1-1Introduction to Operations Management

1-2Introduction to Operations Management Operations Management What is operations? –The part of a business organization that is responsible for producing goods or services How can we define operations management? –The management of systems or processes that create goods and/or provide services

1-3Introduction to Operations Management Supply & Demand SupplyDemand > SupplyDemand < SupplyDemand = Operations & Supply Chains Sales & Marketing Wasteful Costly Opportunity Loss Customer Dissatisfaction Ideal

1-4Introduction to Operations Management The management of systems or processes that create goods and/or provide services Basic Functions of the Business Organization Operations Finance Marketing Organization

1-5Introduction to Operations Management Supply Chain Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service Suppliers’ suppliers Direct suppliers ProducerDistributor Final Customers

1-6Introduction to Operations Management The Transformation Process --OM Model Inputs Land Labor Capital Information Outputs Goods Services Transformation/ Conversion Process Control Feedback Value-Added Feedback = measurements taken at various points in the transformation process Control = The comparison of feedback against previously established standards to determine if corrective action is needed.

1-7Introduction to Operations Management Food Processor InputsProcessing Outputs Raw VegetablesCleaning Canned vegetables Metal SheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

1-8Introduction to Operations Management Hospital Process InputsProcessingOutputs Doctors, nursesExaminationHealthy patients HospitalSurgery Medical SuppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.2

1-9Introduction to Operations Management Automobile Assembly, Steelmaking Products are typically neither purely service- or purely goods- based. GoodsServices Home Remodeling, Retail Sales Computer Repair, Restaurant Meal Songwriting, Software Development Surgery, Teaching Goods-service Continuum

1-10Introduction to Operations Management High-paying service jobs: Information, Financial, Health, Education, Professional and Business Services high-paying 56% of the service job growth These high-paying service jobs accounted for 56% of the service job growth since 1990! 41% of jobs. In 2006 they accounted for 41% of jobs. Compensationfour times faster Compensation in these jobs grew four times faster than in service industry overall How is the service industry doing? High-paying Total

1-11Introduction to Operations Management U.S. Trade Flows (exports + imports of goods and services) as % of GDP Recessions in yellow More trade is associated with economic expansion Trade expanded 3 times faster than GDP, by a factor of 150(!) since 1950

1-12Introduction to Operations Management Does the trade deficit cause unemployment? Trade deficit expands Unemployment drops Most of the expansion in the trade deficit occurred during the roaring 1990s! Since 2000 Before 2000

1-13Introduction to Operations Management U.S. manufacturing output hurt by imports? 1990s: Surge in imports and manufacturing output : Manufacturing drops, imports slow Since 2000: Both recovering Manufacturing output expands despite imports

1-14Introduction to Operations Management Loss of manufacturing jobs: Only in the U.S.? Manufacturing jobs: 1993 normalized to 100 3m jobs lost in the U.S. It’s a worldwide phenomenon!

1-15Introduction to Operations Management The real culprit: Productivity Output per hour in Manufacturing Overall Economy

1-16Introduction to Operations Management How about outsourcing of service jobs? Exports Imports surplus The U.S. has a persistent surplus in trade of services Surplus

1-17Introduction to Operations Management Trade in goods and services Increased trade tends to coincide with economic expansion Manufacturing employment is down in the U.S. Just like everywhere else! Service employment has grown despite outsourcing.

1-18Introduction to Operations Management Manufacturing vs. Service? Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.

1-19Introduction to Operations Management Production of Goods vs. Delivery of Services Production of goods – tangible output Delivery of services – an act Service job categories –Government –Wholesale/retail –Financial services –Healthcare –Personal services –Business services –Education

1-20Introduction to Operations Management Manufacturing vs Service CharacteristicManufacturingService Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct Tangible Low High Low High Easy High Intangible High Low High Low Difficult Low quality problems High

1-21Introduction to Operations Management Process Management Three Categories of Business Processes: Upper-management processes These govern the operation of the entire organization. Operational processes These are core processes that make up the value stream. Supporting processes These support the core processes. Process - one or more actions that transform inputs into outputs

1-22Introduction to Operations Management Process Management Four Sources of Variation: Variety of goods or services being offered The greater the variety of goods and services offered, the greater the variation in production or service requirements. Structural variation in demand These are generally predictable. They are important for capacity planning. Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers. Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action. Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.

1-23Introduction to Operations Management Operations Management includes: –Forecasting –Capacity planning –Scheduling –Managing inventories –Assuring quality –Motivating employees –Deciding where to locate facilities –And more... Scope of Operations Management

1-24Introduction to Operations Management Role of the Operations Manager The Operations Function consists of all activities directly related to producing goods or providing services. A primary function of the operations manager is to guide the system by decision making. –System Design –System Operation

1-25Introduction to Operations Management Types of Operations Table 1.4 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

1-26Introduction to Operations Management U.S. Manufacturing vs. Service Employment

1-27Introduction to Operations Management The Decline in Manufacturing Employment 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 A Statistical Artifact –Manufacturers are increasingly using contract and temporary labor which no longer show up in the statistics as manufacturing employment

1-28Introduction to Operations Management Why Manufacturing Matters? Myth #1: advanced economy like the U.S. no longer needs to manufacture and can thrive exclusively as a hub for high-value-added design and innovation

1-29Introduction to Operations Management Why Manufacturing Matters? Myth #2: the migration of mature manufacturing industries away from developed countries like the U.S. is just part of a healthy, natural process of economic evolution that allows resources to be redeployed to new, higher- potential businesses.

1-30Introduction to Operations Management Key Decisions of Operations Managers What What resources/what amounts When Needed/scheduled/ordered Where Work to be done How Designed Who To do the work

1-31Introduction to Operations Management Decision Making ModelsModels Quantitative approachesQuantitative approaches Analysis of trade-offsAnalysis of trade-offs Systems approachSystems approach

1-32Introduction to Operations Management Systems Approach “The whole is greater than the sum of the parts.” Suboptimization

1-33Introduction to Operations Management Operations Finance Marketing Operation Management link Operation + Marketing + Finance

1-34Introduction to Operations Management Why Operations Management? Career Opportunities abound Operations manager Purchasing manager Supply chain manager Distribution manager Quality manager Etc. Visit APICS, ISM, ASQ, CSCMP websites

1-35Introduction to Operations Management Operations Interfaces Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal

1-36Introduction to Operations Management Trends in Business Major trends –e-commerce, e-business –Management of technology –Globalization –Management of supply chains –Agility

1-37Introduction to Operations Management A Typical Supply Chain

1-38Introduction to Operations Management The need for managing supply chain In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems: –Oscillating inventory levels –Inventory stockouts –Late deliveries –Quality problems

1-39Introduction to Operations Management Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Simple Product Supply Chain Supply Chain: when something is deliver either services or goods then SUPPLY CHAIN is there

1-40Introduction to Operations Management Elements of Supply Chain Management Customers – what products/services do customers want Forecasting – predicting timing and volume of customer demand Design – incorporating customer wants, manufacturability, and time to market Capacity planning – matching supply and demand Processing – controlling quality, scheduling work

1-41Introduction to Operations Management Elements of Supply Chain Management Inventory – meeting demand requirements while managing costs Purchasing – evaluating potential suppliers, supporting the needs of operations on purchased goods and services Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations Location – determining the location of facilities Logistics – deciding how to best move information and materials