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Introduction to Operations Management

Ch 1. Introduction to Operations Ch 1. Introduction to Operations ManagementManagement

Hansoo Kim ( 金翰秀 ), Ph.DDept. of Management Information

Systems, YUST

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Announcement Class Homepage

http://yustOM.wikispaces.com/

Good Material for studying OM,"The Encyclopedia of Operations Management Terms"

You can download it from the Class Homepage

About Textbook?

Please use “Useful websites” for studying OM You can find some links from the Class Homepage

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What you should have done!

Read Chapter 1 and 2 (Text Book?) Play with MS-Excel..

OM Overview

Class Overview(Ch. 0)

Project Management

(Ch. 17)

Strategic Capacity Planning(Ch. 5, 5S)

Operations, Productivity, and Strategy

(Ch. 1, 2)

Mgmt of Quality/Six Sigma Quality

(Ch. 9, 10)

Supply Chain Management

(Ch 11)

Location Planning and Analysis

(Ch. 8)

Demand MgmtForecasting

(Ch 3)

Inventory Management

(Ch. 12)

Aggregated Planning

(Ch. 13)

Queueing/ Simulation

(Ch. 18)

MRP & ERP (Ch 14)

JIT & Lean Mfg System

(Ch. 15)

Term Project

Process Selection/

Facility Layout; LP(Ch. 6, 6S)X

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Today’s Outline

What is OM? Types of OM Problem and Models Why should study OM?

Productivity History of OM Changing Challenges for OM manager Operations Strategy in a Global

Environment

Learning Objectives

1. Define the term operations management.2. Identify the three major functional areas of

organizations and describe how they interrelate.3. Compare and contrast service and manufacturing

operations.4. Describe the operations function and the nature of

the operations manager’s job.5. Differentiate between design and operation of

production systems.6. Describe the key aspects of operations management

decision making.7. Briefly describe the historical evolution of operations

management.8. Identify current trends in business that impact

operations management.

Question? Wal-Mart

In the late 1970s, Wal-Mart was a niche marketer, with about 200 stores, mostly in the South. At the time, Sears, JC Penney, and Kmart dominated the retail market. Over the years, Wal-Mart gained market share at the expense of the previous market leaders, and it has now become the largest and most profitable retailer in the world!

Boeing In the 1990s, the Boeing Company ran into trouble when it could

not meet production deadlines. As a result, Boeing lost some orders, which had a negative impact on earnings and its stock price.

Why do some companies thrive while others struggle or fail? There are a variety of reasons, to be sure. However, an important

key in a company’s success or failure is how well it manages its operations.

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Dell.com

Why??Why??How??How??Why??Why??How??How??

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What is OM( 运作管理 ) Operations Management (OM):

the set of activities( 活动 ) that creates value( 价值 ) in the form of goods( 商品 ) and services( 服务 ) by transforming inputs into outputs

What activities ( 어떤 活动이 있는가 )? How to evaluate ( 어떻게 评价할 것인가 )?

We need evaluation measures – Productivity!!( 生产率 )What are the better activities?( 어떤 활동을 어떻게 하면 생산성이 좋을까 ?)

Production( 生产 ): Creating goods and services

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Organizational Functions( 企业组织的职能 )

Essential functions: Marketing (营销 )

Generates demands (需求 ) Gets customers（顾客）

Production/Operations (生产 /运作 ) Creates product or service Procurement (获取 ) of required material

Finance(财务 )/Accounting(会计 ) Obtains funds, pays bills, collects money

企业组织三个基本职能

营销营销 财务财务 // 会计会计

生产生产

Operations:Value-added Process, Transformation Process

The operations function involves The operations function involves the conversion of inputs into outputsthe conversion of inputs into outputs

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Input-Transformation-Output Relationships for Typical Systems

SystemPrimary Inputs

ResourcesPrimary Transformation Functions

Typical Desired Output

Hospital Patients MDs, nurses, medical supplies, equipment

Health care Healthy individuals

Restaurant Hungry Customer

Food, chef, wait staff, environment

Well-prepared, well-served food; agreeable environment

Satisfied customers

Automobile factory

Sheet steel, engine parts

Tools, equipment, workers

Fabrication and assembly of cars

High-quality cars

Collage or university

High school graduates

Teachers, books, Classrooms

Teaching knowledge and skills

Educated individuals

Department store

Shoppers Displays, stocks of goods, sales clerks

Attract shoppers, promote products, fill orders

Sales to satisfied customers

Distribution Center

Stock keeping units (SKUs)

Storage bins, stock pickers

Storage and redistribution

Fast delivery, availability of SKUs

Operations are not only for manufacturing!!!

