1. © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 MGMT 405, POM, 2013/14. Lec Notes Chapter 1: Introduction to POM Department of Business Administration FALL 20 13 - 2014

2. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 2 Outline: What You Will Learn... 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 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 impact operations management

3. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 3 Production/Operations Management is:  The management of that part of an organization that is responsible for producing goods and/or services.  The management of systems or processes that create goods and/or provide services. i.e. Every book you read, every e-mail you send or every medical treatment you receive involves the operation function of one or more organizations. The aim of production and operations is to satisfy people’s wants or needs. Operations Management affects:  The collective success or failure of companies’ POM  Companies’ ability to compete  Nation’s ability to compete internationally Definition of Operations Management

4. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 4 Business Organization  The Three Basic Functions Organization Finance Operations Marketing Fig 1.1 All business organizations have these three basic functions so it doesn’t matter the business a hospital, a manifacturing firm, a car wash etc.....

5. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 5 Finance- is responsible for securing financial resources at favourable prices as well as analysing investment proposal and providing funds for marketing and operations. Marketing is responsible for assessing consumer needs or wants and selling and promoting the organization’s goods and services. Operations is responsible for producing the goods or providing the services offered by the organization. Basic Concepts

6. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 6 Value-Added Process Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Value added  The operations function involves the conversion of inputs into outputs Figure 1.2

7. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 7 Basic Concepts  Input- Materials, labour, Data or unprocessed information, technology, equipment, legal constraints, government regulations etc....  What type of skill do the employees need?  What type of materials does the firm need?  Value-Added Activities- Performed with tools machines, techniques, human skills etc....i.e. Processing.  How will the firm use its resources to produce its products/ how can the firm improve its operations?  Output- Good and services.  what are their needs/what sort of products will be produced?

8. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 8 Value-added Value-added is the difference between the cost of inputs and the value or price of outputs. In non-profit organization, value-added of output is their value to society.  The greater the value-added, the greater the effectiveness of these operations (i.e. High way construction, state school construction etc...). In profit organization, value-added of output is measured by prices that customers are willing to pay for those goods and services.  Firms use the money generated by value-added for research and development, worker salaries and profit.  The greater the value-added, The greater the amount of funds available for these purposes.

9. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 9 Is Goods-service combination a Continuum? Automobile assembly, steel making Home remodeling, retail sales Automobile Repair, fast food Figure 1.3 Computer repair, restaurant meal Song writing, software development GoodsService Surgery, teaching

10. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 10 Why Product Packages? Because there are relatively few pure goods and pure services and therefore companies sell Product packages for their own benefit or interest. Product packages are a combination of goods and services. Product packages can make a company more competitive.

11. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 11 Example of the transformation for Food Processor InputsProcessing Outputs Raw VegetablesCleaning Canned vegetables Metal SheetsMaking cans WaterCutting EnergyCooking LaborPacking BuildingLabeling Equipment Table 1.2

12. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 12 Example of the transformation for Hospital Process InputsProcessingOutputs Doctors, nursesExaminationHealthy patients HospitalSurgery Medical SuppliesMonitoring EquipmentMedication LaboratoriesTherapy Table 1.3

13. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 13 Manufacturing or Service? Tangible Act  Manufacturing and Service are often different in terms of what is done but quite similar in terms of how it is done. For example, manufacturers decide what size factory needed and service organizations must decide what size building is needed. Manufacturing and Service differ cause manufacturing is goods-oriented and service is act-oriented.

14. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 14 Production of Goods vs. Delivery of Services Production of goods – tangible output Delivery of services – an act Service job categories  Government (state, local, etc..)  Wholesale/retail (clothing, food, stationery,etc..)  Financial services (banking, insurance, etc..)  Healthcare (doctors, dentists, hospitals, etc..)  Personal services (laundry, dry cleaning, etc..)  Business services ( data processing, e-business, etc..)  Education (schools, colleges, etc..)

15. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 15 Key Differences 1.Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity 6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

16. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 16 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

17. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 17 Goods vs. Service Figure 1.4  This slide is excluded from the exam

18. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 18 Why Manufacturing Matters? Over 18 million workers in manufacturing jobs Accounts for over 70% of value of U.S. exports Average full-time compensation about 20% higher than average of all workers Manufacturing workers more likely to have benefits Productivity growth in manufacturing in the last 5 years is more than double U.S. economy  This slide is excluded from the exam

19. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 19 Why Manufacturing Matters? More than half of the total R&D performed is in the manufacturing industries Manufacturing workers in California earn an average of about $25,000 more a year than service workers When a California manufacturing job is lost, an average of 2.5 service jobs are lost  This slide is excluded from the exam

20. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 20 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  This slide is excluded from the exam

21. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 21 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  This slide is excluded from the exam

22. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 22 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

23. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 23 Historical Evolution of Operations Management System for P & O have existed since ancient times.  The great wall of China  Egyptian pyramids i.e. More than 100000 workers for 20 years.  The ships of Roman empire  The roads and aqueducts of the Roman  These are all examples of the human ability to organize for operation and production  These also show the roots of the Industrial Revolution

24. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 24 Historical Evolution of Operations Management Industrial revolution (1770’s) Scientific management (1911)  Mass production  Interchangeable parts  Division of labor Human relations movement (1920-60)  A psychologist focusing on human factor in work-tiredness and motivation. Decision models (Harris 1915-inventory model, 1960-70’s)  The factory movement was accompanied by the development of several quantitative techniques. After ww II-the importance of military and manifucturing sectors, the models of forecasting, inventory man., project man were developed. Influence of Japanese manufacturers  JIT production, quality revolution, continual improvement etc.

25. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 25 The evolution of POM  Production of goods remained at a handicraft level untill the Industrial revolution took place. In 1764, the Industrial revolution began and James Watt invented the steam engine and advanced the use of mecanical power to increase productivity.  Eli Whitney (1798) found out and introduced the concepts of standardised parts and interchangeable parts. He then developed musket system because the type of muskets were handcrafted-he produced 10000 muskets by using the concept of interchangeable parts.  By using the same concept, he allowed the manifacture of fire- alarms, clocks, watchs, sewing machines etc..  Soon after, by conducting the concept of steam engine, Richard Trevithick (1802) invented the first train and Richard Fulton (1807) invented the first steam boat.

26. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 26 The evolution of POM  The first steam boat and the first train indicate a long stream of application in which human anad animal powers were replaced by engine power.  The Industrial revolution was the transformation of a society from peasant and local occupation into a society with world wide connections in terms of great use of machinery and large- scale commercial operations. This is the first step of factory system.  This system replaced the traditional production system by the concept of mass-production by bringing together large numbers of semi-skilled workers.  Adam Smith’s ‘The wealth of nations’ (1776) pointed out the importances and advantages of the division of labor where the production process was broken down into series of small tasks and each performed by a different worker.

27. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 27 The evolution of POM  With aid of the concept of the division of labor: Workers who continually perfomed the same task, they would gain skill and experience. Saving time or avoiding lost time due to changing jobs. Workers’ concentration on the same job increased would lead to the development of special tools and techniques for faster and easier task.  Specialization jobs and division of labor began to take place. A prominent mathematician and engineer Charles babbage (1832) promoted an economic analysis of work and pay on the basis of skill requirement.  In the earliest days of manufacturing, goods were produced using craft production-highly skilled workers conducting simple, flexible tools to produce small quantities customized goods.

28. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 28 The evolution of POM  Frederick Taylor (1911) published ‘the priciples of scientific management’. This helped to achieve wide tasks in industry.  Frank Gilber (principles of motion economy), Henry Gantt (schudeling and charts design for system) and Herrington Emerson (organizational efficiency) used Taylor’s ideas to improve the system of operation and production management. Influence of Japanese manufacturers  JIT production, quality revolution, continual improvement etc.  Using the concept of JIT production, Japanese manufacturers changed the rules of production from Mass Production to Lean Production.  Lean production prizes flexibility rather then efficiency, as well as quality rather than quantity. This indicates the first step of ‘Era of Industrial globalization’.

29. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 29 The evolution of POM Figure 1.5

30. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 30 School of Management The process school of management  was developed by Henry Fayol in 1900  management can be viewed as a continuous process  the function of planning, organizing and controlling The behavioural school of management  was developed by Elton Mayo in 1920  human relation movement on production output  Productivity depends not only on the physical environment but also on social norms and personal feelings (i.e. Western Electric’s Hawthorne plant)

31. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 31 School of Management The quantitative school of management  is concerned with decision making, mathematical modeling as well as system theory  represents a productive system  In 1915, Harris developed an Economic Order Quantity model for inventory management  In 1931, Shewhart developed a Quantity decision model for use in Statistical quality control work  In 1947, George Dantzing developed PERT/CPM  In the late 1950s and early 1960s Edward Bowman, Robert Fetter and Elwood Buffa developed the concept called Modern poduction Management  As computers became available in the 1950s, the power of opeartions research was multiplied

32. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 32 School of Management The School of Modern Management  In the late 1960s, MRP and CPR were introduced by Joseph Orlicky and Oliver White  In the late 1970s, MRP II, JIT, TMQ and KANBAN systems were developed  the School of Modern Management includes the system and the contingency approaches.  these are also called new contemporary management approaches  the system approach points out that an organization has interdependent factors as such individuals, status, motives, goals etc and must work together  the contingency approach reveals that organizations are different so different and changing cases need to conduct different approaches and techniques in reaching a solution  This slide is excluded from the exam

33. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 33 Trends in Industrial globalization Major trends  The Internet, e-commerce, e-business  Management technology  Globalization  Management of supply chains  Outsourcing  Agility  Ethical behavior  This slide is excluded from the exam

34. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 34 Summary for Historical Evolution of Operations Management

35. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 35 Some Famous Scientists

36. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 36 Some Famous Scientists

37. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 37 Some Famous Scientists

38. MGMT 405, POM, 2013/14. Lec Notes © Stevenson, McGraw Hill, 2010- Assoc. Prof. Sami Fethi, EMU, All Right Reserved. Introduction; Chapter1 38 Thanks