1. McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
11
Introduction to
Operations
Management

2. 1-2
Decision MakingDecision Making
 Models
 Quantitative approaches
 Analysis of trade-offs
 Systems approach

3. 1-3
ModelsModels
A model is an abstraction of reality.
– Physical
– Schematic
– Mathematical
What are the pros and cons of models?
Tradeoffs

4. 1-4
Models Are BeneficialModels 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

5. 1-5
Limitations of ModelsLimitations 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

6. 1-6
Quantitative ApproachesQuantitative Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models

7. 1-7
Analysis of Trade-OffsAnalysis of Trade-Offs
 Decision on the amount of inventory to stock
 Increased cost of holding inventory
Vs.
 Level of customer service

8. 1-8
Systems ApproachSystems Approach
“The whole is greater than
the sum of the parts.”
SuboptimizationSuboptimization

9. 1-9
Pareto PhenomenonPareto 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?

10. 1-10
Ethical IssuesEthical Issues
 Financial statements
 Worker safety
 Product safety
 Quality
 Environment
 Community
 Hiring/firing workers
 Closing facilities
 Worker’s rights

11. 1-11
Business Operations OverlapBusiness Operations Overlap
Operations
Finance
Figure 1.5
Marketing

12. 1-12
Operations InterfacesOperations Interfaces
Public
Relations
Accounting
Industrial
Engineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Legal

13. 1-13
Historical Evolution of OperationsHistorical Evolution of Operations
ManagementManagement
 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

14. 1-14
Trends in BusinessTrends in Business
 Major trends
 The Internet, e-commerce, e-business
 Management technology
 Globalization
 Management of supply chains
 Outsourcing
 Agility
 Ethical behavior

15. 1-15
Management TechnologyManagement Technology
 Technology: The application of scientific
discoveries to the development and
improvement of goods and services
 Product and service technology
 Process technology
 Information technology

16. 1-16
Suppliers’
Suppliers
Direct
Suppliers Producer Distributor
Final
Consumer
Simple Product Supply ChainSimple Product Supply Chain
Figure 1.7
Supply Chain: A sequence of activities
And organizations involved in producing
And delivering a good or service

17. 1-17
Stage of Production Value
Added
Value of
Product
Farmer produces and harvests wheat $0.15 $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 BreadA Supply Chain for Bread

18. 1-18
Other Important TrendsOther Important Trends
 Ethical behavior
 Operations strategy
 Working with fewer resources
 Revenue management
 Process analysis and improvement
 Increased regulation and product liability
 Lean production