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Introduction to Operations Management
1 Introduction to Operations Management
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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
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Learning Objectives Differentiate between design and operation of production systems Describe the key aspects of operations management decision making Briefly describe the historicalevolution of operations management Identify current trends that impact operations management
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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
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The Three Basic Functions
The Organization Figure 1.1 The Three Basic Functions Organization Finance Operations Marketing
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The operations function involves the conversion of inputs into outputs
Value-Added Process Figure 1.2 The operations function involves the conversion of inputs into outputs Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added
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Value-Added & Product Packages
Value-added is 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.
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Goods-service Continuum
Figure 1.3 Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Home remodeling, retail sales Automobile assembly, steel making
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Food Processor Inputs Processing Outputs Raw Vegetables Cleaning
Canned vegetables Metal Sheets Making cans Water Cutting Energy Cooking Labor Packing Building Labeling Equipment
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Hospital Process Inputs Processing Outputs Doctors, nurses Examination
Table 1.2 Inputs Processing Outputs Doctors, nurses Examination Healthy patients Hospital Surgery Medical Supplies Monitoring Equipment Medication Laboratories Therapy
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Manufacturing or Service?
Tangible Act
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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
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Key Differences 1. Customer contact 2. Uniformity of input
3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity
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Key Differences 6. Production and delivery 7. Quality assurance
8. Amount of inventory 9. Evaluation of work 10. Ability to patent design
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Goods vs Service Characteristic Goods Service Customer contact Low
High Uniformity of input Labor content Uniformity of output Output Tangible Intangible Measurement of productivity Easy Difficult Opportunity to correct problems Inventory Much Little Evaluation Easier Patentable Usually Not usual
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Scope of Operations Management
Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities Supply chain management And more . . .
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Types of Operations Operations Examples Table 1.4 Goods Producing
Farming, mining, construction , manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, banking, renting, leasing, library, loans Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and television newscasts, telephone, satellites
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Figure 1.4
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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
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Why Manufacturing Matters
Over 18 million workers in manufacturing jobs Accounts for over 70% of value of U.S. exports Average full-time compensation about 20% higher than average of all workers Manufacturing workers more likely to have benefits Productivity growth in manufacturing in the last 5 years is more than double U.S. economy
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Why Manufacturing Matters
More than half of the total R&D performed is in the manufacturing industries Manufacturing workers in California earn an average of about $25,000 more a year than service workers When a California manufacturing job is lost, an average of 2.5 service jobs are lost
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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
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Operations Management Decision Making
Models Quantitative approaches Analysis of trade-offs Systems approach Establishing priorities Ethics
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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
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Decision Making System Design – capacity location
arrangement of departments product and service planning acquisition and placement of equipment
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Decision Making System operation – personnel inventory scheduling
project management quality assurance
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Decision Making Models Quantitative approaches Analysis of trade-offs
Systems approach
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Models Tradeoffs A model is an abstraction of reality.
– Physical Schematic Mathematical Tradeoffs What are the pros and cons of models?
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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
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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
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Quantitative Approaches
Linear programming Queuing Techniques Inventory models Project models Statistical models
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Analysis of Trade-Offs
Decision on the amount of inventory to stock Increased cost of holding inventory Vs. Level of customer service
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“The whole is greater than the sum of the parts.”
Systems Approach “The whole is greater than the sum of the parts.” Suboptimization
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How do we identify the vital few?
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?
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Ethical Issues Financial statements Worker safety Product safety
Quality Environment Community Hiring/firing workers Closing facilities Worker’s rights
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Business Operations Overlap
Figure 1.5 Operations Marketing Finance
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Operations Interfaces
Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal
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Historical Evolution of Operations Management
Table 1.7 Industrial revolution (1770’s) Scientific management (1911) Mass production Interchangeable parts Division of labor Human relations movement ( ) Decision models (1915, ’s) Influence of Japanese manufacturers
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Trends in Business Major trends The Internet, e-commerce, e-business
Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior
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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
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Simple Product Supply Chain
Figure 1.7 Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service
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A Supply Chain for Bread
Stage of Production Value Added Value of Product Farmer produces and harvests wheat $0.15 Wheat transported to mill $0.08 $0.23 Mill produces flour $0.38 Flour transported to baker $0.46 Baker produces bread $0.54 $1.00 Bread transported to grocery store $1.08 Grocery store displays and sells bread $0.21 $1.29 Total Value-Added
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Other Important Trends
Ethical behavior Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production
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