Transcript Introduction to Operations Management

Introduction to
Operations Management
What is Operations?
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 Management (OM)?
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
The Operations Function
 Operations as a transformation process
 Operations as a basic function
 Operations as the technical core
Operations as a Transformation Process
Value added
Inputs:
•Materials
•Machines
•Labor
•Management
•Capital
Transformation/
Conversion
Process
Outputs:
Goods
Services
Feedback
Control
Feedback
Feedback
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
Firms use the money generated
by value added for:
R&D
Investment in new facilities and equipment
Paying workers
Paying for materials
Paying for general expenses
Profits
Transformation Process of a
Canned Food Processor
Inputs
• Raw vegetables
• Metal sheets
• Water
• Energy
• Labor
• Building
• Equipment
Processing
• Cleaning
• Making cans
• Cutting
• Cooking
• Packing
• Labeling
Outputs
Canned
vegetables
Transformation Process of a Hospital
Inputs
Processing
Outputs
• Doctors, nurses • Examination Healthy
patients
• Hospital
• Surgery
• Medical Supplies • Monitoring
• Equipment
• Medication
• Therapy
• Laboratories
Examples of Various Operations
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
Types of Transformation Processes
Physical- manufacturing
Locational- transportation
Exchange- retailing
Storage- warehousing
Physiological- health care
Informational- telecommunications
Psychological- entertainment
Operations as a Basic Function
Marketing
 Generates demand gets
customers
Operations
 creates product or service
Finance/Accounting
 Obtains funds
 Tracks organizational
performance
Business Functions Overlap
Operations
Marketing
Finance
Business Functions - Bank
(1 of 3)
Commercial Bank
© 1984-1994
T/Maker Co.
Marketing
Teller
Scheduling
Operations
Check
Clearing
Transactions
Processing
Finance/
Accounting
Security
Business Functions – Airline
(2 of 3)
Airline
Marketing
Flight
Operations
Operations
Ground
Support
Facility
Maintenance
Finance/
Accounting
Catering
Business Functions – Manufacturer
(3 of 3)
Manufacturing
Marketing
Manufacturing
Finance/
Accounting
Operations
Production
Control
Quality
Control
Purchasing
Operations as the Technical Core
Finance/Accounting
Suppliers
Budgets
Cost analysis
Capital investments
Stockholder
requirements
Product/Service
Availability
Lead-time estimates
Status of order
Delivery schedules
Operations
Material availability
Quality data
Delivery schedules
Designs
Sales forecasts
Customer orders
Customer feedback
Promotions
Personnel needs
Skill sets
Performance evaluations
Job design/work
measurement
Hiring/firing
Training
Legal requirements
Union contract negotiations
Human Resources
Marketing
Production and
Inventory data
Capital budgeting requests
Capacity expansion and
Technology plans
Orders for materials
Production and delivery
Schedules Quality
Requirements Design/
Performance specs
Importance of OM
(Why Study OM?) (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
Importance of OM
(Why Study OM?) – (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
Options for Increasing Contribution
Marketing
Option
Current
Sales
Cost of
Goods Sold
Gross
Margin
Finance
Costs
Net
Margin
Taxes @
25%
Contribution
$100,000
Sales
Revenue :
+50%
$150,000
-80,000
Finance &
OM Option
Accounting
Option
Finance
Production
Costs: -50% Costs: -20%
$100,000
$100,000
-120,000
-80,000
-64,000
20,000
30,000
20,000
36,000
-6,000
-6,000
-3,000
-6,000
14,000
24,000
17,000
30,000
-3,500
-6,000
-4,250
-7,500
10,500
18,000
12,750
22,500
Production of Goods
vs.
