Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Operations and Competitiveness Operations Management - 5 th Edition Chapter 1 Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc.1-2 Lecture Outline  Defining Operations Management  Operations Function  Evolution of Operations Management  Operations Management and E–Business  Globalization  Competitiveness & Productivity  Services

Copyright 2006 John Wiley & Sons, Inc.1-3 What Do Operations Managers Do?  What is Operations? a function or system that transforms inputs into outputs of greater value a function or system that transforms inputs into outputs of greater value  What is a Transformation Process? a series of activities along a value chain extending from supplier to customer a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated activities that do not add value are superfluous and should be eliminated  What is Operations Management? design, operation, and improvement of productive systems design, operation, and improvement of productive systems Managerial aspects of transformation process Managerial aspects of transformation process

Copyright 2006 John Wiley & Sons, Inc.1-4  Physical: as in manufacturing operations  Locational: as in transportation operations  Exchange: as in retail operations  Physiological: as in health care  Psychological: as in entertainment  Informational: as in communication Transformation Process

Copyright 2006 John Wiley & Sons, Inc.1-5 INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services Feedback Operations as a Transformation Process

Copyright 2006 John Wiley & Sons, Inc.1-6 Primary Topics in Operations Management Strategy Strategy Products and services Products and services Processes and technologies Processes and technologies Facilities Facilities Project management Project management Managing the supply chain Managing the supply chain Forecasting demand for products and services Forecasting demand for products and services Production planning and scheduling Production planning and scheduling Ensuring quality Ensuring quality

Copyright 2006 John Wiley & Sons, Inc.1-7 Relevance of OM  Operations as a primary function  Operations as a technical core  Operations as a competitive weapon

Copyright 2006 John Wiley & Sons, Inc.1-8 Operations As A Primary Function MARKETING FINANCE OPERATIONS

Copyright 2006 John Wiley & Sons, Inc.1-9 Operations Function  Operations  Marketing  Finance and Accounting  Human Resources  Outside Suppliers

Copyright 2006 John Wiley & Sons, Inc.1-10 How is Operations Relevant to my Major?  Accounting  Information Technology  Management  “As an auditor you must understand the fundamentals of operations management.”  “IT is a tool, and there’s no better place to apply it than in operations.”  “We use so many things you learn in an operations class— scheduling, lean production, theory of constraints, and tons of quality tools.”

Copyright 2006 John Wiley & Sons, Inc.1-11 How is Operations Relevant to my Major?  Economics  Marketing  Finance  “It’s all about processes. I live by flowcharts and Pareto analysis.”  “How can you do a good job marketing a product if you’re unsure of its quality or delivery status?”  “Most of our capital budgeting requests are from operations, and most of our cost savings, too.”

Copyright 2006 John Wiley & Sons, Inc.1-12 Evolution of Operations Management  Craft production process of handcrafting products or services for individual customers process of handcrafting products or services for individual customers  Division of labor dividing a job into a series of small tasks each performed by a different worker dividing a job into a series of small tasks each performed by a different worker  Interchangeable parts standardization of parts initially as replacement parts; enabled mass production standardization of parts initially as replacement parts; enabled mass production

Copyright 2006 John Wiley & Sons, Inc.1-13  Scientific management systematic analysis of work methods systematic analysis of work methods  Mass production high-volume production of a standardized product for a mass market high-volume production of a standardized product for a mass market  Lean production adaptation of mass production that prizes quality and flexibility adaptation of mass production that prizes quality and flexibility Evolution of Operations Management (cont.)

Copyright 2006 John Wiley & Sons, Inc.1-14 Operations Management and E-Business Categories of E-Commerce Business Consumer BusinessConsumer B2B Commerceone.com B2C Amazon.com C2B Priceline.com C2C eBay.com

Copyright 2006 John Wiley & Sons, Inc.1-15 Globalization and Competitiveness (cont.) Hourly Wage Rates for Selected Countries Source: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing,” Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, Germany: $26.18 USA: $21.33 Taiwan: $5.41 Mexico: $2.38 China: $0.50

Copyright 2006 John Wiley & Sons, Inc.1-16 Globalization and Competitiveness (cont.) Trade with China: Percent of each country‘s trade Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002,” International Trade Statistics 2003, World Trade Organization,

Copyright 2006 John Wiley & Sons, Inc.1-17 Competitiveness and Productivity  Competitiveness degree to which a nation can produce goods and services that meet the test of international markets degree to which a nation can produce goods and services that meet the test of international markets  Productivity ratio of output to input ratio of output to input  Output sales made, products produced, customers served, meals delivered, or calls answered sales made, products produced, customers served, meals delivered, or calls answered  Input labor hours, investment in equipment, material usage, or square footage labor hours, investment in equipment, material usage, or square footage

Copyright 2006 John Wiley & Sons, Inc.1-18 Measures of Productivity Competitiveness and Productivity (cont.)

Copyright 2006 John Wiley & Sons, Inc.1-19 Changes in Productivity for Select Countries Internet-enabled productivity - Dot com bust - 9/11 terrorist attacks - Dot com bust - 9/11 terrorist attacks Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September U.S. figures for 2002–2003 from “Major Sector Productivity and Costs Index,” Bureau of Labor Statistics, U.S. Department of Labor, March 2004

Copyright 2006 John Wiley & Sons, Inc.1-20  Become efficient output increases with little or no increase in input output increases with little or no increase in input  Expand both output and input grow with output growing more rapidly both output and input grow with output growing more rapidly  Achieve breakthroughs output increases while input decreases output increases while input decreases  Downsize output remains the same and input is reduced output remains the same and input is reduced  Retrench both output and input decrease, with input decreasing at a faster rate both output and input decrease, with input decreasing at a faster rate Productivity Increase

Copyright 2006 John Wiley & Sons, Inc.1-21 Competitiveness and Productivity Productivity as a Function of Inputs and Outputs, 2001–2002 Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002,” Bureau of Labor Statistics, U.S. Department of Labor, September 2003 Breakthrough Performance More Efficient Retrench

Copyright 2006 John Wiley & Sons, Inc.1-22 Global Competitiveness Ranking  Finland  United States  Sweden  Denmark  Taiwan  Singapore  Switzerland  Iceland  Norway  Australia Source: Global Competitiveness Report 2003–2004, World Economic Forum, January 2004,

Copyright 2006 John Wiley & Sons, Inc.1-23 Nature of Services  Intangible  No inventory  Simultaneous production and consumption  Variety of services  Labor intensive

Copyright 2006 John Wiley & Sons, Inc.1-24 Nature of Services Degree of customer contact High vs. low contact services

Copyright 2006 John Wiley & Sons, Inc.1-25 Continuum from Goods to Services Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

Copyright 2006 John Wiley & Sons, Inc.1-26 Services Manufacturing Percent of US Workforce by Sector Figure 1.5 (A) Agriculture

Copyright 2006 John Wiley & Sons, Inc.1-27 Manufacturing sector Figure 1.5 (B) – – – – – 5 5 – 0 0 – – – – – – – 25 0 – 0 Employment (millions) Index: 1997 = 100 Index: 1997 = 100 Manufacturing employment Industrial production Estimate

Copyright 2006 John Wiley & Sons, Inc.1-28 Services as percent of GDP Figure 1.5 (C) United States Canada France Italy Britain Japan W. Germany ||||| Percent