Chapter 1

Operations and Competitiveness

Operations Management - 5th Edition
Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc.

Beni Asllani University of Tennessee at Chattanooga

Lecture Outline
What Do Operations Managers Do? Operations Function Evolution of Operations Management Operations Management and Ebusiness Globalization and Competitiveness Primary Topics in Operations Management Learning Objectives for this Course
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What Do Operations Managers Do?

What is Operations?

a function or system that transforms inputs into outputs of greater value

a series of activities along a value chain extending from supplier to customer. activities that do not add value are superfluous and should be eliminated design, operation, and improvement of productive systems

What is a Transformation Process?

What is Operations Management?

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Transformation Process
Physical: as in manufacturing operations Locational: as in transportation operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication

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Operations as a Transformation Process

INPUT Material Machines Labor Management Capital

TRANSFORMATION PROCESS

OUTPUT Goods Services

Feedback
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Operations Function
Operations Marketing Finance and Accounting Human Resources Outside Suppliers
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How is Operations Relevant to my Major?

Accounting
As an auditor you must understand the fundamentals of operations management. IT is a tool, and theres no better place to apply it than in operations. We use so many things you learn in an operations class scheduling, lean production, theory of constraints, and tons of quality tools.
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Information Technology Management

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How is Operations Relevant to my Major?

Economics Marketing
Its all about processes. I live by flowcharts and Pareto analysis. How can you do a good job marketing a product if youre unsure of its quality or delivery status? Most of our capital budgeting requests are from operations, and most of our cost savings, too.
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Finance

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Evolution of Operations Management

Craft production

process of handcrafting products or services for individual customers dividing a job into a series of small tasks each performed by a different worker standardization of parts initially as replacement parts; enabled mass production

Division of labor

Interchangeable parts

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Evolution of Operations Management (cont.)

Scientific management

systematic analysis of work methods

high-volume production of a standardized product for a mass market adaptation of mass production that prizes quality and flexibility
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Mass production

Lean production

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Historical Events in Operations Management

Era
Industrial Revolution

Events/Concepts
Steam engine Division of labor Interchangeable parts Principles of scientific management

Dates
1769 1776 1790

Originator
James Watt

Adam Smith Eli Whitney Frederick W. Taylor

Frank and Lillian Gilbreth Henry Gantt Henry Ford

1911
1911 1912 1913

Time and motion studies Scientific Management Activity scheduling chart Moving assembly line

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Historical Events in Operations Management (cont.)

Era
Human Relations

Events/Concepts
Hawthorne studies Motivation theories

Dates
1930 1940s 1950s 1960s 1947 1951 1950s 1960s, 1970s

Originator
Elton Mayo Abraham Maslow Frederick Herzberg Douglas McGregor George Dantzig Remington Rand Operations research groups Joseph Orlicky, IBM and others
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Operations Research

Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM
MRP, EDI, EFT, CIM

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Historical Events in Operations Management (cont.)

Era Events/Concepts Dates Originator
1970s 1980s 1990s 1990s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy JIT (just-in-time) TQM (total quality management) Quality Strategy and Revolution operations Business process reengineering

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Historical Events in Operations Management (cont.)

Era
Globalization

Events/Concepts
WTO, European Union, and other trade agreements Internet, WWW, ERP, supply chain management

Dates Originator
1990s 2000s 1990s Numerous countries and companies ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE, PeopleSoft Amazon, Yahoo, eBay, and others

Internet Revolution

E-commerce

2000s

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Continuum from Goods to Services

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p.11. Copyright 2006 John Wiley & Sons, Inc. 1-15

Operations Management and E-Business

Business Business Consumer

B2B Commerceone.com

B2C Amazon.com

Consumer

C2B redbus

C2C eBay.com

Categories of E-Commerce

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An Integrated Value Chain

Value chain: set of activities that create and deliver products to customer

Customer

Manufacturer

Supplier

Flow of information (customer order) Flow of product (order fulfillment)

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Impact of E-Business on Operations Management

Benefits of E-Business Comparison shopping by customers Direct contact with customers Business processes conducted online
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Impact on Operations
Customer expectations escalate; quality must be maintained and costs lowered No more guessing about demand is necessary; inventory costs go down; product and service design improves; build to-order products and services is made possible Transaction costs are lower; customer support costs decrease; e-procurement saves big bucks

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Impact of E-Business on Operations Management (cont.)

Benefits of E-Business Impact on Operations Access to customers Demand increases; order fulfillment and logistics become major issues; worldwide production moves overseas Middlemen are eliminated Access to suppliers worldwide
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Logistics change from delivering to a store or distribution center to delivering to individual homes; consumer demand is more erratic and unpredictable than business demand Outsourcing increases; more alliances and partnerships among firms are formed; supply is less certain; global supply chain issues arise
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Impact of E-Business on Operations Management (cont.)

