1. Introduction to Operations Management
DAVIS
AQUILANO
CHASE
PowerPoint Presentation by
Charlie
Cook
F O U R T H E D I T I O N
Introduction to Operations Management
chapter 1
© The McGraw-Hill Companies, Inc., 2003

2. Chapter Objectives
Introduce and define operations management (OM) in terms of its contribution and the activities it involves.
Describe how operations contributes to the overall betterment of society.
Present operations as a function that addresses issues in both manufacturing and services.
Show how operations management is gaining more recognition both internally and externally to an organization.
Fundamentals of Operations Management 4e

3. Chapter Objectives (cont’d)
Demonstrate how the operations management function interacts with the other functional areas within an organization.
Present a brief history of operations management as a field and its evolution to its current role in an organization.
Fundamentals of Operations Management 4e

4. Managerial Issues Shift in balance of power to consumers
Globalization of business and markets
E-commerce
Achieving higher levels of productivity
Creating higher quality products
Delivering better customer service
Achieving shorter delivery times
Reducing labor and material costs
Fundamentals of Operations Management 4e

5. What Is Operations Management?
Management of the conversion process which transforms inputs such as raw material and labor into outputs in the form of finished goods and services.
Inputs
(customers and/or
materials)
Transformation Process (components)
Outputs (goods and services)
Fundamentals of Operations Management 4e

6. Role of OM within an Organization
Exhibit 1.1
Fundamentals of Operations Management 4e

7. Top-down Approach to OM Strategy
Operations Strategy Decisions
Strategic (long-range)
Needs of customers (capacity planning)
Tactical (medium-range)
Efficient scheduling of resources
Operational planning and control (short-range)
Immediate tasks and activities
Fundamentals of Operations Management 4e

8. An Operational-Level OM Perspective
OM’s function focuses on adding value through the transformation process (technical core) of converting inputs into outputs.
Physical: manufacturing
Locational: transportation
Exchange:retailing
Storage: warehousing
Physiological: health care
Informational: telecommunications
Fundamentals of Operations Management 4e

9. The Transformation Process within OM
Exhibit 1.2
Fundamentals of Operations Management 4e

10. Input-Transformation-Output Relationships for Typical Systems
Exhibit 1.3
Fundamentals of Operations Management 4e

11. OM’s Contributions to Society
Higher Standard of Living
Ability to increase productivity
Lower cost of goods and services
Better Quality Goods and Services
Competition increases quality
Concern for the Environment
Recycling and concern for air and water quality
Improved Working Conditions
Better job design and employee participation
Fundamentals of Operations Management 4e

12. Annual Change in Productivity in the United States (1980-2000)
Source: Economic Report of the President, United States Government Printing Office, Washington, DC. January, 2001.
Exhibit 1.4
Fundamentals of Operations Management 4e

13. Services as a Percent of Gross Domestic Product (GDP) for Different Countries
Source: The World Factbook 2000, Central Intelligence Agency, Washington, DC.
Exhibit 1.5
Fundamentals of Operations Management 4e

14. The Emergence of OM Product Application of OM to Service Operations
Batch cooking operations at McDonald’s
Just-in-Time (JIT) at Northern Telecomm, Inc.
Automatic inventory replenishment at Wal-Mart
Service
Good
Product
Fundamentals of Operations Management 4e

15. Growth in Services in the United States
Source: Handbook of U.S. Labor Statistics, edited by Eva E. Jacobs, Fifth Edition, Bernan Press, 2001, Table 2-1, pp. 161–164.
Exhibit 1.6
1-6
Fundamentals of Operations Management 4e

16. Differences Between Goods and Services
Tangible
Can be inventoried
No interaction between customer and process
Services
Intangible
Cannot be inventoried
Direct interaction between customer and process
Exhibit 1.7
1-6
Fundamentals of Operations Management 4e