Goods vs. Service

READING!! (Text book) Why manufacturing matters The challenges of managing service

U.S. manufacturing versus service employment, 1940-2005

Why?

Productivity and Outsourcing

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Why Should Study OM? 4 Reasons

OM is one of three major functions of any organization, and it is integrally related to all the other business functions

We want to know how goods(商品 ) and services（服务） are produced

We study OM to understand what operationsWe study OM to understand what operations（（运作运作）） managers do. By understanding, we managers do. By understanding, we can can develop the skills necessary to become develop the skills necessary to become such a OM Expertsuch a OM Expert

OM is such a costly part of an organizationAbout 40% of all jobs are in OMAbout 40% of all jobs are in OM

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Scope of Operations Management

Class Overview(Ch. 0)

Project Management

(Ch. 17)

Strategic Capacity Planning(Ch. 5, 5S)

Operations, Productivity, and Strategy

(Ch. 1, 2)

Mgmt of Quality/Six Sigma Quality

(Ch. 9, 10)

Supply Chain Management

(Ch 11)

Location Planning and Analysis

(Ch. 8)

Demand MgmtForecasting

(Ch 3)

Inventory Management

(Ch. 12)

Aggregated Planning

(Ch. 13)

Queueing/ Simulation

(Ch. 18)

MRP & ERP (Ch 14)

JIT & Lean Mfg System

(Ch. 15)

Term Project

Process Selection/

Facility Layout; LP(Ch. 6, 6S)

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Example: Product Mix( 产品结构 )(Product mix decision making)

Smart furniture company manufactures two products, Chair and Table.The profit of selling a Chair is $10.00 and that of Table is $20.00. To makea Chair, it requires 5 units of wood, 3 units of steel and 20 units of nails,and to make a Table, it requires 10 units of wood, 10 units of steel, and 10 units of nail. Suppose that the Smart furniture has 1000 units of wood, 300 units of steel, and 1000 units of nail, how many Chairs and Tables should be produced to make maximum profits?

$10.00 $20.00

Wood: 5 unitsSteel: 3 unitsNail: 20 units

Wood: 10 unitsSteel: 10 unitsNail: 10 units

Wood: 1000 units

Steel: 300 units

Nail: 1000 units

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Example: Forecasting（预测）Past Demand for Chairs, Smart Furniture

0

500

1000

1500

2000

2500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Week

Dem

and

Demand > Products --- Lost SalesDemand < Products --- Inventory cost

What is demand in 21st week?

Week Demand1 8002 14003 10004 15005 15006 15007 13008 18009 1700

10 130011 170012 170013 150014 230015 230016 200017 170018 180019 220020 190021 ???

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Example: Waiting Line (Queueing)（等候队列）

Which bank has better performance?

Average waiting time should be less than 25 minutes !!!

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Example: Inventory（库存） Price Break

Consider the following case, where D=10,000 units (annual demand) S= $20 to place each order i = 20% percent of cost (annual carrying

cost, storage, interest, obsolescence, etc.) C=Cost per unit (according to the order size;

0 ~ 499, $5.00 per unit 500~999, $4.50 per unit 1000, $3.9 per unit

Which quantity should be ordered?

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Operational Decisions Project Management（项目管理） Process Analysis Product Design and Process Selection Facility Layout（设施布置） Waiting Line Management（等候队列） Quality Management and Control（质量管理和控制） Supply Chain Management（供应链管理） Just-In-Time（准是生产） and Lean Manufacturing（精生

产益） System Forecasting（预测） Aggregate Production Planning（综合计划） Inventory Control（库存控制） Material Requirements Planning (MRP) Enterprise Resource Planning (ERP) Operation Scheduling

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History of Operations Management

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Eli Whitney

Born 1765; died 1825 In 1798, received

government contract to make 10,000 muskets

Showed that machine tools could make standardized parts to exact specifications

Musket parts could be used in any musket

© 1995 Corel Corp.

