1. Chapter 1 INTRODUCTION

2. Learning Objectives After completing this chapter, you should be able to: oDefine the terms operations management oIdentify the three major functional areas of organizations and describe how they interrelate. oCompare and contrast service and manufacturing operations. oDescribe the operations function and nature of the operations manager’s job.

3. oDescribe the key aspects of operations management decision making. oBriefly describe the historical evolution of operations management. oIdentify current trends in business that impact operations management. oExplain the difference between production and productivity oCompute productivity Learning Objectives – continued.

4. What is operations management?

5. as the set of activities that create value in the form of goods and services by transforming inputs into outputs. Operations management defined Production is the creation of goods and services

6. They are all operation s Back office operation in a bank Kitchen unit manufacturing operation Retail operation Take-out / restaurant operation

7. The best way to start understanding the nature of ‘operations’ is to look around you Everything you can see around you (except the flesh and blood) has been processed by an operation Every service you consumed today (radio station, bus service, lecture, etc.) has also been produced by an operation Operations Managers create everything you buy, sit on, wear, eat, throw at people, and throw away

8. 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

9. INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Feedback Operations as a Transformation Process Process

10. All operations are transformation processes … Transformation process Inputs that transform inputs … Outputs into outputs

11. Transformed resources …  Materials  Information  Customers Transforming resources …  Facilities  Staff Customers Output products and services Input resources Some inputs are transformed resources Some inputs are transforming resources Outputs are products and services that add value for customers Transformation process

12. A general model of operations management Transformed resources …  Materials  Information  Customers Transforming resources …  Facilities  Staff..\..\..\ Videos\RealPl ayer Downloads\e ntrepreneurs hip videos\opera tions plan\How It's Made Sandwich Cookies Oreos - YouTube1.m p4..\..\..\ Videos\RealPl ayer Downloads\e ntrepreneurs hip videos\opera tions plan\How It's Made Sandwich Cookies Oreos - YouTube1.m p4 Customers Output products and services Input resources Planning and control Improvemen t Design Operations strategy The operation’s strategic objectives The operation’s competitive role and position Operations managemen t Operations strategy

14. TRANSFORMATION PROCESS

15. Design a store layout which gives smooth and effective flow Design elegant products which can be flat-packed efficiently Site stores of an appropriate size in the most effective locations Maintain cleanliness and safety of storage area Arrange for fast replenishment of products Monitor and enhance quality of service to customers Continually examine and improve operations practice Ensure that the jobs of all staff encourage their contribution to business success Operations management at IKEA

16. Organization Finance Operations Marketing  To create goods and services, all organization perform 3 Essential functions:  Marketing – generates demand  Operations –creates the product  Finance/accounting – tracks organizational performance, pays bills, collects money

17. Functions - Bank Operations Finance/ Accounting Marketing Check Clearing Teller Scheduling Transactions Processing Security Commercial Bank © 1984- 1994 T/Maker Co.

18. Organizational Charts Figure 1.1

19. Functions - Airline Operations Finance/ Accounting Marketing Ground Support Flight Operations Facility Maintenance Catering Airline © 1984-1994 T/Maker Co.

20. Organizational Charts Figure 1.1

21. Functions - Manufacturer Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Control Purchasing Manufacturing

22. Organizational Charts Figure 1.1

23. Operations Function Operations Marketing Finance and Accounting Human Resources Outside Suppliers

24. 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.”

25. 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.”

26. Where are the OM Jobs

27. Operations Management includes: –Forecasting –Capacity planning –Scheduling –Managing inventories –Assuring quality –Motivating employees –Deciding where to locate facilities –And more... Scope of Operations Management

28. Responsibilities of Operations Management Products & services Planning – Capacity – Location – – Make or buy – Layout – Projects – Scheduling Controlling/Improving – Inventory – Quality Organizing – Degree of centralization – Process selection Staffing – Hiring/laying off – Use of Overtime Directing – Incentive plans – Issuance of work orders – Job assignments – Costs – Productivity

29. 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

30. Decision Making System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment

31. Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance

32. Evolution of Operations Management Craft production –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 Interchangeable parts –standardization of parts initially as replacement parts; enabled mass production

33. Scientific management –systematic analysis of work methods Mass production –high-volume production of a standardized product for a mass market Lean production –adaptation of mass production that prizes quality and flexibility Evolution of Operations Management (cont.)

34. Significant Events in OM Figure 1.4

35. 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

36. 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

37. 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

38. 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

39. Manufacturing or Service? Tangible Act

40. Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction © 1995 Corel Corp.

