McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 1 Introduction to Operations Management

1-2 Learning Objectives  Define the term operations management  Identify the three major functional areas of organizations and describe how they interrelate  Compare and contrast service and manufacturing operations  Describe the operations function and the nature of the operations manager’s job

1-3 Learning Objectives  Differentiate between design and operation of production systems  Describe the key aspects of operations management decision making  Briefly describe the historicalevolution of operations management  Identify current trends that impact operations management

1-4 Operations Management  Operations Management is: The management of systems or processes that create goods and/or provide services  Operations Management affects:  Companies’ ability to compete  Nation’s ability to compete internationally

1-5 The Organization The Three Basic Functions Organization Finance Operations Marketing Figure 1.1

1-6 Value-Added Process The operations function involves the conversion of inputs into outputs Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added Figure 1.2

1-7 Value-Added & Product Packages  Value-added is the difference between the cost of inputs and the value or price of outputs.  Product packages are a combination of goods and services.  Product packages can make a company more competitive.

1-8 Automobile assembly, steel making Home remodeling, retail sales Automobile Repair, fast food Goods-service Continuum Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

1-9 Food Processor InputsProcessing Outputs Raw VegetablesCleaning Canned vegetables Metal SheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

1-10 Hospital Process InputsProcessingOutputs Doctors, nursesExaminationHealthy patients HospitalSurgery Medical SuppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.2

1-11 Manufacturing or Service? Tangible Act

1-12 Production of Goods vs. Delivery of Services  Production of goods – tangible output  Delivery of services – an act  Service job categories  Government  Wholesale/retail  Financial services  Healthcare  Personal services  Business services  Education

1-13 Key Differences 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity

1-14 Key Differences 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

1-15 Goods vs Service CharacteristicGoodsService Customer contactLowHigh Uniformity of inputHighLow Labor contentLowHigh Uniformity of outputHighLow OutputTangibleIntangible Measurement of productivityEasyDifficult Opportunity to correct problemsHighLow InventoryMuchLittle EvaluationEasierDifficult PatentableUsuallyNot usual

1-16  Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating employees  Deciding where to locate facilities  Supply chain management  And more... Scope of Operations Management

1-17 Types of Operations Table 1.4 OperationsExamples Goods ProducingFarming, mining, construction, manufacturing, power generation Storage/TransportationWarehousing, trucking, mail service, moving, taxis, buses, hotels, airlines ExchangeRetailing, wholesaling, banking, renting, leasing, library, loans EntertainmentFilms, radio and television, concerts, recording CommunicationNewspapers, radio and television newscasts, telephone, satellites

1-18 Figure 1.4

1-19 Decline in Manufacturing Jobs  Productivity  Increasing productivity allows companies to maintain or increase their output using fewer workers  Outsourcing  Some manufacturing work has been outsourced to more productive companies

1-20 Why Manufacturing Matters  Over 18 million workers in manufacturing jobs  Accounts for over 70% of value of U.S. exports  Average full-time compensation about 20% higher than average of all workers  Manufacturing workers more likely to have benefits  Productivity growth in manufacturing in the last 5 years is more than double U.S. economy

1-21 Why Manufacturing Matters  More than half of the total R&D performed is in the manufacturing industries  Manufacturing workers in California earn an average of about $25,000 more a year than service workers  When a California manufacturing job is lost, an average of 2.5 service jobs are lost

1-22 Challenges of Managing Services  Service jobs are often less structured than manufacturing jobs  Customer contact is higher  Worker skill levels are lower  Services hire many low-skill, entry-level workers  Employee turnover is higher  Input variability is higher  Service performance can be affected by worker’s personal factors

1-23 Operations Management Decision Making  Models  Quantitative approaches  Analysis of trade-offs  Systems approach  Establishing priorities  Ethics

1-24 Key Decisions of Operations Managers  What What resources/what amounts  When Needed/scheduled/ordered  Where Work to be done  How Designed  Who To do the work

1-25 Decision Making System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment

1-26 Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance

1-27 Decision Making  Models  Quantitative approaches  Analysis of trade-offs  Systems approach

1-28 Models A model is an abstraction of reality. – Physical – Schematic – Mathematical What are the pros and cons of models? Tradeoffs

1-29 Models Are Beneficial  Easy to use, less expensive  Require users to organize  Increase understanding of the problem  Enable “what if” questions  Consistent tool for evaluation and standardized format  Power of mathematics

1-30 Limitations of Models  Quantitative information may be emphasized over qualitative  Models may be incorrectly applied and results misinterpreted  Nonqualified users may not comprehend the rules on how to use the model  Use of models does not guarantee good decisions

1-31 Quantitative Approaches Linear programming Queuing Techniques Inventory models Project models Statistical models

1-32 Analysis of Trade-Offs  Decision on the amount of inventory to stock  Increased cost of holding inventory Vs.  Level of customer service

1-33 Systems Approach “The whole is greater than the sum of the parts.” Suboptimization

1-34 Pareto Phenomenon A few factors account for a high percentage of the occurrence of some event(s). 80/20 Rule - 80% of problems are caused by 20% of the activities. How do we identify the vital few?

1-35 Ethical Issues  Financial statements  Worker safety  Product safety  Quality  Environment  Community  Hiring/firing workers  Closing facilities  Worker’s rights

1-36 Business Operations Overlap Operations Finance Figure 1.5 Marketing

1-37 Operations Interfaces Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal

1-38 Historical Evolution of Operations Management  Industrial revolution (1770’s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement ( )  Decision models (1915, ’s)  Influence of Japanese manufacturers Table 1.7

1-39 Trends in Business  Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility  Ethical behavior

1-40 Management Technology  Technology: The application of scientific discoveries to the development and improvement of goods and services  Product and service technology  Process technology  Information technology

1-41 Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Simple Product Supply Chain Figure 1.7 Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

1-42 Stage of Production Value Added Value of Product Farmer produces and harvests wheat$0.15 Wheat transported to mill$0.08$0.23 Mill produces flour$0.15$0.38 Flour transported to baker$0.08$0.46 Baker produces bread$0.54$1.00 Bread transported to grocery store$0.08$1.08 Grocery store displays and sells bread$0.21$1.29 Total Value-Added$1.29 A Supply Chain for Bread

1-43 Other Important Trends  Ethical behavior  Operations strategy  Working with fewer resources  Revenue management  Process analysis and improvement  Increased regulation and product liability  Lean production