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Chapter 1Chapter 1
Introduction to Introduction to Operations and Operations and CompetitivenessCompetitiveness
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Operations as a transformation Operations as a transformation processprocess
Operations as a Operations as a basic functionbasic function
Operations as the Operations as the technical coretechnical core
The Operations The Operations FunctionFunction
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Operations as a Operations as a Transformation ProcessTransformation Process
INPUT MaterialMachinesLaborManagementCapital
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Operations as a Operations as a Transformation ProcessTransformation Process
INPUT MaterialMachinesLaborManagementCapital
TRANSFORMATIONPROCESS
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Operations as a Operations as a Transformation ProcessTransformation Process
INPUT MaterialMachinesLaborManagementCapital
OUTPUT GoodsServices
TRANSFORMATIONPROCESS
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Operations as a Operations as a Transformation ProcessTransformation Process
FeedbackFeedback
INPUT MaterialMachinesLaborManagementCapital
OUTPUT GoodsServices
TRANSFORMATIONPROCESS
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Transformation Transformation ProcessesProcesses
PhysicalPhysical ((manufacturingmanufacturing))LocationalLocational (transportation/ (transportation/
warehouse) warehouse)ExchangeExchange (retail)(retail)PhysiologicalPhysiological (health care)(health care)PsychologicalPsychological (entertainment)(entertainment)InformationalInformational (communications)(communications)
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Operations as the Operations as the Technical CoreTechnical Core
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Operations as the Operations as the Technical CoreTechnical Core
Operations
Finance/Accounting
Human Resources
MarketingSu
pplie
rs
Production andInventory data
Capital budgeting requestsCapacity expansion and
Technology plans
BudgetsCost analysisCapital investmentsStockholder requirementsOrders for materials
Production and deliverySchedules Quality
Requirements Design/Performance specs
Material availabilityQuality data
Delivery schedulesDesigns
Product/ServiceAvailability
Lead-time estimatesStatus of order
Delivery schedules
Sales forecastsCustomer orders
Customer feedbackPromotionsPersonnel needs
Skill setsPerformance evaluations
Job design/workmeasurement
Hiring/firingTrainingLegal requirementsUnion contract negotiations
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Historical Events in OMHistorical Events in OM Industrial RevolutionIndustrial Revolution Scientific ManagementScientific Management Human RelationsHuman Relations Management ScienceManagement Science Quality RevolutionQuality Revolution GlobalizationGlobalization Information Age/Internet RevolutionInformation Age/Internet Revolution
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Historical Events in OMHistorical Events in OMIndustrial RevolutionIndustrial Revolution
Steam engineSteam engine 17691769 James WattJames WattDivision of laborDivision of labor 17761776 Adam SmithAdam SmithInterchangeable partsInterchangeable parts 17901790 Eli WhitneyEli Whitney
Scientific ManagementScientific ManagementPrinciplesPrinciples 19111911 Frederick W. TaylorFrederick W. TaylorTime and motion studiesTime and motion studies 19111911 Frank & Lillian Frank & Lillian
GilbrethGilbrethActivity scheduling chartActivity scheduling chart 19121912 Henry GantHenry GantMoving assembly lineMoving assembly line 19131913 Henry FordHenry Ford
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Historical Events in OMHistorical Events in OMHuman RelationsHuman Relations
Hawthorne studiesHawthorne studies 19301930 Elton MayoElton MayoMotivation theoriesMotivation theories 1940s1940s Abraham MaslowAbraham Maslow
1950s1950s Frederick HertzbergFrederick Hertzberg1960s1960s Douglas McGregorDouglas McGregor
Management ScienceManagement ScienceLinear programmingLinear programming 19471947 George DantzigGeorge DantzigDigital computerDigital computer 19511951 Remington RandRemington RandSimulation, PERT/CPM, Simulation, PERT/CPM, 1950s1950s Operations researchOperations researchWaiting line theoryWaiting line theory groupsgroupsMRPMRP 1960s1960s Joseph Orlicky, IBMJoseph Orlicky, IBM
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Historical Events in OMHistorical Events in OMQuality RevolutionQuality Revolution
JITJIT 1970s1970s Taiichi Ohno, ToyotaTaiichi Ohno, ToyotaTQMTQM 1980s1980s W. Edwards Deming,W. Edwards Deming,
Joseph Juran, et. al.Joseph Juran, et. al.Strategy and operationsStrategy and operations Skinner, HayesSkinner, HayesReengineeringReengineering 1990s1990s Hammer, ChampyHammer, ChampyWorld Trade OrganizationWorld Trade Organization 1990s1990s Numerous countriesNumerous countries
and companiesand companies
GlobalizationGlobalizationEuropean Union andEuropean Union and 1970s1970s IBM and othersIBM and othersother trade agreementsother trade agreementsEDI, EFT, CIMEDI, EFT, CIM 1980s1980s
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Historical Events in OMHistorical Events in OMInformation Age/Information Age/
Internet RevolutionInternet RevolutionInternet, WWW, ERPInternet, WWW, ERP 1990s1990s ARPANET, TimARPANET, TimSupply chainSupply chain Berners-Lee, SAP, i2Berners-Lee, SAP, i2management,management, Technologies, Technologies,
