McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 1 Introduction to Operations Management

1-2 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  Describe the operations function and the nature of the operations manager’s job

1-3 Learning Objectives  Differentiate between design and operation of production systems  Describe the key aspects of operations management decision making  Briefly describe the historical evolution of operations management  Identify current trends that affect operations management

1-4 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

1-5 The Organization The Three Basic Functions Organization Finance Operations Marketing Figure 1.1

1-6 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 Figure 1.2

1-7 Automobile assembly, steel making Home remodeling, retail sales Automobile Repair, fast food Goods-service Continuum Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

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

1-9 Manufacturing or Service? Tangible Act

1-10 Service Job Categories  Value-Added Services  Financing  Leasing  Insurance  Manufacturing Services (Internal)  Finance  Accounting  Legal  R&D

1-11 Service Job Categories  Business Services (Supporting Mfg.)  Consulting  Auditing  Advertising  Waste disposal  HR  IT

1-12 Service Job Categories  Infrastructure Services  Communications  Transportation  Utilities  Banking  Distribution Services  Wholesaling  Retailing  Repairing

1-13 Service Job Categories  Personal Services  Health care  Restaurants  Hotels  Consumer  Self-service  Government  Military  Education  Judicial  Police & fire protection

1-14 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

1-15  Operations Management includes:  Forecasting  Capacity planning  Scheduling  Managing inventories  Assuring quality  Motivating employees  Deciding where to locate facilities  Supply chain management  And more... Scope of Operations Management

1-16 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

1-17 Figure 1.4

1-18 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

1-19 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  Employee turnover is higher  Input variability is higher  Service performance can be affected by worker’s personal factors

1-20 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

1-21 Decision Making System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment

1-22 Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance

1-23 Systems Approach “The whole is greater than the sum of the parts.” Suboptimization

1-24 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. How do we identify the vital few?

1-25 Ethical Issues  Financial statements  Worker safety  Product safety  Quality  Environment  Community  Hiring/firing workers  Closing facilities  Worker’s rights

1-26 Business Operations Overlap Operations Finance Figure 1.5 Marketing

1-27 Operations Interfaces Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal

1-28 Historical Evolution of Operations Management  Industrial revolution (1770’s)  Scientific management (1911)  Mass production  Interchangeable parts  Division of labor  Human relations movement ( )  Decision models (1915, ’s)  Influence of Japanese manufacturers Table 1.7

1-29 Trends in Business  Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility  Ethical behavior  Service economy

1-30 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

1-31 Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Simple Product Supply Chain Figure 1.7 Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

1-32 Other Important Trends  Ethical behavior  Operations strategy  Working with fewer resources  Revenue management  Process analysis and improvement  Increased regulation and product liability  Lean operations