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Introduction to Operations Management Operations is the ...


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Introduction to Operations Management Operations is the ...

  1. 1. Introduction to Operations Management
  2. 2. Operations is the production activities that go on in the organization, regardless of whether the end product is a good or a service What is Operations?
  3. 3. Operations management is defined as the design, operation, and improvement of the systems that create the firm’s primary products and services Operations management is the management of systems or processes that creates value in the form of goods and services by transforming inputs into desired outputs What Is Operations Management (OM) ?
  4. 4. <ul><li>Operations as a transformation process </li></ul><ul><li>Operations as a ba sic function </li></ul><ul><li>Operations as the technical core </li></ul>The Operations Function
  5. 5. Operations as a Transformation Process Inputs : <ul><li>Materials </li></ul><ul><li>Machines </li></ul><ul><li>Labor </li></ul><ul><li>Management </li></ul><ul><li>Capital </li></ul>Transformation/ Conversion P rocess Outputs : Goods Services Control Feedback Feedback Feedback Value added
  6. 6. What is Value Added? <ul><li>Value added is the difference between the cost of intputs and the value or price of outputs. </li></ul><ul><li>The essence of operations function is to add value during the transformation process </li></ul>
  7. 7. Firms use the money generated by value added for: <ul><li>R&D </li></ul><ul><li>Investment in new facilities and equipment </li></ul><ul><li>Paying workers </li></ul><ul><li>Paying for materials </li></ul><ul><li>Paying for general expenses </li></ul><ul><li>Profits </li></ul>
  8. 8. Transformation Process of a Canned Food Processor Inputs Processing Outputs <ul><li>Raw vegetables </li></ul><ul><li>Metal sheets </li></ul><ul><li>Water </li></ul><ul><li>Energy </li></ul><ul><li>Labor </li></ul><ul><li>Building </li></ul><ul><li>Equipment </li></ul><ul><li>Cleaning </li></ul>Canned vegetables <ul><li>Making cans </li></ul><ul><li>Cutting </li></ul><ul><li>Cooking </li></ul><ul><li>Packing </li></ul><ul><li>Labeling </li></ul>
  9. 9. Transformation Process of a Hospita l Inputs Processing Outputs <ul><li>Doctors, nurses </li></ul><ul><li>Examination </li></ul>Healthy patients <ul><li>Hospital </li></ul><ul><li>Surgery </li></ul><ul><li>Medical Supplies </li></ul><ul><li>Monitoring </li></ul><ul><li>Equipment </li></ul><ul><li>Medication </li></ul><ul><li>Laboratories </li></ul><ul><li>Therapy </li></ul>
  10. 10. Examples of Various Operations Operations Examples Goods Producing Farming, mining, construction , manufacturing, power generation Storage/ Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, banking , renting, leasing, library, loans Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and television newscasts, telephone, satellites
  11. 11. Types of Transformation Processes <ul><li>Physical - manufacturing </li></ul><ul><li>Locational - transportation </li></ul><ul><li>Exchange - retailing </li></ul><ul><li>Storage - warehousing </li></ul><ul><li>Physiological - health care </li></ul><ul><li>Informational - telecommunications </li></ul><ul><li>Psychological - entertainment </li></ul>
  12. 12. <ul><li>Marketing </li></ul><ul><ul><li>Ge nerates demand ge ts customers </li></ul></ul><ul><li>Operations </li></ul><ul><ul><li>creates product or service </li></ul></ul><ul><li>Finance/Accounting </li></ul><ul><ul><li>Obtains funds </li></ul></ul><ul><ul><li>Tracks organizational performance </li></ul></ul>Operations as a Basic Function
  13. 13. Business Functions Overlap Operations Finance Marketing
  14. 14. Business Functions - Bank (1 of 3) Operations Finance/ Accounting Marketing Check Clearing Teller Scheduling Transactions Processing Security Commercial Bank © 1984-1994 T/Maker Co.
