1. Copyright 2006 John Wiley & Sons, Inc. Chapter 1 Introduction to Operations and Competitiveness To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

2. Copyright 2010 John Wiley & Sons, Inc. Welcome to ISQS 5343 Instructor: Dr. Burns Summer II 2013 SEMESTER Telephone: 834-1547 Email: jburns@ba.ttu.edu jburns@ba.ttu.edu Off hrs: 9:30-10:00 Tues., Th. And by appointment Website: burns.ba.ttu.edu

3. Copyright 2011 John Wiley & Sons, Inc.1-3 My web site http://burns.ba.ttu.edu

4. Copyright 2011 John Wiley & Sons, Inc.1-4 Prerequisites  STATISTICS ISQS 5345: Basic Statistical Concepts ISQS 5345: Basic Statistical Concepts  COMPUTER LITERACY MS Excel MS Excel MS Word MS Word

5. Copyright 2006 John Wiley & Sons, Inc.1-5 Seating  The seat you sit in on the second session of class will be your seat for the duration of the class  A seating chart will be ‘made-up’ then

6. Copyright 2006 John Wiley & Sons, Inc.1-6 Survey  I will hand it out…

7. Copyright 2006 John Wiley & Sons, Inc.1-7

8. Copyright 2006 John Wiley & Sons, Inc.1-8 Requirements/Pedagogy  4 homework sets Collected the day before we do our review Collected the day before we do our review TO GET US READY TO TAKE THE EXAMS TO GET US READY TO TAKE THE EXAMS  3 EXAMS and a FINAL  Term Project

9. 1-9 Term Project--Consists of six parts  Part 1 is due 7-15-2013  Part 2 is due 7-17-2013  Part 3 is due 7-19-2013  Part 4 is due 7-30-2013  Part 5 is due 8-5-2013  Part 6 is due 8-9-2013  PROJECT IN TOTAL IS due 8-9-2013

10. Copyright 2006 John Wiley & Sons, Inc.1-10 Term Project  Part 1—design the firm & its products/ services  Part 2—design of the quality system  Part 3—design of the internal processes  Part 4—design of the external processes  Part 5—design of the inventory system/design for leanness  Part 6—design of the startup project  TEAM SIZES: 3-4

11. Copyright 2006 John Wiley & Sons, Inc.1-11 Grading  The homework is worth a total of 16%  Each EXAM is worth 13% {There are three EXAMS} {There are three EXAMS}  The FINAL is worth 15%  The PROJECT is worth 30% Each project part (there are six) is worth 4% Each project part (there are six) is worth 4% The final project report is worth 6% The final project report is worth 6%

12. Copyright 20011 John Wiley & Sons, Inc.1-12 Grades  90-100---A  80-89.999---B  70-79.999---C  97.5-on up---A+  92.5-97.4999---A  90-92.4999—A-

13. Copyright 2006 John Wiley & Sons, Inc.1-13 Class Pedagogy  Won’t show any movies  Video clips are OK, however  PowerPoint  Simulations, where possible  Lectures--more informal  Interactive Discussions

14. Copyright 2006 John Wiley & Sons, Inc.1-14 How Long does it take you to do stuff?  Do you know?  Suppose your employer assigns a task to you and asks you how long it will take you to do it? Could you tell him/her?  For your benefit, I want you to estimate how long its going to take you to do each project step and then record how long it actually took you

15. Copyright 2006 John Wiley & Sons, Inc.1-15 Five ‘hot’ jobs right now— according to Yahoo.  http://hotjobs.yahoo.com/career-articles- five_hot_business_careers_no_mba_needed- 276 http://hotjobs.yahoo.com/career-articles- five_hot_business_careers_no_mba_needed- 276 http://hotjobs.yahoo.com/career-articles- five_hot_business_careers_no_mba_needed- 276  Event Planning--$20--$40/hr  Public Relations--$43,830/yr (median)  Advertising--$40,300/yr (median)  Web Designer--$60,000/yr (median)  Search Engine Optimization--$40,000 (med.)  Project manager--$50,000 to $80,000 to start

16. Copyright 2006 John Wiley & Sons, Inc.1-16 Questions  How big is the U.S. economy in terms of GDP? What is the world-wide GDP?  How big is the U.S. population in relation to the rest of the world?  What percentage of worldwide nonrenewable resources are consumed just in the U.S. alone?