Benefits of E-Business Online auctions and emarketplaces Better and faster decision making Impact on Operations
Competitive bidding lowers cost of materials; supply needs can be found in one location More timely information is available with immediate access by all stakeholders in decisionmaking process; customer orders and product designs can be clarified electronically; electronic meetings can be held; collaborative planning is facilitated
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Impact of E-Business on Operations Management (cont.)

Benefits of E-Business IT synergy Impact on Operations
Productivity increases as information can be shared more efficiently internally and between trading partners Order fulfillment, logistics, warehousing, transportation and delivery become focus of operations management; risk is spread out; trade barriers fall

Expanded supply chains

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Globalization and Competitiveness

Favorable cost Access to international markets Response to changes in demand Reliable sources of supply 14 major trade agreements in 1990s Peak: 26% in 2000
World Trade Compared to World GDP Source: Real GDP and Trade Growth of OECD Countries, 200103, International Trade Statistics 2003, World Trade Organization, www.wto.org

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Globalization and Competitiveness (cont.)

Germany: $26.18

USA: $21.33

Taiwan: $5.41

Mexico: $2.38

Hourly Wage Rates for Selected Countries Source: International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing, Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.

China: $0.50
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Globalization and Competitiveness (cont.)

Trade with China: Percent of each countrys trade Source: Share of China in Exports and Imports of Major Traders, 2000 and 2002, International Trade Statistics 2003, World Trade Organization, www.wto.org
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Risks of Globalization
Cultural differences Supply chain logistics Safety, security, and stability Quality problems Corporate image Loss of capabilities

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Competitiveness and Productivity

Competitiveness

degree to which a nation can produce goods and services that meet the test of international markets
ratio of output to input sales made, products produced, customers served, meals delivered, or calls answered labor hours, investment in equipment, material usage, or square footage

Productivity

Output

Input

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Competitiveness and Productivity (cont.)

Measures of Productivity

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Changes in Productivity for Select Countries

Internet-enabled productivity

- Dot com bust - 9/11 terrorist attacks

Source: International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau of Labor Statistics, U.S. Department of Labor, September 2003. U.S. figures for 2002 2003 from Major Sector Productivity and Costs Index, Bureau of Labor Statistics, U.S. Department of Labor, March 2004

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Productivity Increase
Become efficient

output increases with little or no increase in input both output and input grow with output growing more rapidly output increases while input decreases output remains the same and input is reduced both output and input decrease, with input decreasing at a faster rate
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Expand

Achieve breakthroughs

Downsize

Retrench

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Competitiveness and Productivity

Breakthrough Performance

More Efficient

Retrench

Productivity as a Function of Inputs and Outputs, 20012002 Source: International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau of Labor Statistics, U.S. Department of Labor, September 2003

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Global Competitiveness Ranking

1. Finland 2. United States 3. Sweden 4. Denmark 5. Taiwan 6. Singapore 7. Switzerland 8. Iceland 9. Norway 10. Australia

Source: Global Competitiveness Report 20032004, World Economic Forum, January 2004, www.weforum.org

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Operationsoriented Barriers to Entry

Economies of Scale Capital Investment Access to Supply and Distribution Channels Learning Curve

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Primary Topics in Operations Management

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Primary Topics in Operations Management (cont.)

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Critical Decisions with operations management field

Decision Area Bundles of benefits offered by the organization Typical questions that need to be resolved What should be offered?

Facility Location
Process Design & choice of technologies

Where should the facility be physically located?

What types of process are required to be able to produce the bundles of benefits offered by the organization?

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Critical Decisions with operations management field

Make or Buy decision Supplier selection practices Information exchange system What should be made in house Vs. bought in? How should suppliers be selected? How should information be exchanged internally? How should information be exchanged with external trading partners? What capacity level is needed to produce the bundles of benefits?

Capacity Planning

Intermediate term aggregate planning of resources

Production Planning & Control
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What level of resources is required to meet the demand?

What quantities should be produced?
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Materials mgt & Inventory control Distribution & Logistics Quality Assurance & control

How much inventory of each item should be carried? How should outputs be delivered to customers? How is quality defined? What is the acceptable quality level of inputs & outputs? How is this measured

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Learning Objectives of this Course

Gain an appreciation of strategic importance of operations in a global business environment Understand how operations relates to other business functions Develop a working knowledge of concepts and methods related to designing and managing operations Develop a skill set for quality and process improvement
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Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein. Copyright 2006 John Wiley & Sons, Inc. 1-39