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  • 1. Operations and Competitiveness Operations Management - 5 th Edition Chapter 1 Roberta Russell & Bernard W. Taylor, III
  • 2. 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
  • 3. What Do Operations Managers Do?
    • What is operations?
      • 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
      • activities that do not add value are superfluous and should be eliminated
    • What is operations management?
      • design, operation, and improvement of productive systems
  • 4. Transformation Process
    • 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
  • 5. Operations as a Transformation Process Feedback
    • INPUT
    • Material
    • Machines
    • Labor
    • Management
    • Capital
    • OUTPUT
    • Goods
    • Services
  • 6. Operations Function
    • Operations
    • Marketing
    • Finance and accounting
    • Human resources
    • Outside suppliers
  • 7. 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.”
  • 8. 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.”
  • 9. Evolution of Operations Management
    • Craft production
      • 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
    • Interchangeable parts
      • standardization of parts initially as replacement parts; enabled mass production
  • 10.
    • Scientific management
      • systematic analysis of work methods
    • Mass production
      • high-volume production of a standardized product for a mass market
    • Lean production
      • adaptation of mass production that prizes quality and flexibility
    Evolution of Operations Management (cont.)
  • 11. Historical Events in Operations Management Henry Ford 1913 Moving assembly line Henry Gantt 1912 Activity scheduling chart Frank and Lillian Gilbreth 1911 Time and motion studies Frederick W. Taylor 1911 Principles of scientific management Scientific Management Eli Whitney 1790 Interchangeable parts Adam Smith 1776 Division of labor James Watt 1769 Steam engine Industrial Revolution Originator Dates Events/Concepts Era
  • 12. Historical Events in Operations Management (cont.) Joseph Orlicky, IBM and others 1960s, 1970s Frederick Herzberg 1950s MRP, EDI, EFT, CIM Operations research groups 1950s Simulation, waiting line theory, decision theory, PERT/CPM Remington Rand 1951 Digital computer George Dantzig 1947 Linear programming Operations Research Douglas McGregor 1960s Abraham Maslow 1940s Motivation theories Elton Mayo 1930 Hawthorne studies Human Relations Originator Dates Events/Concepts Era
  • 13. Historical Events in Operations Management (cont.) Wickham Skinner, Robert Hayes 1990s Strategy and operations Michael Hammer, James Champy 1990s Business process reengineering W. Edwards Deming, Joseph Juran 1980s TQM (total quality management) Taiichi Ohno (Toyota) 1970s JIT (just-in-time) Quality Revolution Originator Dates Events/Concepts Era
  • 14. Historical Events in Operations Management (cont.) Internet Revolution Amazon, Yahoo, eBay, and others 2000s E-commerce ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE, PeopleSoft 1990s Internet, WWW, ERP, supply chain management Numerous countries and companies 1990s 2000s WTO, European Union, and other trade agreements Globalization Originator Dates Events/Concepts Era
  • 15. 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.
  • 16. Operations Management and E-Business Categories of E-Commerce Business Consumer Business Consumer B2B B2C C2B C2C
  • 17. An Integrated Value Chain
    • Value chain: set of activities that create and deliver products to customer
    Manufacturer Supplier Customer Flow of information (customer order) Manufacturer Supplier Customer Flow of information (customer order) Flow of product (order fulfillment)
  • 18. 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-Business Impact on Operations
  • 19. 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-Business Impact on Operations
  • 20. 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-Business Impact on Operations
  • 21. 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-Business Impact on Operations
  • 22. 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,
  • 23. Globalization and Competitiveness (cont.) Germany: $26.18 USA: $21.33 Taiwan: $5.41 Mexico: $2.38 China: $0.50 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.
  • 24. 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,
  • 25. Risks of Globalization
    • Cultural differences
    • Supply chain logistics
    • Safety, security, and stability
    • Quality problems
    • Corporate image
    • Loss of capabilities
  • 26. Competitiveness and Productivity
    • Competitiveness
      • degree to which a nation can produce goods and services that meet the test of international markets
    • Productivity
      • ratio of output to input
    • Output
      • sales made, products produced, customers served, meals delivered, or calls answered
    • Input
      • labor hours, investment in equipment, material usage, or square footage
  • 27. Competitiveness and Productivity (cont.) Measures of Productivity
  • 28. Changes in Productivity for Select Countries Internet-enabled productivity - 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
  • 29.
    • Become efficient
      • output increases with little or no increase in input
    • Expand
      • both output and input grow with output growing more rapidly
    • Achieve breakthroughs
      • output increases while input decreases
    • Downsize
      • output remains the same and input is reduced
    • Retrench
      • both output and input decrease, with input decreasing at a faster rate
    Productivity Increase
  • 30. Competitiveness and Productivity Breakthrough Performance More Efficient Retrench 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
  • 31. 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,
  • 32. Operations–Oriented Barriers to Entry
    • Economies of Scale
    • Capital Investment
    • Access to Supply and Distribution Channels
    • Learning Curve
  • 33. Primary Topics in Operations Management
  • 34. Primary Topics in Operations Management (cont.)
  • 35. Operations Strategy
    • Strategy: Chapter 2
      • Maintaining an operations strategy to support firm’s competitive advantage
    • Quality: Chapters 3 and 4
      • Focusing on quality in operational decision making
    • Product and Services: Chapter 5
      • Designing quality products and services
    • Processes, Technologies, and Capacity: Chapter 6
      • Setting up process so that it works smoothly and efficiently
  • 36. Operations Strategy (cont.)
    • Facilities: Chapter 7
      • Setting up facility so that it works smoothly and efficiently
    • Human Resources: Chapter 8
      • Designing jobs and work to produce quality products
    • Project Management: Chapter 9
      • Managing complex projects
  • 37. Supply Chain Management
    • Supply Chain: Chapter 10
      • Managing supply chain
    • Forecasting: Chapter 11
      • Predicting customer demand
    • Aggregate Planning: Chapter 12
      • How much to produce and when to produce it
    • Inventory Management: Chapter 13
      • How much to order and when to order
  • 38. Supply Chain Management (cont.)
    • Resource Planning: Chapter 14
      • Planning capacity and other resources
    • Lean Production: Chapter 15
      • Designing efficient production lines
    • Scheduling: Chapter 16
      • Job and task assignments
    • Waiting Lines: Chapter 17
      • Minimizing waiting time of customers and products
  • 39. 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