17. Copyright 2006 John Wiley & Sons, Inc.1-17 More questions  Is the U.S. leadership in terms of material standard of living sustainable? What does it take to make it sustainable? What does it take to make it sustainable?  What is causing the devaluation of the dollar? Will that devaluation continue?  Is there anything good that comes from devaluation of the dollar?  What’s bad about the $ devaluation?

18. Copyright 2006 John Wiley & Sons, Inc.1-18 What are some of the biggest problems our country (U.S.A.) faces?  The war on terror  Mexican border out of control  The national debt; the budget and trade deficits  Contributions to global warming  High energy costs  Health care is too expensive  Major employers like banks tanking

19. Copyright 2006 John Wiley & Sons, Inc.1-19 What solutions do you foresee to America’s problems?  Massive Jobs growth (particularly high-value jobs) and Immigration of tax-paying, foreign professionals  Strong productivity growth  Sell Resources owned by the Federal Gov. Oil on Federally-owned lands Oil on Federally-owned lands Gas on Federally-owned lands Gas on Federally-owned lands Coal on Federally-owned lands Coal on Federally-owned lands Uranium on Federally-owned lands Uranium on Federally-owned lands Electricity (solar and wind farms on federally-owned land) Electricity (solar and wind farms on federally-owned land)  BUY AMERICAN

20. Copyright 2006 John Wiley & Sons, Inc.1-20 The National Debt  Officially, $ 16,455,325,678,402.07 as of today accumulating at the rate of $3.5 billion per day-- $139,250 per taxpayer  According to Kotlikoff, the fiscal gap is a stunning $65.9 trillion—that is more than twice the total net worth of the entire country  Social Security and Medicare liabilities are estimated at $40 trillion  No plans for accommodation of the retirements in 77 million baby boomers beginning now, but becoming substantial after 2014

21. Copyright 2006 John Wiley & Sons, Inc.1-21 Can we increase tax rates, really?

22. Copyright 2006 John Wiley & Sons, Inc.1-22 The Federal Government must become an entrepreneur

23. Copyright 2006 John Wiley & Sons, Inc.1-23 Solutions--Kotlikoff

24. Copyright 2006 John Wiley & Sons, Inc.1-24 Competitiveness  The opportunities are huge  There will be massive change  You can exploit that change to create wealth

25. Copyright 2006 John Wiley & Sons, Inc.1-25

26. Copyright 2006 John Wiley & Sons, Inc.1-26 What are some OM entry-level titles?  PROJECT MANAGER  BUSINESS PROCESS ANALYST  INVENTORY ANALYST  PROJECT COORDINATOR  UNIT SUPERVISOR  SUPPLY CHAIN ANALYST  MATERIALS MANAGER  QUALITY ASSURANCE SPECIALIST  PRODUCTION SCHEDULER  LOGISTICS PLANNER

27. Copyright 2006 John Wiley & Sons, Inc.1-27 Competitiveness, Productivity, Leanness, Agility and Maturity  That’s what this course is about  Creating wealth through production of goods and services

28. Copyright 2006 John Wiley & Sons, Inc.1-28 Potential Project Topics  Products/services that help us conserve energy/water Residential Residential Commercial Commercial  Products that help the retiring baby boom generation—77 million of them in the U.S. alone  Products/processes that reduce the cost of health care?  Products/services that help us become GREEN AND

29. Copyright 2006 John Wiley & Sons, Inc.1-29

30. Copyright 2006 John Wiley & Sons, Inc.1-30

32. Copyright 2006 John Wiley & Sons, Inc.1-32 Lecture Outline  What Operations and Supply Chain Managers Do  Operations Function  Evolution of Operations and Supply Chain Management  Globalization and Competitiveness  Operations  Learning Objectives for This Course

33. Copyright 2006 John Wiley & Sons, Inc.1-33 What Operations and Supply Chain Managers Do  What is Operations Management? design, operation, and improvement of productive systems design, operation, and improvement of productive systems  What is Operations? a function or system that transforms inputs into outputs of greater value a function or system that transforms inputs into outputs of greater value  What is a Transformation Process? a series of activities along a value chain extending from supplier to customer a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated activities that do not add value are superfluous and should be eliminated

34. Copyright 2006 John Wiley & Sons, Inc.1-34  Physical: as in manufacturing operations  Locational: as in transportation or warehouse operations  Exchange: as in retail operations  Physiological: as in health care  Psychological: as in entertainment  Informational: as in communication Transformation Process

35. Copyright 2006 John Wiley & Sons, Inc.1-35 INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Feedback & Requirements Operations as a Transformation Process

36. From Paradigms to Products  Paradigms Principles Principles Practices Practices  Processes  Products and Services Copyright 2006 John Wiley & Sons, Inc.1-36

37. Copyright 2006 John Wiley & Sons, Inc.1-37 Operations Function  Operations  Marketing  Finance and Accounting  Human Resources  Outside Suppliers

38. Copyright 2006 John Wiley & Sons, Inc.1-38 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.”

39. Copyright 2006 John Wiley & Sons, Inc.1-39 How is Operations Relevant to my Major? (cont.)  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.”

