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Introduction to Operations
Management
BBDM2153 OPERATIONS MANAGEMENT

Lecture #1


PowerPoint presentation to accompany
Heizer and Render
Operations Management, 10e, Global Edition
Principles of Operations Management, 8e, Global Edition

PowerPoint slides by Jeff Heyl
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Learning Objectives
1. Explain the distinction between
goods and services
2. Define operations management
3. Explain the difference between
production and productivity
4. The Heritage of Operations
Management
5. Identify New Trends in Operations
Management
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Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
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Characteristics of Service
Intangible product
Inconsistent product
definition
Often unique
Produced and
consumed at same time
Frequently dispersed
High customer
interaction
Often knowledge-based
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Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
Percent of Product that is a Good Percent of Product that is a Service
100% 75 50 25 0 25 50 75 100%
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What Is Operations
Management?
Production is the creation of
goods and services
Operations management (OM) is
managing the set of activities that
create value in the form of goods
and services by transforming
inputs into outputs
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Why Study OM?
1. OM is one of three major functions of any
organization production/operations,
finance, marketing
study how people organize themselves
for productive enterprise
2. OM is such a costly part of an
organization
3. We need to understand what operations
managers do
4. We need to know how goods and services
are produced


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Producing Goods and
Services
Essential functions:
1. Marketing which generates
demand, or at least takes the order
for a product or service(nothing
happens until there is sale)
2. Production/operations creates
the product
3. Finance/accounting which tracks
how well the organization is doing,
pays bills, collects the money
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Options for Increasing
Contribution


Table 1.1
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods 80,000 120,000 80,000 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs 6,000 6,000 3,000 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% 3,500 6,000 4,250 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce
Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%
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Where are the OM Tasks?
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 Challenge
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output
only and not a measure of efficiency
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Measure of process improvement
Represents output relative to input
Only through productivity increases
can our standard of living improve
Productivity
Productivity =
Units produced
Input used
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Productivity Calculations
Productivity =
Units produced
Labor-hours used
= = 4 units/labor-hour
1,000
250
Eg.: Labor Productivity
One resource input single-factor productivity
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Multi-Factor Productivity
Output
Labor + Material + Energy
+ Capital + Miscellaneous
Productivity =
Also known as total factor productivity
Output and inputs are often expressed
in dollars
Multiple resource inputs multi-factor productivity
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Service Productivity
1. Typically labor intensive
2. Frequently focused on unique
individual attributes or desires
3. Often an intellectual task performed by
professionals
4. Often difficult to mechanize
5. Often difficult to evaluate for quality
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Heritage of OM
The industrial revolution developed in England in the
1700s.
Prior to it, was called as cottage system
Based on 2 principal elements:
(i) Development of machine power, and
(ii) Development of factory system
Example:
James Watt in 1764 invented the steam engine to
replace human and water power for factories.
Concept of specialization of labor was implemented
Factories had ways of planning and controlling the
tasks of workers.
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Eli Whitney
Born 1765; died 1825
In 1798, received government
contract to make 10,000 muskets
Showed that machine tools could
make standardized parts to exact
specifications
Musket parts could be used in any
musket
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Frederick W. Taylor
Born 1856; died 1915
Known as father of scientific
management
In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
Began first motion and time studies
Created efficiency principles
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Taylors Principles
Matching employees to right job
Providing the proper training
Providing proper work methods and
tools
Establishing legitimate incentives for
work to be accomplished
Management Should Take More
Responsibility for:
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Frank & Lillian Gilbreth
Frank (1868-1924); Lillian (1878-1972)
Husband-and-wife engineering team
Further developed work
measurement methods
Applied efficiency methods to their
home and 12 children!
Book & Movie: Cheaper by the
Dozen, Bells on Their Toes
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Born 1863; died 1947
In 1903, created Ford Motor
Company
In 1913, first used moving assembly
line to make Model T
Unfinished product moved by
conveyor past work station
Paid workers very well for 1911
($5/day!)
Henry Ford
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W. Edwards Deming
Born 1900; died 1993
Engineer and physicist
Credited with teaching Japan
quality control methods in post-
WW2
Used statistics to analyze process
His methods involve workers in
decisions
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Operations Research
During World War II, large quantities of
resources (personnel, supplies,
equipment, ) had to be deployed.
Military operations research (OR)
teams were formed to deal with the
complexity of the deployment.
Used problem solving and decision
making approaches.
Building models and mathematical
manipulation methodology
Eg.: Linear programming, PERT/CPM and
forecasting models.
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Significant Events in OM
Figure 1.3
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New Challenges in OM
Global focus
Just-in-time
Supply-chain
partnering
Rapid product
development,
alliances
Mass
customization
Empowered
employees, teams
To From
Local or national focus
Batch shipments
Low bid purchasing

Lengthy product
development

Standard products

Job specialization

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