Operations Management OPMA 3306

Finance Sales HRM OM QA Marketing Engineering MIS Accounting

Course Composition

• Textbook – Foundations of Operations Management 1 points score dropped) st ed.

• Student evaluations – Three examinations (200 —lowest score dropped) – Final examination (100 points) – Quizzes (100 points—lowest – Total = 400 points

General Class Agenda

• Exam schedule (drop lowest 1-3 score) – Exam 1—covering chapters 1, 2, 3, 4, 9, & A – Exam 2—covering chapters 5, 6, 7, 8, & 10 – Exam 3—covering chapters 11, 12, J, & K – Final exam—comprehensive • Exam structure – Varied type questions – Questions from textbook and lecture notes

Quizzes

• Several during term (probably 6) • No make-up • Drop lowest quiz grade • Generous grading on quizzes • In-class quizzes – Answer on provided answer sheet – Show all work – Corrected quiz returned next class period

Chapter 1

Competing with Operations

Learning Objectives

• Be able to apply concepts in learning goals • Be able to use and apply formulas presented in the chapter

Productivity = Output Input

Operations Management OPMA 3306

Finance Sales HRM OM QA Marketing Engineering MIS Accounting

Introduction

• Operations management (OM): the management of an organization’s productive resources or its production system.

• Production system: process that converts inputs into finished goods & services.

• Conversion process: the predominant activity of a production system.

• Primary concern of an operations manager: activities of the conversion process.

Introduction

Inputs

External: •Legal/Political •Economic •Social •Technology Market: •Competition •Customer •Product Data Resources: •Workers •Managers •Equipment •Facilities •Materials •Services •Land •Energy

Customer or Client Participation Operations and Transformations

1 2 3 4 5

Information on Performance Outputs

Direct: •Goods •Services Indirect: •Taxes •Wages/Salaries •Waste •Pollution •Technological Advances

Historical Milestones in OM

• The Industrial Revolution • Post-Civil War Period • Scientific Management • Human Relations and Behaviorism • Operations Research • The Service Revolution

The Industrial Revolution

• Industrial Revolution the 1700s.

developed in England in • Steam engine, invented by James Watt in 1764, largely replaced human and water power for factories.

• Adam Smith’s

The Wealth of Nations

(1776) touted economic benefits of Specialization of Labor.

• By late-1700s factories had not only machine power but also ways of planning and controlling tasks of workers.

The Industrial Revolution

• Industrial revolution spread from england to other European countries & to united states.

• In 1790 an American, Eli Whitney, developed concept of interchangeable parts • First great industry in us was textile industry.

• In 1800s development of gasoline engine & electricity further advanced revolution • By mid-1800s, old cottage system production had been replaced by of factory system

Post-Civil War Period

• During post-Civil War period great expansion of production capacity occurred.

• By post-Civil War the following developments set stage for great production explosion of 20th century: – Increased capital and production capacity – Expanded urban workforce – New western US markets – Effective national transportation system

Scientific Management Frederick Winslow Taylor

• Frederick Winslow Taylor known as father of scientific management . His shop system employed these steps: – Each worker’s skill, strength, & learning ability were determined.

– Stopwatch studies were conducted to precisely set standard output per worker on each task.

– Material specifications, work methods, & routing sequences were used to organize shop.

– Supervisors were carefully selected & trained.

– Incentive pay systems were initiated.

Scientific Management Henry Ford

• In 1920s, Ford Motor Company’s operation embodied key elements of scientific management: – Standardized product designs – Mass production – Low manufacturing costs – Mechanized assembly lines – Specialization of labor – Interchangeable parts

Human Relations and Behavioralism

• In 1927-1932 period, researchers in the hawthorne studies realized that human factors were affecting production.

• Researchers and managers alike were recognizing that psychological & sociological factors affected production.

• From work of behavioralists came a gradual change in way managers thought about & treated workers.

Operations Research

• During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had to be deployed.

• Military operations research (OR) teams were formed to deal with complexity of deployment.

• After war, operations researchers found their way back to universities, industry, government, & consulting firms.

• OR helps operations managers make decisions when problems are complex & wrong decisions are costly.

Example of Use of Operations Research

AH-1G AH-64A

The Service Revolution

• The creation of services organizations accelerated sharply after World War II.

• Today, more than 2 / 3 of US workforce is employed in services.

• About 2 / 3 of US GDP is from services.

• There is a huge trade surplus in services.

• Investment per office worker now exceeds investment per factory worker.

• Thus there is a growing need for service operations management.