40. Copyright 2006 John Wiley & Sons, Inc.1-40 Evolution of Operations and Supply Chain Management  Craft production process of handcrafting products or services for individual customers in the craftsman’s shop process of handcrafting products or services for individual customers in the craftsman’s shop  The Industrial Revolution brought: Division of labor -- Adam Smith Division of labor -- Adam Smith dividing a job into a series of small tasks each performed by a different worker dividing a job into a series of small tasks each performed by a different worker Interchangeable parts – Eli Whitney Interchangeable parts – Eli Whitney standardization of parts initially as replacement parts; enabled mass production standardization of parts initially as replacement parts; enabled mass production Steam Engine – James Watt Steam Engine – James Watt

41. Copyright 2006 John Wiley & Sons, Inc.1-41 Scientific management Scientific management systematic analysis of work methods systematic analysis of work methods Mass production Mass production high-volume production of a standardized product for a mass market high-volume production of a standardized product for a mass market Lean production Lean production adaptation of mass production that prizes quality, flexibility and low costs adaptation of mass production that prizes quality, flexibility and low costs Evolution of Operations and Supply Chain Management (cont.)

42. Copyright 2006 John Wiley & Sons, Inc.1-42 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

43. Copyright 2006 John Wiley & Sons, Inc.1-43 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

44. Copyright 2006 John Wiley & Sons, Inc.1-44 Historical Events in Operations Management (cont.) EraEvents/Concepts DatesOriginator Quality Revolution JIT (just-in-time)1970sTaiichi Ohno (Toyota) TQM (total quality management) 1980s W. Edwards Deming, Joseph Juran Strategy and operations 1980s Wickham Skinner, Robert Hayes Business process reengineering 1990s Michael Hammer, James Champy Six Sigma1990sGE, Motorola

45. Copyright 2006 John Wiley & Sons, Inc.1-45 Historical Events in Operations Management (cont.) EraEvents/ConceptsDatesOriginator Internet Revolution Internet, WWW, ERP, supply chain management 1990sARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE E-commerce2000sAmazon, Yahoo, eBay, Google, and others GlobalizationWTO, European Union, and other trade agreements, global supply chains, outsourcing, BPO, Services Science 1990s 2000s Numerous countries and companies

46. Copyright 2006 John Wiley & Sons, Inc.1-46 Evolution of Operations and Supply Chain Management (cont.)  Supply chain management management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners

47. Copyright 2006 John Wiley & Sons, Inc.1-47 Globalization and Competitiveness  Why “go global”? favorable cost favorable cost access to international markets access to international markets response to changes in demand response to changes in demand reliable sources of supply reliable sources of supply latest trends and technologies latest trends and technologies  Increased globalization results from the Internet and falling trade barriers results from the Internet and falling trade barriers

48. Copyright 2006 John Wiley & Sons, Inc.1-48 Globalization and Competitiveness (cont.) Hourly Compensation Costs for Production Workers Source: U.S. Bureau of Labor Statistics, 2005.

49. Copyright 2006 John Wiley & Sons, Inc.1-49 Globalization and Competitiveness (cont.) World Population Distribution Source: U.S. Census Bureau, 2006.

50. Copyright 2006 John Wiley & Sons, Inc.1-50 Globalization and Competitiveness (cont.) Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)

51. Copyright 2006 John Wiley & Sons, Inc.1-51 Productivity and Competitiveness  Competitiveness degree to which a nation can produce goods and services that meet the test of international markets degree to which a nation can produce goods and services that meet the test of international markets  Productivity – THE MEASURE OF COMPETITIVENESS ratio of output to input ratio of output to input  Output sales made, products produced, customers served, meals delivered, or calls answered sales made, products produced, customers served, meals delivered, or calls answered  Input labor hours, investment in equipment, material usage, or square footage labor hours, investment in equipment, material usage, or square footage

52. Copyright 2006 John Wiley & Sons, Inc.1-52 Measures of Productivity Productivity and Competitiveness (cont.)

53. Copyright 2006 John Wiley & Sons, Inc.1-53 Productivity and Competitiveness (cont.) Average Annual Growth Rates in Productivity, 1995-2005. Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons. January 2007, p. 28.