ORACLE,ORACLE,E-commerceE-commerce PeopleSoft, Amazon,PeopleSoft, Amazon,
Yahoo, eBay,Yahoo, eBay,and othersand others
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Categories of Categories of E-CommerceE-Commerce
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Categories of Categories of E-CommerceE-Commerce
BusinessBusiness
ConsumerConsumer
BusinessBusiness ConsumerConsumer
B2BCommerceone.com
B2CAmazon.com
C2BPriceline.com
C2CeBay.com
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A New Value ChainA New Value ChainManufacturer Wholesaler/
distributor Retailer Consumer
(a) Traditional Value Chain(a) Traditional Value Chain
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A New Value ChainA New Value ChainManufacturer Wholesaler/
distributor Retailer Consumer
Manufacturer Wholesaler/distributor
Retailer Consumer
(a) Traditional Value Chain(a) Traditional Value Chain
(b) Intermediaries Eliminated (Deintermediation)(b) Intermediaries Eliminated (Deintermediation)
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A New Value ChainA New Value ChainManufacturer Wholesaler/
distributor Retailer Consumer
InfomediaryManufacturer E-Retailer
Aggregator
Portal Consumer
Manufacturer Wholesaler/distributor
Retailer Consumer
(a) Traditional Value Chain(a) Traditional Value Chain
(b) Intermediaries Eliminated (Deintermediation)(b) Intermediaries Eliminated (Deintermediation)
(b) New Intermediaries Introduced (Reintermediation)(b) New Intermediaries Introduced (Reintermediation)
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An Integrated An Integrated Value ChainValue Chain
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An Integrated An Integrated Value ChainValue Chain
Manufacturer SupplierCustomer
Flow of information (customer order)Flow of information (customer order)
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An Integrated An Integrated Value ChainValue Chain
Manufacturer SupplierCustomer
Flow of information (customer order)Flow of information (customer order)
Flow of product (order fulfillment)Flow of product (order fulfillment)
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The Growth of The Growth of E-CommerceE-Commerce
8000 8000 –
6000 6000 –
4000 4000 –
2000 2000 –
0 0 –| | | | |
20002000 20012001 20022002 20032003 20042004YearYear
Trill
ions
of D
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The Growth of The Growth of E-CommerceE-Commerce
B2BB2B
B2CB2C
8000 8000 –
6000 6000 –
4000 4000 –
2000 2000 –
0 0 –| | | | |
20002000 20012001 20022002 20032003 20042004YearYear
Trill
ions
of D
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Types of B2B TransactionsTypes of B2B TransactionsBuyer Seller
Buyers
Sellers
Buyer
Sellers Buyers Sellers
(a) Electronic Storefront(a) Electronic Storefront (b) Seller’s Auction(b) Seller’s Auction
(c) Buyer’s Auction(c) Buyer’s Auction (d) Exchange or E-Marketplace(d) Exchange or E-Marketplace
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E-Business Promotes:E-Business Promotes:
Better customer relationsBetter customer relationsMore efficient processesMore efficient processesLower cost of materialsLower cost of materialsInformation technology synergyInformation technology synergyBetter and faster decision makingBetter and faster decision making
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E-Business Promotes:E-Business Promotes:New forms of organizationsNew forms of organizationsExpanded supply chainExpanded supply chainHigher customer expectationsHigher customer expectationsNew ways of doing businessNew ways of doing businessGlobalizationGlobalization
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An International Comparison An International Comparison of Hourly Wage Ratesof Hourly Wage Rates
| | | | | |19751975 19801980 19851985 19901990 19951995 20002000
$ 35 $ 35 –
$ 30 $ 30 –
$ 25 $ 25 –
$ 20 $ 20 –
$ 15 $ 15 –
$ 10 $ 10 –
$ 5 $ 5 –
$ 0 $ 0 –
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An International Comparison An International Comparison of Hourly Wage Ratesof Hourly Wage Rates
| | | | | |19751975 19801980 19851985 19901990 19951995 20002000
$ 35 $ 35 –
$ 30 $ 30 –
$ 25 $ 25 –
$ 20 $ 20 –
$ 15 $ 15 –
$ 10 $ 10 –
$ 5 $ 5 –
$ 0 $ 0 –
GermanyGermanyJapanJapanUnited StatesUnited StatesEUEU
Asian NIEsAsian NIEsMexicoMexico
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Multinational CorporationsMultinational CorporationsCountryCountry Foreign SalesForeign Sales
CompanyCompany of Originof Origin as % of Totalas % of TotalNestléNestlé SwitzerlandSwitzerland 98.298.2NokiaNokia FinlandFinland 97.697.6PhilipsPhilips NetherlandsNetherlands 94.094.0BayerBayer GermanyGermany 89.889.8ABBABB GermanyGermany 87.287.2SAPSAP GermanyGermany 80.080.0Exxon MobilExxon Mobil United StatesUnited States 79.679.6Royal Dutch/ShellRoyal Dutch/Shell NetherlandsNetherlands 73.373.3IBMIBM United StatesUnited States 62.762.7McDonald’sMcDonald’s United StatesUnited States 61.561.5
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CompetitivenessCompetitivenessThe degree to which a nation can The degree to which a nation can produce goods and services that produce goods and services that meet the test of international meet the test of international markets while simultaneously markets while simultaneously maintaining or expanding the real maintaining or expanding the real incomes of its citizens.incomes of its citizens.