Delivery of Services
Manufacturing or Service
Tangible
Act
Goods vs. Services (1 of 2)
Characteristics
Goods
Service
Customer contact
Low
High
Uniformity of inputs and outputs
Labor content
Automation
Output
Measurement of productivity
Opportunity to correct problems
Inventory
Quality evaluation
Production activities
High
Low
Easy
Tangible
Easy
High
Much
Easier
Obvious
Low
High
Generally difficult
Intangible, often unique
Difficult
Low
Little
Difficult
Not so obvious
Goods vs. Services (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 & Non inventoriable
Transportable and so
nontransportable
Service Job Categories (1 of 2)
Governmental services
Municipal services
Trade services (wholesale/retail)
Finance, insurance, real estate
Medical (healthcare)
Personal services
Service Job Categories (2 of 2)
Business services
Education
Food, lodging and entertainment
Utilities and transportation
Legal, consulting
Repair
Goods Contain Services /
Services Contain Goods
Automobile assembly, steel making
Computer
Home remodeling, retail sales
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Surgery, Teaching,Counseling
100
75
50
25
Percent of Product that is a Good
0
25
50
75
100
Percent of Product that is a Service
Goods-services Continuum
Steel production
Automobile fabrication
High goods content
Low service content
House building
Road constructio
Auto Repair
Appliance repair
Dressmaking
Farming
Maid Service
Manual car wash
Teaching
Lawn mowing
Low goods content
High service content
Percent
U.S. Manufacturing vs. Service Employment
02
Year
Mfg. Service
45
79
21
90
Mfg.
50
72
28
80
Service
55
72
28
70
60
68
32
60
65
64
36
50
70
64
36
40
75
58
42
30
80
44
46
20
85
43
57
10
90
35
65
0
95
25
75
45 50 55 60 65 70 75 80 85 90 95 00 02 05
00
30
70
Year
25
75
1-29
Decline in Manufacturing Jobs
Productivity
Increasing productivity allows companies to
maintain or increase their output using fewer
workers
Outsourcing
Some manufacturing work has been outsourced
to more productive companies
1-30
Challenges of Managing Services
Service jobs are often less structured than
manufacturing jobs
Customer contact is higher
Worker skill levels are lower
Services hire many low-skill, entry-level workers
Employee turnover is higher
Input variability is higher
Service performance can be affected by worker’s
1-31
personal factors
Services in Manufacturing
In manufacturing, services can be divided
into two groups:
Core Services
Value-added Services
Core Services
Core services are basic things that customers want
from products they purchase
Core Services Performance Objectives
Quality
Flexibility
Operations
Management
Price (or cost
Reduction)
Speed
Value-Added Services
Value-added services differentiate the
organization from competitors and build
relationships that bind customers to the firm in a
positive way
Value-Added Service Categories
Problem Solving
Information
Operations
Managemen
t
Field Support
Sales Support
The Scope of OM:
What Operations Managers Do?
Plan - Organize - Staff - Lead - Control
Critical OM Decisions
Critical OM Decisions
 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
Operations Management and
Decision Making
 Models
 Quantitative approaches
 Analysis of tradeoffs
 Systems approach
 Establishing priorities
Models
A model is an abstraction of reality.
Types of models:
– Physical
– Schematic
– Mathematical
Why Models are Beneficial?
Easy to use, less expensive
Require users to organize information
Systematic approach to problem solving
Increase understanding of the problem
Enable “what if” questions
Specific objectives
Consistent tool
Power of mathematics
Standardized format
Limitations of Models:
Quantitative information may be
emphasized at the expense of qualitative
information
May be incorrectly applied and results may
be misinterpreted
Quantitative Approaches
(Analytical Tools used in OM)
Linear programming
Queuing techniques
Inventory models
Project models
Statistical models
Simulation
Decision analysis
Tradeoffs
Decision on the amount of inventory to stock
Increased cost of holding inventory
vs.
Level of customer service
Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization
Establishing Priorities:
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?
The Historical Evolution of
Operations Management
Significant Events in Operations
Management
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-)
Historical Events in OM (1 of 4):
Industrial Revolution and Scientific Management
Industrial Revolution
Steam engine
Division of labor
Interchangeable parts
1769
1776
1790
James Watt
Adam Smith
Eli Whitney
Scientific Management
Principles
Time and motion studies
Activity scheduling chart
Moving assembly line
1911
1911
1912
1913
Frederick W. Taylor
Frank & Lillian Gilbreth
Henry Gant
Henry Ford
Historical Events in OM (2 of 4) :
Human Relations and Management Science
Human Relations
Hawthorne studies
Motivation theories
1930
1940s
1950s
1960s
Elton Mayo
Abraham Maslow
Frederick Hertzberg
Douglas McGregor
Management Science
Linear programming
Digital computer
Simulation, PERT/CPM,
Waiting line theory
MRP
1947
1951
1950s
1960s
George Dantzig
Remington Rand
Operations research
groups
Joseph Orlicky, IBM
Historical Events in OM (3 of 4):
Quality Revolution and Globalization
Quality Revolution
JIT 1970s
TQM
Strategy and operations
Reengineering
World Trade Organization
Taiichi Ohno, Toyota
1980s
W. Edwards Deming,
Joseph Juran, et. al.
