Operations Management Introduction - Chapter 1

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Operations Operations ManagementManagement

Introduction - Chapter 1Introduction - Chapter 1

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OutlineOutline What is Operations Management?

Why Study OM?

Production vs. Service Organizations.

Operations Management Decisions.

Heritage of OM.

Recent Developments & Challenges.

Productivity.

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What Is Operations Management?What Is Operations Management?

Book definition (not as good): The set of activities that creates goods and services by transforming inputs into outputs.

Operations management is the management of systems that produce goods and provide services. It includes planning, designing and operating

systems to achieve goals of the organization.

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Transforming Inputs to OutputsTransforming Inputs to Outputs

Production or Service

System

Land,

Labor,

Capital,

Materials,

Equipment,

Management

Goods

and

Services

Inputs Process Outputs

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ExamplesExamples

Auto factories (assembly plants)

Job shops (printing)

Fast food restaurants

Hospitals

Airlines

Movie theaters

Grocery stores

ProductionProduction ServiceService

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Why Study OM?Why Study OM?

OM is one of three major functions of any organization (Marketing, Finance, and Operations).

We should know how goods and services are produced.

OM is such a costly part of an organization.

Jobs!

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OM JobsOM Jobs

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Organizational FunctionsOrganizational Functions

Marketing. Generates demand.

Operations. Creates product or service.

Finance/Accounting. Obtains funds &

tracks money.

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Characteristics of GoodsCharacteristics of Goods

Tangible product.

Consistent inputs and outputs.

Production separate from consumption.

Can be inventoried.

Low customer interaction.

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Characteristics of ServiceCharacteristics of Service

Intangible product.

Variable inputs and outputs (people!).

Production and consumption at same place and time.

No inventories.

High customer interaction.

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Goods Contain Services & Goods Contain Services & Services Contain GoodsServices Contain Goods

0 25 50 75 100255075100

AutomobileInstalled Carpeting

Fast-food MealRestaurant Meal

Auto RepairHospital Care

Consulting ServiceCounseling

% of Product that is a Good % of Product that is a Service

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Operations Management for a Operations Management for a ManufacturerManufacturer

Operations Finance/Accounting

Marketing

ProductionControl

Manufacturing QualityControl

Purchasing

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Operations Management for an Operations Management for an AirlineAirline

Operations Finance/Accounting

Marketing

GroundSupport

FlightOperations

FacilityMaintenance

Catering

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Critical Decisions for OMCritical Decisions for OM Product & service design. Quality management. Process design. Capacity & location of facilities. Layout of facilities. Human resources & Job design. Supply-chain management. Inventory management. Scheduling. Maintenance.

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Skills and Knowledge NeededSkills and Knowledge Needed Knowledge of production and service processes.

Knowledge of basic OM principles.

Analytical Tools: Forecasting Decision-Making Linear Programming Break-even analysis Inventory control Waiting lines (queueing)

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Heritage of OMHeritage of OM

Prior to 1700’s - Most products custom-made on a small scale with local distribution. Local craftsmen. Products were handmade and unique.

Industrial Revolution Mechanized production and distribution. Allowed mass production and wider distribution. Fostered division of labor.

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Industrial RevolutionIndustrial Revolution

Key developments: Steam engine (1769). Interchangeable parts (1798). Machine tools (1798).

Results: Production increased. Prices decreased. Workers replaced by machines. Need to manage complex production systems.

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Scientific ManagementScientific Management

Study production systems scientifically to improve them (beginning in 1880’s). There are ‘scientific laws’ for production

systems that can be used to improve (optimize) production.

Work smarter, not harder.

Management is responsible for productivity.

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Related FieldsRelated Fields

Operations Management.

Industrial Engineering.

Social and psychological factors.

Operations Research/Management Science (Mathematical modeling).

Logistics.

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Eli WhitneyEli Whitney

Born 1765; died 1825.

Invented cotton ‘gin’.

Received government contract to make 10,000 muskets (1798).

Showed machine tools could make standardized parts.

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Recent Developments for OM Recent Developments for OM

Information technology: (computers, bar codes, EDI, internet, wireless, etc.)

Quality emphasis. Service economy. Globalization. Environmental concerns. Security.

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1850

Services

Industry

Farming

80%

40%

0

U.S. Employment, % Share

Development of the Service Development of the Service EconomyEconomy

1950 1900 2000

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Used to measure of process improvement.

Amount of output relative to input.

Productivity increases improve standard of living. From 1889 to 1973, U.S. productivity increased at a 2.5%

annual rate.

Productivity =

ProductivityProductivity

Inputs used

Units produced

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Productivity for A Restaurant? Productivity for A Restaurant?

Amount of output per unit input. What is output & how is it measured???

Number of meals served? Number of tables served? Number of satisfied customers?

What is input & how is it measured??? Lbs. of food? Number of employees? Number of tables?

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Output is easy to measure with one product. Input may have many components.

Parts and subassemblies. Labor. Equipment. Knowledge. etc.

Productivity =

Productivity for One ProductProductivity for One Product

Inputs used

Units produced

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Productivity VariablesProductivity Variables

Output

Labor + material + energy + capital + miscellaneous

Productivity =

Use a common measure to combine different inputs - usually $.

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Productivity Measurement Productivity Measurement ProblemsProblems

Quality of output should be considered.

If you produce more, but of lower quality, does productivity rise?

External elements may change productivity.

Wireless communication may raise productivity.

Precise units of measure may be lacking.

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How Would You Measure How Would You Measure Productivity for UM - St. Louis? Productivity for UM - St. Louis?

Productivity = Inputs used Units produced

What is output? How is it measured?

What is input? How is it measured?

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How Would You Measure How Would You Measure Productivity For: Productivity For:

A builder of new homes?

An automobile mechanic?

A hospital?

A fire department?

A restaurant?