1. BUSI 104 – Operations Management Professor Ed Arnheiter
Introduction to Operations Management Strategy, Trends, Productivity, Competing on Quality and Flexibility
BUSI 104 – Operations Management
Professor Ed Arnheiter
BUSI 104- Operations Management

2. What is Operations Management?
Planning, designing, operating and improving systems for getting work done.
Organizing human & capital resources.
Directing operations and personnel.
Monitoring system’s performance to be sure it meets organizational objectives.
Role of operations is to create value!
BUSI 104 Operations Management

3. Operations as a Transformation Process
Transformation Process; transform and add VALUE to inputs
Finished Outputs
Goods
Services
Inputs
Raw Materials
Components
Customers
BUSI 104 Operations Management
Transformations can include: physical, location, exchange, storage, physiological, and informational.

4. Reasons for Studying OM
Many trends begin in operations (e.g., TQM, Business Process Reengineering, Lean, Six Sigma).
Systematic way of looking at processes (everything is a process!)
OM tools can be applied to managing other aspects of business; planning work, controlling quality, ensuring productivity, reducing waste, Etc.
BUSI 104 Operations Management

5. Challenges Facing Operations
Getting new products and services to marketplace quickly.
Flexibility & “mass customization”
Managing global production and service networks
Developing & integrating new process technologies into existing production systems.
Achieving & maintaining high quality
Managing diverse workforce
Conforming to environmental constraints, ethical standards, & government regulations.
BUSI 104 Operations Management

6. Historical Development of OM
Scientific management -Taylor
Industrial Psych- Gilbreth’s
Moving line - Ford, Gantt
EOQ - Harris
QC- Shewhart, Dodge,Romig
Hawthorne studies- Mayo,Tippet
BUSI 104 Operations Management
1940’s
1950’s - 60’s
Simplex method- Dantzig
OR tools- Various researchers

7. Historical Development of OM (Continued)
Computers in business - IBM, Orlicky & Wight (MRP)
Service Quality - McDonald’s
Mfg. as competitive weapon - HBS faculty
JIT, TQC, automation- Ohno, Deming, Juran
BUSI 104 Operations Management
1990’s
Present
TQM and CI- NIST, ASQ, ISO 9000
BPR- Hammer, major consultants
WWW - U.S. Government, Netscape, MS
Supply chain software - SAP, Oracle
Internet Revolution
Globalization
Outsourcing
Lean & Six Sigma

8. Overview of Operations Strategy
Architecture
Capacity
Facilities
Vertical Integration
Technology
R&D Allocation
Technology Choice
Development
BUSI 104 Operations Management
Systems and
Processes
Workforce
Quality
Production Planning
Organization

9. Classic Manufacturing Outputs
Manufacturing provides six outputs to its customers:
Cost
Quality
Delivery
Flexibility
Performance (originally part of Quality)
Innovativeness (originally part of Flexibility)
Focus of 60’s – Early 70’s
Classic
Four
BUSI 104 Operations Management
Added in 80’s

10. Summary of Manufacturing Outputs
Cost
Cost of material, labor overhead, & other resources used to produce product
Quality
Extent to which materials & operations conform to specifications & customer expectations, and how tight or difficult specifications and expectations are.
Performance
Product's features & extent to which features or design permit product to do things other products cannot do.
Delivery
Time between order taking and delivery to customer. How often are orders late, and how late are they when they are late?
Flexibility
Extent to which volumes of existing products can be increased or decreased to respond quickly to needs of customers
Innovative-ness
Ability to quickly introduce new products or make design changes to existing products.
BUSI 104 Operations Management

11. Companies Known for a Particular Operations Emphasis
Output
Company
Slogan (past or current)
Cost
Wal-Mart
“More for Less”
Quality
Ford
Toyota
Chevrolet
Pratt & Whitney
“Quality is job one”
“There’s quality, then there’s Toyota quality”
“Built like a rock”
“Dependable Engines”
Delivery
Federal Express
UPS
“The world on time”
“Moving at the Speed of Business”
Flexibility
Burger King
Visa
“Have it your way” (1974)
“It’s everywhere you want to be”
Performance
Mercedes-Benz
Tide detergent
BMW
“Engineered like no other car in the world”
“If it’s got to be clean, it’s got to be tide”
“The ultimate driving machine”
Innovation GE
Microsoft
Audi
“Imagination at Work” (new in 2003)
“Where do you want to go today?”
“It’s greater to lead than follow”
BUSI 104 Operations Management

