Transcript MGT 3501 - Operations Management Fall 2005

Operations Management
Professor Beril Toktay
Operations Management Group
College of Management
Georgia Tech
What Will We Do Today?
• How is this course organized?
• What is Operations Management?
• A Historical Perspective
Organization of Course
• Class web site (can link from T-square)
http://www.prism.gatech.edu/~bt71/mgt3501/course-page.htm
– Lecture notes, homeworks, solutions, additional articles
• Course text: Operations Management for Competitive Advantage,
11th Edn, by Chase, Jacobs, and Aquilano.
– Used versions of old editions are OK
• Littlefield simulation – run a factory, compete with other teams
– Sep 7: E-mail me your teams (4-5 people) and group lead
– Oct 10: Buy code from Barnes & Noble and register online
• No registration, no credit for assignment!
– Oct 16 – 23: First simulation, write-up due Oct 28 by noon.
– Nov 6 – 13: Second simulation, write-up due Nov 17 by 5pm.
Organization of Course
• Grading:
– 2 Midterms (20% each), October 2 and November 4
– Final (40%), Dec 12, includes all material
– 2 Littlefield mini-case write-ups (10% each)
• Grade depends on team evaluation
– Participation can bump you up at the end if borderline.
• Make-up policy
– No make-up exams.
– Official Gatech reason: prearrange alternate time to take exam
– Excused absence (e.g health reasons) needs to be documented,
grade average of other grades
– Unexcused absence – 0 credit
• Homework: For your own practice, problems and solutions on web
site
Organization of course
• No laptops
• No messaging
• On-time arrival to class: grade cutoff will drop by 0.04 for each
time that at most 3 people are late to class.
– e.g 30 sessions, everybody on time  30*0.04=1.2
– Cutoff is 88.8, 78.8, 68.8, 58.8 for A, B, C, D instead of 90,
80, 70, 60.
– On-line bonus tracker on web page
• TA Yannis Bellos - office hours Tuesday 10:30 – 11:30am or by
appointment
• My office hours: Thursday 3-4pm or by appointment. Use
them!!
Who Am I?
• BS in Industrial Engineering & Math from Bosphorus
University
• MS in Industrial Engineering from Purdue University
• PhD in Operations Research from MIT
• Interested in environmental issues in Operations Management
What is Operations Management?
• Business strategy
– selecting market(s) to compete
– level of investment
– allocation of resources
– functional area strategy
• marketing
• finance
• production and operations
What is Operations Management?
Operations Management = Strategy Execution
Time
Quality
Flexibility
Cost
OM = Designing, operating, and improving
the systems that deliver
the firm’s primary products and services
Strategy Execution
1. What is our strategy?
2. How do we design our operations to support it?
Product / Service
Development
Process Design
and Management
Supply Chain
Management
What types of problems does OM address ?
Example #1: Manufacturing - Supply Chain Management
T3
T2
T3
T1
W
T3
T3
T3
C
.com
C
R
OEM
T2
T1
T2
C
C
W
R
C
What types of problems does OM address ?
Example #2: Bank Services
Loans
Deposits
Credit
Cards
What types of problems does OM address ?
Example #3: R&D – New Product Development
Phase 0
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Planning
Concept
Development
System-level
Design
Detail Design
Testing and
Refinement
Production
Ramp-Up
Adapted from U&E 2002
Types of Decisions in OM …
• Strategic decisions (long-term impact)
• Tactical decisions (mid-term impact)
• Operational decisions (short-term impact)
Strategic Decisions …
Strategic questions that operations
managers ask and respond to …
1. How much capacity do we need?
Manufacturing
2. How should our staff be trained?
Services
3. Which projects should we invest in?
Prod. Development
Tactical Decisions …
Tactical questions that operations managers
ask and respond to …
1. Should we have finished goods
inventory or should we make-to-order?
2. What types of queues should we employ
in Hartsfield?
3. Do we need to exchange preliminary
information with mfg?
Manufacturing
Services
Prod. Development
Operational Decisions …
Operational questions that operations
managers ask and respond to …
1. Which product gets priority in
front of machine A?
2. Should the service system be
FCFS or something else?
3. What is the critical path of the
project?
Manufacturing
Services
Prod. Development
Goal of Operations Management
What is the goal of OM with respect to production/service
systems?
1. Improving efficiency
Efficiency is doing something
at the lowest possible cost
2. Improving effectiveness
Effectiveness is doing
appropriate things to create
value for the organization
3. Increasing value
Value = “quality” / “price”
Usually, these things require a tradeoff.
