Chap01 - Introduction to Operations and Competitiveness

To Accompany Russell and Taylor, Operations Management, 4th Edition, 2003 Prentice-Hall, Inc. All rights reserved.

Chapter 1Chapter 1

Introduction to Introduction to Operations and Operations and CompetitivenessCompetitiveness



Operations as a transformation Operations as a transformation processprocess

Operations as a Operations as a basic functionbasic function

Operations as the Operations as the technical coretechnical core

The Operations The Operations FunctionFunction


Operations as a Operations as a Transformation ProcessTransformation Process

INPUT MaterialMachinesLaborManagementCapital




TRANSFORMATIONPROCESS




OUTPUT GoodsServices




FeedbackFeedback


OUTPUT GoodsServices



Transformation Transformation ProcessesProcesses

PhysicalPhysical ((manufacturingmanufacturing))LocationalLocational (transportation/ (transportation/

warehouse) warehouse)ExchangeExchange (retail)(retail)PhysiologicalPhysiological (health care)(health care)PsychologicalPsychological (entertainment)(entertainment)InformationalInformational (communications)(communications)


Operations as the Operations as the Technical CoreTechnical Core


Operations as the Operations as the Technical CoreTechnical Core

Operations

Finance/Accounting

Human Resources

MarketingSu

pplie

rs

Production andInventory data

Capital budgeting requestsCapacity expansion and

Technology plans

BudgetsCost analysisCapital investmentsStockholder requirementsOrders for materials

Production and deliverySchedules Quality

Requirements Design/Performance specs

Material availabilityQuality data

Delivery schedulesDesigns

Product/ServiceAvailability

Lead-time estimatesStatus of order

Delivery schedules

Sales forecastsCustomer orders

Customer feedbackPromotionsPersonnel needs

Skill setsPerformance evaluations

Job design/workmeasurement

Hiring/firingTrainingLegal requirementsUnion contract negotiations


Historical Events in OMHistorical Events in OM Industrial RevolutionIndustrial Revolution Scientific ManagementScientific Management Human RelationsHuman Relations Management ScienceManagement Science Quality RevolutionQuality Revolution GlobalizationGlobalization Information Age/Internet RevolutionInformation Age/Internet Revolution


Historical Events in OMHistorical Events in OMIndustrial RevolutionIndustrial Revolution

Steam engineSteam engine 17691769 James WattJames WattDivision of laborDivision of labor 17761776 Adam SmithAdam SmithInterchangeable partsInterchangeable parts 17901790 Eli WhitneyEli Whitney

Scientific ManagementScientific ManagementPrinciplesPrinciples 19111911 Frederick W. TaylorFrederick W. TaylorTime and motion studiesTime and motion studies 19111911 Frank & Lillian Frank & Lillian

GilbrethGilbrethActivity scheduling chartActivity scheduling chart 19121912 Henry GantHenry GantMoving assembly lineMoving assembly line 19131913 Henry FordHenry Ford


Historical Events in OMHistorical Events in OMHuman RelationsHuman Relations

Hawthorne studiesHawthorne studies 19301930 Elton MayoElton MayoMotivation theoriesMotivation theories 1940s1940s Abraham MaslowAbraham Maslow

1950s1950s Frederick HertzbergFrederick Hertzberg1960s1960s Douglas McGregorDouglas McGregor

Management ScienceManagement ScienceLinear programmingLinear programming 19471947 George DantzigGeorge DantzigDigital computerDigital computer 19511951 Remington RandRemington RandSimulation, PERT/CPM, Simulation, PERT/CPM, 1950s1950s Operations researchOperations researchWaiting line theoryWaiting line theory groupsgroupsMRPMRP 1960s1960s Joseph Orlicky, IBMJoseph Orlicky, IBM


Historical Events in OMHistorical Events in OMQuality RevolutionQuality Revolution

JITJIT 1970s1970s Taiichi Ohno, ToyotaTaiichi Ohno, ToyotaTQMTQM 1980s1980s W. Edwards Deming,W. Edwards Deming,

Joseph Juran, et. al.Joseph Juran, et. al.Strategy and operationsStrategy and operations Skinner, HayesSkinner, HayesReengineeringReengineering 1990s1990s Hammer, ChampyHammer, ChampyWorld Trade OrganizationWorld Trade Organization 1990s1990s Numerous countriesNumerous countries

and companiesand companies

GlobalizationGlobalizationEuropean Union andEuropean Union and 1970s1970s IBM and othersIBM and othersother trade agreementsother trade agreementsEDI, EFT, CIMEDI, EFT, CIM 1980s1980s


Historical Events in OMHistorical Events in OMInformation Age/Information Age/

Internet RevolutionInternet RevolutionInternet, WWW, ERPInternet, WWW, ERP 1990s1990s ARPANET, TimARPANET, TimSupply chainSupply chain Berners-Lee, SAP, i2Berners-Lee, SAP, i2management,management, Technologies, Technologies,

