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Introduction to Introduction to Operations Operations Management Management

Introduction to Operations Management Operations is the

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Page 1: Introduction to Operations Management Operations is the

Introduction to Introduction to Operations ManagementOperations Management

Page 2: Introduction to Operations Management Operations is the

Operations is the production activities that go on in the organization, regardless of whether the end product is a good or a service

What is Operations?What is Operations?

Page 3: Introduction to Operations Management Operations is the

Operations management is defined as the design, operation, and improvement of the systems that create the firm’s primary products and services

Operations management is the management of systems or processes that creates value in the form of goods and services by transforming inputs into desired outputs

What Is Operations ManagementWhat Is Operations Management (OM) (OM)??

Page 4: Introduction to Operations Management Operations is the

Operations as a transformation processOperations as a basic functionOperations as the technical core

The Operations FunctionThe Operations Function

Page 5: Introduction to Operations Management Operations is the

Inputs:•Materials•Machines•Labor•Management•Capital

Transformation/Conversion

Process

Outputs: Goods

Services

Control

Feedback

FeedbackFeedback

Value added

Operations as a Transformation ProcessOperations as a Transformation Process

Page 6: Introduction to Operations Management Operations is the

What is Value Added?What is Value Added?

Value added is the difference between the cost of intputs and the value or price of outputs.

The essence of operations function is to add value during the transformation process

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Firms use the money generated Firms use the money generated by value added for:by value added for:

R&DInvestment in new facilities and equipmentPaying workersPaying for materialsPaying for general expensesProfits

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Transformation Process of aTransformation Process of a Canned Canned Food ProcessorFood Processor

Inputs Processing Outputs• Cleaning Canned

vegetables• Making cans• Cutting• Cooking• Packing• Labeling

• Raw vegetables• Metal sheets • Water• Energy• Labor• Building• Equipment

Page 9: Introduction to Operations Management Operations is the

Transformation Process of a Transformation Process of a HospitaHospitall

Inputs Processing Outputs

• Doctors, nurses • Examination Healthy patients• Hospital • Surgery

• Medical Supplies • Monitoring• Equipment • Medication• Laboratories • Therapy

Page 10: Introduction to Operations Management Operations is the

ExamplesExamples of of Various Various OperationsOperations

Operations ExamplesGoods Producing Farming, mining, construction ,

manufacturing, power generationStorage/Transportation

Warehousing, trucking, mailservice, 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

Page 11: Introduction to Operations Management Operations is the

Types of Transformation ProcessesTypes of Transformation ProcessesPhysical- manufacturingLocational- transportationExchange- retailingStorage- warehousingPhysiological- health careInformational- telecommunicationsPsychological- entertainment

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Marketing Generates demand gets

customers

Operations creates product or service

Finance/Accounting Obtains funds Tracks organizational

performance

Operations as a Basic FunctionOperations as a Basic Function

Page 13: Introduction to Operations Management Operations is the

Business Business FunctionsFunctions Overlap Overlap

Operations

FinanceMarketing

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Business Business Functions Functions -- Bank Bank(1 of 3)(1 of 3)

Operations Finance/Accounting

Marketing

CheckClearing

TellerScheduling

Transactions

ProcessingSecurity

Commercial Bank© 1984-1994 T/Maker Co.

Page 15: Introduction to Operations Management Operations is the

Business Business Functions – AirlineFunctions – Airline(2 of 3)(2 of 3)

Operations Finance/Accounting

Marketing

GroundSupport

FlightOperations

FacilityMaintenance

Catering

Airline

Page 16: Introduction to Operations Management Operations is the

Business Business Functions – ManufacturerFunctions – Manufacturer(3 of 3)(3 of 3)

Operations Finance/Accounting

Marketing

ProductionControl

Manufacturing QualityControl

Purchasing

Manufacturing

Page 17: Introduction to Operations Management Operations is the

Operations

Finance/Accounting

Human Resources

Marketin

gSu

pp

lier

s

Production andInventory data

Capital budgeting requestsCapacity expansion and

Technology plans

BudgetsCost analysisCapital investmentsStockholder requirements

Orders for materialsProduction and delivery

Schedules QualityRequirements Design/

Performance specs

Material availabilityQuality data

Delivery schedulesDesigns

Product/ServiceAvailability

Lead-time estimatesStatus of order

Delivery schedules

Sales forecastsCustomer orders

Customer feedbackPromotions

Personnel needsSkill sets

Performance evaluationsJob design/work

measurement

Hiring/firingTrainingLegal requirementsUnion contract negotiations

Operations as the Technical CoreOperations as the Technical Core

Page 18: Introduction to Operations Management Operations is the

Importance of OMImportance of OM(Why Study OM?) (Why Study OM?) (1 of 2)(1 of 2)