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Frederick W. Taylor Born 1856; died 1915 Known as ‘‘father of scientific father of scientific

managementmanagement’’ In 1881, as chief engineer for

Midvale Steel, studied how tasks were done

Began first motion & time studies

Created efficiency principles

© 1995 Corel Corp.

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Taylor: Management Should Take More Responsibility for

Matching employees to right job Providing the proper training Providing proper work methods and

tools Establishing legitimate incentives for

work to be accomplished

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Maslow’s Hierarchy of Needs1. 자아실현 욕구

최상의 욕구로서 앞 단계의 모든 욕구가 충족 될 때에 나타난다 . 자신의 재능 , 능력 , 잠재력 등을 충분히 발휘하기 위해 노력한다 .

2. 자기 존중 욕구 능력 , 신뢰감 , 개인의 힘 , 적합성 , 성취 , 독립 , 자유 , 명성 , 인식 , 수용 , 주목 , 지위 , 평판

3. 애정 소속 욕구 사랑하고 , 사랑을 받고 , 집단에 소속되어서 집단의 일원으로서 의미를 찾으려 하는 욕구

4. 안전 욕구 개인의 환경 내에서 확실성 , 정돈 , 조직 , 예측성 등을 보장받고자 하는 욕구

5. 생리 욕구 인간의 가장 기본적 욕구로서 음식물 , 물 , 산소 , 잠 , 성 , 추위나 더위로부터 보호 등

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X 이론 , Y 이론 1960 년대 , D. 맥그레거에 의하면 경영자나 관리자는 종업원을 대하는 관점이 경험을

통하거나 또는 타성적인 속단에서 보통 다음과 같은 인간관을 가진다고 하였다 .

① 인간은 선천적으로 일을 싫어하며 , 가능한 한 일을 하지 않고 지냈으면 한다 . ② 기업내의 목표달성을 위해서는 통제 · 명령 · 상벌이 필요하다 . ③ 종업원은 대체로 평범하며 , 자발적으로 책임을 지기보다는 명령받기를 좋아하고 안전제일주의의 사고 · 행동을 취한다 . 맥그레거는 이 3 가지를 X 이론이라 하고 , 이는 명령통제에 관한 전통적 견해이며 낡은 인간관이라고 비판하였다 .

그는 또 이러한 인간관에 입각한 조직원칙 · 관리기법으로는 새로운 당면문제나 목표달성을 위해 조직의 총력을 결집하는 행동을 바라기 어렵다고 하면서 , X 이론을 대신할 새로운 인간관으로서 다음과 같은 Y 이론을 제창하였다 .

① 오락이나 휴식과 마찬가지로 일에 심신을 바치는 것은 인간의 본성이다 . ② 상벌만이 기업목표 달성의 수단은 아니다 . 조건에 따라서 인간은 스스로 목표를 향해 전력을 기울이려고 한다 . ③ 책임의 회피 , 야심의 결여 , 안전제일주의는 인간의 본성이 아니다 . ④ 새로운 당면문제를 잘 처리하는 능력은 특정인에게만 있는 것은 아니다 . ⑤ 오히려 현재 기업 내에서 인간의 지적 능력이 제대로 활용되지 않고 있을 가능성이 많다 .

이와 같은 Y 이론은 인간의 행동에 관한 여러 사회과학의 성과를 토대로 한 것인데 , 이러한 사고방식을 가진다면 , 종업원들은 자발적으로 일할 마음을 가지게 되고 , 개개인의 목표와 기업목표의 결합을 꾀할 수 있으며 , 능률을 향상시킬 수 있다고 보았다 .

Naver 백과사전 , http://100.naver.com/100.php?id=111325

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Frank & Lillian Gilbreth Frank (1868-1924); Lillian

(1878-1972) Husband-and-wife

engineering team (부부공학팀 )

Further developed work measurement ( 작업측정 ) methods

Applied efficiency methods to their home & 12 children!

