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Introduction to Operations and Introduction to Operations and Supply Chain Management Supply Chain Management Chapter 1 Chapter 1 Copyright 2009 John Wiley & Sons, Inc. Copyright 2009 John Wiley & Sons, Inc. Beni Asllani Beni Asllani University of Tennessee at Chattanooga University of Tennessee at Chattanooga Supply Chain Management Supply Chain Management Operations Management - 6th Edition Operations Management - 6th Edition Roberta Russell & Bernard W. Taylor, III Roberta Russell & Bernard W. Taylor, III
Lecture Outline Lecture Outline What Operations and Supply Chain What Operations and Supply Chain Managers Do Managers Do Operations Function Operations Function Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -2 2 Operations Function Operations Function Evolution of Operations and Supply Evolution of Operations and Supply Chain Management Chain Management Globalization and Competitiveness Globalization and Competitiveness Operations Operations Strategy and Organization of the Text Strategy and Organization of the Text Learning Objectives for This Course Learning Objectives for This Course
What Operations and What Operations and Supply Chain Managers Do Supply Chain Managers Do What is Operations Management? What is Operations Management? design, operation, and improvement of productive design, operation, and improvement of productive systems systems What is Operations? What is Operations? Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -3 3 What is Operations? What is Operations? a function or system that transforms inputs into a function or system that transforms inputs into outputs of greater value outputs of greater value What is a Transformation Process? What is a Transformation Process? a series of activities along a a series of activities along a value chain value chain extending extending from supplier to customer from supplier to customer activities that do not add value are superfluous and activities that do not add value are superfluous and should be eliminated should be eliminated
Physical: Physical: as in manufacturing as in manufacturing operations operations Locational: Locational: as in transportation or as in transportation or Transformation Process Transformation Process Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -4 4 Locational: Locational: as in transportation or as in transportation or warehouse operations warehouse operations Exchange: Exchange: as in retail operations as in retail operations Physiological: Physiological: as in health care as in health care Psychological: Psychological: as in entertainment as in entertainment Informational: Informational: as in communication as in communication
INPUT •Material OUTPUT Operations as a Operations as a Transformation Process Transformation Process Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -5 5 •Material •Machines •Labor •Management •Capital TRANSFORMATION PROCESS OUTPUT •Goods •Services Feedback Requirements Feedback Requirements
Operations Function Operations Function Operations Operations Marketing Marketing Finance and Finance and Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -6 6 Finance and Finance and Accounting Accounting Human Human Resources Resources Outside Outside Suppliers Suppliers
How is Operations Relevant to my How is Operations Relevant to my Major? Major? Accounting Accounting “As an auditor you must “As an auditor you must understand the fundamentals of understand the fundamentals of operations management.” operations management.” Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -7 7 Information Information Technology Technology Management Management “IT is a tool, and there’s no “IT is a tool, and there’s no better place to apply it than in better place to apply it than in operations.” operations.” “We use so many things you “We use so many things you learn in an operations class learn in an operations class— — scheduling, lean production, scheduling, lean production, theory of constraints, and tons theory of constraints, and tons of quality tools.” of quality tools.”
How is Operations Relevant to my How is Operations Relevant to my Major? (cont.) Major? (cont.) Economics Economics Marketing Marketing “It’s all about processes. I live “It’s all about processes. I live by flowcharts and Pareto by flowcharts and Pareto analysis.” analysis.” “How can you do a good job “How can you do a good job Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -8 8 Marketing Marketing Finance Finance “How can you do a good job “How can you do a good job marketing a product if you’re marketing a product if you’re unsure of its quality or unsure of its quality or delivery status?” delivery status?” “Most of our capital “Most of our capital budgeting requests are from budgeting requests are from operations, and most of our operations, and most of our cost savings, too.” cost savings, too.”