ORACLE,ORACLE,E-commerceE-commerce PeopleSoft, Amazon,PeopleSoft, Amazon,

Yahoo, eBay,Yahoo, eBay,and othersand others


Categories of Categories of E-CommerceE-Commerce


Categories of Categories of E-CommerceE-Commerce

BusinessBusiness

ConsumerConsumer

BusinessBusiness ConsumerConsumer

B2BCommerceone.com

B2CAmazon.com

C2BPriceline.com

C2CeBay.com


A New Value ChainA New Value ChainManufacturer Wholesaler/

distributor Retailer Consumer

(a) Traditional Value Chain(a) Traditional Value Chain




Manufacturer Wholesaler/distributor

Retailer Consumer


(b) Intermediaries Eliminated (Deintermediation)(b) Intermediaries Eliminated (Deintermediation)




InfomediaryManufacturer E-Retailer

Aggregator

Portal Consumer

Manufacturer Wholesaler/distributor

Retailer Consumer


(b) Intermediaries Eliminated (Deintermediation)(b) Intermediaries Eliminated (Deintermediation)

(b) New Intermediaries Introduced (Reintermediation)(b) New Intermediaries Introduced (Reintermediation)


An Integrated An Integrated Value ChainValue Chain



Manufacturer SupplierCustomer

Flow of information (customer order)Flow of information (customer order)



Manufacturer SupplierCustomer

Flow of information (customer order)Flow of information (customer order)

Flow of product (order fulfillment)Flow of product (order fulfillment)


The Growth of The Growth of E-CommerceE-Commerce

8000 8000 –

6000 6000 –

4000 4000 –

2000 2000 –

0 0 –| | | | |

20002000 20012001 20022002 20032003 20042004YearYear

Trill

ions

of D

olla

rsTr

illio

ns o

f Dol

lars


The Growth of The Growth of E-CommerceE-Commerce

B2BB2B

B2CB2C

8000 8000 –

6000 6000 –

4000 4000 –

2000 2000 –

0 0 –| | | | |

20002000 20012001 20022002 20032003 20042004YearYear

Trill

ions

of D

olla

rsTr

illio

ns o

f Dol

lars


Types of B2B TransactionsTypes of B2B TransactionsBuyer Seller

Buyers

Sellers

Buyer

Sellers Buyers Sellers

(a) Electronic Storefront(a) Electronic Storefront (b) Seller’s Auction(b) Seller’s Auction

(c) Buyer’s Auction(c) Buyer’s Auction (d) Exchange or E-Marketplace(d) Exchange or E-Marketplace


E-Business Promotes:E-Business Promotes:

Better customer relationsBetter customer relationsMore efficient processesMore efficient processesLower cost of materialsLower cost of materialsInformation technology synergyInformation technology synergyBetter and faster decision makingBetter and faster decision making


E-Business Promotes:E-Business Promotes:New forms of organizationsNew forms of organizationsExpanded supply chainExpanded supply chainHigher customer expectationsHigher customer expectationsNew ways of doing businessNew ways of doing businessGlobalizationGlobalization


An International Comparison An International Comparison of Hourly Wage Ratesof Hourly Wage Rates

| | | | | |19751975 19801980 19851985 19901990 19951995 20002000

$ 35 $ 35 –

$ 30 $ 30 –

$ 25 $ 25 –

$ 20 $ 20 –

$ 15 $ 15 –

$ 10 $ 10 –

$ 5 $ 5 –

$ 0 $ 0 –


An International Comparison An International Comparison of Hourly Wage Ratesof Hourly Wage Rates

| | | | | |19751975 19801980 19851985 19901990 19951995 20002000

$ 35 $ 35 –

$ 30 $ 30 –

$ 25 $ 25 –

$ 20 $ 20 –

$ 15 $ 15 –

$ 10 $ 10 –

$ 5 $ 5 –

$ 0 $ 0 –

GermanyGermanyJapanJapanUnited StatesUnited StatesEUEU

Asian NIEsAsian NIEsMexicoMexico


Multinational CorporationsMultinational CorporationsCountryCountry Foreign SalesForeign Sales

CompanyCompany of Originof Origin as % of Totalas % of TotalNestléNestlé SwitzerlandSwitzerland 98.298.2NokiaNokia FinlandFinland 97.697.6PhilipsPhilips NetherlandsNetherlands 94.094.0BayerBayer GermanyGermany 89.889.8ABBABB GermanyGermany 87.287.2SAPSAP GermanyGermany 80.080.0Exxon MobilExxon Mobil United StatesUnited States 79.679.6Royal Dutch/ShellRoyal Dutch/Shell NetherlandsNetherlands 73.373.3IBMIBM United StatesUnited States 62.762.7McDonald’sMcDonald’s United StatesUnited States 61.561.5


CompetitivenessCompetitivenessThe degree to which a nation can The degree to which a nation can produce goods and services that produce goods and services that meet the test of international meet the test of international markets while simultaneously markets while simultaneously maintaining or expanding the real maintaining or expanding the real incomes of its citizens.incomes of its citizens.


