1. Introduction to Operations Management
Chapter 1

2. Learning Objectives
Define the terms operations management and supply chain
Identify 3 major functional areas of organizations and describe how they interrelate
Identify similarities and differences between production and service operations
Explain the key aspects of operations management decision making
Describe the operations function and the nature of the operations manager’s job
Describe current issues in business that impact operations management

3. What Is “Operations Management”
ABC News: “Inside Amazon: Secrets of an Online Mega-Giant”

4. Operations Management
What is operation?
The part of a business organization that is responsible for producing goods or services.
What is operation management?
The management of systems or processes that create goods and/or provide services.

5. The 3 Basic Functions of Business Organizations
Operations
Finance
Marketing
Organization

6. Operations Function Inputs Outputs Transformation/ Conversion Process
Land
Labor
Capital
Materials
Information
Outputs
Goods
Services
Transformation/
Conversion
Process
Control
Measurement
and Feedback
Value-Added
Feedback = measurements taken at various points in the transformation process
Control = The comparison of feedback against previously established standards to determine if corrective action is needed.

7. Goods v.s. Services
Tangible
Act-Oriented
Goods
Services

8. The Goods-Service Continuum
Goods: physical items that include raw materials, parts, subassemblies, and final products.
Services: activities that provide some combination of time, location, form or psychological value.
Goods Services
Surgery, Teaching
Songwriting, Software Development
Computer Repair, Restaurant Meal
Home Remodeling, Retail Sales
Automobile Assembly, Steelmaking

9. Discussion How goods are different from services? Hints:
Degree of customer contact
Quality assurance
Inventory
Wages
Ability to patent …

10. Key Differences Characteristic Goods Service Customer contact Low High
Uniformity of input
Labor content of jobs
Uniformity of output
Production and delivery (Output)
Tangible
Intangible
Measurement of productivity
Easy
Difficult
Quality assurance (Opportunity to correct problems)
Amount of inventory
Much
Little
Evaluation of work
Easier
Ability to patent design
Usually
Not usual

11. Process Management
Process: One or more actions that transform inputs into outputs.
Three Categories of Business Processes:
Upper-management processes: These govern the operation of the entire organization.
Operational processes: These are core processes that make up the value stream.
Supporting processes: These support the core processes.
Supply v.s. Demand
Ideally, the capacity of a process will be such that its output just matches demand.

12. Customer Dissatisfaction
Supply and Demand
Operations &
Supply Chains
Sales & Marketing
Wasteful
Costly
Supply
>
Demand
Opportunity Loss
Customer Dissatisfaction
Supply
<
Demand
Ideal
Supply =
Demand

13. 4 Sources of Process Variation
Variety of goods or services being offered
The greater the variety of goods and services offered, the greater the variation in production or service requirements.
Structural variation in demand
These are generally predictable (seasonal variation or seasonality, e.g., swimwear, warm clothes, Christmas, tourist seasons, school supplies).
They are important for capacity planning
Random variation
Natural variation that is present in all processes (e.g., random demand etc.). Generally, it cannot be influenced by managers.
Assignable variation
Variation that has identifiable sources. (e.g., defective inputs, incorrect work methods, equipment etc.)
This type of variation can be reduced, or eliminated, by analysis and corrective action.

14. P&G’s Products
Image Credit: pgbeautyscience.com

15. Scope of Operations Management – The Airline Example
Forecasting
Capacity planning
Locating facilities
Facilities and layout
Scheduling
Managing inventories
Assuring quality
Motivating and training employees

16. Role of the Operations Manager
Recap:
Operations: The part of a business organization that is responsible for producing goods or services
Operations management: The management of systems or processes that create goods and/or provide services
A primary function of the operations manager is to guide the system by decision making.
System Design Decisions
System Operation Decisions

17. System Design Decisions
Capacity
Facility location
Facility layout
Product and service planning
These are typically strategic decisions that
usually require long-term commitment of resources
determine parameters of system operation

18. System Operation Decisions
These are generally tactical and operational decisions
Management of personnel
Inventory management and control
Scheduling
Project management
Quality assurance
Operations managers spend more time on system operation decision than any other decision area
They still have a vital stake in system design

19. Decision Making
Most operations decisions involve many alternatives that can have quite different impacts on costs or profits
Typical operations decisions include:
What: What resources are needed, and in what amounts?
When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered?
Where: Where will the work be done?
Who: Who will do the work?
How: How will the product or service be designed? How will the work be done? How will resources be allocated?