54. Copyright 2006 John Wiley & Sons, Inc.1-54 Productivity and Competitiveness (cont.) Average Annual Growth Rates in Output and Input, 1995-2005 Source: Bureau of Labor Statistics. A Chartbook of International Labor Comparisons, January 2007, p. 26. Dramatic Increase in Output w/ Decrease in Labor Hours

55. Copyright 2006 John Wiley & Sons, Inc.1-55  Retrenching productivity is increasing, but both output and input decrease with input decreasing at a faster rate productivity is increasing, but both output and input decrease with input decreasing at a faster rate  Assumption that more input would cause output to increase at the same rate certain limits to the amount of output may not be considered certain limits to the amount of output may not be considered output produced is emphasized, not output sold; increased inventories output produced is emphasized, not output sold; increased inventories Productivity and Competitiveness (cont.)

56. Copyright 2006 John Wiley & Sons, Inc.1-56  Strategy Provides direction for achieving a mission Provides direction for achieving a mission  Five Steps for Strategy Formulation Defining a primary task Defining a primary task What is the firm in the business of doing? What is the firm in the business of doing? Assessing core competencies Assessing core competencies What does the firm do better than anyone else? What does the firm do better than anyone else? Determining order winners and order qualifiers Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What qualifies an item to be considered for purchase? What wins the order? What wins the order? Positioning the firm Positioning the firm How will the firm compete? How will the firm compete? Deploying the strategy Deploying the strategy Strategy and Operations

57. Copyright 2006 John Wiley & Sons, Inc.1-57 Strategic Planning Mission and Vision Mission and Vision Corporate Strategy Corporate Strategy Operations Strategy Operations Strategy Marketing Strategy Marketing Strategy Financial Strategy Financial Strategy Voice of the Business Voice of the Business Voice of the Customer Voice of the Customer

58. Copyright 2006 John Wiley & Sons, Inc.1-58 Order Winners and Order Qualifiers Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47

59. Copyright 2006 John Wiley & Sons, Inc.1-59 Positioning the Firm  Cost  Speed  Quality  Flexibility

60. Copyright 2006 John Wiley & Sons, Inc.1-60 Positioning the Firm: Cost  Waste elimination relentlessly pursuing the removal of all waste relentlessly pursuing the removal of all waste  Examination of cost structure looking at the entire cost structure for reduction potential looking at the entire cost structure for reduction potential  Lean production providing low costs through disciplined operations providing low costs through disciplined operations

61. Copyright 2006 John Wiley & Sons, Inc.1-61 Positioning the Firm: Speed  fast moves, fast adaptations, tight linkages  Internet conditioned customers to expect immediate responses conditioned customers to expect immediate responses  Service organizations always competed on speed (McDonald’s, LensCrafters, and Federal Express) always competed on speed (McDonald’s, LensCrafters, and Federal Express)  Manufacturers time-based competition: build-to-order production and efficient supply chains time-based competition: build-to-order production and efficient supply chains  Fashion industry two-week design-to-rack lead time of Spanish retailer, Zara two-week design-to-rack lead time of Spanish retailer, Zara

62. Copyright 2006 John Wiley & Sons, Inc.1-62 Positioning the Firm: Quality  Minimizing defect rates or conforming to design specifications; please the customer  Ritz-Carlton - one customer at a time Service system is designed to “move heaven and earth” to satisfy customer Service system is designed to “move heaven and earth” to satisfy customer Every employee is empowered to satisfy a guest’s wish Every employee is empowered to satisfy a guest’s wish Teams at all levels set objectives and devise quality action plans Teams at all levels set objectives and devise quality action plans Each hotel has a quality leader Each hotel has a quality leader

63. Copyright 2006 John Wiley & Sons, Inc.1-63 Positioning the Firm: Flexibility  ability to adjust to changes in product mix, production volume, or design  National Bicycle Industrial Company offers 11,231,862 variations offers 11,231,862 variations delivers within two weeks at costs only 10% above standard models delivers within two weeks at costs only 10% above standard models mass customization: the mass production of customized parts mass customization: the mass production of customized parts