16-THERBLIG Symbol Fundamental motions of

hands of a worker. Motion Study

Pioneer of “Ergonomics”

What is Ergonomics?What is Ergonomics?

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THERBLIG Therbligs: The Keys to

Simplifying WorkTherbligs comprise a system for analyzing the motions involved in performing a task. The identification of individual motions, as well as moments of delay in the process, was designed to find unnecessary or inefficient motions and to utilize or eliminate even split-seconds of wasted time. Frank and Lillian Gilbreth invented and refined this system, roughly between 1908 - 1924.

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Henry Ford Born 1863; died 1947 In 1903, created Ford

Motor Company In 1913, first used

moving assembly line to make Model T

Unfinished product moved by conveyor past work station

Paid workers very well for 1911 ($5/day!) Fordism: “the mass production of standardized goods, using

dedicated machines and moving assembly lines, employing unskilled and semi-skilled labor in fragmented jobs, with tight labor discipline, in large factories.”

‘‘Make them all alike!’

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W. Edwards Deming

Born 1900; died 1993 Engineer & physicist Credited with teaching

Japan quality control methods in post-WW2

Used statistics to analyze process

His methods involve workers in decisions

Refer to http://www.lii.net/deming.html

Trends in Business

The Internet, e-commerce, and e-business

Management of technology Globalization Management of supply chains Outsourcing Agility Ethical behavior

Management of Technology

Technology: The application of scientific discoveries to the development and improvement of goods and services

Product and service technology Process technology Information technology

Management of Supply Chain

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

Summary Operations management is responsible for producing goods and

providing services. As such, it is the core function of every business organization. Operations management plans and coordinates the use of the organization’s resources to convert inputs into outputs.

Operations decisions involve design decisions and operating decisions. Design decisions are strategic; they relate to capacity planning, product design, process design, layout of facilities, and selecting locations for facilities. Operating decisions relate to quality assurance, scheduling, inventory management, and project management.

In for-profit organizations, effective operations management can lead to higher productivity, lower costs, higher quality, and other competitive advantages, and increased shareholder wealth. In not-for-profit organizations, effective operations management can lead to lower costs, higher levels of customer service, and more efficient use of resources.

The chapter also presents a brief overview of the historical evolution of operations management and it ends with a list of strategic issues that are currently high priority for business organizations. At the top of that list are the Internet and e-business, outsourcing, supply chain management, management of technology, and agility.

Key Terms Agility: The ability of an organization to respond quickly

to demands or opportunities. Craft production: System in which highly skilled workers

use simple, flexible tools to produce small quantities of customized goods.

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.

E-business: Use of the Internet to transact business. E-commerce: Consumer-to-business transactions. Interchangeable parts: Parts of a product made to such

precision that they do not have to be custom fitted. Lead time: The time between ordering a good or service

and receiving it. Lean production: System that uses minimal amounts of

resources to produce a high volume of high-quality goods with some variety.

Key Terms Mass production: System in which low-skilled workers use

specialized machinery to produce high volumes of standardized goods.

Model: An abstraction of reality; a simplified representation of something.

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

Outsourcing: Obtaining a product or service from outside the organization.

Pareto phenomenon: A few factors account for a high percentage of the occurrence of some event(s).

Six sigma: A process for reducing costs, improving quality, and increasing customer satisfaction.

Supply chain: A sequence of activities and organizations involved in producing and delivering a good or service.

System: A set of interrelated parts that must work together. Technology: The application of scientific discoveries to the

development and improvement of goods and services. Value-added: The difference between the cost of inputs and the

value or price of output

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Introduction to Operations Management

Ch. 2. Competitiveness, Strategy, Ch. 2. Competitiveness, Strategy, and Productivityand Productivity

Hansoo Kim ( 金翰秀 ), Ph.DDept. of Management Information Systems,

YUST

Learning Objectives1. List and briefly discuss the primary ways that

business organizations compete.2. List five reasons for the poor competitiveness of

some companies.3. Define the term strategy and explain why strategy is

important for competitiveness.4. Contrast strategy and tactics.5. Discuss and compare organization strategy and

operations strategy, and explain why it is important to link the two.