20. General Approach to Decision Making
Modeling is a key tool used by all decision makers
Model:
an abstraction of reality; a simplification.
Common features of models:
They are simplifications of real-life phenomena
They omit unimportant details of the systems they mimic so that attention can be focused on the most important aspects of the real-life system

21. Types of Models Physical Models Schematic Models Mathematical Models
Look like their real-life counterparts
Advantage: visual correspondence with reality
Schematic Models
Look less like their real-life counterparts than physical models (graphs, charts, blueprints, drawings, etc.)
Mathematical Models
Do not look at all like their real-life counterparts

22. Discussion What are the advantages and disadvantages of models? Hints:
Usability
Abstraction
Quantities v.s. qualitative
Suitablilty

23. Benefits of Models
Models are generally easier to use and less expensive than dealing with the real system
Require users to organize and sometimes quantify information
Increase understanding of the problem
Enable managers to analyze “What if?” questions
Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem

24. Limitation of Models Important variables may be missed
Quantitative information may be emphasized over qualitative
Models may be incorrectly applied and results misinterpreted
Nonqualified users may not use the model incorrectly

25. Quantitative Methods
A decision making approach that seeks to obtain a mathematically optimal solution
Linear programming
Queuing techniques
Inventory models
Project models
Forecasting techniques
Statistical models

26. Historical Evolution of OM
Industrial Revolution
Scientific Management
Human Relations Movement
Decision Models and Management Science
Influence of Japanese Manufacturers

27. Industrial Revolution
Pre-Industrial Revolution
Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods
Some key elements of the industrial revolution
Began in England in the 1770s
Division of labor - Adam Smith, 1776
Application of the “rotative” steam engine, 1780s
Cotton Gin and Interchangeable parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably during this period

28. Scientific Management
Movement was led by efficiency engineer, Frederick Winslow Taylor
Believed in a “science of management” based on observation, measurement, analysis and improvement of work methods, and economic incentives
Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperate between management and workers, and separating management activities from work activities
Emphasis was on maximizing output

29. Scientific Management - contributors
Frank Gilbreth - father of motion studies
Henry Gantt - developed the Gantt chart scheduling system and recognized the value of non-monetary rewards for motivating employees
Harrington Emerson - applied Taylor’s ideas to organization structure
Henry Ford - employed scientific management techniques to his factories
Moving assembly line
Mass production

30. Decision Models & Management Science
F.W. Harris – mathematical model for inventory management, 1915
Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s
Tippett – statistical sampling theory, 1935
Operations Research (OR) Groups – OR applications in warfare
George Dantzig – linear programming, 1947

31. Human Relations Movement
The human relations movement emphasized the importance of the human element in job design
Lillian Gilbreth
Elton Mayo – Hawthorne studies on worker motivation, 1930
Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954
Frederick Hertzberg – Two Factor Theory, 1959
Douglas McGregor – Theory X and Theory Y, 1960s
William Ouchi – Theory Z, 1981

32. Influence of Japanese Manufacturers
Refined and developed management practices that increased productivity
Credited with fueling the “quality revolution
Just-in-Time production
Their approach emphasized
quality and continual improvement,
worker teams and empowerment, and
achieving customer satisfaction.

33. Discussion
Based on your experience, how do operations today differentiate from previous stages? What are the key issues?
Hints:
What factors came into play?
What factors is not as important as before?
What do you think the new trend will be?

