Chapter 1

Introduction to Operations Management

Three Functions in a Business

• Marketing– to “sell” products

• Operations– to “make” products

• Finance and Accounting– to use money effectively and keep

track business activities in terms of dollar.

Role of “Operation”

• Role of operation in a business is to transform a company’s input into the finished goods or services.

• Value of the product is added in the process of operation.

Business Operation as a Value Added Process

Inputs in $$Transformation

ProcessOutputs in $$$

Value Added by Process

Operations Management

• The business function responsible for planning, coordinating, and controlling the process and resources needed to produce a company’s products and services.

Essential Pursuit of OM

• The essential pursuit of operations management is EFFICIENCY (or productivity, or effectiveness).

Manufacturing vs. Service

Manufacturing:• Tangible product• Product can be

inventoried• Low customer contact• Capital intensive• Long response time

Services:• Intangible product• Product cannot be

inventoried• High customer contact• Labor intensive• Short response time

OM Decisions

• Strategic decisions:– Decisions that set the direction for the entire

company.– Broad in scope & long-term in nature

• Tactical decisions:– Short-term & specific in nature– Bound by the strategic decisions

Spectrum of OM Decisions

Milestones of OM DevelopmentIndustrial Revolution Late 1700sScientific Management Early 1900sHuman Relations Movement 1930s to 1960sManagement Science Mid-1900sComputer Age 1970sJust-In-Time Systems 1980sTotal Quality Management (TQM) 1980sReengineering 1980sFlexibility 1990sTime-based Competition 1990sSupply Chain Management 1990sGlobal Competition 1990sEnvironmental Issues 1990sElectronic Commerce Late 1990s – Early 21st Century

Industrial Revolution(late 1700s)

• Replaced traditional craft methods• Substituted machine power for labor

(James Watt’s steam engine, …)• Major contributions:

– Adam Smith (1776): division of labor– Eli Whitney (1790): interchangeable parts

Scientific Management(early 1900s)

• Separated ‘planning’ from ‘doing’• Management’s job was to discover

worker’s physical limits through measurement, analysis & observation

• Major contributors:– Fredrick Taylor: stopwatch time studies– Henry Ford: moving assembly line

Human Relations Movement (1930s-1960s)

• Recognition that factors other than money contribute to worker productivity

• Major contributions:– Understanding of the Hawthorn effect:

Study of Western Electric plant in Hawthorn, Illinois intended to study impact of environmental factors (light & heat) on productivity, but found workers responded to management’s attention regardless of environmental changes

– Job enlargement– Job enrichment

Management Science (mid-1900s)

• Developed new quantitative techniques for common OM problems:– Major contributions include: inventory modeling,

linear programming, project management, forecasting, statistical sampling, & quality control techniques

– Played a large role in supporting American military operations during World War II

Computer Age (1970s)

• Computer provided the tool necessary to support the widespread use of Management Science’s quantitative techniques – the ability to process huge amounts of data quickly & relatively cheaply

• Major contributions include the development of Material Requirements Planning (MRP) systems for production control

Development in 1980s

• Just-In-Time (JIT):– Techniques designed to achieve high-volume production

using coordinated material flows, continuous improvement, & elimination of waste. “Lean system”

• Total Quality Management (TQM):– Techniques designed to achieve high levels of product

quality through shared responsibility & by eliminating the root causes of product defects

• Business Process Reengineering:– ‘Clean sheet’ redesign of work processes to increase

efficiency, improve quality & reduce costs

Development since 1990s (1)

• Flexibility:– Offer a greater variety of product choices on a mass scale

(mass customization)

• Time-based competition:– Developing new product designs & delivering customer

orders more quickly than competitors

• Supply Chain Management:– Cooperating with suppliers & customers to reduce overall

costs of the supply chain & increase responsiveness to customers

Development since 1990s (2)

• Global competition:– International trade agreements open new markets for

expansion & lower barriers to the entry of foreign competitors (e.g.: NAFTA & GATT)

– Creates the need for decision-making tools for facility location, compliance with local regulations, tailoring product offerings to local tastes, managing distribution networks, …

• Environmental issues:– Pressure from consumers & regulators to reduce, reuse &

recycle solid wastes & discharges to air & water

Electronic Commerce(since late 1990’s)

• Internet & related technologies enable new methods of business transactions:– E-retailing creates a new outlet for selling goods & services

with global access and 24-7 availability. B2C.– Internet provides a cheap network for coordinating supply

chain management information. B2B

• Developing influence of broadband & wireless