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ProductivityProductivity
Productivity =Productivity =OutputOutputInputInput
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ProductivityProductivity
Become more efficientBecome more efficient DownsizeDownsize ExpandExpand Retrench Retrench Achieve breakthroughsAchieve breakthroughs
Productivity =Productivity =OutputOutputInputInput
Productivity improves when firms:Productivity improves when firms:
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Productivity in the ‘90sProductivity in the ‘90s
| | | | | | | | | | | |‘‘9090 ‘91‘91 ‘92‘92 ‘93‘93 ‘94‘94 ‘95‘95 ‘96‘96 ‘97‘97 ‘98‘98 ‘99‘99 ‘00‘00 20012001
–7 7 –6 6 –5 5 –4 4 –3 3 –2 2 –1 1 –0 0 –
-1 -1 –-2 -2 –-3 -3 –
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Productivity in the ‘90sProductivity in the ‘90s
| | | | | | | | | | | |‘‘9090 ‘91‘91 ‘92‘92 ‘93‘93 ‘94‘94 ‘95‘95 ‘96‘96 ‘97‘97 ‘98‘98 ‘99‘99 ‘00‘00 20012001
–7 7 –6 6 –5 5 –4 4 –3 3 –2 2 –1 1 –0 0 –
-1 -1 –-2 -2 –-3 -3 –
United StatesUnited States
GermanyGermanyJapanJapan
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Measures of Measures of CompetitivenessCompetitiveness
ProductivityProductivity GDP (Gross domestic product) growthGDP (Gross domestic product) growth Market capitalizationMarket capitalization Technological infrastructureTechnological infrastructure Quality of educationQuality of education Efficiency of governmentEfficiency of government
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Competitiveness of Competitiveness of Selected CountriesSelected Countries
USUS SingaporeSingapore FinlandFinland IrelandIreland GermanyGermany UKUK JapanJapan MexicoMexico RussiaRussia
1001008080606040402020
00
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Competitiveness of Competitiveness of Selected CountriesSelected Countries
USUS SingaporeSingapore FinlandFinland IrelandIreland GermanyGermany UKUK JapanJapan MexicoMexico RussiaRussia
1001008080606040402020
00
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Barriers to EntryBarriers to EntryEconomies of scaleEconomies of scaleCapital investmentCapital investmentAccess to supply and distribution Access to supply and distribution
channelschannelsLearning curvesLearning curves
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Competition Within Competition Within Industries Increases WhenIndustries Increases When
Firms are relatively equal in size Firms are relatively equal in size and resourcesand resources
Products and services are Products and services are standardizedstandardized
Industry growth is slow or Industry growth is slow or exponentialexponential
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Primary Topics in Primary Topics in Operations ManagementOperations Management
StrategyStrategy Products and Products and
servicesservices Processes and Processes and
technologiestechnologies FacilitiesFacilities Project Project
managementmanagement
Managing the supply Managing the supply chainchain
Forecasting demand Forecasting demand for products and for products and servicesservices
Production planning Production planning and schedulingand scheduling
Ensuring qualityEnsuring quality
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Purpose of the TextPurpose of the Text To gain an appreciation of the To gain an appreciation of the
strategic importance of operations strategic importance of operations and how operations relates to other and how operations relates to other business functionsbusiness functions
To develop a working knowledge of To develop a working knowledge of the concepts and methods related to the concepts and methods related to designing and managing operationsdesigning and managing operations
To develop a skill set for organizing To develop a skill set for organizing activities as a part of a processactivities as a part of a process
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Organization of the TextOrganization of the TextThe StrategicThe Strategic Designing the Designing the Importance ofImportance of Operating Operating Managing the Managing the Ensuring Ensuring
OperationsOperations SystemSystem Supply ChainSupply Chain QualityQuality
1.1. Introduction to Introduction to Operations and Operations and CompetitivenessCompetitiveness
2.2. Operations Operations StrategyStrategy
3.3. Products and Products and ServicesServices
4.4. Processes and Processes and TechnologiesTechnologies
5.5. FacilitiesFacilities6.6. Project Project
ManagementManagement
7.7. Supply Chain Supply Chain ManagementManagement
8.8. ForecastingForecasting9.9. Capacity and Capacity and
Aggregate Aggregate PlanningPlanning
10.10. Inventory Inventory ManagementManagement
11.11. Just-in-Time and Just-in-Time and Lean ProductionLean Production
12.12. Enterprise Enterprise Resource Resource PlanningPlanning
13.13. SchedulingScheduling
14.14. Quality Quality ManagementManagement
15.15. Statistical Statistical Process Process ControlControl
16.16. Waiting Line Waiting Line Models for Models for Service Service ImprovementImprovement
17.17. Human Human Resources in Resources in Operations Operations ManagementManagement