1. Operations Management Definition
Operations management is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services.
Operations Management --> OM, POM, OPS
NOT OR/MS or IE OM uses their tools to manage production.
OM is the management of a company’s production system.
Marketing Sells
Finance keeps track of the money
OPS produces 2
Introduction 2

2. Why Study Operations Management?
Systematic Approach
to Org. Processes
Business Education/
Career Opportunities
Increase Competitive
Advantage/Survival
Operations
Management
Systematic approach to Org. Processes:
An Organized way of Looking at work.
Career Opportunities:
Direct – Plant Manager, Production Supervisor
Indirect – Material Manager, Consulting
Cross-Functional Applications:
Everyone needs to plan & control their work.
Business Education:
New ideas such as SCM, ERP, Reengineering, and six sigma
Cross-Functional
Applications 3
Introduction 3

3. Current Trends
96 of the top 100 industries in the U.S. have large $ worth of exports. Exporting industries are characterized by early ongoing investments in advanced product and process technologies.
Productivity is increasing and has become a basis for competition. Success domestically and globally is dependent on the ability to compete on many fronts, including operations (e.g., internet - easy to find potential customers, but hard to deliver)
Outsourcing of manufacturing and services (e.g., India and China) is accelerating.
WS8
Introduction
WS8

4. Factors Affecting a Firm's Ability to Ward off Imports and/or Export
Economic/Political
exchange rates
trade barriers
capital costs
inflation
capital availability
social costs/legal
funds flows
savings rate
interest rates
minimum wage
Environmental/social
environmental protection
health costs
labor unions
education system
consumer tastes
retailing capabilities
employee
External
transportation costs
logistics resources
labor supply, capabilities
training resources
communications
public infrastructure
Corporate
strategy
risk avoidance
role of functions
Fin-Mktg-Mfg-Eng-R&D
balance sheet
financial capacity
marketing policies
export sales competencies
Technological sophistication of mgt
Technological
R&D
engineering
product development
process development
new products
development process
Operations
costs/productivity
quality
delivery cycle
delivery reliability
flexibility for prod change
flexibility for vol. change
New product introduction
inventory mgt.
Prod. Planning Control
Equip. & process tech
#, size, location of facilities
logistics
customer service
information technology
Suppliers
abilities
coordination
location
competition
cooperation
The top half is caused by the overall economy
The bottom half is affected by Corporate Managers.
WS6
**Wickham Skinner: The Role of the Industrial Managers in the Massive U.S. Negative Trade Balance, April 2000
Introduction
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5. Operations Decision Making
Marketing Strategy
Finance Strategy
Marketplace
Corporate Strategy
Operations Strategy
Materials &
Customers
Products &
Services
Input
Output
Operations Management
Long Range Decisions:
Plants
Locations
Products
Medium Range Decisions:
# employees
# shifts or hours
Short Range Decisions
Scheduling of products
Inputs:
Materials
Supplies
Labor
Capital
Output:
Goods
Services
Process:
Conversion
Planning and control
People
Plants
Parts
Processes
Planning and Control
The Transformation Process (value adding) 4
Introduction 4

6. Key OM Concepts
Efficiency - Doing something at the lowest possible cost
Effectiveness - Doing the right things to create the most value for the organization
Value - Quality divided by price 8
Introduction 8

7. Transformations Physical--manufacturing Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
Physical: Saturn
Locational: FedEx
Exchange: Target
Storage: Self or Cold Storage
Physiological: Hospitals, clinics
Informational: Transfer of information, Information networks 5
Introduction 5

8. Examples of Production Systems
Production as a system
Whole is worth more than the sum of its parts. 6
Introduction 6

9. Service or Good?
“If you drop it on your foot, it won’t hurt you.” (Good or service?)
“Services never include goods and goods never include services.” (True or false?) 7
Introduction 7

10. What about McDonald’s? Service or Manufacturing?
The company certainly manufactures tangible products
Why then would we consider McDonald’s a service business? 8
Introduction 8

11. Front and Back Office Service Provider Customer Back Office
Front Office
Customer 9
Introduction 9

12. Core “Factory Services”
Core Services are basic things that customers want from products that they purchase.
Quality
Flexibility
Speed
Price (or production cost) 10
Introduction 10