Operations is one of the three major functions (marketing, finance and operations) of an organization

OM affects 1) the companies’ ability to compete and 2) the nation’s ability to compete internationally

Nearly half of the employed people over the world have jobs in operations

OM is a costly part of an organization

Page 19: Introduction to Operations Management Operations is the

Importance of OMImportance of OM(Why Study OM?) – (Why Study OM?) – (2 of 2)(2 of 2)

Offers a major opportunity for an organization to improve its productivity and profitability

The OM function is responsible for a major portion of the assets of most organizations

The concepts, tools and techniques of OM are widely used in managing other functions.

Presents career opportunities

Page 20: Introduction to Operations Management Operations is the

Options for Increasing ContributionOptions for Increasing Contribution Marketing

Option Finance &

Accounting Option

OM Option

Current Sales Revenue :

+50%

Finance Costs: -50%

Production Costs: -20%

Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods Sold

-80,000 -120,000 -80,000 -64,000

Gross Margin

20,000 30,000 20,000 36,000

Finance Costs

-6,000 -6,000 -3,000 -6,000

Net Margin

14,000 24,000 17,000 30,000

Taxes @ 25%

-3,500 -6,000 -4,250 -7,500

Contribution 10,500 18,000 12,750 22,500

Page 21: Introduction to Operations Management Operations is the

Production of Goods Production of Goods vs.vs.

Delivery of ServicesDelivery of Services

Page 22: Introduction to Operations Management Operations is the

Tangible Act

Manufacturing or ServiceManufacturing or Service

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Goods vs. Services Goods vs. Services (1 of 2)(1 of 2)Characteristics Goods Service

Customer contact Low HighUniformity of inputs and outputs High LowLabor content Low HighAutomation Easy Generally difficultOutput Tangible Intangible, often uniqueMeasurement of productivity Easy DifficultOpportunity to correct problems High LowInventory Much LittleQuality evaluation Easier DifficultProduction activities Obvious Not so obvious

Page 24: Introduction to Operations Management Operations is the

Goods vs. ServicesGoods vs. Services (2 of 2)(2 of 2)Characteristics Goods Service

Production and consumption Separate Generally take place at the same time

Location Centralized Generally dispersed

Locational factors to be considered Cost-oriented Revenue-oriented

Reselling Possible Not possible

Patentability Usually Not usually

Activities Smooth and efficient

Slower and awkward

Inventoriability andTransportability Inventoriable &Transportable

Non inventoriable and so nontransportable

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Service Job Categories Service Job Categories (1 of 2)(1 of 2)

Governmental servicesMunicipal servicesTrade services (wholesale/retail)Finance, insurance, real estateMedical (healthcare)Personal services

Page 26: Introduction to Operations Management Operations is the

Service Job Categories Service Job Categories (2 of 2)(2 of 2)

Business servicesEducationFood, lodging and entertainmentUtilities and transportationLegal, consultingRepair

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Goods Contain Services / Goods Contain Services / Services Contain GoodsServices Contain Goods

0 25 50 75 100255075100

Automobile assembly, steel makingComputer

Home remodeling, retail salesFast-food Meal

Restaurant MealAuto RepairHospital Care

Advertising AgencyInvestment Management

Consulting ServiceSurgery, Teaching,Counseling

Percent of Product that is a Good Percent of Product that is a Service

Page 28: Introduction to Operations Management Operations is the

Steel productionAutomobile fabrication

House buildingRoad constructio

Auto RepairAppliance repair

DressmakingFarming

Maid ServiceManual car wash

TeachingLawn mowing

High goods contentLow service content

Goods-serviceGoods-servicess Continuum Continuum

Low goods contentHigh service content

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1-29

Year Mfg. Service45 79 2150 72 2855 72 2860 68 3265 64 3670 64 3675 58 4280 44 4685 43 5790 35 6595 25 7500 30 70

02 25 75

U.S. Manufacturing vs. Service Employment

0102030405060708090

45 50 55 60 65 70 75 80 85 90 95 00 02 05

Year

Per

cent

Mfg.

