1-1Introduction to Operations Management. 1-2Introduction to Operations Management Operations Management What is operations? –The part of a business organization

1-1 Introduction to Operations Management

Introduction toIntroduction toOperations ManagementOperations Management


Operations Management

• What is operations?–The part of a business organization that is

responsible for producing goods or services

• How can we define operations management?–The management of systems or processes

that create goods and/or provide services


Supply & Demand

Supply Demand>

Supply Demand<

Supply Demand=

Operations & Supply Chains Sales & Marketing

WastefulCostly

Opportunity LossCustomer Dissatisfaction

Ideal


The management of systems or processes that create goods and/or provide services

Basic Functions of the Business Organization

Operations FinanceMarketing

Organization


Supply Chain

Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service

Suppliers’suppliers

Directsuppliers

Producer DistributorFinal

Customers


The Transformation Process --OM Model

Inputs•Land•Labor•Capital•Information

Outputs•Goods•Services

Transformation/Conversion

Process

Control

Feedback

Feedback Feedback

Value-Added

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established standards to determine if corrective action is needed.


Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment

Table 1.2


Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy

Table 1.2


Automobile Assembly, Steelmaking

Products are typically neither purely service- or purely goods-based.

Goods Services

Home Remodeling, Retail Sales

Computer Repair, Restaurant Meal

Songwriting, Software Development

Surgery, Teaching

Goods-service Continuum


High-paying service jobs:Information, Financial, Health,

Education, Professional and Business Services

• These high-payinghigh-paying service jobs accounted for 56% of the service job growth56% of the service job growth since 1990!• In 2006 they accounted for 41% of jobs.41% of jobs.• CompensationCompensation in these jobs grew four four times fastertimes faster than in service industry overall

How is the service industry doing?

100

110

120

130

140

150

160

1990 1992 1994 1996 1998 2000 2002 2004 2006

High-payingTotal

1-11 Introduction to Operations ManagementU.S. Trade Flows (exports + imports of

goods and services) as % of GDP

Recessions in yellow

More trade is associated with

economic expansion

Trade expanded 3 times faster than GDP, by a factor of 150(!) since 1950


Does the trade deficit cause unemployment?

Trade deficit expands

Unemployment drops

Most of the expansion in the trade deficit occurred during the roaring 1990s!

Since2000

Before2000


U.S. manufacturing output hurt by imports?

1990s: Surge in imports and manufacturing output

2000-2002: Manufacturing drops, imports slow

Since 2000: Both recovering

Manufacturing output expands despite imports


Loss of manufacturing jobs:Only in the U.S.?

Manufacturing jobs: 1993 normalized to 100

3m jobs lost in the U.S.

It’s a worldwide phenomenon!


The real culprit: Productivity

Output per hour in

Manufacturing

Overall Economy


How about outsourcing of service jobs?

Trade in Services as % of GDP

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Exports

Imports

The U.S. has a persistent surplussurplus in trade of services

SurplusSurplus


Trade in goods and services

• Increased trade tends to coincide with economic expansion

• Manufacturing employment is down in the U.S. Just like everywhere else!

• Service employment has grown despite outsourcing.


Manufacturing vs. Service?Manufacturing vs. Service?

Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.


Production of Goods vs. Delivery of ServicesProduction of Goods vs. Delivery of Services

• Production of goods – tangible output

• Delivery of services – an act

• Service job categories– Government

– Wholesale/retail

– Financial services

– Healthcare

– Personal services

– Business services

– Education


Manufacturing vs ServiceManufacturing vs Service

Characteristic Manufacturing ServiceOutput

Customer contact

Uniformity of input

Labor content

Uniformity of output

Measurement of productivity

Opportunity to correct

Tangible

Low

High

Low

High

Easy

High

Intangible

High

Low

High

Low

Difficult

Lowquality problems

High


Process ManagementProcess Management

Three Categories of Business Processes:

Upper-management processes

These govern the operation of the entire organization.

Operational processes These are core processes that make up the value stream.

Supporting processes These support the core processes.

Process - one or more actions that transform inputs into outputs


Process ManagementProcess Management

Four Sources of Variation:

Variety of goods or services being offered

The greater the variety of goods and services offered, the greater the variation in production or service requirements.

Structural variation in demand

These are generally predictable. They are important for capacity planning.

Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers.

Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action.

Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.


• Operations Management includes:– Forecasting– Capacity planning– Scheduling– Managing inventories– Assuring quality– Motivating employees– Deciding where to locate facilities– And more . . .

Scope of Operations ManagementScope of Operations Management


Role of the Operations Manager

The Operations Function consists of all activities directly related to producing goods or providing services.

A primary function of the operations manager is to guide the system by decision making.

–System Design–System Operation


Types of OperationsTypes of OperationsTable 1.4

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/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 televisionnewscasts, telephone, satellites


U.S. Manufacturing vs. Service EmploymentU.S. Manufacturing vs. Service Employment


The Decline in Manufacturing Employment

Productivity– Increasing productivity allows companies to maintain or increase their

output using fewer workers

Outsourcing– Some manufacturing work has been outsourced to more productive

companies

A Statistical Artifact– Manufacturers are increasingly using contract and temporary labor which

no longer show up in the statistics as manufacturing employment


Why Manufacturing Matters?Myth #1: advanced economy like the U.S. no longer needs to

manufacture and can thrive exclusively as a hub for high-value-added design and innovation


Why Manufacturing Matters?

Myth #2: the migration of mature manufacturing industries away from developed countries like the U.S. is just part of a healthy, natural process of economic evolution that allows resources to be redeployed to new, higher-potential businesses.


Key Decisions of Operations Managers

• WhatWhat resources/what amounts

• WhenNeeded/scheduled/ordered

• WhereWork to be done

• HowDesigned

• WhoTo do the work


Decision MakingDecision Making• ModelsModels

• Quantitative approachesQuantitative approaches

• Analysis of trade-offsAnalysis of trade-offs

• Systems approachSystems approach


Systems ApproachSystems Approach

“The whole is greater than the sum of the parts.”

SuboptimizationSuboptimization


Operations

FinanceMarketing

Operation Management link

Operation + Marketing + Finance


Why Operations Management?Why Operations Management?

Career Opportunities abound

• Operations manager

• Purchasing manager

• Supply chain manager

• Distribution manager

• Quality manager

• Etc.

Visit APICS, ISM, ASQ, CSCMP websites


Operations InterfacesOperations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal


Trends in Business• Major trends

– e-commerce, e-business– Management of technology– Globalization– Management of supply chains– Agility


A Typical Supply Chain


The need for managing supply chainThe need for managing supply chain

• In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems:–Oscillating inventory levels–Inventory stockouts–Late deliveries–Quality problems


Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainSimple Product Supply Chain

Supply Chain: when something is deliver either services or goods then SUPPLY CHAIN is there


Elements of Supply Chain ManagementElements of Supply Chain Management

• Customers – what products/services do customers want

• Forecasting – predicting timing and volume of customer demand

• Design – incorporating customer wants, manufacturability, and time to market

• Capacity planning – matching supply and demand• Processing – controlling quality, scheduling work


Elements of Supply Chain ManagementElements of Supply Chain Management

• Inventory – meeting demand requirements while managing costs

• Purchasing – evaluating potential suppliers, supporting the needs of operations on purchased goods and services

• Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations

• Location – determining the location of facilities

• Logistics – deciding how to best move information and materials

Documents

1-1Introduction to Operations Management. 1-2Introduction to Operations Management Operations Management What is operations? –The part of a business organization