Evolution of Operations and Evolution of Operations and Supply Chain Management Supply Chain Management Craft production Craft production process of handcrafting products or process of handcrafting products or services for individual customers services for individual customers Division of labor Division of labor Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -9 9 Division of labor Division of labor dividing a job into a series of small tasks dividing a job into a series of small tasks each performed by a different worker each performed by a different worker Interchangeable parts Interchangeable parts standardization of parts initially as standardization of parts initially as replacement parts; enabled mass replacement parts; enabled mass production production
Scientific management Scientific management systematic analysis of work methods systematic analysis of work methods Evolution of Operations and Evolution of Operations and Supply Chain Management (cont.) Supply Chain Management (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -10 10 Mass production Mass production high high- -volume production of a volume production of a standardized product for a mass market standardized product for a mass market Lean production Lean production adaptation of mass production that adaptation of mass production that prizes quality and flexibility prizes quality and flexibility
Historical Events in Historical Events in Operations Management Operations Management Era Events/Concepts Dates Originator Industrial Revolution Steam engine 1769 James Watt Division of labor 1776 Adam Smith Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -11 11 Revolution Interchangeable parts 1790 Eli Whitney Scientific Management Principles of scientific management 1911 Frederick W. Taylor Time and motion studies 1911 Frank and Lillian Gilbreth Activity scheduling chart 1912 Henry Gantt Moving assembly line 1913 Henry Ford
Historical Events in Historical Events in Operations Management Operations Management (cont.) (cont.) Era Events/Concepts Dates Originator Human Relations Hawthorne studies 1930 Elton Mayo Motivation theories 1940s Abraham Maslow 1950s Frederick Herzberg Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -12 12 Relations Motivation theories 1950s Frederick Herzberg 1960s Douglas McGregor Operations Research Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, waiting line theory, decision theory, PERT/CPM 1950s Operations research groups MRP, EDI, EFT, CIM 1960s, 1970s Joseph Orlicky, IBM and others
Historical Events in Historical Events in Operations Management Operations Management (cont.) (cont.) Era Events/Concepts Dates Originator JIT (just-in-time) 1970s Taiichi Ohno (Toyota) TQM (total quality 1980s W. Edwards Deming, Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -13 13 Quality Revolution management) 1980s Joseph Juran Strategy and operations 1980s Wickham Skinner, Robert Hayes Business process reengineering 1990s Michael Hammer, James Champy Six Sigma 1990s GE, Motorola
Historical Events in Historical Events in Operations Management Operations Management (cont.) (cont.) Era Events/Concepts Dates Originator Internet Revolution Internet, WWW, ERP, supply chain management 1990s ARPANET, Tim Berners-Lee SAP, i2 Technologies, Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -14 14 i2 Technologies, ORACLE E-commerce 2000s Amazon, Yahoo, eBay, Google, and others Globalization WTO, European Union, and other trade agreements, global supply chains, outsourcing, BPO, Services Science 1990s 2000s Numerous countries and companies
Evolution of Operations and Evolution of Operations and Supply Chain Management (cont.) Supply Chain Management (cont.) Supply chain management Supply chain management management of the flow of information, products, and services across management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners a network of customers, enterprises, and supply chain partners Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -15 15
Globalization and Globalization and Competitiveness Competitiveness Why “go global”? Why “go global”? favorable cost favorable cost access to international markets access to international markets Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -16 16 access to international markets access to international markets response to changes in demand response to changes in demand reliable sources of supply reliable sources of supply latest trends and technologies latest trends and technologies Increased globalization Increased globalization results from the Internet and falling trade results from the Internet and falling trade barriers barriers
Globalization and Globalization and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -17 17 Hourly Compensation Costs for Production Workers Hourly Compensation Costs for Production Workers Source: Source: U.S. Bureau of Labor Statistics, 2005. U.S. Bureau of Labor Statistics, 2005.
Globalization and Globalization and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -18 18 World Population Distribution World Population Distribution Source: Source: U.S. Census Bureau, 2006. U.S. Census Bureau, 2006.
Globalization and Globalization and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -19 19 Trade in Goods as % of GDP Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars) (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
Productivity and Productivity and Competitiveness Competitiveness Competitiveness Competitiveness degree to which a nation can produce goods and degree to which a nation can produce goods and services that meet the test of international services that meet the test of international markets markets Productivity Productivity Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -20 20 Productivity Productivity ratio of output to input ratio of output to input Output Output sales made, products produced, customers sales made, products produced, customers served, meals delivered, or calls answered served, meals delivered, or calls answered Input Input labor hours, investment in equipment, material labor hours, investment in equipment, material usage, or square footage usage, or square footage
Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -21 21 Measures of Productivity
Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -22 22 Average Annual Growth Rates in Productivity, 1995 Average Annual Growth Rates in Productivity, 1995- -2005. 2005. Source: Source: Bureau of Labor Statistics. A Chartbook of Bureau of Labor Statistics. A Chartbook of International Labor Comparisons. January 2007, p. 28. International Labor Comparisons. January 2007, p. 28.
Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -23 23 Average Annual Growth Rates in Output and Input, 1995 Average Annual Growth Rates in Output and Input, 1995- -2005 2005 Source: Source: Bureau of Labor Statistics. A Chartbook of International Bureau of Labor Statistics. A Chartbook of International Labor Comparisons, January 2007, p. 26. Labor Comparisons, January 2007, p. 26. Dramatic Increase in Output w/ Decrease in Labor Hours
Retrenching Retrenching productivity is increasing, but both output and input productivity is increasing, but both output and input decrease with input decreasing at a faster rate decrease with input decreasing at a faster rate Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -24 24 decrease with input decreasing at a faster rate decrease with input decreasing at a faster rate Assumption that more input would cause Assumption that more input would cause output to increase at the same rate output to increase at the same rate certain limits to the amount of output may not be certain limits to the amount of output may not be considered considered output produced output produced is emphasized, not is emphasized, not output sold output sold; ; increased inventories increased inventories
Strategy Strategy Provides direction for achieving a mission Provides direction for achieving a mission Five Steps for Strategy Formulation Five Steps for Strategy Formulation Defining a primary task Defining a primary task Strategy and Operations Strategy and Operations Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -25 25 Defining a primary task Defining a primary task What is the firm in the business of doing? What is the firm in the business of doing? Assessing core competencies Assessing core competencies What does the firm do better than anyone else? What does the firm do better than anyone else? Determining order winners and order qualifiers Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What qualifies an item to be considered for purchase? What wins the order? What wins the order? Positioning the firm Positioning the firm How will the firm compete? How will the firm compete? Deploying the strategy Deploying the strategy
Strategic Planning Strategic Planning Mission and Vision Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -26 26 Corporate Strategy Operations Strategy Marketing Strategy Financial Strategy
Order Winners Order Winners and Order Qualifiers and Order Qualifiers Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -27 27 Source: Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Betts, Operations and Process Management Operations and Process Management, Prentice Hall, 2006, p. 47 , Prentice Hall, 2006, p. 47
Positioning the Firm Positioning the Firm Cost Cost Speed Speed Quality Quality Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -28 28 Quality Quality Flexibility Flexibility
Positioning the Firm: Positioning the Firm: Cost Cost Waste elimination Waste elimination relentlessly pursuing the removal of all waste relentlessly pursuing the removal of all waste Examination of cost structure Examination of cost structure Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -29 29 Examination of cost structure Examination of cost structure looking at the entire cost structure for looking at the entire cost structure for reduction potential reduction potential Lean production Lean production providing low costs through disciplined providing low costs through disciplined operations operations
Positioning the Firm: Positioning the Firm: Speed Speed fast moves, fast adaptations, tight linkages fast moves, fast adaptations, tight linkages Internet Internet conditioned customers to expect immediate responses conditioned customers to expect immediate responses Service organizations Service organizations Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -30 30 Service organizations Service organizations always competed on speed (McDonald’s, LensCrafters, and always competed on speed (McDonald’s, LensCrafters, and Federal Express) Federal Express) Manufacturers Manufacturers time time- -based competition: build based competition: build- -to to- -order production and order production and efficient supply chains efficient supply chains Fashion industry Fashion industry two two- -week design week design- -to to- -rack lead time of Spanish retailer, Zara rack lead time of Spanish retailer, Zara
Positioning the Firm: Positioning the Firm: Quality Quality Minimizing defect rates or conforming to Minimizing defect rates or conforming to design specifications; please the customer design specifications; please the customer Ritz Ritz- -Carlton Carlton - - one customer at a time one customer at a time Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -31 31 Ritz Ritz- -Carlton Carlton - - one customer at a time one customer at a time Service system is designed to “move heaven Service system is designed to “move heaven and earth” to satisfy customer and earth” to satisfy customer Every employee is empowered to satisfy a Every employee is empowered to satisfy a guest’s wish guest’s wish Teams at all levels set objectives and devise Teams at all levels set objectives and devise quality action plans quality action plans Each hotel has a quality leader Each hotel has a quality leader