  15. 15. Business Functions – Airline (2 of 3) Operations Finance/ Accounting Marketing Ground Support Flight Operations Facility Maintenance Catering Airline
  16. 16. Business Functions – Manufacturer (3 of 3) Operations Finance/ Accounting Marketing Production Control Manufacturing Quality Control Purchasing Manufacturing
  17. 17. Operations as the Technical Core Operations Finance/Accounting Human Resources Marketing Suppliers Production and Inventory data Capital budgeting requests Capacity expansion and Technology plans Budgets Cost analysis Capital investments Stockholder requirements Orders for materials Production and delivery Schedules Quality Requirements Design/ Performance specs Material availability Quality data Delivery schedules Designs Product/Service Availability Lead-time estimates Status of order Delivery schedules Sales forecasts Customer orders Customer feedback Promotions Personnel needs Skill sets Performance evaluations Job design/work measurement Hiring/firing Training Legal requirements Union contract negotiations
  18. 18. Importance of OM (Why Study OM?) (1 of 2) <ul><li>Operations is one of the three major functions ( marketing, finance and operations ) of an organization </li></ul><ul><li>OM affects 1) the companies’ ability to compete and 2) the nation’s ability to compete internationally </li></ul><ul><li>Nearly half of the employed people over the world have jobs in operations </li></ul><ul><li>OM is a costly part of an organization </li></ul>
  19. 19. Importance of OM (Why Study OM?) – (2 of 2) <ul><li>Offers a major opportunity for an organization to improve its productivity and profitability </li></ul><ul><li>The OM function is responsible for a major portion of the assets of most organizations </li></ul><ul><li>The concepts, tools and techniques of OM are widely used in managing other functions. </li></ul><ul><li>Presents career opportunities </li></ul>
  20. 20. Options for Increasing Contribution
  21. 21. Production of Goods vs. Delivery of Services
  22. 22. Manufacturing or Service Tangible Act
  23. 23. Goods vs. Services (1 of 2) Not so obvious Obvious Production activities Difficult Easier Quality evaluation Little Much Inventory Low High Opportunity to correct problems Difficult Easy Measurement of productivity Intangible, often unique Tangible Output Generally difficult Easy Automation High Low Labor content Low High Uniformity of inputs and outputs High Low Customer contact Service Goods Characteristics
  24. 24. Goods vs. Services (2 of 2) Non inventoriable and so nontransportable Inventoriable & Transportable Inventoriability andTransportability Not usually Usually Patentability Slower and awkward Smooth and efficient Activities Not possible Possible Reselling Revenue-oriented Cost-oriented Locational factors to be considered Generally dispersed Centralized Location Generally take place at the same time Separate Production and consumption Service Goods Characteristics
  25. 25. Service Job Categories (1 of 2) <ul><li>Governmental services </li></ul><ul><li>Municipal services </li></ul><ul><li>Trade services (wholesale/retail) </li></ul><ul><li>Finance, insurance, real estate </li></ul><ul><li>Medical (healthcare) </li></ul><ul><li>Personal services </li></ul>
  26. 26. Service Job Categories (2 of 2) <ul><li>Business services </li></ul><ul><li>Education </li></ul><ul><li>Food, lodging and entertainment </li></ul><ul><li>Utilities and transportation </li></ul><ul><li>Legal, consulting </li></ul><ul><li>Repair </li></ul>
  27. 27. Goods Contain Services / Services Contain Goods Automobile assembly, steel making Computer Home remodeling, retail sales Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Surgery, Teaching, Counseling Percent of Product that is a Good Percent of Product that is a Service 0 25 50 75 100 25 50 75 100
  28. 28. Steel production Automobile fabrication Ho use building R oad constructio Auto Repair Appliance repair Dressmaking Farming Maid Service Manual car wash Teaching Lawn mowing High goods content Low service content Goods-service s Continuum Low goods content High service content
