Summary of Operations Management  Industrial revolution (1770s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement (1920–60)  Decision models (1915, 1960–’70s)  Influence of Japanese manufacturers

1-37 Trends in Business  Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility  Ethical behavior

1-38 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

1-39 Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Simple Product Supply Chain Figure 1.7 Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

1-40 Stage of Production Value Added Value of Product Farmer produces and harvests wheat$0.15$0.25 Wheat transported to mill$0.08$0.33 Mill produces flour$0.15$0.48 Flour transported to baker$0.08$0.56 Baker produces bread$0.54$1.00 Bread transported to grocery store$0.08$1.08 Grocery store displays and sells bread$0.21$1.29 Total Value-Added$1.29 A Supply Chain for Bread

1-41 Other Important Trends  Operations strategy  Working with fewer resources  Revenue management  Process analysis and improvement  Increased regulation and product liability  Lean production