12. Productivity
How well country, industry, or business unit is using resources.
Total productivity: relates all output to all input
Partial productivity: relates all output to major categories of input
BUSI 104 Operations Management
“The chief means whereby humankind can raise itself out of poverty to a condition of relative material affluence is by increasing productivity.”
- John W. Kendrick, Understanding Productivity: An Introduction to the Dynamics of Productivity Change

13. Productivity Measures
Total Productivity = Outputs/Inputs
Partial measures:
Multifactor measures:
BUSI 104 Operations Management

14. Productivity Example 400 PCB’s per eight-hour day using 50 employees.
400/(50x8) = 1 PCB per labor-hour
Hire 25 employees and increase production to 600 boards/day:
600/(75x8) = 1 PCB per labor-hour
BUSI 104 Operations Management

15. Productivity Example 2 10,000 units produced and are sold for $10/unit
Requires 500 labor hours and labor rate = $9/hour
Cost of raw material = $5,000
Cost of purchased material = $25,000
Labor productivity = (10,000 unit)/(500 hr) = 20 unit/hr
Or using “unit-less” figure:
Labor productivity = [(10000)(10)]/[(500)(9)] = 22.22
BUSI 104 Operations Management

16. Supply Chain Management
BUSI 104 Operations Management
Includes suppliers of raw materials, plants that transform materials into useful products, and distribution methods to get products to end users.

17. Trends in U.S. Logistics Costs
Billions of U.S. Dollars
BUSI 104 Operations Management
Source: Simchi-Levi, et.al., Designing and Managing the Supply Chain, 3rd Edition, McGraw-Hill Irwin, 2008, Figure 1-5, pg. 8.

18. Average annual rate (percents), 2000–2008
Top 20 World Container Ports: 2000, 2007, (Thousands of loaded and unloaded TEUs)
Rank in 2000
Rank in 2007
Rank in 2008
Port name
Country
2000
2007
2008
Percent change, 2000–2008
Percent change, 2007–2008
Average annual rate (percents), 2000–2008 2 1
Singapore
17,040
27,932
29,918 76
7.1
7.3 6
Shanghai
China
5,613
26,150
27,980
398
7.0
22.2 3
Hong Kong
18,098
23,881
24,248 34
1.5
3.7 11 4
Shenzhen
3,994
21,099
21,414
436
23.4 5
Busan
South Korea
7,540
13,270
13,425 78
1.2
7.5 13 7
Dubai
United Arab Emirates
3,059
10,653
11,828
287
11.0
18.4 65
Ningbo
902
9,360
11,226
1,145
19.9
37.0 38 12 8
Guangzhou
1,430
9,200
11,001
669
19.6
29.1 9
Rotterdam
Netherlands
6,280
10,791
10,800 72
0.1 24 10
Qingdao
2,120
9,462
10,320
387
9.1
21.9
Hamburg
Germany
4,248
9,900
9,700
128
-2.0
10.9
Kaohsiung
Taiwan
7,426
10,257
9,677 30
-5.7
3.4 14
Antwerp
Belgium
4,082
8,177
8,664
112
6.0
9.9 32 17
Tianjin
1,708
7,103
8,500
19.7 16 15
Port Klang
Malaysia
3,207
7,120
7,970
149
11.9
12.1
Los Angeles
United States
4,879
8,355
7,850 61
-6.0
6.1
Long Beach
4,601
7,312
6,488 41
-11.3
4.4
113 18
Tanjung Pelepas
418
5,500
5,600
1,239
1.8
38.3 20 19
Bremen/Bremerhaven
2,712
4,892
5,501
103
12.4
9.2
New York/New Jersey
3,050
5,400
5,265 73
-2.5
BUSI 104 Operations Management

19. U.S. versus World Maritime Container Traffic and GDP: 1999–2008
Container traffic (total TEUs loaded and empty)
Gross Domestic Product (current U.S. dollars)
World (millions)
United States (millions)
U.S. share of world total (percent)
U.S. rank
World (billions)
United States (billions)
U.S. share of World GDP (percent)
1999
184.6
28.0
15.2 2
30,786
9,268
30.1 1
2000
233.5
30.4
13.0
31,650
9,817
31.0
2001
245.1
30.7
12.5
31,456
10,128
32.2
2002
269.5
32.7
12.1
32,714
10,470
32.0
2003
307.4
36.3
11.8
36,751
10,961
29.8
2004
300.8
38.7
12.9
41,258
11,686
28.3
2005
306.0
42.0
13.7
44,455
12,422
27.9
2006
426.4
44.4
10.4
48,665
13,178
27.1
2007
436.6
45.0
10.3
54,585
13,808
25.3
2008
387.1
38.0
9.8
60,863a
14,265
23.4
Percent change,
182.1
70.1 -–
Average annual rate (percents),
8.3
4.2
BUSI 104 Operations Management

20. Millions of Containers (TEUs) Entering U. S
Millions of Containers (TEUs) Entering U.S. from China by Vessel,
BUSI 104 Operations Management
SOURCE: Gail Perkins, U.S. Maritime Administration, U.S. Department of Transportation, personal communication.