  29. 30. Decline in Manufacturing Jobs <ul><li>Productivity </li></ul><ul><ul><li>Increasing productivity allows companies to maintain or increase their output using fewer workers </li></ul></ul><ul><li>Outsourcing </li></ul><ul><ul><li>Some manufacturing work has been outsourced to more productive companies </li></ul></ul>
  30. 31. Challenges of Managing Services <ul><li>Service jobs are often less structured than manufacturing jobs </li></ul><ul><li>Customer contact is higher </li></ul><ul><li>Worker skill levels are lower </li></ul><ul><li>Services hire many low-skill, entry-level workers </li></ul><ul><li>Employee turnover is higher </li></ul><ul><li>Input variability is higher </li></ul><ul><li>Service performance can be affected by worker’s personal factors </li></ul>
  31. 32. Services in Manufacturing <ul><li>In manufacturing, services can be divided into two groups: </li></ul><ul><li>Core Services </li></ul><ul><li>Value-added Services </li></ul>
  32. 33. Core services are basic things that customers want from products they purchase Core Services
  33. 34. Core Services Performance Objectives Operations Management Flexibility Quality Speed Price (or cost Reduction)
  34. 35. Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way Value-Added Services
  35. 36. Value-Added Service Categories Operations Management Information Problem Solving Sales Support Field Support
  36. 37. The Scope of OM: What Operations Managers Do ? Plan - Organize - Staff - Lead - Control
  37. 38. Critical OM Decisions
  38. 39. Critical OM Decisions <ul><li>Service, product design </li></ul><ul><li>Process, capacity design </li></ul><ul><li>Planning of the technology </li></ul><ul><li>Location </li></ul><ul><li>Layout design </li></ul><ul><li>Human resources, job design </li></ul><ul><li>Production planning and scheduling </li></ul><ul><li>Supply chain management </li></ul><ul><li>Inventory management </li></ul><ul><li>Maintenance </li></ul><ul><li>Quality management </li></ul>
  39. 40. Operations Management and Decision Making <ul><li>Models </li></ul><ul><li>Quantitative approaches </li></ul><ul><li>Analysis of tradeoffs </li></ul><ul><li>Systems approach </li></ul><ul><li>Establishing priorities </li></ul>
  40. 41. Models A model is an abstraction of reality . Types of models: – Physical – Schematic – Mathematical
  41. 42. Why Models are Beneficial? <ul><li>Easy to use, less expensive </li></ul><ul><li>Require users to organize information </li></ul><ul><li>Systematic approach to problem solving </li></ul><ul><li>Increase understanding of the problem </li></ul><ul><li>Enable “what if” questions </li></ul><ul><li>Specific objectives </li></ul><ul><li>Consistent tool </li></ul><ul><li>Power of mathematics </li></ul><ul><li>Standardized format </li></ul>
  42. 43. Limitations of Models: <ul><li>Quantitative information may be emphasized at the expense of qualitative information </li></ul><ul><li>May be incorrectly applied and results may be misinterpreted </li></ul>
  43. 44. Quantitative Approaches (Analytical Tools used in OM) <ul><li>Linear programming </li></ul><ul><li>Queuing techniques </li></ul><ul><li>Inventory models </li></ul><ul><li>Project models </li></ul><ul><li>Statistical models </li></ul><ul><li>Simulation </li></ul><ul><li>Decision analysis </li></ul>
  44. 45. Tradeoffs <ul><li>Decision on the amount of inventory to stock </li></ul><ul><ul><li>Increased cost of holding inventory </li></ul></ul><ul><li>v s. </li></ul><ul><ul><li>Level of customer service </li></ul></ul>
  45. 46. Systems Approach “ The whole is greater than the sum of the parts .” Suboptimization
  46. 47. Establishing Priorities: Pareto Phenomenon <ul><li>A few factors account for a high percentage of the occurrence of some event(s) </li></ul><ul><li>80/20 Rule - 80% of problems are caused by 20% of the activities. </li></ul>How do we identify the vital few?