Value Added of Operations Management
• Adverse Financial Impact of Supply Chain Disruptions
• Study of 800 publicly traded firms over a 10-year period
• In the year leading up to disruption
• 107 percent drop in operating income
• 114 percent drop in return on sales
• 93 percent drop in return on assets
• 7 percent lower sales growth
• 11 percent growth in cost
• 14 percent growth in inventories
• 33 – 40% lower stock returns relative to industry
benchmark in period starting 1 year before and 2 years
after the disruption
• Share price volatility is 13.5% higher in the year after the
disruption
Hendricks and Singhal, “The Effect of Supply Chain Disruptions on
Long-term Shareholder Value, Profitability, and Share Price Volatility
Value Added of Operations Management
• Reasons:
– 31% internal (equipment breakdown, manufacturing problems,
quality problems, inaccurate inventory records, poor
forecasting, capacity or labor shortages)
– 14.5% supplier failures
– 12.8% customers
• Part shortages:
• Underperformance by 25%
• Median decrease in operating income of 31%
Hendricks and Singhal, “The Effect of Supply Chain Disruptions on
Long-term Shareholder Value, Profitability, and Share Price Volatility
What are Operations Management Jobs Like?
You can get an interesting job!!
Supply Chain Manager
Quality Manager
Project Manager
Operations Consultant
Plant Manager
Procurement Manager
The OM Area at Tech is ranked in the top 10 in the US and
employers take it seriously!
A Historical Perspective
The First Industrial Revolution (c. 1850)
• Textile manufacturing innovations
“Flying shuttle” and “Spinning Jenny”
• J. Watt: The steam engine
Substituting labor with machines
small scale
production
• A. Smith: Free markets – division of labor
Free markets would enhance “quest” for profit
Specialization could increase productivity
The American System of Manufacturing
• Vertical Integration
Consolidating different operations under one roof
• Interchangeable parts
Mass-produce parts to tight tolerance & assemble
1801 contract for 10,000 muskets for the government
• Unskilled workers
The Second Industrial Revolution (c. 1910)
• 1832: 36 enterprises in 10 states with > 250 workers
Reliance on water power & local distribution system
• Transportation innovations
Railroads are built in western world
large scale
production
• Communication innovations
The telegraph is established
• Big retailers come to power
Sears & Roebuck’s sales soar to $38M in 10 years
• Mass Production: the first vehicles arrive…
Henry Ford starts producing Model T
1910-1920: The Scientific Method (Taylorism)
• Principles of Scientific Management
Book published in 1911 by Fredrick Taylor
• Time and Motion studies
How much time do workers need to do a task?
• Incentive systems
What is the best payment scheme?
Efficiency is
the key!
• Study how systems can be efficient
Developed a set of principles that serve efficiency.
Planning versus doing.
1920’s - 1930’s: Taylorism Spreads
• Application of Taylor’s methods
The DuPont Powder company
• More importance to the human element
Studies at the Western Electric Hawthorne plant to
understand ergonomics: the human element in
manufacturing
• Investment in management education
Between 1914 and 1940 B-schools grew a lot
1940’s - 1960’s: The Golden Era in the U.S.
• Operations Research tools are “born”
G.B. Dantzig devises simplex algorithm
• Effort to study complex systems
The importance of teamwork is introduced
• Mathematical analysis becomes the norm
Scientific methods are applied throughout the
organization
• Mathematics solidify the scientific method
Simulation based models, computer usage, scheduling
1970’s: Computers and MRP take over
Production
Schedule
Bill of
materials
Inventory
status
Forecasted
Demand
MRP
(Materials
Requirement
Planning)
MRP automated production…
But, someone has to tell the computers what to analyze!
1980’s: The Japanese Challenge
American manufacturing led until the late 70’s, but then…
TQC: Total Quality Control
Higher quality
Less cost
JIT: Just-In-Time
The methods introduced by
Japanese manufacturing firms
outperformed the US …
1990’s: The U.S. rises to the challenge
Entrepreneurship and the ability to change
and re-invent themselves allowed American
firms to move into new areas.
•
U.S. firms improve productivity and quality.
•
U.S. firms focus on emerging technologies, R&D.
•
Growth of the service industry.
•
Examples in OM….
Conclusion and Summary …
1. Operations Management is about executing the
firm’s strategy.
2. Operations is a core function in every business –
manufacturing or service oriented.
3. Key Components of OM: Products, Processes, SCM.
4. OM is important to everybody in the organization.
5. OM involves strategic, tactical, and operational
decisions.
6. The efficiency–effectiveness–value tradeoff.
Flow of the Course
Setting the
direction
Efficiency
(managing internal
processes well)
Corporate
strategy
Product design
Operations
strategy
Process management
• process analysis
(no variability)
• waiting line mgt
(variability)
Quality management &
Statistical process control
Lean operations
Effectiveness
(meeting the
demand)
Forecasting
& inventory
management
Aggregate
planning
Material
requirements
planning
Supply chain
management
Preparation for Next Class
What’s their strategy? How do they execute it?
Dell
Southwest
Walmart
Toyota
Amazon