Positioning the Firm: Positioning the Firm: Flexibility Flexibility ability to adjust to changes in product mix, ability to adjust to changes in product mix, production volume, or design production volume, or design National Bicycle Industrial Company National Bicycle Industrial Company offers 11,231,862 variations offers 11,231,862 variations Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -32 32 offers 11,231,862 variations offers 11,231,862 variations delivers within two weeks at costs only 10% delivers within two weeks at costs only 10% above standard models above standard models mass customization mass customization: the mass production of : the mass production of customized parts customized parts
Policy Deployment Policy Deployment Policy deployment Policy deployment translates corporate strategy into measurable translates corporate strategy into measurable objectives objectives Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -33 33 objectives objectives Hoshins Hoshins action plans generated from the policy action plans generated from the policy deployment process deployment process
Policy Deployment Policy Deployment Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -34 34 Derivation of an Action Plan Using Policy Deployment Derivation of an Action Plan Using Policy Deployment
Balanced Scorecard Balanced Scorecard Balanced scorecard Balanced scorecard measuring more than financial performance measuring more than financial performance finances finances Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -35 35 finances finances customers customers processes processes learning and growing learning and growing Key performance indicators Key performance indicators a set of measures that help managers evaluate a set of measures that help managers evaluate performance in critical areas performance in critical areas
Balanced Scorecard Balanced Scorecard Balanced Balanced Scorecard Worksheet Scorecard Worksheet Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -36 36
Balanced Scorecard Balanced Scorecard Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -37 37 Radar Chart Radar Chart Dashboard Dashboard
Operations Strategy Operations Strategy Products Products Services Services Process Process and and Technology Technology Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -38 38 Capacity Capacity Human Human Resources Resources Quality Quality Facilities Facilities Sourcing Sourcing Operating Operating Systems Systems
Organization of This Text: Organization of This Text: Part I Part I – – Operations Management Operations Management Intro. to Operations and Intro. to Operations and Supply Chain Management: Supply Chain Management: Chapter 1 Chapter 1 Quality Management: Quality Management: Chapter 2 Chapter 2 Statistical Quality Control: Statistical Quality Control: Chapter 3 Chapter 3 Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -39 39 Statistical Quality Control: Statistical Quality Control: Chapter 3 Chapter 3 Product Design: Product Design: Chapter 4 Chapter 4 Service Design: Service Design: Chapter 5 Chapter 5 Processes and Technology: Processes and Technology: Chapter 6 Chapter 6 Facilities: Facilities: Chapter 7 Chapter 7 Human Resources: Human Resources: Chapter 8 Chapter 8 Project Management: Project Management: Chapter 9 Chapter 9
Supply Chain Supply Chain Strategy and Design: Strategy and Design: Chapter 10 Chapter 10 Global Supply Chain Global Supply Chain Procurement and Distribution: Procurement and Distribution: Chapter 11 Chapter 11 Organization of This Text: Organization of This Text: Part II Part II – – Supply Chain Management Supply Chain Management Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -40 40 Procurement and Distribution: Procurement and Distribution: Chapter 11 Chapter 11 Forecasting: Forecasting: Chapter 12 Chapter 12 Inventory Management: Inventory Management: Chapter 13 Chapter 13 Sales and Sales and Operations Planning: Operations Planning: Chapter 14 Chapter 14 Resource Planning: Resource Planning: Chapter 15 Chapter 15 Lean Systems: Lean Systems: Chapter 16 Chapter 16 Scheduling: Scheduling: Chapter 17 Chapter 17
Learning Objectives of Learning Objectives of this Course this Course Gain an appreciation of strategic importance Gain an appreciation of strategic importance of operations and supply chain management of operations and supply chain management in a global business environment in a global business environment Understand how operations relates to other Understand how operations relates to other Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -41 41 Understand how operations relates to other Understand how operations relates to other business functions business functions Develop a working knowledge of concepts Develop a working knowledge of concepts and methods related to designing and and methods related to designing and managing operations and supply chains managing operations and supply chains Develop a skill set for quality and process Develop a skill set for quality and process improvement improvement
Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without permitted in section 117 of the 1976 United States Copyright Act without Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -42 42 express permission of the copyright owner is unlawful. Request for further express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley information should be addressed to the Permission Department, John Wiley Sons, Inc. The purchaser may make back Sons, Inc. The purchaser may make back- -up copies for his/her own use only and up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the errors, omissions, or damages caused by the use of these programs or from the use of the information herein. use of the information herein.