34. Key Issues For Today’s Business Operations
Economic conditions
Management of technology (Innovating)
The Internet, e-commerce, e-business
Competing in a global economy
Globalization, outsourcing
Quality Problems
Risk Management

35. Environmental Concerns
Sustainability
Using resources in ways that do not harm ecological systems that support human existence
Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making
All areas of business will be affected
Product and service design
Consumer education programs
Disaster preparation and response
Outsourcing decisions

36. US Carbon Footprint
The United States has been one of the few bright spots for climate-change policy in recent years. Thanks to the recession, improved efficiency measures and the shale-gas boom, the nation's carbon-dioxide emissions from energy fell 12 percent between 2005 and 2012.
Strategies
Energy Efficiency
Energy Conservation
Fuel Switching
Carbon Capture and Sequestration
Source: US Environmental Protection Agency
Source: The Washington Post 1/13/14

37. Ethical Issues in Operations
Ethical issues arise in many aspects of operations management:
The environment
The community
Hiring and firing workers
Closing facilities
Financial statements
Workers rights
Worker safety
Product safety
Quality

38. Worker Safety
WSJ 4/21/14
Inside Nike's Struggle to Balance Cost and Worker Safety in Bangladesh
Nike, which first used a factory in Bangladesh in 1991, had kept its footprint there small, never working with more than 10 factories. The rest of the industry moved more aggressively into Bangladesh.
The decision came not long before another garment-manufacturing hub known as Rana Plaza collapsed, killing 1,100 people in a suburb of Dhaka, in the worst industrial disaster in Bangladesh's history. The tragedy, which happened a year ago this month, has forced Western apparel sellers to re-examine their world-wide search for cheap labor, which has turned Bangladesh into an exporter of $20 billion of clothing a year.

39. Supply Chain Suppliers’ suppliers Direct Producer Distributor Final
Customers

40. Supply Chain

41. Supply Chain What is supply chain?
The sequence of organizations – their facilities, functions, and activities – that are involved in producing and delivering a product or service.

42. Discussion Why does supply chain management matter? Hints:
From a customer’s perspective
From a manager’s perspective
From a executive’s perspective

43. The Need for Supply Chain Management
In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems:
Oscillating inventory levels
Inventory stockouts
Late deliveries
Quality problems

44. Supply Chain Issues The need to improve operations
The need to manage inventories
Increasing transportation costs
Increasing levels of outsourcing
Increasing importance of e-business
Competitive pressures
Increasing globalization
The complexity of supply chains

45. Supply Chain Issues 1. The need to improve operations Sustainability
Productivity (more in chapter 2)
Efficiency (more in chapter 5)
Quality (more in chapters 9 & 10)

46. Supply Chain Issues 2. The need to manage inventories
Just in time (JIT)
Vendor Managed Inventory (VMI)
Logistics

47. Supply Chain Issues
3. Increasing transportation costs

48. Supply Chain Issues 4. Increasing levels of outsourcing
Law of Comparative Advantage
Benefits of Outsourcing
Allow a company to focus on strategic, core competencies
Cost savings or cost avoidance
Flexibility for using services as needed
Changes fixed costs into variable costs
Types of Business Activities Outsourced
Information Technology (IT)
Human Resources (HR)
Learning Function (Corporate Training)
Customer Service (Call centers)
Finance and Accounting

49. Supply Chain Issues 5. Increasing importance of e-business
E-business: The use of internet to network and empower business processes, electronic commerce, organizational communication and collaboration with in a company and with its customers, suppliers, and other stakeholders. (Combe, 2006) To
Consumer
Business
Government
From
C2C
C2B
C2G
B2C
B2B
B2G
G2C
G2B
G2G

50. Supply Chain Issues 6. Competitive pressures
7. Increasing globalization
8. The complexity of supply chains
Serdarasan, Seyda. "A review of supply chain complexity drivers." Proceedings of the 41st International Conference on Computers & Industrial Engineering, pp

51. OM and Supply Chain Career Opportunities
Operations manager
Supply chain manager
Production analyst
Schedule coordinator
Production manager
Industrial engineer
Purchasing manager
Inventory manager
Quality manager

52. Key Points
The operations function is that part of every business organization that produces products and/or delivers services.
Operations consists of processes that convert inputs into outputs. Failure to manage those processes effectively will have a negative impact on the organization.
A key goal of business organizations is to achieve an economic matching of supply and demand. The operations function is responsible for providing the supply or service capacity for expected demand.
All processes exhibit variation that must be managed.

53. Key Points
Although there are some basic differences between services and products that must be taken into account from a managerial standpoint, there are also many similarities between the two.
Environmental issues will increasingly impact operations decision making.
Ethical behavior is an integral part of good management practice.
All business organizations have, and are part of, a supply chain that must be managed.