64. Copyright 2006 John Wiley & Sons, Inc.1-64 Policy Deployment  Policy deployment translates corporate strategy into measurable objectives translates corporate strategy into measurable objectives  Hoshins action plans (small projects) generated from the policy deployment process action plans (small projects) generated from the policy deployment process

65. Copyright 2006 John Wiley & Sons, Inc.1-65 Policy Deployment Derivation of an Action Plan Using Policy Deployment

66. Copyright 2006 John Wiley & Sons, Inc.1-66 Balanced Scorecard  Balanced scorecard measuring more than financial performance measuring more than financial performance finances finances customers customers processes processes learning and growing learning and growing  Key performance indicators a set of measures that help managers evaluate performance in critical areas a set of measures that help managers evaluate performance in critical areas

67. Copyright 2006 John Wiley & Sons, Inc.1-67 Balanced Scorecard Balanced Scorecard Worksheet

68. Copyright 2006 John Wiley & Sons, Inc.1-68 Balanced Scorecard Radar Chart Dashboard

69. Copyright 2006 John Wiley & Sons, Inc.1-69 Operations Strategy Products ServicesProcessandTechnology Capacity HumanResources Quality Facilities SourcingOperatingSystems

70. Copyright 2006 John Wiley & Sons, Inc.1-70 Organization of This Text: Part I – Operations Management  Intro. to Operations and Supply Chain Management:Chapter 1  Quality Management:Chapter 2  Statistical Quality Control:Chapter 3  Product Design:Chapter 4  Service Design:Chapter 5  Processes and Technology:Chapter 6  Facilities:Chapter 7  Human Resources:Chapter 8  Project Management:Chapter 9

71. Copyright 2006 John Wiley & Sons, Inc.1-71  Supply Chain Strategy and Design:Chapter 10  Global Supply Chain Procurement and Distribution:Chapter 11  Forecasting:Chapter 12  Inventory Management:Chapter 13  Sales and Operations Planning:Chapter 14  Resource Planning:Chapter 15  Lean Systems:Chapter 16  Scheduling:Chapter 17 Organization of This Text: Part II – Supply Chain Management

72. Copyright 2006 John Wiley & Sons, Inc.1-72 Learning Objectives of this Course  Gain an appreciation of strategic importance of operations and supply chain management in a global business environment  Understand how operations relates to other business functions  Develop a working knowledge of concepts and methods related to designing and managing operations and supply chains  Develop a skill set for quality and process improvement

73. Copyright 2006 John Wiley & Sons, Inc.1-73 Copyright 2009 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

74. Copyright 2006 John Wiley & Sons, Inc.1-74 THIS IS AS FAR AS YOU NEED TO GO!!

75. Copyright 2006 John Wiley & Sons, Inc.1-75 Lecture Outline  What Do Operations Managers Do?  Operations Function  Evolution of Operations Management  Operations Management and E–Business  Globalization and Competitiveness  Primary Topics in Operations Management  Learning Objectives for this Course

76. Copyright 2006 John Wiley & Sons, Inc.1-76 What Do Operations Managers Do?  What are Operations? a function, process or system that transforms inputs into outputs of greater value a function, process or system that transforms inputs into outputs of greater value  What is a Transformation Process? a series of activities along a value chain extending from supplier to customer a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated activities that do not add value are superfluous and should be eliminated  What is Operations Management? design, operation, and improvement of productive systems design, operation, and improvement of productive systems

77. Copyright 2006 John Wiley & Sons, Inc.1-77  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

78. Copyright 2006 John Wiley & Sons, Inc.1-78 INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Feedback Operations as a Transformation Process

79. Copyright 2006 John Wiley & Sons, Inc.1-79 Operations Function  Operations  Marketing  Finance and Accounting  Human Resources  Outside Suppliers

80. Copyright 2006 John Wiley & Sons, Inc.1-80 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.”

81. Copyright 2006 John Wiley & Sons, Inc.1-81 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.”

82. Copyright 2006 John Wiley & Sons, Inc.1-82 Typical entry-level Positions for Operations Management Majors  Business process analyst  Inventory analyst  Project coordinator  Project Manager  Unit supervisor  Supply chain analyst  Materials Manager  Quality assurance specialist  Production scheduler  Logistics planner

83. Copyright 2006 John Wiley & Sons, Inc.1-83 Evolution of Operations Management  Craft production process of handcrafting products or services for individual customers 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 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 standardization of parts initially as replacement parts; enabled mass production

84. Copyright 2006 John Wiley & Sons, Inc.1-84  Scientific management systematic analysis of work methods systematic analysis of work methods  Mass production high-volume production of a standardized product for a mass market high-volume production of a standardized product for a mass market  Lean production adaptation of mass production that prizes quality and flexibility adaptation of mass production that prizes quality and flexibility Evolution of Operations Management (cont.)

