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Chapter 1 - Introduction to Operations Management

Operations ManagementMudassar Salman

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Learning Objectives

Define OM Role of OM in business Decisions that operations managers

make OM differences between service and mfg. Major historical developments in OM Identify current trends in OM Define information flow between OM and

other business functions

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What is Operations Management?

The business function

responsible for planning,

coordinating, and controlling

the resources needed to produce a

company’s products and services

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Typical Organization Chart

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Organizational Functions Major Functions

Finance Marketing Operations Mnagement

Support Functions Accounting Purchasing Human Resources Engineering

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OM’s Transformation Role

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Why OM? “In business today, the emphasis is not so

much on what you make, but on how you do business. Dell makes computers just like every other PC manufacturer.” Quote: KT CEO on CNBC 4/99

The resurgence of American business in the 1990’s capitalized on improved operations.

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Operations Management Many companies like Amazon.com

manage almost all aspects of their operations.

Other companies outsource certain functions to other companies.

Value added is the net increase between the final value of a product and value of all inputs.

Efficiency means being able to perform activities well, at the lowest possible cost.

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Differences between Manufacturers and Service Organizations

Services: Intangible product Product cannot be

inventoried High customer

contact Short response time Labor intensive

Manufacturers:

Tangible product Product can be

inventoried Low customer contact Longer response time Capital intensive

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Similarities-Service/Manufacturers

All use technology Both have quality, productivity, &

response issues All must forecast demand Each will have capacity, layout, and

location issues All have customers and suppliers All have scheduling and staffing issues

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Trends in OM Service sector growing

to 80% of non-farm jobs

Global competitiveness Demands for higher

quality Huge technology

changes Time based

competition Work force diversity

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OM Decisions

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Plan of Book-Chapters link to Types of OM Decisions

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Historical Development of OM

Industrial revolution Late 1700s Scientific management Early 1900’s Human relations movement 1930s to 1960s Management science Mid-1900s Computer age 1970s Just-in-Time Systems (JIT) 1980s Total quality management (TQM) 1980’s Reengineering 1990s Flexibility 1990s Time-Based Competition 1990s Supply chain Management 1990’s Global Competition 1990s Environmental Issues 1990s Electronic Commerce Late 1990s

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Historical Developments of OM – Contd.

Industrial Revolution – Brought in innovations that changed production by using machine power, instead of human power. (Steam Engine & Division of Labor)

Scientific Management – Brought the concepts of analysis and measurement of the technical aspects of work design, and development of moving assembly lines and mass production. (piece rate incentives & stop watch studies)

Human Resource Movement – Focused on human elements of job design, such as worker motivation and job satisfaction. (Hawthorne effect, Job enlargement & Job enrichment)

Management Science – focused on development of quantitative techniques to solve operations problems.

Computer Age – enabled processing large amounts of data and allowed widespread use of quantitative procedures. (Material Resource Planning, MRP)

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Historical Developments of OM – Contd.

Environmental Issues – considered waste reduction, the need for recycling and product reuse. (ISO-14000)

Just-in-time Systems – designed to achieve high-volume production with minimal inventories.

Total Quality Management – sought to eliminate causes of production defects. (ISO-9000)

Reengineering – required redesigning a company’s processes in order to provide greater efficiency and cost reduction. (We’ve been doing things in this way since long)

Global Competition – designed operations to compete in global environment. (NAFTA, GATT, EU & SAFTA)

Flexibility – offered customization on a large scale. (mass customizations)

Time-based Competition – based on time, such as speed of delivery.

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Historical Developments of OM – Contd.

Supply Chain Management – focused on reducing the overall cost of the system that manages the flow of materials and information from suppliers to final customers.

Electronic Commerce – used the internet for conducting business activity. Business to business (B2B) Business to customers (B2C) Customer to customer (C2C)

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Today’s OM Environment Customers demand better quality, faster

deliveries, and lower costs Increased cross-functional decision making

(among various functions of organization) Recognized need to better manage

information using ERP and CRM systems. Customer relationship management – collection

of customer specific data. Enterprise resource planning – software systems,

used to identify & plan the organization wide resources needed to coordinate all activities, involved in producing and delivering products.

Lean systems – total system approach to create efficient operations.

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OM in practice OM – most diverse in terms of tasks performed Chief of Operations

Mid-level managers – Manufacturing, Operations, QC, Plant and other managers

Below – Quality specialist, Production analyst, Inventory analyst and Production supervisor

OM jobs offer High salaries Interesting work, Career advancement opportunities

All business functions need information from OM and at the same time OM requires information from all business functions.

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Business Information Flow

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Chapter 1 Highlights OM is function that manages the resources that add value Its role is to transform inputs into products or services Decisions are many and vary from daily tactical to strategic Key differences between mfg. and service companies are

tangibility of product and degree of customer contact Historical milestones range from 1700s Industrial Revolution

to the modern Electronic Commerce age OM must understand and implement major process changes

like JIT, TQM, supply chain management, and environmental changes

OM works closely with all other business functions