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Supply chain management

  • 1. Introduction to Operations and Introduction to Operations and Supply Chain Management Supply Chain Management Chapter 1 Chapter 1 Copyright 2009 John Wiley & Sons, Inc. Copyright 2009 John Wiley & Sons, Inc. Beni Asllani Beni Asllani University of Tennessee at Chattanooga University of Tennessee at Chattanooga Supply Chain Management Supply Chain Management Operations Management - 6th Edition Operations Management - 6th Edition Roberta Russell & Bernard W. Taylor, III Roberta Russell & Bernard W. Taylor, III
  • 2. Lecture Outline Lecture Outline What Operations and Supply Chain What Operations and Supply Chain Managers Do Managers Do Operations Function Operations Function Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -2 2 Operations Function Operations Function Evolution of Operations and Supply Evolution of Operations and Supply Chain Management Chain Management Globalization and Competitiveness Globalization and Competitiveness Operations Operations Strategy and Organization of the Text Strategy and Organization of the Text Learning Objectives for This Course Learning Objectives for This Course
  • 3. What Operations and What Operations and Supply Chain Managers Do Supply Chain Managers Do What is Operations Management? What is Operations Management? design, operation, and improvement of productive design, operation, and improvement of productive systems systems What is Operations? What is Operations? Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -3 3 What is Operations? What is Operations? a function or system that transforms inputs into a function or system that transforms inputs into outputs of greater value outputs of greater value What is a Transformation Process? What is a Transformation Process? a series of activities along a a series of activities along a value chain value chain extending extending from supplier to customer from supplier to customer activities that do not add value are superfluous and activities that do not add value are superfluous and should be eliminated should be eliminated
  • 4. Physical: Physical: as in manufacturing as in manufacturing operations operations Locational: Locational: as in transportation or as in transportation or Transformation Process Transformation Process Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -4 4 Locational: Locational: as in transportation or as in transportation or warehouse operations warehouse operations Exchange: Exchange: as in retail operations as in retail operations Physiological: Physiological: as in health care as in health care Psychological: Psychological: as in entertainment as in entertainment Informational: Informational: as in communication as in communication
  • 5. INPUT •Material OUTPUT Operations as a Operations as a Transformation Process Transformation Process Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -5 5 •Material •Machines •Labor •Management •Capital TRANSFORMATION PROCESS OUTPUT •Goods •Services Feedback Requirements Feedback Requirements
  • 6. Operations Function Operations Function Operations Operations Marketing Marketing Finance and Finance and Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -6 6 Finance and Finance and Accounting Accounting Human Human Resources Resources Outside Outside Suppliers Suppliers
  • 7. How is Operations Relevant to my How is Operations Relevant to my Major? Major? Accounting Accounting “As an auditor you must “As an auditor you must understand the fundamentals of understand the fundamentals of operations management.” operations management.” Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -7 7 Information Information Technology Technology Management Management “IT is a tool, and there’s no “IT is a tool, and there’s no better place to apply it than in better place to apply it than in operations.” operations.” “We use so many things you “We use so many things you learn in an operations class learn in an operations class— — scheduling, lean production, scheduling, lean production, theory of constraints, and tons theory of constraints, and tons of quality tools.” of quality tools.”
  • 8. How is Operations Relevant to my How is Operations Relevant to my Major? (cont.) Major? (cont.) Economics Economics Marketing Marketing “It’s all about processes. I live “It’s all about processes. I live by flowcharts and Pareto by flowcharts and Pareto analysis.” analysis.” “How can you do a good job “How can you do a good job Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -8 8 Marketing Marketing Finance Finance “How can you do a good job “How can you do a good job marketing a product if you’re marketing a product if you’re unsure of its quality or unsure of its quality or delivery status?” delivery status?” “Most of our capital “Most of our capital budgeting requests are from budgeting requests are from operations, and most of our operations, and most of our cost savings, too.” cost savings, too.”
