The document discusses operations management (OM) and its significance in creating value through the production of goods and services. It outlines key responsibilities of operations managers, critical decisions they make, and the evolution and trends in OM. Additionally, it highlights the contributions of OM to society, productivity challenges, and the importance of quality in both goods and services.

1. INTRODUCTION TO OPERATIONS MANAGEMENT

2. © 2011 PEARSON EDUCATION
THE HARD ROCK CAFE
 First opened in 1971
 Now – 129 restaurants in over 40 countries
 Rock music memorabilia
 Creates value in the form of good food and entertainment
 3,500+
custom meals per day in Orlando
 How does an item get on the menu?
 Role of the Operations Manager

3. WHAT IS OPERATIONS MANAGEMENT?
PRODUCTION IS THE CREATION OF GOODS AND SERVICES
Operations management (OM) is the set of activities
that create value in the form of goods and services
by transforming inputs into outputs

4. WHY STUDY OM?
 OM is one of three major functions (marketing, finance, and
operations) of any organization
 We want (and need) to know how goods and services
are produced
 We want to understand what operations managers do
 OM is such a costly part of an organization
1–4

5. WHAT OPERATIONS
MANAGERS DO
 PLANNING
 ORGANIZING
 STAFFING
 LEADING
 CONTROLLING
Basic Management Functions

6. ORGANIZING TO PRODUCE GOODS AND
SERVICES
 Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the
product
3. Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money

7. TEN CRITICAL DECISIONS
1. Design of goods and services
2. Managing quality
3. Process and capacity design
4. Location strategy
5. Layout strategy
6. Human resources and job design
7. Supply-chain management
8. Inventory, MRP, JIT
9. Scheduling
10.Maintenance

8. 1 - 8
The Critical Decisions
1. Design of goods and services
 What good or service should we offer?
 How should we design these products and services?
2. Managing quality
 How do we define quality?
 Who is responsible for quality?
3. Process and capacity design
 What process and what capacity will these products require?
 What equipment and technology is necessary for these
processes?

9. 1 - 9
The Critical Decisions
4. Location strategy
 Where should we put the facility?
 On what criteria should we base the location decision?
5. Layout strategy
 How should we arrange the facility?
 How large must the facility be to meet our plan?
6. Human resources and job design
 How do we provide a reasonable work environment?
 How much can we expect our employees to produce?

10. 1 - 10
The Critical Decisions
7. Supply-chain management
 Should we make or buy this component?
 Who should be our suppliers and how can we integrate them into our strategy?
8. Inventory, material requirements planning, and JIT
 How much inventory of each item should we have?
 When do we re-order?
9. Intermediate and short–term scheduling
 Are we better off keeping people on the payroll during slowdowns?
 Which jobs do we perform next?
10. Maintenance
 How do we build reliability into our processes?
 Who is responsible for maintenance?

11. 1 - 11
Where are the OM
Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement

12. 1 - 12
Top-down Approach to OM Strategy
Operations Strategy Decisions
Strategic (long-range)
Needs of customers
(capacity planning)
Tactical (medium-range)
Efficient scheduling of
resources
Operational planning
and control (short-range)
Immediate tasks and
activities

13. 1 - 13
An Operational-Level OM Perspective
OM’s function focuses on adding value through the
transformation process (technical core) of
converting inputs into outputs.
Physical: manufacturing
Locational: transportation
Exchange:retailing
Storage: warehousing
Physiological: health care
Informational: telecommunications

14. 1 - 14
OM’s Contributions to
Society
Higher Standard of Living
Ability to increase
productivity
Lower cost of goods and
services
Better Quality Goods and
Services
Competition increases
quality
Concern for the Environment
Recycling and concern for
air and water quality
Improved Working Conditions
Better job design and
employee participation

15. 1 - 15
The Emergence of OM
Operations management has been gaining
increased recognition in recent years for several
reasons, including
a) the application of OM concepts in service operations,
b) an expanded definition of quality,
c) the introduction of OM concepts to other functional
areas such as marketing and human resources, and
d) the realization that the OM function can add value to
the end product.

16. 1 - 16
Good
The Emergence of OM (cont’d)
Application of OM to Service Operations
Batch cooking operations at McDonald’s
Just-in-Time (JIT) at Northern Telecomm, Inc.
Automatic inventory replenishment at Wal-Mart
Service Product

17. 1 - 17
Significant Events in OM

18. 1 - 18
The Heritage of OM
 Division of labor (Adam Smith 1776; Charles Babbage
1852)
 Standardized parts (Whitney 1800)
 Scientific Management (Taylor 1881)
 Coordinated assembly line (Ford/ Sorenson 1913)
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth 1922)
 Quality control (Shewhart 1924; Deming 1950)

19. 1 - 19
The Heritage of OM
 Computer (Atanasoff 1938)
 CPM/PERT (DuPont 1957, Navy 1958)
 Material requirements planning (Orlicky 1960)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 Baldrige Quality Awards (1980)
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Internet (1995)

20. 1 - 20
Eli Whitney
 Born 1765; died 1825
 In 1798, received government contract to
make 10,000 muskets
 Showed that machine tools could make
standardized parts to exact specifications
 Musket parts could be used in any musket