Service

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1-30

Decline in Manufacturing JobsDecline in Manufacturing Jobs

ProductivityIncreasing productivity allows companies to

maintain or increase their output using fewer workers

OutsourcingSome manufacturing work has been outsourced

to more productive companies

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1-31

Challenges of Managing ServicesChallenges of Managing Services

Service jobs are often less structured than manufacturing jobs

Customer contact is higherWorker skill levels are lowerServices hire many low-skill, entry-level workersEmployee turnover is higherInput variability is higherService performance can be affected by worker’s

personal factors

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Services in ManufacturingServices in Manufacturing

In manufacturing, services can be divided into two groups:

Core ServicesValue-added Services

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Core services are basic things that customers want from products they purchase

Core ServicesCore Services

Page 34: Introduction to Operations Management Operations is the

Core Services Performance ObjectivesCore Services Performance Objectives

OperationsManagement

Flexibility

Quality

Speed

Price (or cost Reduction)

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Value-added services differentiate the organization from competitors and build

relationships that bind customers to the firm in a positive way

Value-Added ServicesValue-Added Services

Page 36: Introduction to Operations Management Operations is the

Value-Added Service CategoriesValue-Added Service Categories

OperationsManagement Information

Problem Solving

Sales Support

Field Support

Page 37: Introduction to Operations Management Operations is the

The Scope of OM: The Scope of OM: What Operations Managers DoWhat Operations Managers Do??

Plan - Organize - Staff - Lead - Control

Page 38: Introduction to Operations Management Operations is the

Critical OM DecisionsCritical OM Decisions

Page 39: Introduction to Operations Management Operations is the

Critical Critical OM OM DecisionsDecisions Service, product design Process, capacity design Planning of the technology Location Layout design Human resources, job design Production planning and scheduling Supply chain management Inventory management Maintenance Quality management

Page 40: Introduction to Operations Management Operations is the

Operations Management and Operations Management and Decision MakingDecision Making

Models Quantitative approaches Analysis of tradeoffs Systems approach Establishing priorities

Page 41: Introduction to Operations Management Operations is the

ModelsModelsA model is an abstraction of reality.

– Physical

– Schematic

– Mathematical

Types of models:

Page 42: Introduction to Operations Management Operations is the

Why Models are Beneficial?Why Models are Beneficial?Easy to use, less expensiveRequire users to organize informationSystematic approach to problem solvingIncrease understanding of the problemEnable “what if” questionsSpecific objectivesConsistent toolPower of mathematicsStandardized format

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Limitations of Models:Limitations of Models:

Quantitative information may be emphasized at the expense of qualitative information

May be incorrectly applied and results may be misinterpreted

Page 44: Introduction to Operations Management Operations is the

Quantitative ApproachesQuantitative Approaches(Analytical Tools used in OM)(Analytical Tools used in OM)

Linear programmingQueuing techniquesInventory modelsProject modelsStatistical modelsSimulationDecision analysis

Page 45: Introduction to Operations Management Operations is the

Tradeoffs

Decision on the amount of inventory to stock

Increased cost of holding inventoryvs.

Level of customer service

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Systems ApproachSystems Approach

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

SuboptimizationSuboptimization

Page 47: Introduction to Operations Management Operations is the

Establishing Priorities:Establishing Priorities:Pareto PhenomenonPareto Phenomenon

A few factors account for a high percentage of the occurrence of some event(s) 80/20 Rule - 80% of problems are caused by 20% of the activities.

How do we identify the vital few?