  • 9. Evolution of Operations and Evolution of Operations and Supply Chain Management Supply Chain Management Craft production Craft production process of handcrafting products or process of handcrafting products or services for individual customers services for individual customers Division of labor Division of labor Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -9 9 Division of labor Division of labor dividing a job into a series of small tasks dividing a job into a series of small tasks each performed by a different worker each performed by a different worker Interchangeable parts Interchangeable parts standardization of parts initially as standardization of parts initially as replacement parts; enabled mass replacement parts; enabled mass production production
  • 10. Scientific management Scientific management systematic analysis of work methods systematic analysis of work methods Evolution of Operations and Evolution of Operations and Supply Chain Management (cont.) Supply Chain Management (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -10 10 Mass production Mass production high high- -volume production of a volume production of a standardized product for a mass market standardized product for a mass market Lean production Lean production adaptation of mass production that adaptation of mass production that prizes quality and flexibility prizes quality and flexibility
  • 11. Historical Events in Historical Events in Operations Management Operations Management Era Events/Concepts Dates Originator Industrial Revolution Steam engine 1769 James Watt Division of labor 1776 Adam Smith Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -11 11 Revolution Interchangeable parts 1790 Eli Whitney Scientific Management Principles of scientific management 1911 Frederick W. Taylor Time and motion studies 1911 Frank and Lillian Gilbreth Activity scheduling chart 1912 Henry Gantt Moving assembly line 1913 Henry Ford
  • 12. Historical Events in Historical Events in Operations Management Operations Management (cont.) (cont.) Era Events/Concepts Dates Originator Human Relations Hawthorne studies 1930 Elton Mayo Motivation theories 1940s Abraham Maslow 1950s Frederick Herzberg Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -12 12 Relations Motivation theories 1950s Frederick Herzberg 1960s Douglas McGregor Operations Research Linear programming 1947 George Dantzig Digital computer 1951 Remington Rand Simulation, waiting line theory, decision theory, PERT/CPM 1950s Operations research groups MRP, EDI, EFT, CIM 1960s, 1970s Joseph Orlicky, IBM and others
  • 13. Historical Events in Historical Events in Operations Management Operations Management (cont.) (cont.) Era Events/Concepts Dates Originator JIT (just-in-time) 1970s Taiichi Ohno (Toyota) TQM (total quality 1980s W. Edwards Deming, Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -13 13 Quality Revolution management) 1980s Joseph Juran Strategy and operations 1980s Wickham Skinner, Robert Hayes Business process reengineering 1990s Michael Hammer, James Champy Six Sigma 1990s GE, Motorola
  • 14. Historical Events in Historical Events in Operations Management Operations Management (cont.) (cont.) Era Events/Concepts Dates Originator Internet Revolution Internet, WWW, ERP, supply chain management 1990s ARPANET, Tim Berners-Lee SAP, i2 Technologies, Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -14 14 i2 Technologies, ORACLE E-commerce 2000s Amazon, Yahoo, eBay, Google, and others Globalization WTO, European Union, and other trade agreements, global supply chains, outsourcing, BPO, Services Science 1990s 2000s Numerous countries and companies
  • 15. Evolution of Operations and Evolution of Operations and Supply Chain Management (cont.) Supply Chain Management (cont.) Supply chain management Supply chain management management of the flow of information, products, and services across management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners a network of customers, enterprises, and supply chain partners Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -15 15
  • 16. Globalization and Globalization and Competitiveness Competitiveness Why “go global”? Why “go global”? favorable cost favorable cost access to international markets access to international markets Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -16 16 access to international markets access to international markets response to changes in demand response to changes in demand reliable sources of supply reliable sources of supply latest trends and technologies latest trends and technologies Increased globalization Increased globalization results from the Internet and falling trade results from the Internet and falling trade barriers barriers
  • 17. Globalization and Globalization and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -17 17 Hourly Compensation Costs for Production Workers Hourly Compensation Costs for Production Workers Source: Source: U.S. Bureau of Labor Statistics, 2005. U.S. Bureau of Labor Statistics, 2005.
  • 18. Globalization and Globalization and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -18 18 World Population Distribution World Population Distribution Source: Source: U.S. Census Bureau, 2006. U.S. Census Bureau, 2006.
  • 19. Globalization and Globalization and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -19 19 Trade in Goods as % of GDP Trade in Goods as % of GDP (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars) (sum of merchandise exports and imports divided by GDP, valued in U.S. dollars)
  • 20. Productivity and Productivity and Competitiveness Competitiveness Competitiveness Competitiveness degree to which a nation can produce goods and degree to which a nation can produce goods and services that meet the test of international services that meet the test of international markets markets Productivity Productivity Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -20 20 Productivity Productivity ratio of output to input ratio of output to input Output Output sales made, products produced, customers sales made, products produced, customers served, meals delivered, or calls answered served, meals delivered, or calls answered Input Input labor hours, investment in equipment, material labor hours, investment in equipment, material usage, or square footage usage, or square footage
  • 21. Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -21 21 Measures of Productivity
  • 22. Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -22 22 Average Annual Growth Rates in Productivity, 1995 Average Annual Growth Rates in Productivity, 1995- -2005. 2005. Source: Source: Bureau of Labor Statistics. A Chartbook of Bureau of Labor Statistics. A Chartbook of International Labor Comparisons. January 2007, p. 28. International Labor Comparisons. January 2007, p. 28.
