Operations

Management

Introduction
Chapter 1
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 Outline
♦ WHAT IS OPERATIONS MANAGEMENT?
♦ ORGANIZING TO PRODUCE GOODS AND
SERVICES
♦ WHY STUDY OM?
♦ WHAT OPERATIONS MANAGERS DO
♦ WHERE ARE THE OM JOBS?
♦ OPERATIONS IN THE SERVICE SECTOR
♦ EXCITING NEW TRENDS IN OPERATIONS
MANAGEMENT
♦ THE PRODUCTIVITY ISSSUE
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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:
♦ Career opportunities in operations
management
♦ The future of the discipline
♦ Measuring productivity
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 What Is Operations
Management?
Production is the creation of
goods and services

Operations management is
the set of activities that
creates value in the form of
goods and services by
transforming inputs into
outputs
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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)
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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)
♦ Enterprise Resource Planning
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 The Economic System
Transforms Inputs to
Outputs
Inpu Process Outputs
ts
Land, The economic Goods
Labor, system transforms and
Capital, inputs to outputs at Services
Managem about an annual
ent 2.5% increase in
productivity (capital
38% of 2.5%), labor
(10% of 2.5%),
management (52%
of 2.5%)
Feedback loop

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 Characteristics of
Goods
♦ Tangible product
♦ Consistent
product
definition
♦ Production
usually separate
from
consumption
♦ Can be © 1995 Corel Corp.

inventoried
♦ Low customer
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interaction
 Characteristics of
Service
♦ Intangible product
♦ Produced &
consumed at same
time
♦ Often unique
♦ High customer
interaction
♦ Inconsistent product
definition
© 1995 Corel Corp.
♦ Often knowledge-
based
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♦ Frequently dispersed
 Goods Versus Services
Goods
Service
♦ Can be resold ♦ Reselling
♦ Can be unusual
inventoried ♦ Difficult to
inventory
♦ Some ♦ Quality difficult
aspects of to measure
quality ♦ Selling is part
measurable of service
♦ Selling is
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 Goods Versus Services
- Continued
Goods
♦Service
Product is ♦ Provider, not
transportable product is
♦ Site of facility transportable
important for ♦ Site of facility
cost important for
customer
♦ Often easy to contact
automate ♦ Often difficult to
♦ Revenue automate
generated ♦ Revenue
primarily from 1-11 generated
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tangible primarily from

 Organizing to Produce
Goods and Services
♦Essential functions:
♦ Marketing – generates demand
♦ Operations –creates the product
♦ Finance/accounting – tracks
organizational performance, pays
bills, collects money

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 Functions - Bank

Commercial Bank
© 1984-1994
T/Maker Co.

Marketing Operations Finance/

Accounting

Teller Check Transactions

Security
Scheduling Clearing Processing

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 Functions -
Manufacturer

Manufacturing

Marketing Operations Finance/

Accounting

Manufacturing Production Quality

Purchasing
Control Control

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 Organizational Charts
Commercial
Bank
Operations Finance Marketing
Teller Investmen Loans
Scheduling
ts Commercial
Check
Clearing Security Industrial
Transactions Real Financial
processing Estate
Accounti Personal
Facilities ng
design/layout Mortgage
Vault Auditing
operations Trust
Maintenance Department
Security
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 Organizational Charts
Manufacturing
Operations Finance & Marketi
Facilities: ng
Construction:maintenance
Accounting Sales
Disbursements/cr promotio
Production & inventory control ns
Scheduling: materials control edits
Advertisi
Receivables ng
Supply-chain management
Payables Sales
Manufacturing General ledger
Tooling, fabrication,assembly Market
Funds research
Design
Product development and design Management
Detailed product specifications Money market
Industrial engineering International
Efficient use of machines, space, and exchange
personnel Capital
Process analysis requirements
Development and installation of Stock issue
production tools and equipment
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and recall
 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 understand what
operations managers do.
♦ OM is such a costly part of an
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 What Operations
Managers Do
Plan - Organize - Staff -
Lead - Control

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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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 Productivity
♦ Measure of process improvement
♦ Represents output relative to input
Units produced
Productivity =
Input used
♦ Only through productivity increases
can our standard of living improve

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 Multi-Product
Productivity

Productivity =

Output
Labor + material + energy +
capital + misc

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Measurement Problems
♦ Quality may change while the
quantity of inputs and outputs
remains constant
♦ External elements may cause
an increase or decrease in
productivity
♦ Precise units of measure may
be lacking

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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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 Key Variables for
Improved Labor
Productivity
♦ Basic education appropriate
for the labor force
♦ Diet of the labor force
♦ Social overhead that makes
labor available
♦ Maintaining and enhancing
skills in the midst of rapidly
changing technology and
knowledge
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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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 New Challenges in OM
From To
♦ Local or ♦ Global focus
national focus ♦ Just-in-time
♦ Batch ♦ Supply chain
shipments partnering
♦ Low bid ♦ Rapid product
purchasing
development,
alliances
♦ Lengthy
♦ Mass
product
customization
development
♦ Empowered
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♦ Standard
 Changing Challenges
for the Operations
Manager
Past Causes Future
Local or Low-cost, reliableworldwide Global Focus
national communicationand
focus transportationnetworks
Batch(large) Costof capital puts pressureon Just-in-time
shipments reducinginvestmentin shipments
inventory
Low-bid Quality emphasis requires that Supply-chain
purchasing suppliers beengagedinproduct partners
improvement
Lengthy Shorter lifecycles, rapid Rapidproduct
product international communication, development,
development computer-aideddesign, and alliances,
international collaboration collaborative
designs
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 Changing Challenges
for the Operations
Manager
Past Causes Future
Standardized Affluenceandworldwidemarkets; Mass
products increasingly flexibleproduction customization
processes
J ob Changingsociocultural milieu. Empowered
specialization Increasingly aknowledgeand employees,
informationsociety. teams, andlean
production
Lowcost Environmental issues, ISO14000, Environmentally
focus increasingdisposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing
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