Page 48: Introduction to Operations Management Operations is the

The HThe Historical Evolution of istorical Evolution of Operations Management Operations Management

Page 49: Introduction to Operations Management Operations is the

Significant Events in Operations Significant Events in Operations ManagementManagement

Page 50: Introduction to Operations Management Operations is the

Historical Events in OM Historical Events in OM The Industrial Revolution (1770s) Scientific Management (1911) Human Relations Movement (1920-1960) Decision Models – Management Science (1915,

1940-70s) Quality Revolution (1970s-1990s ) Globalization (1970s- ) Information Age/Internet Revolution (1990s-)

Page 51: Introduction to Operations Management Operations is the

Historical Events in OMHistorical Events in OM (1 of 4): (1 of 4): Industrial Revolution and Scientific Management

Industrial RevolutionSteam engine 1769 James WattDivision of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney

Scientific ManagementPrinciples 1911 Frederick W. TaylorTime and motion studies 1911 Frank & Lillian GilbrethActivity scheduling chart 1912 Henry GantMoving assembly line 1913 Henry Ford

Page 52: Introduction to Operations Management Operations is the

Historical Events in OM Historical Events in OM (2 of 4)(2 of 4) : : Human Relations and Management Science

Human RelationsHawthorne studies 1930 Elton MayoMotivation theories 1940s Abraham Maslow

1950s Frederick Hertzberg1960s Douglas McGregor

Management ScienceLinear programming 1947 George DantzigDigital computer 1951 Remington RandSimulation, PERT/CPM, 1950s Operations researchWaiting line theory groupsMRP 1960s Joseph Orlicky, IBM

Page 53: Introduction to Operations Management Operations is the

Historical Events in OMHistorical Events in OM (3 of 4):(3 of 4):Quality Revolution and Globalization

Quality RevolutionJIT1970s Taiichi Ohno, ToyotaTQM 1980s W. Edwards Deming,

Joseph Juran, et. al.Strategy and operations Skinner, HayesReengineering 1990s Hammer, ChampyWorld Trade Organization 1990s Numerous countries

and companies

GlobalizationEuropean Union and 1970s IBM and othersother trade agreementsEDI, EFT, CIM 1980s

Page 54: Introduction to Operations Management Operations is the

Historical Events in OM Historical Events in OM (4 of 4) (4 of 4) : : Information Age/Internet Revolution

Information Age/Internet Revolution

Internet, WWW, ERP 1990s ARPANET, TimSupply chain Berners-Lee, SAP, i2management, Technologies,

ORACLE,E-commerce PeopleSoft, Amazon,

Yahoo, eBay,and others

Page 55: Introduction to Operations Management Operations is the

Exciting New Challenges in Exciting New Challenges in Operations ManagementOperations Management

Page 56: Introduction to Operations Management Operations is the

New Concepts and Trends in OMNew Concepts and Trends in OM

Mass Customization Supply Chain ManagementOutsourcingLean manufacturingAgilityElectronic Commerce

Page 57: Introduction to Operations Management Operations is the

New Concepts and Trends(1 of 6): New Concepts and Trends(1 of 6): Mass CustomizationMass Customization

The rapid, low cost production of goods and services that fulfill constantly changing and increasingly unique customer desires.

Page 58: Introduction to Operations Management Operations is the

New Concepts and Trends (2 of 6): New Concepts and Trends (2 of 6): Supply Chain ManagementSupply Chain Management

The management of the sequence of organizations- their facilities, functions and activities- that are involved in producing and delivering a product or service

SCM requires the application of a systems approach to managing the flow of information, materials and services from raw material suppliers through factories and warehoses to the end user (customer)

Page 59: Introduction to Operations Management Operations is the

Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainSimple Product Supply Chain

Page 60: Introduction to Operations Management Operations is the

Stage of ProductionValue Added

Value of Product

Farmer produces and harvests wheat $0.15 $0.15

Wheat transported to mill $0.08 $0.23

Mill produces flour $0.15 $0.38

Flour transported to baker $0.08 $0.46

Baker produces bread $0.54 $1.00

Bread transported to grocery store $0.08 $1.08

Grocery store displays and sells bread $0.21 $1.29

Total Value-Added $1.29

A Supply Chain for BreadA Supply Chain for Bread

Page 61: Introduction to Operations Management Operations is the

New Concepts and Trends New Concepts and Trends (3 of 6)(3 of 6) : : OutsourcingOutsourcing

Buying goods or services rather than producing goods or performing services within the organization

Page 62: Introduction to Operations Management Operations is the

New Concepts and Trends New Concepts and Trends (4 of 6):(4 of 6): Lean ManufacturingLean Manufacturing

Systems that use minimal amounts of resources - less space, less inventory, fewer workers, fewer levels of management- to produce a high volume of high-quality goods with some variety

An adaptation of mass production that prizes quality and flexibility

Incorporates advantages of mass production (high volume, low unit cost) and craft production (variety and flexibility)

Page 63: Introduction to Operations Management Operations is the

New Concepts and Trends New Concepts and Trends (5 of 6):(5 of 6): AgilityAgility

The ability of an organization to respond quickly to demands or opportunities.

Involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings

Page 64: Introduction to Operations Management Operations is the

New Concepts and Trends New Concepts and Trends (6 of 6):(6 of 6): Electronic CommerceElectronic Commerce

The use of computer networks, primarily the internet, to buy and sell products, services, and information.

Page 65: Introduction to Operations Management Operations is the

Other Trends (1 of 2)Other Trends (1 of 2)

Enhancing Value-Added ServicesManagement of TechnologyEmphasis on Operations StrategyIncreasing Emphasis on Cost Control and

Productivity ImprovementQuality and Process ImprovementsIncreasing emphasis on business and social

responsibility

Page 66: Introduction to Operations Management Operations is the

Other Trends (2 of 2)Other Trends (2 of 2)

Developing flexible supply chains to enable mass customization of products and services

Achieving the Service Factory

Page 67: Introduction to Operations Management Operations is the

GlobalizationGlobalization

Page 68: Introduction to Operations Management Operations is the

Globalization can take the form Globalization can take the form of:of:

Selling in foreign markets Producing in foreign lands Purchasing from foreign suppliers Partnering with foreign firms

Page 69: Introduction to Operations Management Operations is the

Reasons to Globalize Operations Reasons to Globalize Operations (1 of 2)(1 of 2)

To take advantage of favorable costsTo gain access to and attract international

marketsTo build reliable sources of supply To improve the supply chainTo be more responsive to changes in demand

Page 70: Introduction to Operations Management Operations is the

Reasons to Globalize OperationsReasons to Globalize Operations (2 of 2)(2 of 2)

To provide better goods and servicesTo learn to improve operationsTo attract and retain global talentTo keep abreast of the latest trends and

technologies

Page 71: Introduction to Operations Management Operations is the

Examples of Global StrategiesExamples of Global Strategies

Boeing – both sales and production are worldwide.

Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution

Sony – purchases components from suppliers in Thailand, Malaysia, and around the world

GM is building four similar plants in Argentina, Poland, China, and Thailand

Page 72: Introduction to Operations Management Operations is the

Some Some Multinational CorporationsMultinational Corporations (1 of 3)(1 of 3)

CountryCountry Foreign SalesForeign SalesCompanyCompany of Originof Origin as % of Totalas % of Total

Nestlé Switzerland 98.2Nokia Finland 97.6Philips Netherlands 94.0Bayer Germany 89.8ABB Germany 87.2SAP Germany 80.0Exxon Mobil United States 79.6Royal Dutch/Shell Netherlands 73.3IBM United States 62.7McDonald’s United States 61.5

Page 73: Introduction to Operations Management Operations is the

Some Multinational CorporationsSome Multinational Corporations (2 of 3)(2 of 3)

WorkforceCompany Home

Country% SalesOutsideHomeCountry

% AssetsOutsideHomeCountry

% Foreign

Colgate-Palmolive

USA 72 63 NA

DowChemical

USA 60 50 NA

Gillette USA 62 53 NA

Honda Japan 63 36 NA

IBM USA 57 47 51

Citicorp USA 34 46 NA

Page 74: Introduction to Operations Management Operations is the

Some Multinational CorporationsSome Multinational Corporations (3 of 3)(3 of 3)

WorkforceCompany Home

Country% SalesOutsideHomeCountry

% AssetsOutsideHomeCountry

% Foreign

ICI Britain 78 50 NA

Nestlé Switzerland 98 95 97

Philips Netherlands 94 85 82

Siemens Germany 51 NA 38

Electronics

Unilever Britain & Netherlands

95 70 64

Page 75: Introduction to Operations Management Operations is the

Boeing Suppliers (777)Boeing Suppliers (777)

Firm Country PartsAlenia Italy Wing flaps

AeroSpaceTechnologies

Australia Rudder

CASA Spain Ailerons

doors, wing sectionFuji Japan Landing gear

GEC Avionics United Kingdom Flight computersKorean Air Korea Flap supports

Menasco Aerospace Canada Landing gears

Short Brothers Ireland Landing gear doors

SingaporeAerospace

Singapore Landing gear doors