Introduction to Operations Management

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

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

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

Marketing The Organization The Three Basic Functions Organization Finance Operations

The Basic Functions  Marketing – generates demand  Production/operations – creates the product  Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

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

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.

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

Food Processor InputsProcessing Outputs Raw VegetablesCleaning Canned vegetables Metal SheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment

Hospital Process InputsProcessingOutputs Doctors, nursesExaminationHealthy patients HospitalSurgery Medical SuppliesMonitoring EquipmentMedication LaboratoriesTherapy

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

 Operations Management includes:  Forecastingchapter 3  Product and service designchapter 4  Capacity planningchapter 5, 6  Motivating employeeschapter 7  Deciding where to locate facilitieschapter 8  Assuring qualitychapter 9, 10  Supply chain managementchapter 11  Inventories, planning and MRPchapter 12, 13, 14  JIT and lean operationchapter 15  Schedulingchapter 16  Project managementchapter 17  Management of waiting linechapter 18  More… such as Maintenance Scope of Operations Management

Types of Operations 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

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

Why Manufacturing Matters ?  A lot of workers are in manufacturing jobs  More than half of the total R&D performed is in the manufacturing industries  Manufacturing workers earn an average of salary more than service workers  When a manufacturing job is lost, an average of 2.5 service jobs are lost

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, except specialist services  Employee turnover is higher  Input variability is higher  Service performance can be affected by worker’s personal factors

Decision Making of OM System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment What How Who Where When Which

Decision Making of OM System operation – personnel – inventory – scheduling – project management – quality assurance What How Who Where When Which

OM and Decision Making Tools  Models  Quantitative approaches  Analysis of trade-offs  Priorities Establishing  Ethical Issues

Models A model is an abstraction of reality. – Physical – Schematic – Mathematical

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

Limitations of Models  Quantitative information may be emphasized at the expense of qualitative information  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

Quantitative Approaches Often to obtain optimal solution to managerial problem Linear programming Queuing Techniques Inventory models Project models Statistical models

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

Priorities Establishing (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.

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

Business Operations Overlap Operations Finance Marketing

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

Trends in Business  Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility (faster moving of technology and fashion)  Ethical behavior

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

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

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