2Learning ObjectivesDefine the terms operations management and supply chainIdentify 3 major functional areas of organizations and describe how they interrelateIdentify similarities and differences between production and service operationsExplain the key aspects of operations management decision makingDescribe the operations function and the nature of the operations manager’s jobDescribe current issues in business that impact operations management
3What Is “Operations Management” ABC News: “Inside Amazon: Secrets of an Online Mega-Giant”
4Operations 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.
5The 3 Basic Functions of Business Organizations OperationsFinanceMarketingOrganization
6Operations Function Inputs Outputs Transformation/ Conversion Process LandLaborCapitalMaterialsInformationOutputsGoodsServicesTransformation/ConversionProcessControlMeasurementand FeedbackValue-AddedFeedback = measurements taken at various points in the transformation processControl = The comparison of feedback against previously established standards to determine if corrective action is needed.
8The 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 ServicesSurgery, TeachingSongwriting, Software DevelopmentComputer Repair, Restaurant MealHome Remodeling, Retail SalesAutomobile Assembly, Steelmaking
9Discussion How goods are different from services? Hints: Degree of customer contactQuality assuranceInventoryWagesAbility to patent…
10Key Differences Characteristic Goods Service Customer contact Low High Uniformity of inputLabor content of jobsUniformity of outputProduction and delivery (Output)TangibleIntangibleMeasurement of productivityEasyDifficultQuality assurance (Opportunity to correct problems)Amount of inventoryMuchLittleEvaluation of workEasierAbility to patent designUsuallyNot usual
11Process ManagementProcess: 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. DemandIdeally, the capacity of a process will be such that its output just matches demand.
134 Sources of Process Variation Variety of goods or services being offeredThe greater the variety of goods and services offered, the greater the variation in production or service requirements.Structural variation in demandThese are generally predictable (seasonal variation or seasonality, e.g., swimwear, warm clothes, Christmas, tourist seasons, school supplies).They are important for capacity planningRandom variationNatural variation that is present in all processes (e.g., random demand etc.). Generally, it cannot be influenced by managers.Assignable variationVariation 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.
15Scope of Operations Management – The Airline Example ForecastingCapacity planningLocating facilitiesFacilities and layoutSchedulingManaging inventoriesAssuring qualityMotivating and training employees
16Role of the Operations Manager Recap:Operations: The part of a business organization that is responsible for producing goods or servicesOperations management: The management of systems or processes that create goods and/or provide servicesA primary function of the operations manager is to guide the system by decision making.System Design DecisionsSystem Operation Decisions
17System Design Decisions CapacityFacility locationFacility layoutProduct and service planningThese are typically strategic decisions thatusually require long-term commitment of resourcesdetermine parameters of system operation
18System Operation Decisions These are generally tactical and operational decisionsManagement of personnelInventory management and controlSchedulingProject managementQuality assuranceOperations managers spend more time on system operation decision than any other decision areaThey still have a vital stake in system design
19Decision MakingMost operations decisions involve many alternatives that can have quite different impacts on costs or profitsTypical 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?
20General Approach to Decision Making Modeling is a key tool used by all decision makersModel:an abstraction of reality; a simplification.Common features of models:They are simplifications of real-life phenomenaThey omit unimportant details of the systems they mimic so that attention can be focused on the most important aspects of the real-life system
21Types of Models Physical Models Schematic Models Mathematical Models Look like their real-life counterpartsAdvantage: visual correspondence with realitySchematic ModelsLook less like their real-life counterparts than physical models (graphs, charts, blueprints, drawings, etc.)Mathematical ModelsDo not look at all like their real-life counterparts
22Discussion What are the advantages and disadvantages of models? Hints: UsabilityAbstractionQuantities v.s. qualitativeSuitablilty
23Benefits of ModelsModels are generally easier to use and less expensive than dealing with the real systemRequire users to organize and sometimes quantify informationIncrease understanding of the problemEnable managers to analyze “What if?” questionsServe as a consistent tool for evaluation and provide a standardized format for analyzing a problem
24Limitation of Models Important variables may be missed Quantitative information may be emphasized over qualitativeModels may be incorrectly applied and results misinterpretedNonqualified users may not use the model incorrectly
25Quantitative MethodsA decision making approach that seeks to obtain a mathematically optimal solutionLinear programmingQueuing techniquesInventory modelsProject modelsForecasting techniquesStatistical models