85. Copyright 2006 John Wiley & Sons, Inc.1-85 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

86. Copyright 2006 John Wiley & Sons, Inc.1-86 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

87. Copyright 2006 John Wiley & Sons, Inc.1-87 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

88. Copyright 2006 John Wiley & Sons, Inc.1-88 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

89. Copyright 2006 John Wiley & Sons, Inc.1-89 Continuum from Goods to Services Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

90. Copyright 2006 John Wiley & Sons, Inc.1-90 Operations Management and E-Business Categories of E-Commerce Business Consumer BusinessConsumer B2B Commerceone.com B2C Amazon.com C2B Priceline.com C2C eBay.com

91. Copyright 2006 John Wiley & Sons, Inc.1-91 An Integrated Value Chain  Value chain: set of processes that create and deliver products to customer ManufacturerSupplierCustomer Flow of information (customer order) ManufacturerSupplierCustomer Flow of information (customer order) Flow of product (order fulfillment)

92. Copyright 2006 John Wiley & Sons, Inc.1-92 Impact of E-Business on Operations Management   Comparison shopping by customers   Direct contact with customers   Business processes conducted online   Customer expectations escalate; quality must be maintained and costs lowered   No more guessing about demand is necessary; inventory costs go down; product and service design improves; build to-order products and services is made possible   Transaction costs are lower; customer support costs decrease; e-procurement saves big bucks Benefits of E-BusinessImpact on Operations

93. Copyright 2006 John Wiley & Sons, Inc.1-93 Impact of E-Business on Operations Management (cont.)   Access to customers worldwide   Middlemen are eliminated   Access to suppliers worldwide   Demand increases; order fulfillment and logistics become major issues; production moves overseas   Logistics change from delivering to a store or distribution center to delivering to individual homes; consumer demand is more erratic and unpredictable than business demand   Outsourcing increases; more alliances and partnerships among firms are formed; supply is less certain; global supply chain issues arise Benefits of E-BusinessImpact on Operations

94. Copyright 2006 John Wiley & Sons, Inc.1-94 Impact of E-Business on Operations Management (cont.)   Online auctions and e- marketplaces   Better and faster decision making   Competitive bidding lowers cost of materials; supply needs can be found in one location   More timely information is available with immediate access by all stakeholders in decision- making process; customer orders and product designs can be clarified electronically; electronic meetings can be held; collaborative planning is facilitated Benefits of E-BusinessImpact on Operations

95. Copyright 2006 John Wiley & Sons, Inc.1-95 Impact of E-Business on Operations Management (cont.)   IT synergy   Expanded supply chains   Productivity increases as information can be shared more efficiently internally and between trading partners   Order fulfillment, logistics, warehousing, transportation and delivery become focus of operations management; risk is spread out; trade barriers fall Benefits of E-BusinessImpact on Operations

96. Copyright 2006 John Wiley & Sons, Inc.1-96 Globalization and Competitiveness  Favorable cost  Access to international markets  Response to changes in demand  Reliable sources of supply  14 major trade agreements in 1990s  Peak: 26% in 2000 World Trade Compared to World GDP Source: “Real GDP and Trade Growth of OECD Countries, 2001–03,” International Trade Statistics 2003, World Trade Organization, www.wto.org

97. Copyright 2006 John Wiley & Sons, Inc.1-97 Globalization and Competitiveness (cont.) Hourly Wage Rates for Selected Countries Source: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003. Germany: $26.18 USA: $21.33 Taiwan: $5.41 Mexico: $2.38 China: $0.50

98. Copyright 2006 John Wiley & Sons, Inc.1-98 Globalization and Competitiveness (cont.) Trade with China: Percent of each country‘s trade Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,” International Trade Statistics 2003, World Trade Organization, www.wto.org

99. Copyright 2006 John Wiley & Sons, Inc.1-99 Risks of Globalization  Cultural differences  Supply chain logistics  Safety, security, and stability  Quality problems  Corporate image  Loss of capabilities

