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What Is Operations

Management?

Productionis the creation of

goods and servicesOperations management (OM)isthe set of activities that creates

value in the form of goods andservices by transforming inputsinto outputs

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Organizing to Produce

Goods and Services Essential functions:

Marketing generates demand

Production/operations createsthe product/service

Finance/accounting tracks howwell the organization is doing, paysbills, collects the money

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Organizational Charts

OperationsGround support

equipment

Maintenance

Ground Operations

Facilitymaintenance

Catering

Flight OperationsCrew schedulingFlyingCommunicationsDispatching

Management science

Finance/accounting

AccountingPayablesReceivablesGeneral Ledger

Finance

Cash control

Internationalexchange

Airline

Figure 1.1(B)

MarketingTrafficadministration

ReservationsSchedulesTariffs (pricing)

Sales

Advertising

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MarketingSales

promotion

Advertising

SalesMarketresearch

Organizational Charts

OperationsFacilities

Construction; maintenance

Production and inventory control

Scheduling; materials controlQuality assurance and control

Supply chain management

ManufacturingTooling; fabrication; assembly

Design

Product development and designDetailed product specifications

Industrial engineeringEfficient use of machines, space,

and personnel

Process analysisDevelopment and installation of

production tools and equipment

Finance/accountingDisbursements/

credits

ReceivablesPayablesGeneral ledger

Funds Management

Money marketInternational

exchange

Capital requirements

Stock issueBond issue

and recall

Manufacturing

Figure 1.1(C)

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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 howgoods and services are produced

We want to understand whatoperations managers do

OM is such a costly part of anorganization

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What Operations

Managers Do

Planning

Organizing

Staffing Leading

Controlling

Basic Management Functions

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Ten Critical Decisions

Ten Decision Areas Chapter(s) Design of goods and services 5 Managing quality 6, Supplement 6 Process and capacity 7, Supplement 7

design

Location strategy 8 Layout strategy 9 Human resources and 10, Supplement 10

job design

Supply chain 11, Supplement 11management Inventory management 12, 14, 16 Scheduling 13, 15 Maintenance 17

Table 1.2

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The Critical Decisions

Design of goods and services

What good or service should weoffer?

How should we design these productsand services?

Managing quality

How do we define quality?

Who is responsible for quality?

Table 1.2 (cont.)

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The Critical Decisions

Process and capacity design

What process and what capacity willthese products require?

What equipment and technology isnecessary for these processes?

Location strategy

Where should we put the facility?

On what criteria should we base thelocation decision?

Table 1.2 (cont.)

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The Critical Decisions

Layout strategy How should we arrange the facility?

How large must the facility be to meet

our plan?

Human resources and job design

How do we provide a reasonable work

environment? How much can we expect our

employees to produce?

Table 1.2 (cont.)

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The Critical Decisions

Supply chain management

Should we make or buy this component?

Who are our suppliers and who canintegrate into our e-commerce program?

Inventory, material requirementsplanning, and JIT

How much inventory of each item shouldwe have?

When do we re-order?

Table 1.2 (cont.)

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The Critical Decisions

Intermediate and shorttermscheduling

Are we better off keeping people on

the payroll during slowdowns?

Which jobs do we perform next?

Maintenance

Who is responsible for maintenance?

When do we do maintenance?

Table 1.2 (cont.)

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Where are the OM Jobs?

Figure 1.2

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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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Significant Events in OM

Figure 1.3

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The Heritage of OM

Division of labor (Adam Smith 1776;Charles Babbage 1852)

Standardized parts (Whitney 1800)

Scientific Management (Taylor 1881) Coordinated assembly line (Ford/

Sorenson 1913)

Gantt charts (Gantt 1916)

Motion study (Frank and Lillian Gilbreth1922)

Quality control (Shewhart 1924; Deming1950)

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The Heritage of OM

Computer (Atanasoff 1938)

CPM/PERT (DuPont 1957)

MRP (Orlicky 1960)

(CAD 1970)

(FMS 1975)

Baldrige Quality Awards (1980)

CIM (1990) Globalization (1992)

Internet (1995)

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Eli Whitney

In 1798, receivedgovernment contract tomake 10,000 muskets

Showed that machinetools could makestandardized parts toexact specifications

Musket parts couldbe used in anymusket

Frederick W. Taylor

Known as father ofscientific management

In 1881, as chiefengineer for MidvaleSteel, studied howtasks were done

Began first motionand time studies

Created efficiencyprinciples

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Taylors Principles

Management ShouldTake More Responsibilityfor:

Matching employees toright job

Providing the propertraining

Providing proper workmethods and tools

Establishing legitimateincentives for work to beaccomplished

Frank & Lillian Gilberth

engineering team

Further developed

work measurementmethods

Applied efficiencymethods to their home

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Henry Ford

In 1903, created FordMotor Company

In 1913, first usedmoving assembly lineto make Model T

Unfinished productmoved by conveyorpast work station

Paid workers very wellfor 1911 ($5/day!)

