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Chapter 1 INTRODUCTION TO OPERATIONS MANAGEMENT
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Operations Management = OM
Management of ANY activities/process that create goods and provide services Exemplary Activities: Forecasting, Scheduling, Quality management Why to study OM At a typical manufacturing company Profit 5% OM Cost 21% Marketing Cost 26% Manufacturing Cost 48%
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Operations Management = OM
The management of systems or processes that create goods and/or provide services Organization Finance Operations Marketing The distinct –active- role of operations: Inputs become Outputs after some Transformation
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Operations example in Manufacturing: Food Processing
INPUTS PROCESS OUTPUTS Raw vegetables Cleaning Clean vegetables Metal sheets Cutting/Rolling/Welding Cans Energy, Vegetables Cutting Cut vegetables Energy, Water, Vegetables Cooking Boiled vegetables Energy, Cans, Boiled vegetables Placing Can food
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Operations example in service:
Health care Inputs Processing Outputs Doctors, nurses Examination Healthy patients Hospital Surgery Medical Supplies Monitoring Equipment Medication Laboratories Therapy
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Types of Operations Operation Examples Goods producing
Farming, mining, construction Storage/transportation Warehousing, trucking, mail, taxis, buses, hotels, location Exchange Trade, retailing, wholesaling, renting, leasing, loans Entertainment Radio, movies, TV, concerts, recording Communication Newspapers, journals, magazines, radio, TV, telephones, satellite
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Why OM? Core of all business organizations
Many areas interrelated with OM activities Management of operations is critical to create and maintain competitive advantages
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Organization of Businesses
Three basic functions Operations/Production Goods oriented (manufacturing and assembly) Service oriented (health care, transportation and retailing) Value-added (the essence of the operations functions) Finance-Accounting Budgets (plan financial requirements) Economic analysis of investment proposals Provision of funds (the necessary funding of the operations)
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Organization of Businesses (Cont.)
Marketing Selling Promoting Assessing customer wants and needs Communicating those needs to operations The need for working closely Operations Finance Marketing
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Operations Interfaces
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Systems (Holistic) Approach
Emphasizes interrelations among subsystems. A systems approach is essential whenever something is being designed, redesigned, implemented, or improved. It is important to take into account the impact on all parts of the system. Example: A new feature is added to a product. Designer must take into account how customers will view the change, instruction for using new feature, the cost, training of workers, production schedule, quality standard, advertising must be informed about the new feature.
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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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Value Added Value added: The difference between cost of inputs and price (??) of outputs. Is this definition right? Should value added include profit? Value added: The difference between the cost of inputs and the (market or fair) value or price of outputs.
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Value-Added Value added Inputs Outputs Transformation/ Land Goods
Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added
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Degree of Standardization !
Standardized output Take advantage of standardized methods, less skilled workers, materials… Example: Iron, Wheat, most of commodities Customized output Each job is different Workers must be skilled Example: Hair cut
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Manufacturing (=Goods) vs. Service operations
Production of goods (goods oriented) Tangible products Automobile Refrigerator Services (TV and auto repair, lawn care) Government Regulatory bodies, FAA, FDA Wholesale/retail Financial services Education
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Goods vs. Service Operations (Cont)
Differences Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity Production and delivery Quality assurance Amount of inventory
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Manufacturing vs. Service !
Characteristic Manufacturing Service Output Tangible Intangible Customer contact Low High Uniformity of output Labor content Uniformity of input Measurement of productivity Easy Difficult Opportunity to correct quality problems
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Steel production Automobile fabrication Home remodeling Retail sales
Goods-service Continuum Steel production Automobile fabrication Home remodeling Retail sales Auto Repair Appliance repair Maid Service Manual car wash Teaching Lawn mowing High percentage goods Low percentage service Low percentage goods High percentage service
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Manufacturing vs. Service Industries in US
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Responsibilities of Operations Management
Planning Capacity, utilization Location Choosing products or services Make or buy Layout Projects Scheduling Market share Plan for risk reduction, plan B? Forecasting
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Operations Managers Controlling Organization Staffing Inventory
Quality Costs Organization Degree of standardization Subcontracting Process selection Staffing Hiring/lay off Use of overtime Incentive plans Job assignments
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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 And more . . .
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Help comes from Models A structure which has been built purposefully to exhibit features and characteristics of some other object. Do not use “thing” or “something” in a definition. For Improved understanding and communication Experimentation Standardization for analysis Abstraction vs. computability
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Modeling ! Use models Physical models (prototypes)
Schematic models (Graphs, charts, pictures) Mathematical models, Statistical models Inventory models Linear programming Queuing techniques Project management models
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What type of models Simulation models : to test a proposed idea
– Monte Carlo Simulation Optimization models : to create an optimal idea – Linear programming Pattern recognition models : to recognize a pattern – Statistics, Forecasting, data mining Other classes to learn the rest.
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Decision Making Models Quantitative approaches Analysis of trade-offs
Systems approach
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Models Are Beneficial Easy to use, less expensive
Require users to organize Increase understanding of the problem Consistent tool Standardized format Specific objectives Systematic approach to problem solving Analysis of tradeoffs Enable “what if” questions Power of mathematics
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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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Historical Evolution of Operations Management
Industrial revolution (1770’s) Scientific management (1911) Mass production Interchangeable parts Division of labor Human relations movement ( ) Unemployment insurance Pension plans 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 Agility
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Recent Trends ! Worker involvement
Environmental issues, emission reductions are popular after Central European floods Service economy in US, foreign production E-business – information technology Supply chain management Total Quality Management Globalization, emerging markets, NAFTA Lean Production – see the next page
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Production systems classified
Craft Production : System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods. Carpenter Lean production : System that uses minimal amounts of resources to produce a high volume of high-quality goods with some variety. Dell Mass production: System in which lower-skilled workers use specialized machinery to produce high volumes of standardized goods. Ford
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Production systems classified Agile=Lean manufacturing
It provides flexibility to switch quickly and economically from one product design to another with little disruption. This characteristic, in turn enables faster response to changes in customer demand. A sophisticated computerized inventory control system allows the plant to keep track of large number of parts. Keys to being an agile manufacturer are : Reduction in inventories, Reduction in turnaround times, Availability of automated flexible machinery, Rapid collection and processing of information
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Simple Product Supply Chain
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 Cost control and productivity Quality and process improvement Increased regulation and product liability Lean production
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Summary Definition of OM
OM’s relationship with Marketing, Finance and Accounting Goods vs. service industries OM issues, trends and models Manufacturing systems
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