ProductivityProductivity

Productivity =Productivity =OutputOutputInputInput


ProductivityProductivity

Become more efficientBecome more efficient DownsizeDownsize ExpandExpand Retrench Retrench Achieve breakthroughsAchieve breakthroughs

Productivity =Productivity =OutputOutputInputInput

Productivity improves when firms:Productivity improves when firms:


Productivity in the ‘90sProductivity in the ‘90s

| | | | | | | | | | | |‘‘9090 ‘91‘91 ‘92‘92 ‘93‘93 ‘94‘94 ‘95‘95 ‘96‘96 ‘97‘97 ‘98‘98 ‘99‘99 ‘00‘00 20012001

–7 7 –6 6 –5 5 –4 4 –3 3 –2 2 –1 1 –0 0 –

-1 -1 –-2 -2 –-3 -3 –


Productivity in the ‘90sProductivity in the ‘90s

| | | | | | | | | | | |‘‘9090 ‘91‘91 ‘92‘92 ‘93‘93 ‘94‘94 ‘95‘95 ‘96‘96 ‘97‘97 ‘98‘98 ‘99‘99 ‘00‘00 20012001

–7 7 –6 6 –5 5 –4 4 –3 3 –2 2 –1 1 –0 0 –

-1 -1 –-2 -2 –-3 -3 –

United StatesUnited States

GermanyGermanyJapanJapan


Measures of Measures of CompetitivenessCompetitiveness

ProductivityProductivity GDP (Gross domestic product) growthGDP (Gross domestic product) growth Market capitalizationMarket capitalization Technological infrastructureTechnological infrastructure Quality of educationQuality of education Efficiency of governmentEfficiency of government


Competitiveness of Competitiveness of Selected CountriesSelected Countries

USUS SingaporeSingapore FinlandFinland IrelandIreland GermanyGermany UKUK JapanJapan MexicoMexico RussiaRussia

1001008080606040402020

00


Competitiveness of Competitiveness of Selected CountriesSelected Countries

USUS SingaporeSingapore FinlandFinland IrelandIreland GermanyGermany UKUK JapanJapan MexicoMexico RussiaRussia

1001008080606040402020

00


Barriers to EntryBarriers to EntryEconomies of scaleEconomies of scaleCapital investmentCapital investmentAccess to supply and distribution Access to supply and distribution

channelschannelsLearning curvesLearning curves


Competition Within Competition Within Industries Increases WhenIndustries Increases When

Firms are relatively equal in size Firms are relatively equal in size and resourcesand resources

Products and services are Products and services are standardizedstandardized

Industry growth is slow or Industry growth is slow or exponentialexponential


Primary Topics in Primary Topics in Operations ManagementOperations Management

StrategyStrategy Products and Products and

servicesservices Processes and Processes and

technologiestechnologies FacilitiesFacilities Project Project

managementmanagement

Managing the supply Managing the supply chainchain

Forecasting demand Forecasting demand for products and for products and servicesservices

Production planning Production planning and schedulingand scheduling

Ensuring qualityEnsuring quality


Purpose of the TextPurpose of the Text To gain an appreciation of the To gain an appreciation of the

strategic importance of operations strategic importance of operations and how operations relates to other and how operations relates to other business functionsbusiness functions

To develop a working knowledge of To develop a working knowledge of the concepts and methods related to the concepts and methods related to designing and managing operationsdesigning and managing operations

To develop a skill set for organizing To develop a skill set for organizing activities as a part of a processactivities as a part of a process


Organization of the TextOrganization of the TextThe StrategicThe Strategic Designing the Designing the Importance ofImportance of Operating Operating Managing the Managing the Ensuring Ensuring

OperationsOperations SystemSystem Supply ChainSupply Chain QualityQuality

1.1. Introduction to Introduction to Operations and Operations and CompetitivenessCompetitiveness

2.2. Operations Operations StrategyStrategy

3.3. Products and Products and ServicesServices

4.4. Processes and Processes and TechnologiesTechnologies

5.5. FacilitiesFacilities6.6. Project Project

ManagementManagement

7.7. Supply Chain Supply Chain ManagementManagement

8.8. ForecastingForecasting9.9. Capacity and Capacity and

Aggregate Aggregate PlanningPlanning

10.10. Inventory Inventory ManagementManagement

11.11. Just-in-Time and Just-in-Time and Lean ProductionLean Production

12.12. Enterprise Enterprise Resource Resource PlanningPlanning

13.13. SchedulingScheduling

14.14. Quality Quality ManagementManagement

15.15. Statistical Statistical Process Process ControlControl

16.16. Waiting Line Waiting Line Models for Models for Service Service ImprovementImprovement

17.17. Human Human Resources in Resources in Operations Operations ManagementManagement

Documents

Chap01 - Introduction to Operations and Competitiveness