Today's Factors Affecting OM

• Global competition • US quality, customer service, & cost challenges • Computers & advanced production technology • Growth of US service sector • Scarcity of production resources • Issues of social responsibility

The Computer Revolution

• Explosive growth of computer & communication technologies • Easy access to information & availability of more information • Advances in software applications such as enterprise resource planning (ERP) software • Widespread use of email • More & more firms becoming involved in e business using internet • Result: faster, better decisions over greater distances

Production as a System

Inputs

External: •Legal •Economic •Social •Technology Market: •Competition •Customer •Product Data Resources: •Workers •Managers •Equipment •Facilities •Materials •Services •Land •Energy

Conversion Subsystem Physical

•Manufacturing, Mining

Locational Services

•Transportation

Exchange Services

•Retailing/Wholesaling

Storage Services

•Warehousing

Other Private Services

•Insurance, Finance,

Utilities, Real Estate, Health, Business Service, & Personal Service Government Services

•Local, State, Federal

Control Subsystem Outputs

Direct: •Goods •Services Indirect: •Taxes •Wages/Salaries •Waste •Pollution •Technological Advances

Decision Making in OM

• Strategic Decisions • Operating Decisions • Control Decisions

Strategic Decisions

• These decisions are of strategic importance & have long-term significance for the organization.

• Examples include deciding: – Design for a new product’s production process – Where to locate a new factory – Whether to launch a new-product development plan

Operating Decisions

• These decisions are necessary if ongoing production of goods and services is to satisfy market demands & provide profits.

• Examples include deciding: – How much finished-goods inventory to carry – Amount of overtime to use next week – Details for purchasing raw material next month

Control Decisions

• These decisions concern day-to-day activities of workers, quality of products & services, production & overhead costs, & machine maintenance.

• Examples include deciding: – Labor cost standards for a new product – Frequency of preventive maintenance – New quality control acceptance criteria

What Controls the Operations System?

• Information about outputs, conversions, and inputs is fed back to management.

• This information is matched with management’s expectations • When there is a difference, management must take corrective action to maintain control of the system

Continuum of Characteristics of Manufacturing & Service Organizations

More Like a Manufacturing Organization More Like a Service Organization

•Physical, Durable Product •Output Can Be Inventoried •Low Customer Contact •Long Response Time •Regional, National, or

International Markets

•Large Facilities •Capital Intensive •Quality Easily Measured •Intangible, Perishable Product •Output Cannot Be Inventoried •High Customer Content •Short Response Time •Local Markets •Small Facilities •Labor Intensive •Quality Not Easily Measured

What Is a Process?

• Process—any activity or group of activities that take one or more inputs, transforms and adds value to them, & provides one or more outputs to customers – External customers – Internal customers

Processes & Operations

Internal & external customers

• • • • • • • •

Inputs Workers Managers Equipment Facilities Materials Services Land Energy 1 Processes & operations 3 5 2 4 Information on performance

• •

Outputs Services Goods

Nested Processes at a Large Bank

BANK Operations Cash Management Loan operations Trading operations Others ATM support Customer transactions Service quality Others Maintain cards Research problems Site analysis Others Retail Distribution Compliance Finance Human resources Teller line transactions Track branch sales ATM hotline Others Process deposits Cash checks Safe deposit boxes Others Products Auto Finance Cards Mortgages Others Credit applications Manage retail products Originate lease portfolio Others Loan documentation Review credit standing Obtain manager approval Others Wholesale Trading Loan administration Leasing Others Fund management Market making spot Dealer support Others Prepare reports Attend meetings Input funds deals Others

Operations Management as a Function

Operations Management As a Function

• • • • • • •

Skill Areas Quantitative methods Organizational behavior General management Information systems Economics International business Business ethics and law

Service Sector Jobs

40 – Manufacturing, mining, and construction 30 – 20 – 10 – 1959 | 1969 | 1979 | 1989 | 1999 Other services Wholesale and retail sales Government

Competitive Priorities

• • • • •

Corporate strategy goals core competencies environmental responses new products/services global strategies

• •

Market analysis segmentation needs assessment Competitive priorities

• • • •

Operations

cost quality time flexibility

Marketing Finance Others

Competitive Priorities

• • • •

Corporate strategy goals core competencies environmental responses new products/services

•

global strategies

Cost

1. Low-cost operations

Quality Time

• •

needs assessment 4. Fast delivery

Flexibility

5. On-time delivery 6. Development speed 7. Customization 8. Volume flexibility

Competitive Priorities

• • • • •

Corporate strategy goals core competencies environmental responses new products/services global strategies

• •

Market analysis segmentation needs assessment Competitive priorities

• • • •

Operations

cost quality time flexibility

Marketing Finance Others

• • • •

Functional area strategies finance marketing operations others

• • •

Capabilities current needed plans

Health Clinic Process

Physical exam Broken arm Flu D R P Physical exam Flu Broken arm T B D: Doctor (examination rooms) R: Radiology (X-ray) T: Triage (assess severity of illness) B: Blood (lab test) P: Pharmacy (fill prescriptions)

Automobile Assembly Process

A H F S A: Front-end body-to chassis assembly H: Hood attachment F: Fluid filling S: Start-up testing

Strategy and Decisions

Corporate strategy Market analysis Competitive priorities Operations strategy Services

•

Standardized services

•

Assemble-to-order

•

Customized services Manufacturing

• • •

Make-to-stock Assemble-to-order Make-to-order

• • • •

Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions Capabilities