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Operations Management

Operations and ProductivityA-Team

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Outline What is Operations Management?

The heritage of Operations Management Why study OM? What Operations Managers do

Organizing to produce goods and services Where are the OM jobs?

Exciting new trends in Operations Management

Operations in the service sector The Productivity challenge

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Learning ObjectivesWhen you complete this chapter, you

should be able to: Identify or Define:

Production and productivity Operations Management (OM) What operations managers do Services

Describe or Explain: A brief history of operations management The future of the discipline Measuring productivity

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What Is Operations Management?

Operations management is the set of activities that creates goods and services by transforming inputs into outputs

Operations management focuses on carefully managing the processes to produce and distribute products and services.

Production is the creation of goods and services

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Significant Events in OM Division of labor (Smith, 1776) Standardized parts (Whitney, 1800) Scientific management (Taylor, 1881) Coordinated assembly line (Ford 1913) Gantt charts (Gantt, 1916) Motion study (the Gilbreths, 1922) Quality control (Shewhart, 1924)

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Adam SmithHe suggests that the huge increases in productivity obtainable from technology or technological progress are possible because human and physical capital are matched, usually in an organisation.

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Eli WhitneyWhitney's defenders have claimed that he invented the American system of manufacturing-- the combination of power machinery, interchangeable parts, and division of labor that would underlie the nation's subsequent industrial revolution.

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Frederick Winslow Taylor

He developed the theory of management that analyzes and synthesizes processes, improving labor productivity.

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Henry FordAn assembly line is a manufacturing process in which interchangeable parts are added to a product in a sequential manner using optimally planned logistics to create a finished product much faster than with handcrafting-type methods.

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Henry Gantt

A Gantt chart is a popular type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and finish dates of the terminal elements and summary elements of a project.

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The Gilbreths

The Gilbreths' motion studies were more focused on how a task was done, and how best to eliminate unneeded, fatiguing steps in any process.

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Walter Shewhart Shewhart framed the problem in terms of assignable-cause and chance-cause variation and introduced the control chart as a tool for distinguishing between the two. Shewhart stressed that bringing a production process into a state of statistical control, where there is only chance-cause variation, and keeping it in control, is necessary to predict future output and to manage a process economically.

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Significant Events - Continued

CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960) CAD Flexible manufacturing systems (FMS) Manufacturing automation protocol

(MAP) Computer integrated manufacturing

(CIM)

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Why Study OM? OM is one of three major functions

(marketing, finance, and operations) of any organization

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

We want to know what operations managers do

OM is such a costly part of an organization

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Why Study OM? Related activities:

managing purchases inventory control quality control storage logistics evaluationsand we need to comunicate them with each

others.

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Why Study OM? OM often includes substantial measurement

and analysis of internal processes, because a great deal of focus is on efficiency and effectiveness of processes.

Ultimately, the nature of how operations management is carried out in an organization depends very much on the nature of products or services in the organization.

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What Operations Managers Do by Henri Fayol:

Plan Organize Staff Lead Control

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PlanningThe process of deciding what to do. Effective planning seeks to answer questions such as:

•What should the firm do? The output of this process are goals and objectives.•When must the firm achieve these goals? The output is a schedule defining milestones and due dates.•Who is responsible for doing it? The outputs are assigned responsibilities.•How should this be done? The outputs may be directions or plans of action.•How should performance be measured? The output includes standards of performance.

Planning is forward looking. When planning is operational, the planning horizon is shorter and the level of detail within is greater. When strategic, the planning horizon is long and done in less detail.

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Analysing

The process of making sense of data that is often: poorly structured, incomplete, inconsistent, inaccurate,and/or available in overwhelming quantities.

Analysis supports the planning process byproviding the “facts” in useful formats that can then be used to evaluate business alternatives.

Analyzing also supports management’s control activity byproviding the basis for corrective actions.

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Organizing

The process of building organization structures and interrelated task coordination teams. In the past, organizing dealt mostly with humans, but increasingly it involves data-getting:

the right person the right information in the right form

at the right time

is a key success factor in organization design.

