1 Operations Management

2 Chapter 1: Operations Function  A general model of the operations functions  Operations management activities  History of the Operations function  Industrial & Post industrial society  Summary Operations Management

3 Goods and Services Goods and Services Input Resources MATERIALS CAPITAL INFORMATION Facilities Staff Input Resources MATERIALS CAPITAL INFORMATION Facilities Staff Performance measurement and customer evaluation of operations processes Environment INPUTS Developing an Operations Strategy Design of processes Design of processes Planning and Control of Operations Processes Planning and Control of Operations Processes Improvement of processes A General model of the Operations Function Transformation OUTPUTS FEEDBACK

4 OPERATIONINPUT [resources] TRANSFORMAT ION OUTPUT Fast food  Meat, Bread  Onions, Staff CookingBurgers University  Students (main)  Examinations  Buildings TeachingGraduates restaurants  Hungry customers(main)  Food/chef/staff  Well prepared food  Agreeable environment  Satisfied customers Police service  Officers  Information  Building  Vehicles  The public  Crime prevention  Crime detection  Peace  Trust in law  Apprehend criminals A General model of the Operations Function

5POM Marketing Marketing MIS Engineering HRM QA Accounting Accounting Sales Finance The Scope of Operations Management

6 Operations in an organisation

7 Product/services development function Accounting and finance function

8 ANSWER: What is operations management? OM is the planning, organising and control of systems which produce goods and services. It is one of the most important managerial functions although some managers may not refer to themselves as operations managers. For instance a hotel manager may will not refer to himself/herself as an operations managers. Hospital administrators do not consider themselves as operations managers. However, from the descriptions contained in this presentation their activities are those of OM. Operations is therefore all about using resources and providing value. Value in the form of products and services. A General model of the Operations Function

9 TEN DECISION AREAS ISSUES 1.Service and product design 2.Quality management 3. Process and capacity 4.Location 5.Layout design 6.Human resources What good or service should we offer? How should we design these products? Who is responsible for quality? How do we define the quality? What process and what capacity will these design products require? What equipment and technology is necessary for these processes? Where should we put the facility? On what criteria should we base the location decision? How should we arrange the facility? How large must the facility be to meet our plan? How do we provide a reasonable work and job design environment? How much can we expect our employees to produce?

10 TEN DECISION AREAS ISSUES 7.Supply-chain management 8.Inventory, MR & JIT 9.Intermediate and short-term 10. Maintenance Should we make or buy this component? Who are our suppliers and who can integrate into our e-commerce program? How much inventory of each item should we have? When do we reorder? Are we better off keeping people on the payroll scheduling during slowdowns? Which job do we perform next? Who is responsible for maintenance? When do we do maintenance?

11 TEN DECISION AREAS ISSUES 1.Service and product design 2.Quality management 3.Process and capacity 4.Location 5.Layout design 6.Human resources What good or service should we offer? How should we design these products? Who is responsible for quality? How do we define the quality? What process and what capacity will these design products require? What equipment and technology is necessary for these processes? Where should we put the facility? On what criteria should we base the location decision? How should we arrange the facility? How large must the facility be to meet our plan? How do we provide a reasonable work and job design environment? How much can we expect our employees to produce?

12 TEN DECISION AREAS ISSUES 7.Supply-chain management 8.Inventory, MRP & JIT 9.Intermediate and short-term 10. Maintenance Should we make or buy this component? Who are our suppliers and who can integrate into our e- commerce program? How much inventory of each item should we have? When do we reorder? Are we better off keeping people on the payroll scheduling during slowdowns? Which job do we perform next? Who is responsible for maintenance? When do we do maintenance?

13 ANSWER: What are the activities of operations managers?  Direct responsibilities –Understanding the operation’s strategic objective –Developing an operations strategy for the organization –Designing the operation’s products, services and processes –Planning & control the operation –Improving the performance of the operation  Indirect responsibilities  Broad responsibilities –Globalization –Environmental protection –Social responsibility –Technology awareness –Knowledge management. A General model of the Operations Function

14 Challenges for Operations Managers in Manufacturing Organisations: Global activity Global markets - Global procurement Logistics management a key function Extensive use of IT (example SAP, Oracle, BAAN) Supply Chain Management (horizontal integration) Strategic in outlook (alliances) Few big players (Car industry, Pharmaceuticals) Short product life cycles Need of high quality management - speed to market.....key performance indicator, product characteristics..