6. Describe and give examples of time-based strategies.7. Define the term productivity and explain why it is

important to organizations and to countries.8. List some of the reasons for poor productivity and

some ways of improving it.

Competitiveness ( 경쟁력 , 竞争力 )

How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services 한 기업이 유사 제품과 서비스를 제공하는 다른 기업에

비해 효과적으로 고객의 필요와 요구를 충족시켜 주는 능력

An important factor in determining whether a company prospers, barely gets by, or fails. 한 기업이 성공할 것인가 ? 현상을 유지할 것인가 ?

혹은 실패할 것인가를 결정짓는 중요한 요인

Mission/Strategy/Tactics

Strategy Example

Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably

Mission: Live a good lifeGoal: Successful career, good incomeStrategy: Obtain a college educationTactics: Select a college and a majorOperations: Register, buy books, take

courses, study, graduate, get job

Example 1

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Developing Mission and Strategies Mission(使命 ):

The purpose or rationale for an organization’s existence ( 조직의 존재 목적 혹은 근거 )

Mission Statement Strategy(战略 ):

How an organization expects to achieve its missions and goals

Organization’s action plan! 3 conceptual ways:

DifferentiationDifferentiation, Low costLow cost, Quick responseQuick response Tactics ( 전술 )

The methods and actions used to accomplish strategies

Mission - where you are going Strategy - how you are going to get there; an action plan

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Achieving Competitive Advantage through Operations Competitive Advantage (竞争優位 ):

The creation of a unique advantage over competitors Competing on Differentiation (差别化竞争 )

To distinguishdistinguish the offerings of the organization in any way that the customer perceives as adding valueadding value

Differentiation is concerned with providing Differentiation is concerned with providing uniquenessuniqueness

Competing on Cost (Competing on Cost (价格竞争价格竞争 )) Competing on Response (Competing on Response (时间竞争时间竞争 ))

Better, Cheaper, Faster!!!Better, Cheaper, Faster!!!

Businesses Compete Using Marketing

Identifying consumer wants and needs

Pricing Advertising and promotion

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Response

(Faster)

Quality

Product

Process

Location

Layout

Human Resource

Supply Chain

Inventory

Scheduling

Maintenance

HP’s ability to follow the printer market

Differentiation(Better)

Cost leadership(Cheaper)

Southwest Airlines No-frills service

Sony’s constant innovation of new products

Pizza Hut’s five-minute guarantee at lunchtimeFederal Express’s “absolutely, positively on time”

Motorola’s automotive products ignition systemsMotorola’s pagers

IBM’s after-sale service on mainframe computers

Fidelity Security’s broad line of mutual funds

FLEXIBILITY

DesignVolume

LOW COST

DELIVERY

SpeedDependability

QUALITY

ConformancePerformance

AFTER-SALE SERVICE

BROAD PRODUCT LINE

Operations Decisions Examples Specific

Strategy UsedCompetitive Advantage

OM’s Contribution to Strategy

Strategy and Tactics

Distinctive CompetenciesThe special attributes or abilities that give anorganization a competitive edge.

Strategy Factors Price Quality Time Flexibility Service Location

Examples of Operations Strategies

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Evaluating Operational Decision Making Performance Measurement Efficiency（效率） vs. Effectiveness（效力）

Efficiency: Doing something at the lowest possible cost

Effectiveness: Doing the right things to create the most value for the company

Productivity (生产率 ) A measurement of how well resources are used

Example: if units produced = 1000 units and labor-hours used is 250, then 1000/250 = 4 units per labor hour

The key factor in Operational Decisions is

to improve productivity!!!to improve productivity!!!

ProductivityProductivityProductivityProductivity UnitsUnits producedproducedUnitsUnits producedproducedInput usedInput usedInput usedInput used= = = =

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Problems for Measuring Productivity

Quality( 质量 ): How to measure the improvement of quality? 동일 입력 동일 출력 , 그러나 다른 품질 ..

External elements may influence on the productivity（生产率） 외부적 요소에 쉽게 영향을 받는 경우 예 ) 석유값이 급등했을 경우 ...