21. 1 - 21
Frederick W. Taylor
 Born 1856; died 1915
 Known as ‘father of scientific
management’
 In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
 Began first motion and time studies
 Created efficiency principles

22. 1 - 22
Taylor’s Principles
Management Should Take More Responsibility for:
Matching employees to right job
Matching
Providing the proper training
Providing
Providing proper work methods and tools
Providing
Establishing legitimate incentives for work to be accomplished
Establishing

23. 1 - 23
Frank & Lillian Gilbreth
 Frank (1868-1924); Lillian (1878-1972)
 Husband-and-wife engineering team
 Further developed work
measurement methods
 Applied efficiency methods to their
home and 12 children!
 Book & Movie: “Cheaper by the
Dozen,” “Bells on Their Toes”

24. 1 - 24
 Born 1863; died 1947
 In 1903, created Ford Motor
Company
 In 1913, first used moving assembly
line to make Model T
Unfinished product moved by
conveyor past work station
 Paid workers very well for 1911
($5/day!)
Henry Ford

25. 1 - 25
W. Edwards Deming
 Born 1900; died 1993
 Engineer and physicist
 Credited with teaching Japan
quality control methods in post-
WW2
 Used statistics to analyze process
 His methods involve workers in
decisions

26. CONTRIBUTIONS
FROM
 Human factors
 Industrial engineering
 Management science
 Biological science
 Physical sciences
 Information technology

27. NEW CHALLENGES IN OM
 Global focus
 Just-in-time
 Supply-chain
partnering
 Rapid product
development,
alliances
 Mass
customization
 Empowered
employees, teams
To
From
 Local or national focus
 Batch shipments
 Low bid purchasing
 Lengthy product
development
 Standard products
 Job specialization

28. CHARACTERISTICS OF GOODS
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction

29. CHARACTERISTICS OF SERVICE
 Intangible product
 Produced and
consumed at same time
 Often unique
 High customer
interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed

30. GOODS AND SERVICES
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

31. AN EXPANDED DEFINITION OF QUALITY
Quality is important in all functional areas of an organization.
Quality is now much more than the technical requirements for
manufactured goods.
Service quality (customer relationships)
is equally important.
Quality
1–31

32. NEW TRENDS IN OM
 Ethics
 Global focus
 Environmentally sensitive production
 Rapid product development
 Environmentally sensitive production
 Mass customization
 Empowered employees
 Supply-chain partnering
 Just-in-time performance

33. THE VALUE CHAIN AND
ITS SUPPORT FUNCTIONS
1–33

34. PRODUCTIVITY CHALLENGE
Productivity is the ratio of outputs (goods and services)
divided by the inputs (resources such as labour and
capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output only
and not a measure of efficiency
1–34

35. IMPROVING PRODUCTIVITY AT STARBUCKS
A team of 10 analysts continually
look for ways to shave time. Some
improvements:
Stop requiring signatures
on credit card purchases
under $25
Saved 8 seconds
per transaction
Change the size of the ice
scoop
Saved 14 seconds
per drink
New espresso machines Saved 12 seconds
per shot

36. IMPROVING PRODUCTIVITY AT STARBUCKS
A team of 10 analysts continually
look for ways to shave time. Some
improvements:
Stop requiring signatures
on credit card purchases
under $25
Saved 8 seconds
per transaction
Change the size of the ice
scoop
Saved 14 seconds
per drink
New espresso machines Saved 12 seconds
per shot

37.  Measure of process improvement
 Represents output relative to input
 Only through productivity increases
can our standard of living improve
PRODUCTIVITY
Productivity =
Units produced
Input used
1–37

38. PRODUCTIVITY CALCULATIONS
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
Labor Productivity
One resource input  single-factor productivity
1–38

39. MULTI-FACTOR PRODUCTIVITY
Output
Labor + Material + Energy
+ Capital + Miscellaneous
Productivity =
 Also known as total factor productivity
 Output and inputs are often expressed
in dollars
Multiple resource inputs  multi-factor productivity

40. MEASUREMENT PROBLEMS
1. Quality may change while the quantity of
inputs and outputs remains constant
2. External elements may cause an increase or
decrease in productivity
 Precise units of measure may be lacking

41. PRODUCTIVITY VARIABLES
1. Labor - contributes about
10% of the annual increase
2. Capital - contributes about
38% of the annual increase
3. Management - contributes
about 52% of the annual
increase

42. KEY VARIABLES FOR IMPROVED LABOR
PRODUCTIVITY
1. Basic education appropriate for the labor force
2. Diet of the labor force
3. Social overhead that makes labor available
Challenge is in maintaining and
enhancing skills in the midst of
rapidly changing technology and
knowledge

43. LABOR SKILLS
About half of the 17-year-olds in the U.S. cannot correctly answer questions of
this type

44. INVESTMENT AND PRODUCTIVITY
10
8
6
4
2
0
Percent
increase
in
productivity
Percentage investment
10 15 20 25 30 35

45. SERVICE PRODUCTIVITY
1. Typically labor intensive
2. Frequently focused on unique
individual attributes or desires
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality

46. ETHICS AND
SOCIAL RESPONSIBILITY
Challenges facing operations managers:
 Developing and producing safe, quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring stakeholder commitments