  47. 48. The H istorical Evolution of Operations Management
  48. 49. Significant Events in Operations Management
  49. 50. Historical Events in OM <ul><li>The Industrial Revolution (1770s) </li></ul><ul><li>Scientific Management (1911) </li></ul><ul><li>Human Relations Movement (1920-1960) </li></ul><ul><li>Decision Models – Management Science (1915, 1940-70s) </li></ul><ul><li>Quality Revolution (1970s-1990s ) </li></ul><ul><li>Globalization (1970s- ) </li></ul><ul><li>Information Age/Internet Revolution (1990s- ) </li></ul>
  50. 51. Historical Events in OM (1 of 4): Industrial Revolution and Scientific Management Industrial Revolution Steam engine 1769 James Watt Division of labor 1776 Adam Smith Interchangeable parts 1790 Eli Whitney Scientific Management Principles 1911 Frederick W. Taylor Time and motion studies 1911 Frank & Lillian Gilbreth Activity scheduling chart 1912 Henry Gant Moving assembly line 1913 Henry Ford
  51. 52. Historical Events in OM (2 of 4) : Human Relations and Management Science Human Relations Hawthorne studies 1930 Elton Mayo Motivation theories 1940s Abraham Maslow 1950s Frederick Hertzberg 1960s Douglas McGregor Management Science Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, PERT/CPM, 1950s Operations research Waiting line theory groups MRP 1960s Joseph Orlicky, IBM
  52. 53. Historical Events in OM (3 of 4): Quality Revolution and Globalization Quality Revolution JIT 1970s Taiichi Ohno, Toyota TQM 1980s W. Edwards Deming, Joseph Juran, et. al. Strategy and operations Skinner, Hayes Reengineering 1990s Hammer, Champy World Trade Organization 1990s Numerous countries and companies Globalization European Union and 1970s IBM and others other trade agreements EDI, EFT, CIM 1980s
  53. 54. Historical Events in OM (4 of 4) : Information Age/Internet Revolution Information Age/ Internet Revolution Internet, WWW, ERP 1990s ARPANET, Tim Supply chain Berners-Lee, SAP, i2 management, Technologies, ORACLE, E-commerce PeopleSoft, Amazon, Yahoo, eBay, and others
  54. 55. Exciting New Challenges in Operations Management
  55. 56. New Concepts and Trends in OM <ul><li>Mass Customization </li></ul><ul><li>Supply Chain Management </li></ul><ul><li>Outsourcing </li></ul><ul><li>Lean manufacturing </li></ul><ul><li>Agility </li></ul><ul><li>Electronic Commerce </li></ul>
  56. 57. New Concepts and Trends(1 of 6): Mass Customization <ul><li>The rapid, low cost production of goods and services that fulfill constantly changing and increasingly unique customer desires. </li></ul>
  57. 58. New Concepts and Trends (2 of 6): Supply Chain Management <ul><li>The management of the sequence of organizations- their facilities, functions and activities- that are involved in producing and delivering a product or service </li></ul><ul><li>SCM requires the application of a systems approach to managing the flow of information, materials and services from raw material suppliers through factories and warehoses to the end user (customer) </li></ul>
  58. 59. Simple Product Supply Chain Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer
  59. 60. A Supply Chain for Bread $1.29 Total Value-Added $1.29 $0.21 Grocery store displays and sells bread $1.08 $0.08 Bread transported to grocery store $1.00 $0.54 Baker produces bread $0.46 $0.08 Flour transported to baker $0.38 $0.15 Mill produces flour $0.23 $0.08 Wheat transported to mill $0.15 $0.15 Farmer produces and harvests wheat Value of Product Value Added Stage of Production
  60. 61. New Concepts and Trends (3 of 6) : Outsourcing Buying goods or services rather than producing goods or performing services within the organization