21. Some Popular Management Strategies of the Last 50 Years
Initiative
Seminal or Influential Works
Core Competencies
Seminal article in field of manufacturing strategy: W. Skinner, "Manufacturing--Missing Link in Corporate Strategy," HBR, May/June 1969, pp
Influential paper: C. Prahalad and G. Hamel, "The Core Competence of the Corporation," HBR, May-June 1990, pp
Customer Delight
Delighted-Terrible (D-T) scale: Westbrook, Robert A. (1980), "A Rating Scale for Measuring Product/Service Satisfaction," Journal of Marketing, 44 (Fall),
“Customer delight” popularized by AT&T Universal Card Services Corporation, 1993 MBNQA recipient.
Zero Inventory
R.W. Hall, Zero Inventories, Homewood, Illinois: Dow-Jones Irwin, 1983
Synchronous Manufacturing
Goldratt, E., and Cox, The Goal: Excellence in Manufacturing, J., North River Press, 1984.
Total Quality Management (TQM)
Term initially coined in 1985 within Naval Air Systems Command. Navy adopted this definition in 1990, but decided to use total quality leadership (TQL) for quality improvement that throughout the Dept.
BUSI 104 Operations Management

22. Some Popular Management Strategies of the Last 50 Years (continued)
Initiative
Seminal or Influential Works
Benchmarking
“How to Measure Yourself Against the Best”, Tucker, Frances Gaither; Zivan, Seymour M.; Camp, Robert C., HBR, Jan/Feb 1987; Vol. 65, Iss. 1; pg. 8, 3 pgs
Concurrent Engineering
“Manufacturing By Design”, D.E. Whitney, HBR, July-Aug 1988.
Computer Integrated Manufacturing (CIM)
“A CEO's Common Sense of CIM: An Interview with J. Tracy O'Rourke,” Avishai, Bernard; Harvard Business Review, Jan/Feb 1989; Vol. 67, Iss. 1; pg. 110, 8 pgs
Just-in-Time (JIT)
“Getting Control of Just-in-Time,” Karmarkar, Uday; HBR, Sep/Oct 1989; Vol. 67, Iss. 5; pg. 122, 10 pgs.
Taguchi Methods
“Robust Quality,” Taguchi, Genichi; Clausing, Don; HBR, Jan/Feb 1990; Vol. 68, Iss. 1; pg. 65, 11 pgs
Reengineering (became BPR)
“Reengineering Work: Don’t Automate, Obliterate,” Michael Hammer, HBR, Vol. 68, No. 4, July-Aug 1990
Zero Defections
“Zero Defections: Quality Comes to Services,” Reichheld, Frederick F.; Sasser, W. Earl, Jr.; HBR, Sep/Oct 1990; Vol. 68, Iss. 5; pg. 105, 7 pgs
BUSI 104 Operations Management

23. Some Popular Management Strategies of the Last 50 Years (continued)
Initiative
Seminal or Influential Works
Reinventing the Corporation
“Research That Reinvents the Corporation,” Brown, John Seely; HBR, Jan/Feb 1991; Vol. 69, Iss. 1; pg. 102, 10 pgs
Activity-based Costing (ABC)
“Profit Priorities from Activity-Based Costing,” Cooper, Robin; Kaplan, Robert S.; HBR, May/Jun 1991; Vol. 69, Iss. 3; pg. 130, 6 pgs
Malcolm Baldrige National Quality Award (MBNQA)
“How the Baldrige Award Really Works,” Garvin, David A; HBR, Nov/Dec 1991; Vol. 69, Iss. 6; pg. 80, 16 pgs 11.
Balanced Scorecard
“The Balanced Scorecard - Measures That Drive Performance,” Kaplan, Robert S.; Norton, David P.; HBR, Jan/Feb 1992; Vol. 70, Iss. 1; pg. 71, 9 pgs
Matrix Management
“Matrix Management: Not a Structure, a Frame of Mind,” Bartlett and Ghoshal, HBR, Jul/Aug Blamed the matrix principle for the fact that top-level managers in many leading companies were losing control of their companies.
BUSI 104 Operations Management