Chapter 1 Introduction to OM Walmart Vs. Sears/JC Penny in retail Boeing missed production deadline … Why some companies succeed While others fail

Operations Management Managing that part of the organization responsible for producing goods and services Management of systems or processes that create goods and/or provide services OM in the news Productivity Quality E-business Global Competition Customer Service OM Affects Companies’ ability to compete Nation’s ability to compete internationally

An Organization The Three Basic Functions Figure 1.1 Organization Finance Secure Fin. Resources Budgeting Funding … Operations Producing Marketing Assess Customer needs Selling & Promoting … An Organization The Three Basic Functions What is producing?

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

Value-added = Value or price of outputs – Cost of inputs Food Processor Table 1.2 Inputs Processing Outputs Raw Vegetables Metal Sheets Water Energy Labor Building Equipment Cleaning Making cans Cutting Cooking Packing Labeling Canned vegetables Scraps! Value-added = Value or price of outputs – Cost of inputs What about services?

Goods-service Continuum Tangible Act Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Grameen Cell phone Product/Service? Home remodeling, retail sales Automobile assembly, steel making

Product packages = Good(s) + service(s) Hospital Process Inputs Processing Outputs Doctors, nurses Hospital Medical Supplies Equipment Laboratories Examination Surgery Monitoring Medication Therapy Healthy patients Product packages = Good(s) + service(s) Added Value

Production of Goods vs. Delivery of Services Tangible output Production oriented Delivery of services An act Yet operations are similar! Service job categories Government Wholesale/retail Financial services Healthcare Personal services Business services Education

Goods vs Service Example! Characteristic Goods Service Customer contact Low High Uniformity of input Labor content Uniformity of output Output Tangible Intangible Measurement of productivity Easy Difficult Opportunity to correct problems Inventory Much Little Evaluation Easier Patentable Usually Not usual

Scope of Operations Management Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating & Training employees Deciding where to locate facilities Supply chain management And more . . . Example!

Types of Operations Operations Examples Goods Producing Farming, mining, construction manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, banking, renting, leasing, library, loans Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and television, newscasts, telephone, satellites

Decline in Manufacturing Jobs in US! Increase of Service 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 Bangladesh!

Manufacturing Matters More than half of the total R&D performed is in the manufacturing industries When a California manufacturing job is lost, an average of 2.5 service jobs are lost Accounts for most exports What about Outsourcing

Managing Services is Challenging Service jobs are often less structured than manufacturing jobs Customer contact is higher 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

Operations Management Planning and Decision Making Alternatives & Impact on Cost Profit Goal Mission, Vision …. Key Decisions of O. Managers What resources/amounts When needed/scheduled/ordered Where work-location How Designed/Done Who worker Operations Management Planning and Decision Making

Decision Making of an O. Manager System Design Capacity Location Arrangement of departments Product and service planning Acquisition and placement of equipment System operation Personnel Inventory Scheduling Project Management Quality Assurance

Approaches (Make Informed Decision) 1- Models 2- Quantitative approaches 3- Analysis of trade-offs 4- Systems approach 5- Establishing priorities Ethics

A model is

1- Models Tradeoffs An abstraction of reality. A simplified version (typically) Physical ~ Crash test Schematic ~ Blueprints Mathematical ~ Statistical Tradeoffs Models are not perfect Pros and cons of models

Advantages 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 Limitations 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

2- Quantitative Approaches Linear programming Queuing Techniques Inventory models Project models Statistical models Vs. Qualitative Approaches

3- Analysis of Trade-Offs Decision on the amount of inventory to stock Customer Level of customer service Cost Inventory

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

5- Establishing priorities 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?

Ethical Issues Consider how a decision will affect Shareholders ~ Financial statements Management Employees ~ Worker safety, Hiring/firing workers, Worker’s rights Customer ~ Quality, Product safety Community ~ Closing facilities Environment ~ Product safety

Business Operations Overlap Figure 1.5 Operations Marketing Finance

Operations Interfaces Lead time Public Relations Accounting Production Operations Marketing Personnel Purchasing Distribution MIS Legal

Historical Evolution of Operations Management Industrial revolution (1770’s) End of craft production Introduction of Machine Power Scientific management (1911) & Ford Model T Mass production Interchangeable parts Division of labor Human relations movement (1920-60)~ Hawthorne Decision models (1915, 1960-70’s)~ IM Models, SPC Influence of Japanese manufacturers (After WWII) Quality revolution Table 1.7

Trends in Business impacting OM The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production

Group Assignment G-C1 Case: Total Recall P-33

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

A Supply Chain for Bread 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 $0.38 Flour transported to baker $0.46 Baker produces bread $0.54 $1.00 Bread transported to grocery store $1.08 Grocery store displays and sells bread $0.21 $1.29 Total Value-Added

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

Learning Objectives Differentiate between design and operation of production systems Describe the key aspects of operations management decision making Briefly describe the historical evolution of operations management Identify current trends that impact operations management