1-1 Introduction to Operations Management

Operations Management

William J. Stevenson

8 th edition

1-2 Introduction to Operations Management

CHAPTER

1

Introduction to Operations Management

Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

1-3 Introduction to Operations Management

Operations Management

Figure 1.1

The management of systems or processes that

create goods and/or provide services

Organization Finance Operations Marketing

1-4 Introduction to Operations Management

Value-Added

Figure 1.2

The difference between the cost of inputs and the value or price of outputs.

Value added

Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Feedback Control Feedback Feedback

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Goods-service Continuum

Figure 1.3

Steel production Automobile fabrication Home remodeling Retail sales Auto Repair Appliance repair Maid Service Manual car wash Teaching Lawn mowing High percentage goods Low percentage service Low percentage goods High percentage service

1-6 Introduction to Operations Management

Food Processor

Table 1.2

Inputs

Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Processing

Cleaning Making cans Cutting Cooking Packing Labeling

Outputs

Canned vegetables

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Hospital Process

Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Hospital Surgery Medical Supplies Monitoring Equipment Laboratories Medication Therapy Healthy patients

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Manufacturing or Service?

Tangible Act

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Production of Goods vs. Delivery of Services  Production of goods – tangible output  Delivery of services – an act  Service job categories  Government  Wholesale/retail  Financial services  Healthcare  Personal services  Business services  Education

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Key Differences

1.

Customer contact 2.

Uniformity of input 3.

Labor content of jobs 4.

Uniformity of output 5.

Measurement of productivity 6.

Production and delivery 7.

Quality assurance 8.

Amount of inventory

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Manufacturing vs Service

Characteristic Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct quality problems High Manufacturing Service Tangible Intangible High Low High Low High Easy High Low High Low Difficult Low

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Scope of Operations Management

 Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating employees  Deciding where to locate facilities  And more .

. .

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 The operations function  Consists of all activities directly related to producing goods or providing services

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Types of Operations

Table 1.4

Operations Goods Producing Storage/Transportation Exchange Entertainment Communication Examples Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites

1-15 Introduction to Operations Management

Figure 1.4

Year Mfg. Service 45 79 21 50 55 72 72 28 28 60 65 70 75 68 64 64 58 32 36 36 42 80 85 90 95 00 44 43 35 32 30 46 57 65 68 70 U.S. Manufacturing vs. Service Employment

100 80 60 40 20 0 45 50 55 60 65 70

Year

75 80 85 90 95 00

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Responsibilities of Operations Management Table 1.6

Planning – Capacity – – – – – – Location Products & services Make or buy Layout Projects Scheduling Controlling/Improving – Inventory – Quality – – Costs Productivity Organizing – Degree of centralization – Process selection Staffing – Hiring/laying off – Use of Overtime Directing – Incentive plans – – Issuance of work orders Job assignments

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Key Decisions of Operations Managers

 What What resources/what amounts  When Needed/scheduled/ordered  Where Work to be done  How Designed  Who To do the work

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Decision Making

System Design – capacity – location – – arrangement of departments product and service planning – acquisition and placement of equipment

1-19 Introduction to Operations Management

Decision Making

System operation – personnel – inventory – scheduling – project management – quality assurance

1-20 Introduction to Operations Management

Decision Making

 Models  Quantitative approaches  Analysis of trade-offs  Systems approach

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Models

A model is an abstraction of reality.

– – Physical Schematic – Mathematical

Tradeoffs

What are the pros and cons of models?

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Models Are Beneficial

 Easy to use, less expensive  Require users to organize  Systematic approach to problem solving   Increase understanding of the problem Enable “what if” questions  Specific objectives  Consistent tool  Power of mathematics  Standardized format

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Quantitative Approaches •

Linear programming

•

Queuing Techniques

•

Inventory models

•

Project models

•

Statistical models

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Systems Approach

“

The whole is greater than the sum of the parts

.”

Suboptimization

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Pareto 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?

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Business Operations Overlap

Figure 1.5

Operations Marketing Finance

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Operations Interfaces

Industrial Engineering Maintenance Distribution Purchasing Legal Accounting Operations MIS Public Relations Personnel

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Historical Evolution of Operations Management Table 1.7

 Industrial revolution (1770’s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement (1920-60)  Decision models (1915, 1960-70’s)  Influence of Japanese manufacturers

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Trends in Business

 Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Agility

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Simple Product Supply Chain

Figure 1.7

Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer

Supply Chain

: A sequence of activities And organizations involved in producing And delivering a good or service

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A Supply Chain for Bread

Stage of Production Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added Value Added $0.15

$0.08

$0.15

$0.08

$0.54

$0.08

$0.21

$1.29

Value of Product $0.15

$0.23

$0.38

$0.46

$1.00

$1.08

$1.29

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Other Important Trends

 Ethical behavior  Operations strategy  Working with fewer resources  Cost control and productivity  Quality and process improvement  Increased regulation and product liability  Lean production

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Value/Dimensions

VD2 Performance=speed x quality x flexibility

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Value/Definition

VD1 Trek bike example