CHAPTER 1 INTRODUCTION

LEARNING OBJECTIVES Describe and Explain concepts, functions and nature of OM Identify current OM problems, issues and trends. Describe and Explain approaches used by OM

What Is OM? Feedbackloop Feedback loop Outputs Goods and servicesProcesses Transformation/ conversion process Inputs Labor, capital, Land, Information

Production is the creation of goods and services. Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs. Operations management (OM) is the management of systems or processes that create goods and/or provide services.

Organizing to Produce Goods and Services Essential functions:  Marketing – generates demand  Production/operations – creates the product  Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

Organizational Charts Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Airline Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

GOODS- SERVICES CONTINUUM Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling Percent of Product that is a GoodPercent of Product that is a Service 100% % |||||||||

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

WHY STUDY OM ? one of three major functions (marketing, finance, and operations) of any organization. we want (and need) to know how goods and services are produced. we want to understand what operations managers do. a costly part of an organization

WHAT OPERATIONS MANAGERS DO? Planning Organizing Staffing Leading Controlling

Where are the OM Jobs?

Significant Events in OM

Current Trend in OM Coordinate the relationships between mutually supportive but separate organizations. Optimizing global supplier, production, and distribution networks. Increased co-production of goods and services.

Current Issues in OM (cont’d) Managing the customer’s experience during the service encounter. Raising the awareness of operations as a significant competitive weapon.

New Trends in OM Local or national focus Reliable worldwide communication and transportation networks Global focus, moving production offshore Batch (large) shipments Short product life cycles and cost of capital put pressure on reducing inventory Just-in-time performance Low-bid purchasing Supply chain competition requires that suppliers be engaged in a focus on the end customer Supply chain partners, collaboration, alliances, outsourcing PastCausesFuture

New Trends in OM (cont’d) Lengthy product development Shorter life cycles, Internet, rapid international communication, computer- aided design, and international collaboration Rapid product development, alliances, collaborative designs Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization with added emphasis on quality Job specialization Changing socioculture milieu; increasingly a knowledge and information society Empowered employees, teams, and lean production PastCausesFuture

New Trends in OM (cont’d) Low-cost focus Environmental issues, ISO 14000, increasing disposal costs Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing Ethics not at forefront Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution High ethical standards and social responsibility expected PastCausesFuture

Productivity Challenge Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital) The objective is to improve productivity! Note: Production is a measure of output only and not a measure of efficiency

Productivity measure of process improvement. represents output relative to input Productivity = Units produced Input used

Productivity Calculations Labor productivity: Productivity = Units produced Labor-hours used = = 4 units/labor-hour 1,000250

Productivity Calculations (cont’d) Multi-factors productivity:Output Labor + Material + Energy + Capital + Miscellaneous Productivity =

Productivity Variables Labor - contributes about 10% of the annual increase. Capital - contributes about 38% of the annual increase Management - contributes about 52% of the annual increase

Global View of Operations Reasons to Globalize 1.Reduce costs (labor, taxes, tariffs, etc.) 2.Improve supply chain 3.Provide better goods and services 4.Understand markets 5.Learn to improve operations 6.Attract and retain global talent Tangible Reasons Intangible Reasons

Developing Missions and Strategies Mission Mission statements tell an organization where it is going. statements tell an organization where it is going. The Strategy The Strategy tells the organization how to get there tells the organization how to get there

Strategies for Competitive Advantage Differentiation  better, or at least different. Cost leadership  cheaper, achieving maximum value Respone  Rapid, flexible and reliable performance

10 Strategic OM Decisions 6.Human resources and job design 7.Supply chain management 8.Inventory 9.Scheduling 10.Maintenance 1.Goods and service design 2.Quality 3.Process and capacity design 4.Location selection 5.Layout design

OM’s Contribution to Strategy Product Quality Process Location Layout Human resource Supply chain Inventory Scheduling Maintenance FLEXIBILITY: Sony’s constant innovation of new products………………………………....Design HP’s ability to lead the printer market………………………………Volume Southwest Airlines No-frills service……..…..LOW COST DELIVERY: Pizza Hut’s 5-minute guarantee at lunchtime…………………..…..………………….Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability QUALITY: Motorola’s HDTV converters….…… Conformance Motorola’s pagers………………………..….Performance Caterpillar’s after-sale service on heavy equipment……………....AFTER-SALE SERVICE Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE OperationsSpecificCompetitive DecisionsExamplesStrategy UsedAdvantage Response (Faster) Cost leadership (Cheaper) Differentiation (Better)

Strategy Development and Implementation SWOT analysis Strategy Analysis Internal Strengths Internal Weaknesses External Opportunities External Threats Mission

 Import/export or license existing product Examples U.S. Steel Harley Davidson International Strategy Four International Operations Strategies Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)

Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation) International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Four International Operations Strategies

International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy Four International Operations Strategies

Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Four International Operations Strategies

 Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples Heinz McDonald’s The Body Shop Hard Rock Cafe Multidomestic Strategy Four International Operations Strategies

Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples HeinzThe Body Shop McDonald’sHard Rock Cafe Four International Operations Strategies

International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples HeinzThe Body Shop McDonald’sHard Rock Cafe  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global Strategy Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)  Move material, people, ideas across national boundaries  Economies of scale  Cross-cultural learning Examples Coca-Cola Nestlé Transnational Strategy Four International Operations Strategies

Cost Reduction Considerations HighLow HighLow Local Responsiveness Considerations (Quick Response and/or Differentiation)  Standardized product  Economies of scale  Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator Global StrategyTransnational Strategy  Move material, people, ideas across national boundaries  Economies of scale  Cross-cultural learning Examples Coca-Cola Nestlé International Strategy  Import/export or license existing product Examples U.S. Steel Harley Davidson Multidomestic Strategy  Use existing domestic model globally  Franchise, joint ventures, subsidiaries Examples HeinzThe Body Shop McDonald’sHard Rock Cafe Four International Operations Strategies