  • 23. Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -23 23 Average Annual Growth Rates in Output and Input, 1995 Average Annual Growth Rates in Output and Input, 1995- -2005 2005 Source: Source: Bureau of Labor Statistics. A Chartbook of International Bureau of Labor Statistics. A Chartbook of International Labor Comparisons, January 2007, p. 26. Labor Comparisons, January 2007, p. 26. Dramatic Increase in Output w/ Decrease in Labor Hours
  • 24. Retrenching Retrenching productivity is increasing, but both output and input productivity is increasing, but both output and input decrease with input decreasing at a faster rate decrease with input decreasing at a faster rate Productivity and Productivity and Competitiveness (cont.) Competitiveness (cont.) Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -24 24 decrease with input decreasing at a faster rate decrease with input decreasing at a faster rate Assumption that more input would cause Assumption that more input would cause output to increase at the same rate output to increase at the same rate certain limits to the amount of output may not be certain limits to the amount of output may not be considered considered output produced output produced is emphasized, not is emphasized, not output sold output sold; ; increased inventories increased inventories
  • 25. Strategy Strategy Provides direction for achieving a mission Provides direction for achieving a mission Five Steps for Strategy Formulation Five Steps for Strategy Formulation Defining a primary task Defining a primary task Strategy and Operations Strategy and Operations Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -25 25 Defining a primary task Defining a primary task What is the firm in the business of doing? What is the firm in the business of doing? Assessing core competencies Assessing core competencies What does the firm do better than anyone else? What does the firm do better than anyone else? Determining order winners and order qualifiers Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What qualifies an item to be considered for purchase? What wins the order? What wins the order? Positioning the firm Positioning the firm How will the firm compete? How will the firm compete? Deploying the strategy Deploying the strategy
  • 26. Strategic Planning Strategic Planning Mission and Vision Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -26 26 Corporate Strategy Operations Strategy Marketing Strategy Financial Strategy
  • 27. Order Winners Order Winners and Order Qualifiers and Order Qualifiers Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -27 27 Source: Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Betts, Operations and Process Management Operations and Process Management, Prentice Hall, 2006, p. 47 , Prentice Hall, 2006, p. 47
  • 28. Positioning the Firm Positioning the Firm Cost Cost Speed Speed Quality Quality Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -28 28 Quality Quality Flexibility Flexibility
  • 29. Positioning the Firm: Positioning the Firm: Cost Cost Waste elimination Waste elimination relentlessly pursuing the removal of all waste relentlessly pursuing the removal of all waste Examination of cost structure Examination of cost structure Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -29 29 Examination of cost structure Examination of cost structure looking at the entire cost structure for looking at the entire cost structure for reduction potential reduction potential Lean production Lean production providing low costs through disciplined providing low costs through disciplined operations operations
  • 30. Positioning the Firm: Positioning the Firm: Speed Speed fast moves, fast adaptations, tight linkages fast moves, fast adaptations, tight linkages Internet Internet conditioned customers to expect immediate responses conditioned customers to expect immediate responses Service organizations Service organizations Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -30 30 Service organizations Service organizations always competed on speed (McDonald’s, LensCrafters, and always competed on speed (McDonald’s, LensCrafters, and Federal Express) Federal Express) Manufacturers Manufacturers time time- -based competition: build based competition: build- -to to- -order production and order production and efficient supply chains efficient supply chains Fashion industry Fashion industry two two- -week design week design- -to to- -rack lead time of Spanish retailer, Zara rack lead time of Spanish retailer, Zara
  • 31. Positioning the Firm: Positioning the Firm: Quality Quality Minimizing defect rates or conforming to Minimizing defect rates or conforming to design specifications; please the customer design specifications; please the customer Ritz Ritz- -Carlton Carlton - - one customer at a time one customer at a time Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -31 31 Ritz Ritz- -Carlton Carlton - - one customer at a time one customer at a time Service system is designed to “move heaven Service system is designed to “move heaven and earth” to satisfy customer and earth” to satisfy customer Every employee is empowered to satisfy a Every employee is empowered to satisfy a guest’s wish guest’s wish Teams at all levels set objectives and devise Teams at all levels set objectives and devise quality action plans quality action plans Each hotel has a quality leader Each hotel has a quality leader
