1. MGT 3110 Operations Management Dr. P. Dileepan

2. Chapter 1 Introduction to Operations Management McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Chapter 1: Learning Objectives You should be able to: 1.Define the term operations management 2.Identify the three major functional areas of organizations and describe how they interrelate 3.Identify similarities and differences between production and service operations 4.Describe the operations function and the nature of the operations manager’s job 5.Summarize the two major aspects of process management 6.Briefly describe the historical evolution of operations management 7.Characterize current trends in business that impact operations management 8.Define the term productivity and explain why it is important to organizations and countries 9.Provide some reasons for poor productivity and some ways of improving it

4. Operations Management What is operations? – The part of a business organization that is responsible for producing goods or services How can we define operations management? – The management of systems or processes that create goods and/or provide services 1-4

5. Operations Finance Marketing Organization Basic Functions of the Business Organization 1-5

6. The Transformation Process Inputs Land Labor Capital Information Inputs Land Labor Capital Information Outputs Goods Services Outputs Goods Services Transformation/ Conversion Process Transformation/ Conversion Process Control Measurement and Feedback Measurement and Feedback Measurement and Feedback Value-Added Feedback = measurements taken at various points in the transformation process Control = The comparison of feedback against previously established standards to determine if corrective action is needed. 1-6

7. Supply Chain Suppliers’ suppliers Suppliers’ suppliers Direct suppliers Direct suppliers Producer Distributor Final Customers Final Customers Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service 1-7

8. Supply Chain for Bread 1-8

9. Goods are physical items that include raw materials, parts, subassemblies, and final products. Automobile Computer Oven Shampoo Services are activities that provide some combination of time, location, form or psychological value. Air travel Education Haircut Legal counsel Good or Service? 1-9

10. Automobile Assembly, Steelmaking Products are typically neither purely service- or purely goods- based. GoodsServices Home Remodeling, Retail Sales Computer Repair, Restaurant Meal Songwriting, Software Development Surgery, Teaching Goods-service Continuum 1-10

11. Tangible Act-Oriented Goods Services Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented. Manufacturing vs. Service? 1-11

12. Manufacturing vs. Service 1.Degree of customer contact 2.Uniformity of input 3.Labor content of jobs 4.Uniformity of output 5.Measurement of productivity 6.Production and delivery 7.Quality assurance 8.Amount of inventory 9.Evaluation of work 10.Ability to patent design 1-12

13. Managing Services is Challenging 1.Jobs in services are often less structured than in manufacturing 2.Customer contact is generally much higher in services compared to manufacturing 3.In many services, worker skill levels are low compared to those of manufacturing employees 4.Services are adding many new workers in low-skill, entry-level positions 5.Employee turnover is high in services, especially in low-skill jobs 6.Input variability tends to be higher in many service environments than in manufacturing 7.Service performance can be adversely affected by many factors outside of the manager’s control (e.g., employee and customer attitudes) 1-13

14. Scope of Operations Management The operations function includes many interrelated activities such as: Forecasting Capacity planning Facilities and layout Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more... The scope of operations management ranges across the organization. 1-14

15. Role of the Operations Manager The Operations Function consists of all activities directly related to producing goods or providing services. A primary function of the operations manager is to guide the system by decision making. – System Design Decisions – System Operation Decisions 1-15

16. System Design Decisions System Design –Capacity –Facility location –Facility layout –Product and service planning –Acquisition and placement of equipment These are typically strategic decisions that usually require long-term commitment of resources determine parameters of system operation 1-16

17. System Operation Decisions System Operation These are generally tactical and operational decisions –Management of personnel –Inventory management and control –Scheduling –Project management –Quality assurance Operations managers spend more time on system operation decision than any other decision area They still have a vital stake in system design 1-17

18. Decision Making Most operations decisions involve many alternatives that can have quite different impacts on costs or profits Typical operations decisions include: What: What resources are needed, and in what amounts? When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? Where: Where will the work be done? How: How will he product or service be designed? How will the work be done? How will resources be allocated? Who: Who will do the work? 1-18

