1. Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved. 1 Introduction to Operations Management

2. 1-2 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

3. 1-3 Learning Objectives  Differentiate between design and operation of production systems  Describe the key aspects of operations management decision making  Briefly describe the historical evolution of operations management  Identify current trends that impact operations management

4. 1-4 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

5. 1-5 The Organization The Three Basic Functions Organization Finance Operations Marketing Figure 1.1

6. 1-6 Value-Added Process The operations function involves the conversion of inputs into outputs Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added Figure 1.2

7. 1-7 Value-Added and Product Packages  Value-added elements make 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.

8. 1-8 Automobile assembly, steel making Home remodeling, retail sales Automobile repair, fast food The Goods–Service Continuum Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

9. 1-9 Food Processor InputsProcessing Outputs Raw vegetablesCleaning Canned vegetables Metal sheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

10. 1-10 Hospital InputsProcessingOutputs Doctors, nursesExaminationTreated patients HospitalSurgery Medical suppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.2

11. 1-11 Manufacturing or Service? Tangible Act

12. 1-12 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

13. 1-13 Key Differences 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity

14. 1-14 Key Differences 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

15. 1-15 Goods vs. Service CharacteristicGoodsService Customer contactLowHigh Uniformity of inputHighLow Labor contentLowHigh Uniformity of outputHighLow OutputTangibleIntangible Measurement of productivityEasyDifficult Opportunity to correct problemsHighLow InventoryMuchLittle EvaluationEasierDifficult PatentableUsuallyNot usually Table 1.3

16. 1-16  Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating and training employees  Locating facilities  Supply chain management  And more... Scope of Operations Management

17. 1-17 Types of Operations Table 1.4 OperationsExamples Goods ProducingFarming, mining, construction, manufacturing, power generation Storage/TransportationWarehousing, trucking, mail service, moving, taxis, buses, hotels, airlines ExchangeRetailing, wholesaling, financial advising, renting or leasing EntertainmentFilms, radio and television, concerts, recording CommunicationNewspapers, radio and TV newscasts, telephone, satellites

18. Figure 1.4a

19. 1-19 Figure 1.4b Singapore Manufacturing vs. Service Employment

20. 1-20 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

21. 1-21 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

22. 1-22 Key Decisions of Operations Managers  What What resources/what amounts  When Needed/scheduled/ordered  Where Work to be done  How Designed/Resources allocated  Who To do the work

23. 1-23 Operations Management Decision Making  Models  Quantitative approaches  Performance metrics  Analysis of trade-offs  Systems approach  Establishing priorities  Ethics

24. 1-24 Decision Making  Models  Quantitative approaches  Performance metrics  Analysis of trade-offs  Systems approach  Establishing priorities  Ethics

25. 1-25 Models A model is an abstraction of reality. – Physical – Schematic – Mathematical What are the pros and cons of models? Tradeoffs

26. 1-26 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

27. 1-27 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

28. 1-28 Quantitative Approaches  Linear programming  Queuing techniques  Inventory models  Project models  Statistical models

29. 1-29 Performance Metrics  To control different aspects of operations  Many:Profits Costs Quality Productivity Assets Inventory Schedules Forecast accuracy

30. 1-30 Analysis of Trade-Offs  Decision on the amount of inventory to stock  Increased cost of holding inventory vs.  Level of customer service

31. 1-31 Systems Approach “The whole is greater than the sum of the parts.” Suboptimization

32. 1-32 Establishing Priorities  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?

33. 1-33 Ethical Issues  Financial statements  Worker safety  Product safety  Quality  Environment  Community  Hiring/firing workers  Closing facilities  Worker’s rights

34. 1-34 Overlap of Business Functions Operations Finance Figure 1.5 Marketing

35. 1-35 Operations Interfaces Operations Personnel/ Human resources MIS Legal Public Relations Accounting Figure 1.6

36. 1-36 Historical Summary of Operations Management  Industrial revolution (1770s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement (1920–60)  Decision models (1915, 1960–’70s)  Influence of Japanese manufacturers

37. 1-37 Trends in Business  Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility  Ethical behavior

38. 1-38 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

39. 1-39 Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Simple Product Supply Chain Figure 1.7 Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

40. 1-40 Stage of Production Value Added Value of Product Farmer produces and harvests wheat$0.15$0.25 Wheat transported to mill$0.08$0.33 Mill produces flour$0.15$0.48 Flour transported to baker$0.08$0.56 Baker produces bread$0.54$1.00 Bread transported to grocery store$0.08$1.08 Grocery store displays and sells bread$0.21$1.29 Total Value-Added$1.29 A Supply Chain for Bread

41. 1-41 Other Important Trends  Operations strategy  Working with fewer resources  Revenue management  Process analysis and improvement  Increased regulation and product liability  Lean production