41. Characteristics of Service Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge- based Frequently dispersed © 1995 Corel Corp.

42. Goods Versus Services Can be resold Can be inventoried Some aspects of quality measurable Selling is distinct from production Reselling unusual Difficult to inventory Quality difficult to measure Selling is part of service GoodsService Goods Service

43. Goods Versus Services - Continued Product is transportable Site of facility important for cost Often easy to automate Revenue generated primarily from tangible product Provider, not product is transportable Site of facility important for customer contact Often difficult to automate Revenue generated primarily from intangible service. GoodsService Goods Service

44. Other Challenges in Operations Management Rapid technological change Ethical issues across cultures Increasing diversity of the workforce Environmental impact issues

45. Addressing the Challenges in Operations Management Managing Processes Process Strategy Process Performance & Quality Constraint Management Process Layout Lean Systems Process Analysis Using Operations to Compete Operations As a Competitive Weapon Operations Strategy Project Management Managing Value Chains Supply Chain Strategy Inventory Management Location Forecasting Sales & Operations Planning Scheduling Resource Planning

46. 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)

47. Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital) The objective is to improve productivity! Important Note! Production is a measure of output only and not a measure of efficiency

48. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot

49. Improving Productivity at Starbucks A team of 10 analysts continually look for ways to shave time. Some improvements: Stop requiring signatures on credit card purchases under $25 Saved 8 seconds per transaction Change the size of the ice scoop Saved 14 seconds per drink New espresso machinesSaved 12 seconds per shot Operations improvements have helped Starbucks increase yearly revenue per outlet by $250,000 to $1,000,000 in seven years. Productivity has improved by 27%, or about 4.5% per year.

50. ▶ Measure of process improvement ▶ Represents output relative to input ▶ Only through productivity increases can our standard of living improve Productivity Productivity = Units produced Input used

51. Productivity Calculations Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000 250 Labor Productivity One resource input  single-factor productivity

52. Multi-Factor Productivity Output Labor + Material + Energy + Capital + Miscellaneous Productivity = ► Also known as total factor productivity ► Output and inputs are often expressed in dollars Multiple resource inputs  multi-factor productivity

53. Measurement Problems 1.Quality may change while the quantity of inputs and outputs remains constant 2.External elements may cause an increase or decrease in productivity 3.Precise units of measure may be lacking

54. Productivity Variables 1.Labor - contributes about 10% of the annual increase 2.Capital - contributes about 38% of the annual increase 3.Management - contributes about 52% of the annual increase

55. Key Variables for Improved Labor Productivity 1.Basic education appropriate for the labor force 2.Diet of the labor force 3.Social overhead that makes labor available ▶ Challenge is in maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

56. Capital 10 8 6 4 2 0 Percent increase in productivity Percentage investment 101520253035

57. Management ▶ Ensures labor and capital are effectively used to increase productivity ▶ Use of knowledge ▶ Application of technologies ▶ Knowledge societies ▶ Difficult challenge

58. Productivity and the Service Sector 1.Typically labor intensive 2.Frequently focused on unique individual attributes or desires 3.Often an intellectual task performed by professionals 4.Often difficult to mechanize and automate 5.Often difficult to evaluate for quality

59. Productivity at Taco Bell Improvements: ▶ Revised the menu ▶ Designed meals for easy preparation ▶ Shifted some preparation to suppliers ▶ Efficient layout and automation ▶ Training and employee empowerment ▶ New water and energy saving grills

60. Productivity at Taco Bell : Improvements: : Results: ▶ Preparation time cut to 8 seconds ▶ Management span of control increased from 5 to 30 ▶ In-store labor cut by 15 hours/day ▶ Floor space reduced by more than 50% ▶ Stores average 164 seconds/customer from drive-up to pull-out ▶ Water- and energy-savings grills conserve 300 million gallons of water and 200 million KwH of electricity each year ▶ Green-inspired cooking method saves 5,800 restaurants $17 million per year

61. Ethics, Social Responsibility, and Sustainability Challenges facing operations managers: ▶ Develop and produce safe, high- quality green products ▶ Train, retrain, and motivate employees in a safe workplace ▶ Honor stakeholder commitments..\..\..\Videos\RealPlay er Downloads\entrepreneurship videos\operations plan\Emirates Catering - operation management example - YouTube12.mp4..\..\..\Videos\RealPlay er Downloads\entrepreneurship videos\operations plan\Emirates Catering - operation management example - YouTube12.mp4