  • 32. Positioning the Firm: Positioning the Firm: Flexibility Flexibility ability to adjust to changes in product mix, ability to adjust to changes in product mix, production volume, or design production volume, or design National Bicycle Industrial Company National Bicycle Industrial Company offers 11,231,862 variations offers 11,231,862 variations Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -32 32 offers 11,231,862 variations offers 11,231,862 variations delivers within two weeks at costs only 10% delivers within two weeks at costs only 10% above standard models above standard models mass customization mass customization: the mass production of : the mass production of customized parts customized parts
  • 33. Policy Deployment Policy Deployment Policy deployment Policy deployment translates corporate strategy into measurable translates corporate strategy into measurable objectives objectives Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -33 33 objectives objectives Hoshins Hoshins action plans generated from the policy action plans generated from the policy deployment process deployment process
  • 34. Policy Deployment Policy Deployment Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -34 34 Derivation of an Action Plan Using Policy Deployment Derivation of an Action Plan Using Policy Deployment
  • 35. Balanced Scorecard Balanced Scorecard Balanced scorecard Balanced scorecard measuring more than financial performance measuring more than financial performance finances finances Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -35 35 finances finances customers customers processes processes learning and growing learning and growing Key performance indicators Key performance indicators a set of measures that help managers evaluate a set of measures that help managers evaluate performance in critical areas performance in critical areas
  • 36. Balanced Scorecard Balanced Scorecard Balanced Balanced Scorecard Worksheet Scorecard Worksheet Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -36 36
  • 37. Balanced Scorecard Balanced Scorecard Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -37 37 Radar Chart Radar Chart Dashboard Dashboard
  • 38. Operations Strategy Operations Strategy Products Products Services Services Process Process and and Technology Technology Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -38 38 Capacity Capacity Human Human Resources Resources Quality Quality Facilities Facilities Sourcing Sourcing Operating Operating Systems Systems
  • 39. Organization of This Text: Organization of This Text: Part I Part I – – Operations Management Operations Management Intro. to Operations and Intro. to Operations and Supply Chain Management: Supply Chain Management: Chapter 1 Chapter 1 Quality Management: Quality Management: Chapter 2 Chapter 2 Statistical Quality Control: Statistical Quality Control: Chapter 3 Chapter 3 Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -39 39 Statistical Quality Control: Statistical Quality Control: Chapter 3 Chapter 3 Product Design: Product Design: Chapter 4 Chapter 4 Service Design: Service Design: Chapter 5 Chapter 5 Processes and Technology: Processes and Technology: Chapter 6 Chapter 6 Facilities: Facilities: Chapter 7 Chapter 7 Human Resources: Human Resources: Chapter 8 Chapter 8 Project Management: Project Management: Chapter 9 Chapter 9
  • 40. Supply Chain Supply Chain Strategy and Design: Strategy and Design: Chapter 10 Chapter 10 Global Supply Chain Global Supply Chain Procurement and Distribution: Procurement and Distribution: Chapter 11 Chapter 11 Organization of This Text: Organization of This Text: Part II Part II – – Supply Chain Management Supply Chain Management Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -40 40 Procurement and Distribution: Procurement and Distribution: Chapter 11 Chapter 11 Forecasting: Forecasting: Chapter 12 Chapter 12 Inventory Management: Inventory Management: Chapter 13 Chapter 13 Sales and Sales and Operations Planning: Operations Planning: Chapter 14 Chapter 14 Resource Planning: Resource Planning: Chapter 15 Chapter 15 Lean Systems: Lean Systems: Chapter 16 Chapter 16 Scheduling: Scheduling: Chapter 17 Chapter 17
  • 41. Learning Objectives of Learning Objectives of this Course this Course Gain an appreciation of strategic importance Gain an appreciation of strategic importance of operations and supply chain management of operations and supply chain management in a global business environment in a global business environment Understand how operations relates to other Understand how operations relates to other Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -41 41 Understand how operations relates to other Understand how operations relates to other business functions business functions Develop a working knowledge of concepts Develop a working knowledge of concepts and methods related to designing and and methods related to designing and managing operations and supply chains managing operations and supply chains Develop a skill set for quality and process Develop a skill set for quality and process improvement improvement
  • 42. Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without permitted in section 117 of the 1976 United States Copyright Act without Copyright 2009 John Wiley Sons, Inc. Copyright 2009 John Wiley Sons, Inc. 1 1- -42 42 express permission of the copyright owner is unlawful. Request for further express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley information should be addressed to the Permission Department, John Wiley Sons, Inc. The purchaser may make back Sons, Inc. The purchaser may make back- -up copies for his/her own use only and up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the errors, omissions, or damages caused by the use of these programs or from the use of the information herein. use of the information herein.