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2. 2 Chapter 1 Introduction to Operations Management

3. 3 OverviewOverview l Introduction l Historical Milestones in OM l Factors Affecting OM Today l Different Ways of Studying OM l Wrap-Up: What World-Class Producers Do

4. 4 IntroductionIntroduction l Operations management is the management of an organization’s productive resources or its production system. l A production system takes inputs and converts them into outputs. l The conversion process is the predominant activity of a production system. l The primary concern of an operations manager is the activities of the conversion process.

5. 5 Organizational Model Marketing Marketing MIS Engineering HRM QA Accounting Accounting Sales Finance OM

6. 6 Entry-Level Jobs in OM l Purchasing planner/buyer l Production (or operations) supervisor l Production (or operations) scheduler/controller l Production (or operations) analyst l Inventory analyst l Quality specialist

7. 7 Historical Milestones in OM l The Industrial Revolution l Post-Civil War Period l Scientific Management l Human Relations and Behaviorism l Operations Research l The Service Revolution

8. 8 The Industrial Revolution l The industrial revolution developed in England in the 1700s. l The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories. l Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor. l Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers.

9. 9 The Industrial Revolution l The industrial revolution spread from England to other European countries and to the United Sates. l In 1790 an American, Eli Whitney, developed the concept of interchangeable parts. l The first great industry in the US was the textile industry. l In the 1800s the development of the gasoline engine and electricity further advanced the revolution. l By the mid-1800s, the old cottage system of production had been replaced by the factory system. l... more

10. 10 Post-Civil War Period l During the post-Civil War period great expansion of production capacity occurred. l By post-Civil War the following developments set the stage for the great production explosion of the 20th century: l increased capital and production capacity l the expanded urban workforce l new Western US markets l an effective national transportation system

11. 11 Scientific Management l Frederick Taylor is known as the father of scientific management. His shop system employed these steps: l Each worker’s skill, strength, and learning ability were determined. l Stopwatch studies were conducted to precisely set standard output per worker on each task. l Material specifications, work methods, and routing sequences were used to organize the shop. l Supervisors were carefully selected and trained. l Incentive pay systems were initiated.

12. 12 Scientific Management l In the 1920s, Ford Motor Company’s operation embodied the key elements of scientific management: l standardized product designs l mass production l low manufacturing costs l mechanized assembly lines l specialization of labor l interchangeable parts

13. 13 Human Relations and Behavioralism l In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production. l Researchers and managers alike were recognizing that psychological and sociological factors affected production. l From the work of behavioralists came a gradual change in the way managers thought about and treated workers.

14. 14 Operations Research l During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had to be deployed. l Military operations research (OR) teams were formed to deal with the complexity of the deployment. l After the war, operations researchers found their way back to universities, industry, government, and consulting firms. l OR helps operations managers make decisions when problems are complex and wrong decisions are costly.

15. 15 The Service Revolution l The creation of services organizations accelerated sharply after World War II. l Today, more than two-thirds of the US workforce is employed in services. l About two-thirds of the US GDP is from services. l There is a huge trade surplus in services. l Investment per office worker now exceeds the investment per factory worker. l Thus there is a growing need for service operations management.

16. 16 The Computer Revolution l Explosive growth of computer and communication technologies l Easy access to information and the availability of more information l Advances in software applications such as Enterprise Resource Planning (ERP) software l Widespread use of email l More and more firms becoming involved in E- Business using the Internet l Result: faster, better decisions over greater distances

17. 17 Today's Factors Affecting OM l Global Competition l Quality, Customer Service, and Cost Challenges l Rapid Expansion of Advanced Technologies l Continued Growth of the Service Sector l Scarcity of Operations Resources l Social-Responsibility Issues

18. 18 Studying Operations Management l Operations as a System l Decision Making in OM

19. 19 Operations as a System InputsInputsOutputsOutputs ConversionSubsystemConversionSubsystem Production System ControlSubsystemControlSubsystem

20. 20 Inputs of an Operations System l External l Legal, Economic, Social, Technological l Market l Competition, Customer Desires, Product Info. l Primary Resources l Materials, Personnel, Capital, Utilities

21. 21 Conversion Subsystem l Physical (Manufacturing) l Locational Services (Transportation) l Storage Services (Warehousing) l Exchange Services (Retailing) l Other Private Services (Insurance) l Government Services (Federal)

22. 22 Outputs of an Operations System l Direct l Products l Services l Indirect l Waste l Pollution l Technological Advances

23. 23 Production as an Organization Function l US companies cannot compete with marketing, finance, accounting, and engineering alone. l We focus on OM as we think of global competitiveness, because that is where the vast majority of a firm’s workers, capital assets, and expenses reside. l To succeed, a firm must have a strong operations function teaming with the other organization functions.

24. 24 Decision Making in OM l Strategic Decisions l Operating Decisions l Control Decisions

25. 25 Strategic Decisions l These decisions are of strategic importance and have long-term significance for the organization. l Examples include deciding: l the design for a new product’s production process l where to locate a new factory l whether to launch a new-product development plan

26. 26 Operating Decisions l These decisions are necessary if the ongoing production of goods and services is to satisfy market demands and provide profits. l Examples include deciding: l how much finished-goods inventory to carry l the amount of overtime to use next week l the details for purchasing raw material next month

27. 27 Control Decisions l These decisions concern the day-to-day activities of workers, quality of products and services, production and overhead costs, and machine maintenance. l Examples include deciding: l labor cost standards for a new product l frequency of preventive maintenance l new quality control acceptance criteria

28. 28 What Controls the Operations System? l Information about the outputs, the conversions, and the inputs is fed back to management. l This information is matched with management’s expectations l When there is a difference, management must take corrective action to maintain control of the system

29. 29 Wrap-Up: World Class Practice l OM important in any organization l Global competition forces rapid evolution of OM l Decision based framework focus of course l Strategic, Operating, and Control

30. 30 Chapter 1 HW Assignment l Using FIU as a business in education and treating operation management as: 1. A production system 1. draw a graph which shows its primary inputs, outputs, the conversion system, and its control subsystem. 2. Also explain how the production system works. 2. A business function, 1. identify two issues for each of strategic, operational, and control decisions. l Due date: 1/22/2008

31. 31 End of Chapter 1