15 Chapter 1: Operations Function  A general model of the operations functions  Operations management activities  History of the Operations function  Industrial & Post industrial society  Summary Operations Management

16 Frederick Winslow Taylor ( ): 1910: Scientific Management The Heritage of operations management

17 Frederick Winslow Taylor ( ): 1. Break jobs down into their most elemental activities 2. Simplify job designs so that limited skills were required to learn a job, thus minimizing the time required for learning 3. Fair day’s work 4. Eliminate unnecessary motions 5. Choose and train employees for best performance and for the benefit of the company 6. Management is responsible for the scientific analysis of the production system and the way workers should perform their jobs; while employees should perform their jobs accordingly 7. There must be some kind of collaboration between employees and management for the mutual benefit 1910: Scientific Management The Heritage of operations management

: Scientific Management Advantages of Scientific management:  Increased output  Lower labour cost  Workers could easily be replaced and trained at low cost, taking advantage of a large pool of cheap unskilled labour shifting from farms to industry  It allowed unskilled and uneducated workers to gain employment based solely on their willingness to work harder physically at jobs they were mentally undemanding. The Heritage of operations management

: Scientific Management Disadvantages of Scientific management:  Workers frequently became bored and dissatisfied with the numbing repetition of simple job tasks that required little though, ingenuity, or responsibility  For Taylor, wages were the primary motivation for work, but behaviour scientists proved that the psychological content of work can be a more powerful motivating force for increased productivity than pay  Repetitive tasks requiring the same monotonous physical motions can result in unnatural physical and mental fatigue.  There is minimal opportunity for workers to interact with other workers  All the above lead to: tardiness, turnover, absenteeism and a feeling of dissatisfaction. The Heritage of operations management

20  1910:Scientific Management An underdeveloped economy today- or even an “emerging” one – is one that has not – or at least has not yet – made the manual worker productive. Peter Drucker, 1999 The Heritage of operations management

21  Henry L Gantt ( ) - bonus payment system - Gantt diagram The Heritage of operations management

22  Henry L Gantt ( )  Frank Gilbreth ( ) and Lillian Gilbreth ( ) They devoted much of their professional life to motion study, i.e.: a. detailed study of operatives and the working environment b. development of techniques which would help in devising the “one best way” of carrying out any particular operation The Heritage of operations management

23  Henry L Gantt ( )  Frank Gilbreth ( ) and Lillian Gilbreth ( )  1930s-40s: Human Relations and Mass production Studies carried out at the Hawthorne plant of the Western Electric Company between 1927 and 1932, under the direction of a Harvard professor, Elton Mayo, who showed that attention to technical details was not enough. It should complimented by attention to the social factors in organisations Henry Ford introduced the revolutionary assembly line for the production of historical Ford, T-model. Results: 12,5 hours  93 min $ 850  $ 265. The Heritage of operations management

24  Henry L Gantt ( )  Frank Gilbreth ( ) and Lillian Gilbreth ( )  1930s-40s: Human Relations and Mass production  1950s-60s: Operations Research  1970s: Widespread use of computers The Heritage of operations management

25  Henry L Gantt ( )  Frank Gilbreth ( ) and Lillian Gilbreth ( )  1930s-40s: Human Relations and Mass production  1950s-60s: Operations Research  1970s: Widespread use of computers  1980s:Influence of Japanese management practices Just-in-Time (JIT) Kanban systems Total Quality Management, TQM Total Quality Control, TQC The Heritage of operations management

26  Henry L Gantt ( )  Frank Gilbreth ( ) and Lillian Gilbreth ( )  1930s-40s: Human Relations and Mass production  1950s-60s: Operations Research  1970s: Widespread use of computers  1980s: Influence of Japanese management practices  1990s: Increasing pace of services TQM is widely adopted as well as ISO 9000 Theory Of Constraints, TOC ERP, BPR Supply Chain, etc The Heritage of operations management

27  Henry L Gantt ( )  Frank Gilbreth ( ) and Lillian Gilbreth ( )  1930s-40s: Human Relations and Mass production  1950s-60s: Operations Research  1970s: Widespread use of computers  1980s: Influence of Japanese management practices  1990s: Increasing pace of services  E-business, Knowledge Management & Globalization The Heritage of operations management