Precise units of measure may be lacking 100 만원 짜리 자동차 한대 , 10 만원 짜리 자동차 1 대

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Productivity

Output

InputProductivity =

Profits

Costs=

How?How?

To Gain Competitive AdvantageTo Gain Competitive Advantage……

Partial Productivity: 1) Labor Productivity = Output/Labor2) Capital Productivity = Output/Capital3) Energy Productivity = Output/Energy

Multifactor productivity

* Competitive Advantage (* Competitive Advantage ( 경쟁우위경쟁우위 ) :) :경쟁자와 비교하여 우월한 성과를 갖도록 기업이 개발한 독특한 위치경쟁자와 비교하여 우월한 성과를 갖도록 기업이 개발한 독특한 위치

Table 2.4

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital + Energy

Total Goods or Services Produced

measure All inputs used to produce them

Measures of ProductivityMeasures of Productivity

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Quiz: ABS Co. has 10 staffs, each working 8 hrs/day

(Payroll cost: $100) and overhead cost $50 per day. This company makes 10 audio sets each day. This company trying to buy new machine that allow the processing of 15 audio sets per day. For using this machine, all things are same except for overhead expenses ($ 100/day)

Analyze the ABS co. in terms of productivity!

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Quiz: Calculate Productivity # of staffs 10, each working 8hrs (for a payroll cost of

$100/day) and overhead expenses of $50 per day. Output 10 units per day

New system: 15 units per day Overhead cost ->$100 per day

Analysis in terms of Productivity: Labor productivity w/ old system = 10 units per day/80 labor-

hour per day = 0.1250.125 units per labor-hour Labor productivity w/ new system = 15/80 = 0.18750.1875 units per

labor-hour Multifactor productivity w/ old system = 10 units per

day/($100+50) = 0.0670.067 units per dollar Multifactor productivity w/ new system = 15/($100 + 100) =

0.0750.075 units per dollar Improvement: 0.1875/0.125 = 1.5=> 50 %50 % increased in

labor-productivity 0.075/0.0667 = 1.119=> 11.9%11.9% increased in multifactor

productivity

Caution: unit

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Productivity Variables Three critical factors to improved

productivity LaborLabor（（劳动劳动）） , historically 10%

improvement CapitalCapital（（资金资金）） , about 38%

improvement Management(Management(经营经营 )), about 52%

improvement Knowledge has value to improve productivity

=> Money Technology

Knowledge Management ( 지식경영 )

Summary Competition is the driving force in many organizations. It may involve price,

quality, special features or services, time, or other factors. To develop effective strategies for business, it is essential for organizations to determine what combinations of factors are important to customers, which factors are order qualifiers, and which are order winners.

It is essential that goals and strategies be aligned with the organization’s mission. Strategies are plans for achieving organizational goals. They provide focus for decision making. Strategies must take into account present and future customer wants, as well as the organization’s strengths and weaknesses, threats and opportunities. These can run the gamut from what competitors are doing, or are likely to do, to technology, supply chain management, and e-business. Organizations generally have overall strategies that pertain to the entire organization and strategies that pertain to each of the functional areas. Functional strategies are narrower in scope and should be linked to overall strategies. Time-based strategies and quality-based strategies are among the most widely used strategies business organizations employ to serve their customers and to become more productive.

Productivity is a measure of the use of resources. There is considerable interest in productivity both from an organizational standpoint and from a national standpoint. Business organizations want higher productivity because it yields lower costs and helps them to become more competitive. Nations want higher productivity because it makes their goods and services more attractive, offsets inflationary pressures associated with higher wages, and results in a higher standard of living for their people.

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To be OM Expert !!!

UnderstandingProblem

DevelopingProper Model

Finding SolutionTechnique

Communicable with other OM People

Domain Expert(Studying general

Problems and Working Experience)

Operations Research(경영과학)

Mathematical Programming, and Computational

Methodology

Existing Models:LP Model,

Queueing Model, Simulation Model,PERT/CPM Model

Develop New Models

OM EXPERT!!

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What you should do by the next time!

HW #1

Review Ch. 1 and 2 again Important Concepts Important People Keywords

Read Ch. 17

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Good Bye!