17. Most Products Are a “Bundle” of Goods and Services
Exhibit 1.8
Fundamentals of Operations Management 4e

18. An Expanded Definition of Quality
Quality is important in all functional areas of an organization.
Quality is now much more than the technical requirements for manufactured goods.
Service quality (customer relationships) is equally important.
Quality
Fundamentals of Operations Management 4e

19. A New Paradigm for OM Post-War U.S. Dominance in Manufacturing
Available capacity built to support the war effort
Pent-up demand for consumer goods
Destruction of overseas production capabilities
Proactive Operations Function (Skinner)
Add value to products, increase profit margins.
Compete on dimensions other than costs:
Quality
Speed of delivery
Process flexibility
Fundamentals of Operations Management 4e

20. The Ever-Changing World of OM
Increased Global Competition
Transformation into a global economy
Pressure to excel on multiple competitive dimensions
Increased emphasis on logistics
Advances in Technology
Information technology (IT)
Internet and commerce (B2B)
Automation and robotics
Fundamentals of Operations Management 4e

21. Ford’s Global Network to Support the Manufacturing of the Escort
Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed. (New York: W.W. Norton and Company, 1997), p. 58.
Exhibit 1.9
Fundamentals of Operations Management 4e

22. Linking OM to Customers and Suppliers
Benefits of Buffering the Transformation Process
The process was not disturbed by environmental interaction.
The process was often more efficient than input and distribution processes.
Productivity was maximized when processes operated at continuous rates.
Process management skills were different from those of other functional activities.
Fundamentals of Operations Management 4e

23. Linking OM to Customers and Suppliers
Disadvantages of Buffering the Transformation Process
Information lag in interaction with other functional activities.
Lack of communication between customers and the shop floor for problem solving.
Value Chain
Steps an organization requires to produce a good or a service regardless of where they are performed.
Fundamentals of Operations Management 4e

24. The Value Chain and Its Support Functions
Exhibit 1.10
Fundamentals of Operations Management 4e

25. Line and Staff Jobs in OM
Exhibit 1.11
Fundamentals of Operations Management 4e

26. Inputs Provided by OM to Other Functional Areas
Exhibit 1.12
Fundamentals of Operations Management 4e

27. Historical Development of OM
Prior to 1900
Cottage industry produced custom-made goods.
Watt’s steam engine in 1785.
Whitney’s standardized gun parts in 1801.
Industrial Revolution began at mid-century.
Fundamentals of Operations Management 4e

28. Historical Development of OM (cont.)
Scientific Management (Frederick W. Taylor)
Systematic approach to increasing worker productivity through time study, standardization of work, and incentives.
Viewed workers as an interchangeable asset.
Other Management Pioneers
Frank and Lillian Gilbreth
Motion study and industrial psychology
Henry L. Gantt
Scheduling and the Gantt chart
Fundamentals of Operations Management 4e

29. Historical Development of OM (cont.)
Moving Assembly Line (1913)
Labor specialization reduced assembly time.
Hawthorne Studies
Yielded unexpected results in the productivity of Western Electric plant workers after changes in their production environment.
Led to recognition of the importance of work design and employee motivation.
Fundamentals of Operations Management 4e

30. Historical Development of OM (cont.)
Operations Research (Management Science)
Outgrowth of WWII needs for logistics control and weapons-systems design.
Seeks to obtain mathematically optimal (quantitative) solutions to complex problems.
OM Emerges as a Field
1950–1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system.
Fundamentals of Operations Management 4e

31. Historical Development of OM (cont.)
OM Emerges as a Field
1950–1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system.
The Marriage of OM and IT
Integrated solutions approaches
Business process reengineering
Supply chain management
Systems integration (SAP)
Fundamentals of Operations Management 4e

32. Historical Development of OM (cont.)
Operations Management in Services
OM concepts can apply to both manufacturing and service operations.
Integration of Manufacturing and Services
Conducting world class operations requires compatible manufacturing and service operations.
Fundamentals of Operations Management 4e