  61. 62. New Concepts and Trends (4 of 6): Lean Manufacturing <ul><li>Systems that use minimal amounts of resources - less space, less inventory, fewer workers, fewer levels of management- to produce a high volume of high-quality goods with some variety </li></ul><ul><li>An adaptation of mass production that prizes quality and flexibility </li></ul><ul><li>Incorporates advantages of mass production (high volume, low unit cost) and craft production (variety and flexibility) </li></ul>
  62. 63. New Concepts and Trends (5 of 6): Agility <ul><li>The ability of an organization to respond quickly to demands or opportunities. </li></ul><ul><li>Involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings </li></ul>
  63. 64. New Concepts and Trends (6 of 6): Electronic Commerce <ul><li>The use of computer networks, primarily the internet, to buy and sell products, services, and information. </li></ul>
  64. 65. Other Trends (1 of 2) <ul><li>Enhancing Value-Added Services </li></ul><ul><li>Management of Technology </li></ul><ul><li>Emphasis on Operations Strategy </li></ul><ul><li>Increasing Emphasis on Cost Control and Productivity Improvement </li></ul><ul><li>Quality and Process Improvements </li></ul><ul><li>Increasing emphasis on business and social responsibility </li></ul>
  65. 66. Other Trends (2 of 2) <ul><li>Developing flexible supply chains to enable mass customization of products and services </li></ul><ul><li>Achieving the Service Factory </li></ul>
  66. 67. Globalization
  67. 68. Globalization can take the form of: <ul><li>Selling in foreign markets </li></ul><ul><li>Producing in foreign lands </li></ul><ul><li>Purchasing from foreign suppliers </li></ul><ul><li>Partnering with foreign firms </li></ul>
  68. 69. Reasons to Globalize Operations (1 of 2) <ul><li>To take advantage of favorable costs </li></ul><ul><li>To gain access to and attract international markets </li></ul><ul><li>To build reliable sources of supply </li></ul><ul><li>To improve the supply chain </li></ul><ul><li>To be more responsive to changes in demand </li></ul>
  69. 70. Reasons to Globalize Operations (2 of 2) <ul><li>To p rovide better goods and services </li></ul><ul><li>To l earn to improve operations </li></ul><ul><li>To a ttract and retain global talent </li></ul><ul><li>To keep abreast of the latest trends and technologies </li></ul>
  70. 71. Examples of Global Strategies <ul><li>Boeing – both sales and production are worldwide. </li></ul><ul><li>Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution </li></ul><ul><li>Sony – purchases components from suppliers in Thailand, Malaysia, and around the world </li></ul><ul><li>GM is building four similar plants in Argentina, Poland, China, and Thailand </li></ul>
  71. 72. Some Multinational Corporations (1 of 3) Country Foreign Sales Company of Origin as % of Total Nestlé Switzerland 98.2 Nokia Finland 97.6 Philips Netherlands 94.0 Bayer Germany 89.8 ABB Germany 87.2 SAP Germany 80.0 Exxon Mobil United States 79.6 Royal Dutch/Shell Netherlands 73.3 IBM United States 62.7 McDonald’s United States 61.5
  72. 73. Some Multinational Corporations (2 of 3) Workforce Company Home Country % Sales Outside Home Country % Assets Outside Home Country % Foreign Colgate- Palmolive USA 72 63 NA Dow Chemical USA 60 50 NA Gillette USA 62 53 NA Honda Japan 63 36 NA IBM USA 57 47 51 Citicorp USA 34 46 NA
  73. 74. Some Multinational Corporations (3 of 3) Workforce Company Home Country % Sales Outside Home Country % Assets Outside Home Country % Foreign ICI Britain 78 50 NA Nestlé Switzerland 98 95 97 Philips Netherlands 94 85 82 Siemens Germany 51 NA 38 Electronics Unilever Britain & Netherlands 95 70 64
  74. 75. Boeing Suppliers (777) Firm Country Parts Alenia Italy Wing flaps AeroSpace Technologies Australia Rudder CASA Spain Ailerons doors, wing section Fuji Japan Landing gear GEC Avionics United Kingdom Flight computers Korean Air Korea Flap supports Menasco Aerospace Canada Landing gears Short Brothers Ireland Landing gear doors Singapore Aerospace Singapore Landing gear doors