13. Value-Added Services Information Problem Solving and Field Support
Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way.
Information
Problem Solving and Field Support
Sales Support
Will make a customer’s (internal and external) life easier.
Information:
Websites, UPS on-site knowledge
Product data
Problem Solving & Field Support
Send out factory employees to solve problems
Develop solution by changing manufacturing
Quick response to down equipment
Sales Support
CIM – Digital
MAZAK – Machining Centers 11
Introduction 11

14. History of Operations TIME Cottage System Industrial Revolution
<1700
Industrial Revolution
1850s
Civil War
1890s
Scientific Management
Moving Assembly Line
1910s
Hawthorne Studies
1930s
Operations Research
1940s
Global Competition
1970s
Service Revolution
1980s
Mass Customization
1990s 12
Introduction 12

15. Development of OM as a Field – The Names and Emphasis Change, but the Elements Remain Basically the Same!
Scientific
Management
Moving Assembly
Line
Hawthorne
Studies
Operations
Research
Historical
Underpinnings
OM’s Emergence
as a Field
Manufacturing
Strategy
TQM &
Six Sigma
JIT/Lean
Manufacturing
Business Process
Reengineering
Manufacturing
Resources Planning
Electronic
Enterprise
Service Quality
and Productivity
Global Supply
Chain Mgt. 13
Introduction 13

16. Social Responsibility/Environment and increase in need for production.
Some Current Issues
Implementing/sustaining Quality Management initiatives
Consolidating operations resulting from mergers
Speeding up the time to get new products to market
Developing flexible production systems to enable mass customization of products and services
Developing and integrating new technologies
Managing global supplier, production and distribution networks
Outsourcing
Paradox:
Social Responsibility/Environment and
increase in need for production. 14
Introduction 14

17. Purchasing Managers Index
Began 1931
Measures:
New Manufacturing Orders
Production Volume
Deliveries
Inventory Levels
Employment
Index Measures Economic Activity
>50.0% Expanding
<42.7% Contracting
PMI index --- is eagerly sought after by Wall Street
This index links operations ideas to Corp. success
1.) How have employment levels changed?
2.) How have inventory levels changed?
3.) Inventory levels versus new orders. 15
Introduction 15

18. Purchasing Managers Index
A “Leading Indicator” since:
- Manufacturing must order materials in advance of production
- The indicator is based on plans of supply management (purchasing) executives
Source: Institute for Supply Management (ISM) – ism.org (previously National Association of Purchasing Management)
PMI index --- is eagerly sought after by Wall Street
This index links operations ideas to Corp. success
1.) How have employment levels changed?
2.) How have inventory levels changed?
3.) Inventory levels versus new orders. 15
Introduction 15

19. Purchasing Managers Index

20. Operations Management - Overview Supply Chain Management
Process Analysis
and Design
Process Control
and Improvement
Supply Chain Management
Project
Management
Operations
Strategy
Quality
Management
Supply Chain
Strategy
Process Analysis
Statistical
Process Control
Just in Time
Job Design
Planning for Production
Consulting and
Reengineering
Manufacturing
Capacity Management
Facility Layout
Aggregate
Planning
Services
Inventory Control
Waiting Line Analysis and Simulation
Materials Requirement Planning
Introduction

21. Operations Strategy Strategy Process Example Customer Needs
More Product
Corporate Strategy
Increase Org. Size
Definition:
Long Range plan for the production of a company's products and services
Gives a roadmap for what the production function should do to achieve the goals of a business strategy.
distinctive competence
Interested in Core Competencies and aligning the strategies
Operations Strategy
Increase Production Capacity
Decisions on Processes
and Infrastructure
Build New Factory
Introduction

22. Competitive Dimensions
Cost
Quality and Reliability
Delivery
Flexibility
Speed
Reliability
Coping with Changes in Demand
New Product Introduction
In Order of Time
Cost for type of market& type of product
Involves tradeoffs
Introduction

23. Dealing with Trade-offs
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
Example II, if we improve customer service problem solving by cross-training personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.
Cost
Quality
Delivery
Flexibility
Introduction

24. Order Qualifiers and Winners
Order Qualifiers: Screening criterion that permits a firm’s products or services to be considered as possible candidates for purchase Order Winners: Criterion that differentiates the products or services of one firm from another
Order qualifiers?
-They are the basic criteria that permit the firms products to be considered as candidates for purchase by customers. - Indicates what is expected
Order winners?
-They are the criteria that differentiates the products and services of one firm from another.
- Are special attributes about your organization that will win the job.
- They are product specific ---- Saturn’s Service
Example: Job Search - need degree and minimum experience
Definition of WCM: being better in at least one thing than all of your competitors
Introduction