100. Copyright 2006 John Wiley & Sons, Inc.1-100 Competitiveness and Productivity  Competitiveness degree to which a nation can produce goods and services that meet the test of international markets degree to which a nation can produce goods and services that meet the test of international markets  Productivity ratio of output to input ratio of output to input  Output sales made, products produced, customers served, meals delivered, or calls answered sales made, products produced, customers served, meals delivered, or calls answered  Input labor hours, investment in equipment, material usage, or square footage labor hours, investment in equipment, material usage, or square footage

101. Copyright 2006 John Wiley & Sons, Inc.1-101 Measures of Productivity Competitiveness and Productivity (cont.)

102. Copyright 2006 John Wiley & Sons, Inc.1-102 Changes in Productivity for Select Countries Internet-enabled productivity - Dot com bust - 9/11 terrorist attacks - Dot com bust - 9/11 terrorist attacks Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004

103. Copyright 2006 John Wiley & Sons, Inc.1-103  Become efficient output increases with little or no increase in input output increases with little or no increase in input  Expand both output and input grow with output growing more rapidly both output and input grow with output growing more rapidly  Achieve breakthroughs output increases while input decreases output increases while input decreases  Downsize output remains the same and input is reduced output remains the same and input is reduced  Retrench both output and input decrease, with input decreasing at a faster rate both output and input decrease, with input decreasing at a faster rate Productivity Increase

104. Copyright 2006 John Wiley & Sons, Inc.1-104 Competitiveness and Productivity Productivity as a Function of Inputs and Outputs, 2001–2002 Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003 Breakthrough Performance More Efficient Retrench

105. Copyright 2006 John Wiley & Sons, Inc.1-105 Global Competitiveness Ranking  Finland  United States  Sweden  Denmark  Taiwan  Singapore  Switzerland  Iceland  Norway  Australia Source: Global Competitiveness Report 2003–2004, World Economic Forum, January 2004, www.weforum.org

106. Copyright 2006 John Wiley & Sons, Inc.1-106  Economies of Scale  Capital Investment  Access to Supply and Distribution Channels  Learning Curve Operations–Oriented Barriers to Entry

107. Copyright 2006 John Wiley & Sons, Inc.1-107 Primary Topics in Operations Management

108. Copyright 2006 John Wiley & Sons, Inc.1-108 Primary Topics in Operations Management (cont.)

109. Copyright 2006 John Wiley & Sons, Inc.1-109 Learning Objectives of this Course  Gain an appreciation of strategic importance of operations in a global business environment  Understand how operations relates to other business functions  Develop a working knowledge of concepts and methods related to designing and managing operations  Develop a skill set for quality and process improvement

110. Copyright 2006 John Wiley & Sons, Inc.1-110 Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

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114. Copyright 2006 John Wiley & Sons, Inc.1-114 Introduction: The Growing Federal Deficit—is it a real Problem?  Current deficit stands at 8.25 trillion dollars  This does not take into account the amount the government owes to Social Security and Medicare  Taking this into account the real federal debt is nearly $30 trillion or $100,000 for every man woman and child in the country.  If you are head of a household of four, you owe the government $400,000

115. Copyright 2006 John Wiley & Sons, Inc.1-115 An Assessment using a methodology that Assimilates Three World Views  Statistics/Forecasting  Dynamic modeling/simulation  Systems Thinking

116. Copyright 2006 John Wiley & Sons, Inc.1-116 A System Dynamics Model: Purpose  To address the question “Is our debt serviceable over the long haul?”  To discern that, we constructed a model that was able to forecast debt service and annual revenues to come up with a ratio of debt service to revenues

117. Copyright 2006 John Wiley & Sons, Inc.1-117 Assumptions and Starting Points  U.S. Population projections (‘mid-series’) by Census Bureau Department of Commerce (2000) are basis for population numbers.  Only about 70% of population participates in workforce (RAND, 2004)  Federal revenues are stabilizing at 19% of GDP over the past 50 years (Jones, 2003)  If present policies are continued federal deficit would rise from current 3% to 20% of GDP by the year 2075(Jones, 2003)  Current avg interest rate on National Debt is 4.8% p.a. (Bureau of Public Debt, 2006)  Avg GDP growth rate has been 3% for the period 1994-2003 (IMF, 2004)  AAAS predicts a decline in the federal Deficit by the year 2015 (AAAS, 2005)

