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Introduction to Operations Management

McGraw-Hill/Irwin

Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

Operations Management
 Operations Management is: The management of systems or processes that create goods and/or provide services

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DEFINING OPERATION MANAGEMENT

 Operations Management concerns itself with the conversion of inputs in to outputs using physical resources so as to provide the desired utility/utilities to the customer while meeting the organizational objectives of effectiveness & efficiency

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The Organization
Figure 1.1

The Three Basic Functions

Organization

Finance

Operations

Marketing

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ValueValue-Added Process
Figure 1.2

The operations function involves the conversion of inputs into outputs

Value added
Inputs Land Labor Capital Transformation/ Conversion process
Feedback

Outputs Goods Services

Control
Feedback Feedback

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ValueValue-Added & Product Packages

 Value-added is the difference between the cost of inputs and the value or price of outputs.  Product packages are a combination of goods and services.

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GoodsGoods-service Continuum
Figure 1.3

Goods

Service Surgery, teaching Song writing, software development Computer repair, restaurant meal

Automobile Repair, fast food Home remodeling, retail sales Automobile assembly, steel making

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Food Processor
Table 1.2

Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Processing
Cleaning Making cans Cutting Cooking Packing Labeling

Outputs
Canned vegetables

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Hospital Process
Table 1.2

Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Processing
Examination Surgery Monitoring Medication Therapy

Outputs
Healthy patients

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Manufacturing or Service?

Tangible

Act

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Production of Goods vs. Delivery of Services

 Production of goods tangible output  Delivery of services an act

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Key Differences between

Goods & Services
1. Degree of Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity

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Key Differences
6. Production and delivery 7. Quality assurance 8. Amount of inventory 9. Evaluation of work 10. Ability to patent design

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Goods vs Service
Characteristic Customer contact Uniformity of input Labor content Uniformity of output Output Measurement of productivity Opportunity to correct problems Inventory Evaluation Patentable Goods Low High Low High Tangible Easy High Much Easier Usually Service High Low High Low Intangible Difficult Low Little Difficult Not usual 1-14

Scope of Operations Management

 Operations Management includes:
         Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities Supply chain management And more . . .
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The operations function

 Consists of all activities directly related to producing goods or providing services

 Production management deals with decision

making related to production processes so that the resulting goods or services are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost.

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Types of Operations
Table 1.4

Operations
Goods Producing Storage/Transportation

Examples
Farming, mining, construction, manufacturing, power generation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Retailing, wholesaling, banking, renting, leasing, library, loans Films, radio and television, concerts, recording Newspapers, radio and television newscasts, telephone, satellites
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Exchange Entertainment Communication

Responsibilities of Operations Manager

Planning
Capacity Location Products & services Make or buy Layout Projects Scheduling Inventory Quality Costs Productivity

Organizing
Degree of centralization Process selection

Staffing
Hiring/laying off Use of Overtime

Directing
Issuance of work orders Job assignments

Controlling/Improving

Decision Areas in OM

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 What

Key Decisions of Operations Managers

What resources/what amounts

 When
Resource Needed/work scheduled/material ordered

 Where
Work to be done

 How
Product/service Designed/ resource allocated

 Who
To do the work
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Operations Management Decision Making Approaches

      Models Quantitative approaches Analysis of trade-offs Systems approach Establishing priorities Ethics

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

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Decision Making
System operation
personnel inventory scheduling project management quality assurance

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Models
A model is an abstraction of reality.
Physical Schematic Mathematical

Tradeoffs

What are the pros and cons of models?

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Models
 Physical- look like real-life counterparts eg toy cars, airplanes, toy animals, scale-model buildings
Adv: visual correspondence to reality

 Schematic- more abstract, some degree of visual correspondence (less resemblance to physical reality) eg pictures, drawings, graphs, charts etc  Mathematical- most abstract , dont look like their real-life counterparts eg numbers, formulas, symbols etc
Adv: Easiest to manipulate
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Quantitative Approaches
Linear programming
For optimum allocation of scarce resources

Queuing Techniques
For analyzing situations in which waiting lines form

Inventory models
To control inventories

Project models
eg PERT (program evaluation and review technique) , CPM (critical path method) for planning, coordinating & controlling large scale projects.

Statistical models used in decision making

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Analysis of Trade-Offs Trade Decision on the amount of inventory to stock

 Increased cost of holding inventory

Vs.
 Level of customer service

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Systems Approach
The whole is greater than the sum of the parts.

Suboptimization

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Systems Approach
 Emphasizes interrelationships among subsystems  When something is designed, redesigned or improved, it is important to take into account the impact on all parts of the system

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Establishing Priorities: 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?

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Establishing Priorities
 All things are not equal, some (a few) will be very important for achieving an objective or solving a problem and others will not.  A manager should search for the few factors that will have the greatest impact & give them the highest priority.

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Ethical Issues
1. Financial statements: accurately represent financial condition 2. Worker safety: training, working environment 3. Product safety: min damage to environment, risk of injury to users 4. Quality: warranties, hidden defects 5. Environment: not doing things that harm the environment 6. Community 7. Hiring/firing workers 8. Closing facilities: impact on society 9. Workers rights: deal with workers problem fairly
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Why study operations management?

 OM is central to the functioning of all business organizations  Collaboration among the various functional areas  Exchange of information  Cooperative decision making

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Business Operations Overlap

Figure 1.5

Operations

Marketing

Finance

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Business Operations Overlap

 Finance & Operations i. Budgeting ii. Economic analysis of investment proposals iii. Provision of funds  Marketing & Operations i. Selling & promoting the product ii. Assessing customer wants & needs or preferences & communicating to operations people iii. Service lead time

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Operations Interfaces
Industrial Engineering Distribution Maintenance

Purchasing

Operations

Public Relations

Legal Personnel Accounting MIS

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 Career Opportunities
Job Titles  Operations Manager  Inventory manager  Production manager  Industrial engineer  Production Analyst  Purchasing manager  Schedule co-ordinator  Distribution manager  Supply chain manager  Quality analysts  Quality manager

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Historical Evolution of Operations Management

 Industrial revolution (1770s)  Scientific management (1911)
 Mass production  Interchangeable parts  Division of labor

 Human relations movement (1920-60)  Decision models (1915, 1960-70s)  Influence of Japanese manufacturers
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Historical Evolution of Operations Management

 Industrial revolution (1770s)
Craft production: system in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods

 Scientific management (1911)

 Mass production
System in which low skilled workers use specialized machinery to produce high volumes of standardized goods

 Interchangeable parts
Parts of product that dont have to be custom fitted

 Division of labor
The breaking up of a production process into small tasks so that each worker performs a small portion of the overall job
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Historical Evolution of Operations Management

 Human relations movement (1920-60)
 Emphasized the importance human element in job design

 Decision models (1915, 1960-70s)

 Mathematical model for inventory management, forecasting, project management etc.

 Influence of Japanese manufacturers

 Kaizen : Continuous improvement  JIT (just-in-time) Production

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Historical Evolution of Operations Management

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

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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

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Simple Product Supply Chain

Figure 1.7 Suppliers Suppliers

Direct Suppliers

Producer

Distributor

Final Consumer

Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service

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A Supply Chain for Bread

Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

Value Added
$0.15 $0.08 $0.15 $0.08 $0.54 $0.08 $0.21 $1.29

Value of Product
$0.15 $0.23 $0.38 $0.46 $1.00 $1.08 $1.29

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Other Important Trends

       Ethical behavior Operations strategy Working with fewer resources Revenue management Process analysis and improvement Increased regulation and product liability Lean production

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