25. Strategy Begins with Priorities
Consider the personal computer assembler
1. How would we segment the market according to product group?
2. How would we identify product requirements, demand patterns, and profit margins for each group?
3. How do we identify order winners and order qualifiers for each group?
4. How do we convert order winners into specific performance requirements?
How to develop strategy
product group:
Hi tech - best up to date - - money is no object
Everyday User - good tech. & reliable
Bargain Hunter - Cost
Introduction

26. Manufacturing’s Role in Corporate Strategy
Stage I--Internally Neutral - minimize potential manufacturing negative
Stage II--Externally Neutral - achieve parity with competitors
Stage III--Internally Supportive - support business strategy
Stage IV--Externally Supportive - manufacturing based competitive strategy
Stage 1--Internally Neutral
- minimize manufacturing’s neg. potential
- management control systems
Stage II--Externally Neutral
- Achieve parity with competitors
Off the shelve machines
- Follows industry practice
Stage III--Internally Supportive
- Support the business strategy
Stage IV--Externally Supportive
- manufacturing based competitive advantage - Levi’s Strauss
Introduction

27. Four Stages of Service Firm Competitiveness
Stage I. Available for Service
Stage II. Journeyman
Stage III. Distinctive Competence Achieved
Stage IV. World Class Service Delivery
Stage I. Available for Service
- Reactive, non-performance-based survival
- will not change unless has to
- highly variable
- cost is primary competence
Stage II. Journeyman
- Firm neither sought nor avoided
Stage III. Distinctive Competence Achieved
- Reputation for meeting customers’ expectations
Stage IV. World Class Service Delivery
- Firm name synonymous with service excellence--Focus on delighting - Roto Rotor, UPS
Introduction

28. U. S. Competitiveness Drivers
Product Development
speed development & enhance manufacturability
Waste Reduction (JIT Philosophy)
WIP, space, tool costs, and human effort
Improved Customer-Supplier Relationships
borrowed from Japanese Keiretsu
Improved Leadership
strong, independent boards of directors
Currently
Board of directors willing to direct managers
Introduction

29. Execution!!
Unless you translate big thoughts into concrete steps for action, they’re pointless. (Larry Bossidy)
Strategy is execution. (Louis Gerstner)
In the business world, having a good objective means nothing if you implement it badly. (Fareed Zakaria)
You cannot have an execution culture without robust dialogue - one that brings reality to the surface through openness, candor, and informality. Robust dialogue starts when people go in with open minds. You cannot set realistic goals until you’ve debated the assumptions behind them.
Financial perspective – ultimate benefit to shareholder
Internal perspective – key internal processes
To the future
Leading measures – are descriptive of what has happened
Lagging measures – predictive
Such as: retention versus customer satisfaction
rejects versus absenteeism
Introduction

30. Productivity Partial measures Multi-factor measures Total measure
output/(single input)
Multi-factor measures
output/(multiple inputs)
Total measure
output/(total inputs)
Introduction

31. Example 10,000 Units Produced Sold for $10/unit 500 labor hours
Labor rate: $9/hr
Cost of raw material: $5,000
Cost of purchased material: $25,000
What is the
labor productivity?
Introduction

32. Example--Labor Productivity
10,000 units/500hrs = 20 units/hour or we can arrive at a unitless figure
(10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22
Units per hour -- Supervisors
Units per $ -- Upper Management
Timeless
Introduction

33. Example: Productivity Measurement
You have just determined that your service employees have used a total of 2400 hours of labor this week to process 560 insurance forms. Last week the same crew used only 2000 hours of labor to process 480 forms.
Is productivity increasing or decreasing?
Answer: Could be classified as a Total Measure or Partial Measure.
Answer:
Last week’s productivity = 480/2000 = 0.24
This week’s productivity is = 560/2400 = 0.23
Introduction

34. Balanced Scorecard Financial perspective Internal perspective
Customer perspective
Innovation and learning perspective
Financial perspective – ultimate benefit to shareholder
Internal perspective – key internal processes
To the future
Leading measures – are descriptive of what has happened
Lagging measures – predictive
Such as: retention versus customer satisfaction
rejects versus absenteeism
Introduction