1. McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 1 Introduction to Operations Management www.EPowerPoint.com

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

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. The Organization The Three Basic Functions Organization Finance Operations Marketing Figure 1.1

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. Value-Added & Product Packages  Value-added is 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. Automobile assembly, steel making Home remodeling, retail sales Automobile Repair, fast food Goods-service Continuum Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

9. Food Processor InputsProcessing Outputs Raw VegetablesCleaning Canned vegetables Metal SheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

10. Hospital Process InputsProcessingOutputs Doctors, nursesExaminationHealthy patients HospitalSurgery Medical SuppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.2

11. Manufacturing or Service? Tangible Act

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

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

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 usual

16.  Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating employees  Deciding where to locate facilities  Supply chain management  And more... Scope of Operations Management

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, banking, renting, leasing, library, loans EntertainmentFilms, radio and television, concerts, recording CommunicationNewspapers, radio and television newscasts, telephone, satellites

18. Figure 1.4

19. 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

20. Why Manufacturing Matters  Over 18 million workers in manufacturing jobs  Accounts for over 70% of value of U.S. exports  Average full-time compensation about 20% higher than average of all workers  Manufacturing workers more likely to have benefits  Productivity growth in manufacturing in the last 5 years is more than double U.S. economy

21. Why Manufacturing Matters  More than half of the total R&D performed is in the manufacturing industries  Manufacturing workers in California earn an average of about $25,000 more a year than service workers  When a California manufacturing job is lost, an average of 2.5 service jobs are lost

22. 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

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

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

25. Decision Making System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment

26. Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance

27. Decision Making  Models  Quantitative approaches  Analysis of trade-offs  Systems approach

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

29. 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

30. 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

31. Quantitative Approaches Linear programming Queuing Techniques Inventory models Project models Statistical models

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

33. Systems Approach “The whole is greater than the sum of the parts.” Suboptimization

34. 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?

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

36. Business Operations Overlap Operations Finance Figure 1.5 Marketing

37. Operations Interfaces Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal

38. Historical Evolution of Operations Management  Industrial revolution (1770’s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement (1920-60)  Decision models (1915, 1960-70’s)  Influence of Japanese manufacturers Table 1.7

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

40. 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

41. 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

42. 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$0.15$0.38 Flour transported to baker$0.08$0.46 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

43. Other Important Trends  Ethical behavior  Operations strategy  Working with fewer resources  Revenue management  Process analysis and improvement  Increased regulation and product liability  Lean production