Transcript Chapter 1, Heizer/Render, 5th edition

Operations
Management
Operations and Productivity
Chapter 1
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Outline
 Global company profile: Whirlpool
 What is Operations Management?
The heritage of Operations Management
 Why study OM?
 What Operations Managers do

 Organizing to produce goods and services
 Where are the OM jobs?

Exciting new trends in Operations Management
 Operations in the service sector
 The Productivity challenge
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Learning Objectives
When you complete this chapter, you should be able to:
 Identify or Define:




Production and productivity
Operations Management (OM)
What operations managers do
Services
 Describe or Explain:



A brief history of operations management
The future of the discipline
Measuring productivity
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Whirlpool Case Example
Change in attitude - employees “live quality”
Training - “use your heads as well as your
hands”
Flexible work rules
Gain-sharing
Global procurement
Role of information/information technology
Adoption of a Worldwide strategy
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What Is Operations Management?
Production is the creation of goods and services; it involves the
responsibility of ensuring that business operations are efficient and
effective
 Operations management is the set of activities
or business functions that creates goods and
services by transforming raw materials and
human inputs into outputs of higher value.
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Origins
 The origins of Operations Management can be traced back to the
Industrial Revolution, the same as Scientific Management and
Operations Research. Adam Smith treats the topic of the division of
labor when opening his 1776 masterpiece: An Inquiry into the Nature
and Causes of the Wealth of Nations also commonly known as The
Wealth of Nations. The first documented effort to solve operation
management issues comes from Eli Whitney back in 1798, leading to
the birth of the American System of Manufacturers (ASM) by the mid1800s. It was not until the late 1950's that the scholars noted the
importance of viewing production operations as systems.
 Historically, the body of knowledge stemming from industrial
engineering formed the basis of the first MBA programs, and is
central to operations management as used across diverse business
sectors, industry, consulting and non-profit organizations.
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Significant Events in OM
 Division of labor (Smith, 1776)
 Standardized parts (Whitney, 1800)
 Scientific management (Taylor, 1881)
 Coordinated assembly line (Ford 1913)
 Gantt charts (Gantt, 1916)
 Motion study (the Gilbreths, 1922)
 Quality control (Shewhart, 1924)
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Significant Events in OM
 Division of labor (Smith, 1776)
Division of labour is the specialisation of cooperative labour
in specific,circumscribed tasks and roles, intended to increase
efficiency of output
 Standardized parts (Whitney, 1800)
Eli Whitney saw the potential benefit of developing
"interchangeable parts", he built ten guns, all containing the
same exact parts and mechanisms.
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Significant Events in OM-Continued
 Scientific management (Taylor, 1881)
 Scientific management, also called Taylorism, is a theory of
management that analyzes and synthesizes processes,
improving labor productivity. Taylor believed that decisions
based upon tradition and rules of thumb should be replaced by
precise procedures developed after careful study of an individual
at work.
 Coordinated assembly line (Ford 1913)
 At first several groups of two or three men worked on each car
from components made to order by other companies; Henry
changed this way to work: each group made a part of the car the
all time.
 Gantt charts (Gantt, 1916)
 Is a common technique for representing the phases and activities
of a project.
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Significant Events in OM-Continued
 Motion study (the Gilbreths, 1922)
 Quality control (Shewhart, 1924)
quality control and quality engineering are involved in developing
systems to ensure products or services are designed and
produced to meet or exceed customer requirements. These
systems are often developed in conjunction with other business
and engineering disciplines using a cross-functional approach.
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Significant Events - Continued
 CPM/PERT (Dupont, 1957)
 MRP (Orlicky, 1960)
 CAD
 Flexible manufacturing systems (FMS)
 Manufacturing automation protocol (MAP)
 Computer integrated manufacturing (CIM)
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Why Study OM?
OM is one of three major functions
(marketing, finance, and operations) of any
organization
We want (and need) to know how goods and
services are produced
We want to know what operations managers
do
OM is such a costly part of an organization
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What Operations Managers Do
 Control by creating and maintaining a positive flow of work by
utilizing what resources and facilities are available
 Lead by developing and cascading the organizations
strategy/mission statement to all staff
 Organize resources such as facilities and employees so as to
ensure effective production of goods and services
 Plan by prioritizing customer, employee and organizational
requirements
 Maintaining and monitoring staffing, levels,Knowledge-SkillAttitude (KSA), expectations and motivation to fulfill organizational
requirements
 Performance Measures for the measurement of performance and
consideration of efficiency versus effectiveness
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Ten Critical Decisions
 Service, product design - What product or service
should we offer? How should we design these products
and services?
 Quality management- Who is responsible for quality? How do we define quality?
 Process, capacity design- What processes will these
products require and in what order? What equipment
and technology is necessary for these processes?
 Location- Where should we put the facility? On what
criteria should we base this location decision?
 Layout design- How should we arrange the facility? How large a facility is required?
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Ten Critical Decisions-Continued
 Human resources and job design - How do we provide a
reasonable work environment? How much can we expect our
employees to produce?
 Supply chain management - Should we make or buy this item?
Who are our good suppliers and how many should we have?
 Inventory, material requirements planning, JIT “just-in-time”
inventory - How much inventory of each item should we have?
When do we re-order?
 Intermediate, short term, and project scheduling - Is
subcontracting production a good idea? Are we better off keeping
people on the payroll during slowdowns?
 Maintenance - Who is responsible for maintenance?
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Organizational Functions
Marketing
 Gets customers