Skinner, Hayes
1990s
Hammer, Champy
1990s
Numerous countries
and companies
Globalization
European Union and
other trade agreements
EDI, EFT, CIM
1970s
1980s
IBM and others
Historical Events in OM (4 of 4) :
Information Age/Internet Revolution
Information Age/
Internet Revolution
Internet, WWW, ERP
Supply chain
management,
E-commerce
1990s
ARPANET, Tim
Berners-Lee, SAP, i2
Technologies, ORACLE,
PeopleSoft, Amazon,
Yahoo, eBay,
and others
Exciting New Challenges in
Operations Management
New Concepts and Trends in OM
Mass Customization
Supply Chain Management
Outsourcing
Lean manufacturing
Agility
Electronic Commerce
New Concepts and Trends(1 of 6):
Mass Customization
The rapid, low cost production of goods and
services that fulfill constantly changing and
increasingly unique customer desires.
New Concepts and Trends (2 of 6):
Supply Chain Management
The management of the sequence of organizationstheir 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)
Simple Product Supply Chain
Suppliers’
Suppliers
Direct
Suppliers
Producer
Distributor
Final
Consumer
A Supply Chain for Bread
Value
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
Stage of Production
New Concepts and Trends (3 of 6) :
Outsourcing
Buying goods or services rather than producing
goods or performing services within the
organization
New Concepts and Trends (4 of 6):
Lean 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)
New Concepts and Trends (5 of 6):
Agility
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
New Concepts and Trends (6 of 6):
Electronic Commerce
The use of computer networks, primarily the
internet, to buy and sell products, services,
and information.
Other Trends (1 of 2)
Enhancing Value-Added Services
Management of Technology
Emphasis on Operations Strategy
Increasing Emphasis on Cost Control and
Productivity Improvement
Quality and Process Improvements
Increasing emphasis on business and social
responsibility
Other Trends (2 of 2)
Developing flexible supply chains to enable
mass customization of products and services
Achieving the Service Factory
Globalization
Globalization can take the form of:
 Selling in foreign markets
 Producing in foreign lands
 Purchasing from foreign suppliers
 Partnering with foreign firms
Reasons to Globalize Operations (1 of 2)
To take advantage of favorable costs
To gain access to and attract international
markets
To build reliable sources of supply
To improve the supply chain
To be more responsive to changes in demand
Reasons to Globalize Operations (2 of 2)
To provide better goods and services
To learn to improve operations
To attract and retain global talent
To keep abreast of the latest trends and
technologies
Examples 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
Some Multinational Corporations (1 of 3)
Company
Nestlé
Nokia
Philips
Bayer
ABB
SAP
Exxon Mobil
Royal Dutch/Shell
IBM
McDonald’s
Country
of Origin
Switzerland
Finland
Netherlands
Germany
Germany
Germany
United States
Netherlands
United States
United States
Foreign Sales
as % of Total
98.2
97.6
94.0
89.8
87.2
80.0
79.6
73.3
62.7
61.5
Some Multinational Corporations (2 of 3)
Company
Home
Country
% Sales
Outside
Home
Country
% Assets
Outside
Home
% Foreign
Workforce
Country
Citicorp
USA
34
46
NA
ColgatePalmolive
USA
72
63
NA
Dow
Chemical
Gillette
USA
60
50
NA
USA
62
53
NA
Honda
Japan
63
36
NA
IBM
USA
57
47
51
Some Multinational Corporations (3 of 3)
Company
Home
Country
% Sales
Outside
Home
Country
% Assets
Outside
Home
Country
% Foreign
Workforce
ICI
Britain
78
50
NA
Nestlé
Switzerland
98
95
97
Philips
Electronics
Siemens
Netherlands
94
85
82
Germany
51
NA
38
Unilever
Britain &
Netherlands
95
70
64
Boeing Suppliers (777)
Firm
Country
Parts
Alenia
Italy
Wing flaps
AeroSpace
Technologies
CASA
Fuji
Australia
Rudder
Spain
Japan
GEC Avionics
Korean Air
Menasco Aerospace
United Kingdom
Korea
Canada
Ailerons
Landing gear
doors, wing section
Flight computers
Flap supports
Landing gears
Short Brothers
Ireland
Landing gear doors
Singapore
Aerospace
Singapore
Landing gear doors