28 GNP vs. GDP Primary Secondary Tertiary

29 The National Economic Environment YEAR: 2003 GDP (%)Structure of employment (%) SectorEuro-areaUSAWorld Euro-area USAWorld Primary Secondary Tertiary Source: Economist (2006), Pocket world in figures, London

30 Year Proportion of total employment Service; Manufacturing;Agriculture Trends in US employment from Year The National Economic Environment

31 Chapter 1: Operations Function  A general model of the operations functions  Operations management activities  History of the Operations function  Industrial & Post industrial society  Summary Operations Management

32  Industrial society (1820 – 1920):  Post industrial society Introduction to OM/History of Operations

33 Industrial society (1820 – 1920):  machines & production of goods dominated the life of society  (society divided into) Blue & white collar workers  workers start work in harmony with the daily needs of the machine  towns and cities were organized around factory clusters  life was paced around clocks, work schedules, division of labor & market-demands Introduction to OM/History of Operations

34 Post industrial society:  efficient industrial production so goods affordable to “ average ” worker  emphasis shifts from quantity and cost  good life  emphasis on services & improved health and education systems  demand for greater technical and professional skill levels from employers  manufacturing is a mature activity while service is dominated by variety Introduction to OM/History of Operations

35 4-Vs

36 Although all operations processes are similar in that they all transform input resources into output products and services, they do differ in a number of ways, four of which are particular important, the 4-Vs: Operations processes have different characteristics The V olume of their output The V ariety of their output The V ariation in the demand for their output The degree of V isibility which customers have of the production of the product or service.

37 McDonald’s hamburgers  Repeatability (of tasks)  Specialization (of work) High Volumes  Low Cost  Systemization (i.e. routine) Types of Operations Systems (manufacturing) Variations in Volume

38 Compare McDonald’s with a small Coffee Shop with little dishes? Types of Operations Systems (manufacturing) Variations in Volume

39 Compare McDonald’s with a small Coffee Shop with little dishes? Coffee Shop:  Same items as Mac  Lower volume  Lower degree of repetition  Smaller number of staff who performs multiple tasks  Less specialization  Less specialized equipment therefore Cost per burger higher (while price of burger may be the same) Types of Operations Systems (manufacturing) Variations in Volume

40 Compare a taxi company with Bus service Taxi company offers a high-variety service:  Picks you up from anywhere  Takes you anywhere  Follow any route you want but with a higher cost than bus (which has regular service with well-defined routes) thus High Variety  High Cost Types of Operations Systems (manufacturing) Variations in Variety

41 visibility means exposure customer contact skills front office vs. back office The Visibility dimension

42 Summer holidays in an island vs. winter in an island Variation in demand affects the capacity, so: Extra staff for the summer period? Overtime? Hotel next to a motorway: Level demand, so Planning of activities well in advance (e.g. staff scheduled, food and rooms …….in a routine and predictable manner) therefore High utilization of resources therefore unit costs are lower The Variation dimension

43 Low Volume High High Variety Low Island resort hotel Formula 1 High Variation Low High Visibility Low Small island resort For about 10–20 visitors Formula 1 vs.

44 Low Volume High High Variety Low Island resort Formula 1 hotel High Variation Low High Visibility Low

45 Products & Services

46 TangibleIntangible Large systems, able to achieve “economies of scale” Normally, small system Complicated production operation PRODUCTSSERVICES Minimum contact with end user Direct contact with end user Can be kept as an inventoryOffered only during its production process Regional, national, international markets Local markets Standardized Heterogeneous Perishability Non - Perishability Differences Between Products & Services Simple production operation

47 Intangible Tangible QUESTION: Put them in order 1.Haircut 2.Medical advice 3.Washing machine 4.cd player 5.Cars 6.Petrol 7.MBA 8.Legal advice 9.Tires 10.Financial advice 11.Restaurant meal 12.Car insurance policy Differences Between Products & Services

48 Intangible Tangible ANSWER 1.Petrol 2.Cars 3.Tires 4.cd player 5.Washing machine 6.Restaurant meal 7.Haircut 8.MBA 9.Car insurance policy 10.Medical advice 11.Legal advice 12.Financial advice Differences Between Products & Services

49 END