26Historical Evolution of OM Industrial RevolutionScientific ManagementHuman Relations MovementDecision Models and Management ScienceInfluence of Japanese Manufacturers
27Industrial Revolution Pre-Industrial RevolutionCraft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goodsSome key elements of the industrial revolutionBegan in England in the 1770sDivision of labor - Adam Smith, 1776Application of the “rotative” steam engine, 1780sCotton Gin and Interchangeable parts - Eli Whitney, 1792Management theory and practice did not advance appreciably during this period
28Scientific Management Movement was led by efficiency engineer, Frederick Winslow TaylorBelieved in a “science of management” based on observation, measurement, analysis and improvement of work methods, and economic incentivesManagement 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 activitiesEmphasis was on maximizing output
29Scientific Management - contributors Frank Gilbreth - father of motion studiesHenry Gantt - developed the Gantt chart scheduling system and recognized the value of non-monetary rewards for motivating employeesHarrington Emerson - applied Taylor’s ideas to organization structureHenry Ford - employed scientific management techniques to his factoriesMoving assembly lineMass production
30Decision Models & Management Science F.W. Harris – mathematical model for inventory management, 1915Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930sTippett – statistical sampling theory, 1935Operations Research (OR) Groups – OR applications in warfareGeorge Dantzig – linear programming, 1947
31Human Relations Movement The human relations movement emphasized the importance of the human element in job designLillian GilbrethElton Mayo – Hawthorne studies on worker motivation, 1930Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954Frederick Hertzberg – Two Factor Theory, 1959Douglas McGregor – Theory X and Theory Y, 1960sWilliam Ouchi – Theory Z, 1981
32Influence of Japanese Manufacturers Refined and developed management practices that increased productivityCredited with fueling the “quality revolutionJust-in-Time productionTheir approach emphasizedquality and continual improvement,worker teams and empowerment, andachieving customer satisfaction.
33DiscussionBased 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?
34Key Issues For Today’s Business Operations Economic conditionsManagement of technology (Innovating)The Internet, e-commerce, e-businessCompeting in a global economyGlobalization, outsourcingQuality ProblemsRisk Management
35Environmental Concerns SustainabilityUsing resources in ways that do not harm ecological systems that support human existenceSustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision makingAll areas of business will be affectedProduct and service designConsumer education programsDisaster preparation and responseOutsourcing decisions
36US Carbon FootprintThe 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.StrategiesEnergy EfficiencyEnergy ConservationFuel SwitchingCarbon Capture and SequestrationSource: US Environmental Protection AgencySource: The Washington Post 1/13/14
37Ethical Issues in Operations Ethical issues arise in many aspects of operations management:The environmentThe communityHiring and firing workersClosing facilitiesFinancial statementsWorkers rightsWorker safetyProduct safetyQuality
38Worker SafetyWSJ 4/21/14Inside Nike's Struggle to Balance Cost and Worker Safety in BangladeshNike, 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.
39Supply Chain Suppliers’ suppliers Direct Producer Distributor Final Customers
41Supply 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.
42Discussion Why does supply chain management matter? Hints: From a customer’s perspectiveFrom a manager’s perspectiveFrom a executive’s perspective
43The 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 levelsInventory stockoutsLate deliveriesQuality problems
44Supply Chain Issues The need to improve operations The need to manage inventoriesIncreasing transportation costsIncreasing levels of outsourcingIncreasing importance of e-businessCompetitive pressuresIncreasing globalizationThe complexity of supply chains
45Supply 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)
46Supply Chain Issues 2. The need to manage inventories Just in time (JIT)Vendor Managed Inventory (VMI)Logistics
48Supply Chain Issues 4. Increasing levels of outsourcing Law of Comparative AdvantageBenefits of OutsourcingAllow a company to focus on strategic, core competenciesCost savings or cost avoidanceFlexibility for using services as neededChanges fixed costs into variable costsTypes of Business Activities OutsourcedInformation Technology (IT)Human Resources (HR)Learning Function (Corporate Training)Customer Service (Call centers)Finance and Accounting
49Supply 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)ToConsumerBusinessGovernmentFromC2CC2BC2GB2CB2BB2GG2CG2BG2G
50Supply Chain Issues 6. Competitive pressures 7. Increasing globalization8. The complexity of supply chainsSerdarasan, Seyda. "A review of supply chain complexity drivers." Proceedings of the 41st International Conference on Computers & Industrial Engineering, pp
51OM and Supply Chain Career Opportunities Operations managerSupply chain managerProduction analystSchedule coordinatorProduction managerIndustrial engineerPurchasing managerInventory managerQuality manager
52Key PointsThe 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.
53Key PointsAlthough 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.