19. Historical Evolution of OM Industrial Revolution Scientific Management Human Relations Movement Decision Models and Management Science Influence of Japanese Manufacturers 1-19

20. Industrial Revolution Pre-Industrial Revolution – Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods Some key elements of the industrial revolution – Began in England in the 1770s – Division of labor - Adam Smith, 1776 – Application of the “rotative” steam engine, 1780s – Cotton Gin and Interchangeable parts - Eli Whitney, 1792 Management theory and practice did not advance appreciably during this period 1-20

21. Scientific Management Movement was led by efficiency engineer, Frederick Winslow Taylor – Believed in a “science of management” based on observation, measurement, analysis and improvement of work methods, and economic incentives – Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperate between management and workers, and separating management activities from work activities – Emphasis was on maximizing output 1-21

22. Scientific Management - contributors Frank Gilbreth - father of motion studies Henry Gantt - developed the Gantt chart scheduling system and recognized the value of non-monetary rewards for motivating employees Harrington Emerson - applied Taylor’s ideas to organization structure Henry Ford - employed scientific management techniques to his factories Moving assembly line Mass production 1-22

23. Human Relations Movement The human relations movement emphasized the importance of the human element in job design – Lillian Gilbreth – Elton Mayo – Hawthorne studies on worker motivation, 1930 – Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954 – Frederick Hertzberg – Two Factor Theory, 1959 – Douglas McGregor – Theory X and Theory Y, 1960s – William Ouchi – Theory Z, 1981 1-23

24. Decision Models & Management Science F.W. Harris – mathematical model for inventory management, 1915 Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s Tippett – statistical sampling theory, 1935 Operations Research (OR) Groups – OR applications in warfare George Dantzig – linear programming, 1947 1-24

25. Influence of Japanese Manufacturers Refined and developed management practices that increased productivity – Credited with fueling the “quality revolution – Just-in-Time production 1-25

26. Key Issues for Operations Managers Today Economic conditions Innovating Quality problems Risk management Competing in a global economy 1-26

27. Ethical Issues in Operations Financial statements Worker safety Product safety Quality The environment The community Hiring and firing workers Closing facilities Workers rights Ethical issues arise in many aspects of operations management: 1-27

28. Productivity – A measure of the effective use of resources, usually expressed as the ratio of output to input 2-28 Productivity = Units produced Input used

29. Partial Productivity Measures 2-29 Single-factor productivity = Labor productivity = Capital productivity = Units produced Single input used Units produced Labor-hours used Units produced Capital used

30. Multifactor Productivity Multifactor Productivity = Output Labor + Material + Energy + Capital + Miscellaneous Total Productivity = Output Sum of all the inputs

31. What is the multifactor productivity? Productivity Calculation Example Units produced: 5,000 Standard price:$30/unit Labor input: 500 hours Cost of labor:$25/hour Cost of materials: $5,000 Cost of overhead: 2x labor cost 2-31

32. Solution 2-32

33. Productivity Growth Example: Labor productivity on the ABC assembly line was 25 units per hour in 2009. In 2010, labor productivity was 23 units per hour. What was the productivity growth from 2009 to 2010? 2-33

34. Service Sector Productivity Service sector productivity is difficult to measure and manage because It involves intellectual activities It has a high degree of variability A useful measure related to productivity is process yield Where products are involved ratio of output of good product to the quantity of raw material input. Where services are involved, process yield measurement is often dependent on the particular process: ratio of cars rented to cars available for a given day ratio of student acceptances to the total number of students approved for admission. 2-34

35. Factors Affecting Productivity Capital Methods TechnologyManagement Quality 2-35

36. Improving Productivity 1.Develop productivity measures for all operations 2.Determine critical (bottleneck) operations 3.Develop methods for productivity improvements 4.Establish reasonable goals 5.Make it clear that management supports and encourages productivity improvement 6.Measure and publicize improvements Don’t confuse productivity with efficiency 2-36