Marketing is a societal process that is needed to
discern consumers' wants; focusing on a
product/service to those wants, and to mold the
consumers toward the products/services. Marketing
tends to be seen as a creative industry, which
includes advertising, distribution and selling. It is
also concerned with anticipating the customers'
future needs and wants, often through market
research.
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Organizational Functions- Continued
Operations
 Creates product or service

Operations encompasses three fundamental
management imperatives
1. Generate recurring income.
2. Increase the value of the business.
3. Secure the income and value of the
business.
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Organizational Functions- Continued
 Finance/Accounting
Obtains funds
 Tracks money
 Finance studies and addresses the ways in which individuals,
businesses, and organizations raise, allocate, and use
monetary resources over time, taking into account the risks
entailed in their projects. The term "finance" may thus
incorporate any of the following:

The study of money and other assets;
 The management and control of those assets;
 Profiling and managing project risks;

 The science of managing money;
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Where Are the OM Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
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New Challenges in OM
From
 Local or national focus
 Batch shipments
 Low bid purchasing
To
 Global focus
 Just-in-time
 Supply chain
partnering
 Lengthy product
development
 Rapid product
development,
alliances
 Standard products
 Job specialization
 Mass customization
 Empowered
employees, teams
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Future Challenges
 Marketplace Challenges
Market fragmentation:
Vocal customers:
The customer is your partner
It’s a Wired World:
 Factors of Production Challenges
Employee diversity:
Human resource scarcity:
The global workforce:
Declining raw material prices
 Technological Challenges
Technological change
Bio-genetic
Miniaturization
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Future Challenges
 Societal Challenges
The environment:
Intellectual property
Financial Reporting
 Geopolitical Challenges
China
Japan
Mexico
Post-WTC Trauma:
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Characteristics of Goods
 Tangible product – Bic Mac®
 Consistent product definition
 Production usually separate from
consumption
 Can be inventoried
 Low customer interaction
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Characteristics of Service
 Intangible product – Medical consultation
 Produced & consumed at same time
 Often unique
 High customer interaction
 Inconsistent product definition
 Often knowledge-based
 Frequently dispersed
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Goods Versus Services
Goods
Can be resold
Can be inventoried
Service
Reselling unusual
Difficult to
inventory
Quality difficult to
measure
Selling is part of
service
Some aspects of
quality measurable
Selling is distinct
from production
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Goods Versus Services Continued
Goods
Service
 Product is
transportable
 Site of facility
important for cost
 Provider, not product
is transportable
 Site of facility
important for
customer contact
 Often difficult to
automate
 Revenue generated
primarily from
intangible service.
 Often easy to
automate
 Revenue generated
primarily from
tangible product
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Development of the Service
Economy
U.S. Employment, % Share
80
United States
%70
60
Services
50
40
Canada
250
France
200
Italy
150
Industry
30
Britain
20
Japan
10
U.S. Exports of Services
In Billions of Dollars
Services as a Percent of GDP
Farming
0
1850 75 1900 25 50 75 2000
100
50
W Germany
1970
1991
40 50 60 70
Percent
0
1970 75 80 85 90 95 2000
Year 2000 data is estimated
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The Economic System Transforms
Inputs to Outputs
Inputs
Land, Labor,
Capital,
Management
Process
Outputs
The economic system
transforms inputs to outputs
at about an annual 1.7%
increase in productivity
(capital 38% of 1.7%), labor
(10% of 1.7%), management
(52% of 1.7%)
Goods and
Services
Feedback loop
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Productivity
 Measure of process improvement
 Represents output relative to input
Productivity
Units produced
= Input used
 Productivity increases improve standard of
living
 From 1889 to 1973, U.S. productivity increased
at a 2.5% annual rate
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Measurement Problems
 Quality may change while the quantity of inputs and
outputs remains constant. It’s the conformance to
requirements
 External elements may cause an increase or decrease
in productivity
 Precise units of measure may be lacking. NASA
wanted to launch a rocket. They didn’t use the
international units and they failed.
The rocket crashed !!!
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Productivity Variables
Labor - contributes about 10% of the annual
increase
Capital - contributes about 32% of the annual
increase
Management - contributes about 52% of the
annual increase
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Jobs in the U.S
6%
5%
Education, Health, etc.
5%
Manufacturing
3%
1%
6%
Retail Trade
State & Local Gov't
14%
Finance, Insurance
26%
Wholesale Trade
Transport, Public Util.
16%
Construction
Federal Government
18%
Mining
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Productivity Growth 1971- 1992
Labor
5
4.5
% per year
4
3.5
3
United States
West Germany
Japan
2.5
2
1.5
1
0.5
0
Whole Economy
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Manufacturing
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Service Productivity
Typically labor intensive
Frequently individually processed
Often an intellectual task performed by
professionals
Often difficult to mechanize
Often difficult to evaluate for quality
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