118. Copyright 2006 John Wiley & Sons, Inc.1-118 Basic Simplified Structure

119. Copyright 2006 John Wiley & Sons, Inc.1-119 About the Structure Above  Obviously, persistent Federal deficits are accumulated within the National Debt  The model starts on January 1, 2005 with an assumed national debt of 7.596 trillions (Bureau of Public Debt, 2006)

120. Copyright 2006 John Wiley & Sons, Inc.1-120 Debt Service to Federal Revenues

121. Copyright 2006 John Wiley & Sons, Inc.1-121 What the Above Curves Don’t Show  The additional burdens to be brought to bear upon the Federal government  Retiring baby-boomers living longer, will require more than the SSA can pay out after the year 2025  Other entitlement programs coming into full play—the military and civil service pension programs, specifically

122. Copyright 2006 John Wiley & Sons, Inc.1-122 More concerns leading to lower federal revenues  The Bush tax cuts  Offshoring of jobs  Devaluation of the dollar leading to higher inflation, higher interest rates, and a slowing economy  Higher energy prices Instability of foreign sources of oil Instability of foreign sources of oil

123. Copyright 2006 John Wiley & Sons, Inc.1-123 Basic Demographic Sector

124. Copyright 2006 John Wiley & Sons, Inc.1-124 Population Cohorts

125. Copyright 2006 John Wiley & Sons, Inc.1-125 Ratio of Retirees to Total Population

126. Copyright 2006 John Wiley & Sons, Inc.1-126 Workforce Structure

127. Copyright 2006 John Wiley & Sons, Inc.1-127 Basic Demographics  What happens when we increase the average lifespan from 83 years to 90 years? This puts an even greater drain on Social Security and Medicare This puts an even greater drain on Social Security and Medicare

128. Copyright 2006 John Wiley & Sons, Inc.1-128 Workforce to Retirees Ratio, assuming retirement ages of 65 and 70

129. Copyright 2006 John Wiley & Sons, Inc.1-129 Workforce to Retirees Ratio, assuming average lifetime of 90

130. Copyright 2006 John Wiley & Sons, Inc.1-130 Workforce to Retirees Ratio, assuming avg lifetime of 90  Now the steady-state ratio of workers to retirees is 2.2, as opposed to 2.7

131. Copyright 2006 John Wiley & Sons, Inc.1-131 Cumulative Ratios

132. Copyright 2006 John Wiley & Sons, Inc.1-132 Table 1: Some Scenarios Settings Key metrics DatasetInterestGDPGrowthrateFederal Deficit % assumedRetirementageAverageworkforceParticipationRateDebtServiceToRevenues ratio in 2055Nationaldebt per capita Workforce To retirees ratio Base case 4.80 at 3.1% Increasing650.70.3045 $94,320.00 $94,320.002.993 GDPDNG4.80 3.1% to 1% by 2025 increasing650.70.3841 $73,139.00 $73,139.002.993 FDTRND4.80 at 3.1% turned around 650.70.1239 $31,053.00 $31,053.002.993 HI INTR 8.00 at 3.1% increasing65.70.50762.993 GDPDNG= GDP does not continue to grow FDTRND=Fed deficit turned around

133. Copyright 2006 John Wiley & Sons, Inc.1-133 Avg. Debt Service-to-Revenue Ratios

134. Copyright 2006 John Wiley & Sons, Inc.1-134 Avg Debt Per-capita

135. Copyright 2006 John Wiley & Sons, Inc.1-135 THE PROBLEM Revisited  Reduce the outflow (federal expenditures) to a minimum  Increase the inflow (federal revenues) to a maximum, without raising taxes  As some optimists predict (AAAS,2005) federal deficits must register a turn around in the trend and start to decline from the current 3+% of GDP down to a healthy 1%

136. Copyright 2006 John Wiley & Sons, Inc.1-136 Possible Solutions to the Growing Deficit and National Debt  Open up federal lands in Colorado, Wyoming, Utah, Nevada and Alaska to oil exploration and production  Open up the outer continental shelf to aggressive oil exploration  Export our hugely abundant uranium resources for energy usage

137. Copyright 2006 John Wiley & Sons, Inc.1-137 Action items  Write your Congressperson and Senator  Inform your friends that reducing the deficit and the national debt should be our country’s highest priority

138. Copyright 2006 John Wiley & Sons, Inc.1-138 Summary  Debt service is growing; revenues aren’t  Our highest priority as a country should be the reduction and pay-down of the national debt  To pay down the national debt, we must stay focused on that national priority  The citizenry of a country are NOT FREE if that country is deeply in debt

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