W. Edwards Deming

Engineer and physicist

Credited with teaching

Japan quality controlmethods in post-WW2

Used statistics toanalyze process

His methods involveworkers in decisions

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Contributions From

Human factors

Industrial engineering

Management science

Biological science

Physical sciences

Information technology

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New Challenges in OM

Global focus

Just-in-time

Supply chainpartnering

Rapid productdevelopment,alliances

Masscustomization

Empoweredemployees, teams

ToFrom Local or national focus

Batch shipments

Low bid purchasing

Lengthy productdevelopment

Standard products

Job specialization

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Characteristics of Goods

Tangible product

Consistent productdefinition

Production usuallyseparate fromconsumption

Can be inventoried

Low customerinteraction

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Characteristics of Service

Intangible product

Produced andconsumed at same time

Often unique High customer

interaction

Inconsistent productdefinition

Often knowledge-based

Frequently dispersed

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Goods Versus Services

Table 1.3

Can be resold

Can be inventoried

Some aspects of quality

measurableSelling is distinct fromproduction

Product is transportable

Site of facility important for cost

Often easy to automate

Revenue generated primarilyfrom tangible product

Attributes of Goods

(Tangible Product)

Attributes of Services

(Intangible Product)

Reselling unusual

Difficult to inventory

Quality difficult to measure

Selling is part of service

Provider, not product, isoften transportable

Site of facility important forcustomer contact

Often difficult to automate

Revenue generated primarilyfrom the intangible service

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Goods and Services

AutomobileComputer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

Percent of Product that is a Good Percent of Product that is a Service

100% 75 50 25 0 25 50 75 100%| | | | | | | | |

Figure 1.4

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New Trends in OM

Local ornationalfocus

Reliable worldwidecommunication andtransportation networks

Global focus,movingproductionoffshore

Batch (large)shipments Short product life cyclesand cost of capital putpressure on reducinginventory

Just-in-timeperformance

Low-bidpurchasing

Supply chain competitionrequires that suppliers be

engaged in a focus on theend customer

Supply chainpartners,

collaboration,alliances,outsourcing

Figure 1.6

Past Causes Future

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New Trends in OM

Lengthyproductdevelopment

Shorter life cycles,Internet, rapid internationalcommunication, computer-aided design, andinternational collaboration

Rapid productdevelopment,alliances,collaborativedesigns

Standardizedproducts

Affluence and worldwidemarkets; increasinglyflexible productionprocesses

Masscustomizationwith addedemphasis onquality

Job

specialization

Changing socioculture

milieu; increasingly aknowledge and informationsociety

Empowered

employees,teams, and leanproduction

Figure 1.6

Past Causes Future

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New Trends in OM

Low-costfocus

Environmental issues, ISO14000, increasing disposalcosts

Environmentallysensitiveproduction, greenmanufacturing,recycled

materials,remanufacturing

Ethics notat forefront

Businesses operate moreopenly; public and globalreview of ethics; oppositionto child labor, bribery,

pollution

High ethicalstandards andsocialresponsibility

expected

Figure 1.6

Past Causes Future

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New Trends in OM

Global focus

Just-in-time performance

Supply chain partnering

Rapid product development

Mass customization

Empowered employees

Environmentally sensitive production

Ethics

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Productivity Challenge

Productivity is the ratio of outputs (goodsand services) divided by the inputs

(resources such as labor and capital)

The objective is to improve productivity!

Important Note!Production is a measure of output

only and not a measure of efficiency

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Feedback loop

Outputs

Goodsand

services

Processes

The U.S. economic systemtransforms inputs to outputs

at about an annual2.5%increase in productivity per

year. The productivityincrease is the result of a

mix of capital(38% of2.5%),labor(10% of2.5%), and

management(52% of2.5%).

The Economic System

Inputs

Labor,capital,

management

Figure 1.7

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Measure of process improvement

Represents output relative to input

Only through productivity increasescan our standard of living improve

Productivity

Productivity =Units produced

Input used

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Productivity Calculations

Productivity =Units produced

Labor-hours used

= =4 units/labor-hour

1,000

250

Labor Productivity

One resource input single-factor productivity

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Multi-Factor Productivity

Output

Labor + Material + Energy+ Capital + Miscellaneous

Productivity =

Also known as total factor productivity

Output and inputs are often expressedin dollars

Multiple resource inputs multi-factor productivity

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Collins Title Productivity

Staff of4 works8 hrs/day 8 titles/dayPayroll cost =$640/day Overhead =$400/day

Old System:

14 titles/day Overhead =$800/dayNew System:

8 titles/day

32 labor-hrs=

Old labor

productivity=.25 titles/labor-hr

14 titles/day

32 labor-hrs=

New laborproductivity

=.4375 titles/labor-hr

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Collins Title Productivity

Staff of4 works8 hrs/day 8 titles/dayPayroll cost =$640/day Overhead =$400/day

Old System:

14 titles/day Overhead =$800/dayNew System:

8 titles/day

$640 + 400

14 titles/day

$640 + 800

=Old multifactor

productivity

=New multifactor

productivity

=.0077 titles/dollar

=.0097 titles/dollar

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Measurement Problems

Qualitymay change while thequantity of inputs and outputs

remains constantExternal elementsmay cause an

increase or decrease in productivity

Precise unitsof measure may belacking

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Key Variables for Improved

Labor Productivity Basic education appropriate for the

labor force

Diet of the labor force

Social overhead that makes laboravailable

Maintaining and enhancing skills in themidst of rapidly changing technologyand knowledge

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Service Productivity

Typically labor intensive

Frequently focused on unique

individual attributes or desires Often an intellectual task performed by

professionals

Often difficult to mechanize

Often difficult to evaluate for quality

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Ethics and Social Responsibility

Challenges facingoperations managers:

Developing and producing safe,quality products

Maintaining a clean environment

Providing a safe workplace

Honoring community commitments