Introduction to Operations Management

Chapter 1pp. 2-15; 22-37June 25, 2012

Learning objectives

• LO 1 – define operations management• LO 2 – understand how manufacturing and

service differ• LO 3 – be familiar with current trends in

business that impact operations management

Operations Management

• Definitions– Operations– Operations management– Transformation process

• Series of activities along a “value chain”

Value Chain

The Transformation Process – Systems Theory

Inputs•Land•Labor•Capital•Information

Outputs•Goods•Services

Transformation/Conversion

Process

Control

Feedback

Feedback Feedback

Value-Added

Transformation Process

• Physical: as in manufacturing operations• Locational: as in transportation or warehouse

operations• Exchange: as in retail operations• Physiological: as in health care• Psychological: as in entertainment• Informational: as in communication

The Transformation Process – Systems Theory

Inputs•Land•Labor•Capital•Information

Outputs•Goods•Services

Transformation/Conversion

Process

Control

Feedback

Feedback Feedback

Value-Added

Supply Chain as Transformation Process

Tangible Act-Oriented

Goods Services

Manufacturing vs. Service?

Key Differences in Goods and Services

1. Customer contact2. Uniformity of input3. Labor content of jobs4. Uniformity of output5. Measurement of productivity6. Production and delivery7. Quality assurance8. Amount of inventory

Manufacturing (goods) vs Service

Characteristic Manufacturing ServiceOutput

Customer contact

Uniformity of input

Labor content

Uniformity of output

Measurement of productivity

Opportunity to correct

Tangible

Low

High

Low

High

Easy

High

Intangible

High

Low

High

Low

Difficult

Lowquality problems

High

Intangible

Managing Services is Challenging

• Less structured jobs • Customer contact • Often low-skilled jobs and workers• High turnover (especially in low-skill jobs)• High input variability• External factors

Process Management

• Definition– “one or more actions that transform inputs into

outputs”• Variety

– Projects

Process Management

• Definition• Types

– Projects– Batch production

Process Management

• Definition• Types

– Projects– Batch production– Mass production

• chocolates

– Mass customization• It once was just a sneaker!

Customization (normally)

• More labor intensive• More time consuming• Requires more highly-skilled people• Requires more flexible equipment• Much lower volume of output• Higher price tags

Process Management

• Definition• Types

– Projects– Batch production– Mass production– Mass customization

• It once was just a sneaker!

– Continuous production

Process Variation

.

Four Sources of Variation

Variety of goods or services being offered

The greater the variety of goods and services offered, the greater the variation in production or service requirements.

Structural variation in demand These are generally predictable. They are important for capacity planning.

Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers.

Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action.

Key Trends and Issues in Manufacturing

• E-Business & E-Commerce• Management of Technology• Globalization• Management of Supply Chains• Outsourcing• Agility• Ethical Behavior

Key trend: What is Manufacturing?

• Not your grandfather’s industry• World's largest manufacturing economy,

– US: 21% – China: 15% – Japan: 12%

• 11.7% GDP

Key trend: What is Manufacturing?

• 17 million US jobs (including support)– one in six private sector jobs– 12 million mfg jobs

• Avg $77,186 annually (pay and benefits)– average non-manufacturing = $56,436 annually.

• 66% of all R&D in the nation• Would be the 8th largest economy

Key trend: What is Manufacturing?

• Who’s going to work there?– Jobs, but no people– and it's not just here

Key trend: Globalization/Offshoring

• access to international markets

Key trend: Globalization/Offshoring

• access to international markets• response to changes in demand• reliable sources of supply• latest trends and technologies• favorable cost

Key trend: Supply Chain Management

• Supply chain

Suppliers’suppliers

Directsuppliers

Producer DistributorFinal

Customers

Historical Evolution of OM

• Industrial Revolution• Scientific Management• Human Relations Movement• Decision Models and Management Science• Influence of Japanese Manufacturers

Influence of Japanese Manufacturers

• “Japan, Inc.”• Japanese manufacturing

– Efficiency and quality• TPS and JIT (lean) mfg

TPS and JIT (lean) mfg

• “lean” philosophy– Value or waste– Preserve value with less work– Increase efficiency, decrease waste, and measure

• TPS characteristics– Cost reductions by eliminating waste– Very low inventories (JIT)

• It all has to fit

TPS and JIT (lean mfg)

• “lean” philosophy• TPS characteristics

– Cost reductions by eliminating waste– Very low inventories (JIT)– Short production cycle times– Order-based production

Advanced manufacturing

• Definition– Nanotechnology

• then is now