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Directing/Implementing

An action-oriented process that carries out the outputs of the first three management activities.

This is where money is made and lost. In this process, management expends

resources to perform the tasks defined by the planning process.

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Controlling

The process of measuring the results of the other four management activities.

Were the plans any good? Did the analysis provide meaningful information to the

other processes? How well did we organize our resources to get the job

done? How well did we do it?

We might even add, how well did we measure the performance of our control function?

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Ten Critical Decisions Service, product design Quality management Process, capacity design Location Layout design Human resources, job design. Supply-chain management Inventory management Scheduling Maintenance

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Section of OM Procurement (Purchasing) Practices

reviews guidelines for buying various materials from suppliers and vendors - materials, including computers, services from lawyers, insurance, etc.

Management Control and Coordinating Function

includes a broad range of activities to ensure that organizational goals are consistently being met in an effective and efficient fashion

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Section of OM Product and Service Management

the major activities involved in product and service management are similar to those in operations management. However, operations management is focused on the operations of the entire organization, rather than managing a product or service.

Quality Management is crucial to effective operations management,

particularly continuous improvement. More recent advancements in quality, such as benchmarking and Total Quality Management, have resulted in advancements to operations management as well.

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Section of OM Inventory Management

Costs can be substantial to store and move inventory. Innovative methods, such as Just-in-Time inventory control, can save costs and move products and services to customers more quickly.

Logistics and Transportation Management is focused on the flow of materials and goods

from suppliers, through the organization and to the customers, with priority on efficiency and cost effectiveness.

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Section of OM Facilities Management

depnds a great deal on effective management of facilities, such as buildings, computer systems, signage, lighting, etc.

Configuration Management It's important to track the various versions of

products and services. Consider the various versions of software that continually are produced, each with its own version number. Tracking these versions is configuration management.

Distribution Channels The means of distribution depend very much on

the nature of the product or service.

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Organisational Functions

Marketing Gets customers

Operations creates product or service

Finance/Accounting Obtains funds Tracks money

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Where Are the OM Jobs? Technology/methods Facilities/space utilization Strategic issues Response time People/team development Customer service Quality Cost reduction Inventory reduction Productivity improvement

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New Challenges in OM

Local or national focus

Batch shipments Low bid purchasing

Lengthy product development

Standard products Job specialization

Global focusJust-in-timeSupply chain partneringRapid product development, alliancesMass customizationEmpowered employees, teams

FromFrom ToTo

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Characteristics of Goods

Tangible productConsistent product definitionProduction usually separate from consumptionCan be inventoriedLow customer interaction

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Characteristics of Service

Intangible productProduced & consumed at same timeOften uniqueHigh customer interactionInconsistent product definitionOften knowledge-basedFrequently dispersed

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Goods Versus Services

Can be resold Can be

inventoried

Some aspects of quality measurable

Selling is distinct from production

Reselling unusualDifficult to inventoryQuality difficult to measureSelling is part of service

GoodsGoods ServiceService

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Goods Versus Services - Continued

Product is transportable

Site of facility important for cost

Often easy to automate

Revenue generated primarily from tangible product

Provider, not product is transportableSite of facility important for customer contactOften difficult to automateRevenue generated primarily from intangible service.

GoodsGoods ServiceService

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The Economic System Transforms Inputs to Outputs

The economic system transforms inputs to outputs at about an annual 1.7% increase in productivity (capital 38% of 1.7%), labor (10% of 1.7%), management (52% of 1.7%)

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

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Inputs/Outputs

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Measure of process improvementRepresents output relative to input

Productivity increases improve standard of living

From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate

Productivity

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

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Measurement Problems Quality may change while the

quantity of inputs and outputs remains constant

External elements may cause an increase or decrease in productivity

Precise units of measure may be lacking

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Productivity Variables Labor - contributes about 10% of

the annual increase Capital - contributes about 32% of

the annual increase Management - contributes about

52% of the annual increase

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Service Productivity Typically labor intensive Frequently individually processed Often an intellectual task

performed by professionals Often difficult to mechanize Often difficult to evaluate for

quality