Introduction to Operations Management

Lecture 1

MGS4700 Operations Management

 

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Lecture Outline

What Operations and Supply Chain Managers DoOperations FunctionEvolution of Operations and Supply Chain ManagementGlobalization and CompetitivenessStrategy and OperationsLearning Objectives for This Course

 

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What is Operations and Operations Management?

What is Operations?a function or system that transforms inputs into outputs of greater value

What is Operations Management (OM)?design, operation, and improvement of productive systemsOM is about how to efficiently and effectivelycreate products and services that attain and enhance a firm’s competitive advantages

 

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INPUT •Material•Machines•Labor•Management•Capital

TRANSFORMATIONPROCESS

OUTPUT •Goods•Services

Feedback

Operations as a Transformation Process

 

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Transformation Process

Physical: (manufacturing)Locational: (transportation)Exchange: (retail)Physiological: (health care)Psychological: (entertainment)Informational: (communication)

 

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Efficient and Effective Transformation

Efficient Transformation• Produce goods or provide services using the

smallest resource inputs

Effective Transformation• Provide the right goods/services to create

the most value for the company

 

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Value-Added Transformation

Value =

The output should be of greater value than the sum of inputsOperations is the fundamental means by which firms add value and increase competitiveness

Total benefits to customer

Cost of the product/service

 

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Examples of Operations/ Transformation Systems

System Inputs/Resources Transformation Output(desired)

Hospital PatientsMDs, NursesMedical SuppliesEquipment

Health Care HealthyIndividuals

Restaurant Hungry CustomersFood, ChefServersAtmosphere

Prepare FoodServe Food

SatisfiedCustomers

AutomobilePlant

Sheet SteelEngine PartsTools, EquipmentWorkers

Fabricationand Assemblyof Cars

High QualityAutomobiles

University High School GradsTeachers, BooksClassroom

Transferringof Knowledgeand Skills

EducatedIndividuals

 

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What is Operations System?A Chain of Operations

DemandSupply

 

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A Supply Chain System

Suppliers Manufactures Warehouses &Distribution Centers

Customers

 

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An Integrated Value Chain

Value chain: set of activities that create and deliver products to customer

Manufacturer SupplierCustomer

Flow of information (customer order)

Manufacturer SupplierCustomer

Flow of information (customer order)

Flow of product (order fulfillment)

 

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Three Key Functions of A Firm

Finance provides capitalMarketing establishes demandOperations creates goods and services

Operations

Finance Marketing

 

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Operations Function As the Technical Core

OperationsMarketingFinance and AccountingHuman ResourcesOutside Suppliers

 

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Evolution of Operations ManagementCraft production

process of handcrafting products or services for individual customers

Division of labordividing a job into a series of small tasks each performed by a different worker

Interchangeable partsstandardization of parts initially as replacement parts; enabled mass production

 

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Scientific managementsystematic analysis of work methods

Mass productionhigh-volume production of a standardized product for a mass market

Lean productionadaptation of mass production that prizes quality and flexibility

Evolution of Operations Management (cont.)

 

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Historical Events in Operations ManagementEra Events/Concepts Dates OriginatorIndustrialRevolution

Steam engine 1769 James WattDivision of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney

Scientific Management

Principles of scientific management 1911 Frederick W. TaylorTime and motion studies 1911 Frank & Lillian GilbrethActivity scheduling chart 1912 Henry GanttMoving assembly line 1913 Henry Ford

Human Relations

Hawthorne studies 1930 Elton MayoMotivation theories 1940s Abraham Maslow

1950s Frederick Herzberg1960s Douglas McGregor

Operations Research

Linear programming 1947 George DantzigDigital computer 1951 Remington RandSimulation, waiting line theory, decision theory, PERT/CPM

1950s Operations research groups

MRP, EDI, EFT, CIM 1960s, 70s Joseph Orlicky, IBM 

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Era Events/Concepts Dates Originator

QualityRevolution

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)TQM (total qualitymanagement)

1980sW. Edwards Deming, Joseph Juran

Strategy andoperations

1990sWickham Skinner, Robert Hayes

Business processreengineering

1990sMichael Hammer,James Champy

Globalization WTO, European Union, and other trade agreements

1990s2000s

Numerous countriesand companies

Internet Revolution

Internet, WWW, ERP, supply chain management 1990s

ARPANET, TimBerners-Lee SAP,i2 Technologies,ORACLE,PeopleSoft

E-commerce 2000sAmazon, Yahoo, eBay, and others

Historical Events in Operations Management (cont.)

 

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Productivity for Competitiveness

Productivityratio of output to inputOutput

sales made, products produced, customers served, meals delivered, or calls answered

Inputlabor hours, investment in equipment, material usage, or square footage

 

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19Measures of Productivity

Productivity

 

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Productivity Example

Collins Title Company has a staff of 4, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The company recently purchased a computerized title-search system that will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.

Labor productivity with old system =

Labor productivity with new system =

Multifactor productivity with old system =

Multifactor productivity with new system =

ur titles/ho25.0hours-labor 32

dayper titles8=

llar titles/do0077.0400$640

dayper titles8=

+

ur titles/ho4375.0hours-labor 32

dayper titles41=

llar titles/do0097.0800$640

dayper titles14=

+

75% increase

26% increase

 

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Productivity

In-class ExerciseWeek 1 2 3 4Units of output 2,000 4,000 5,000 7,000# workers 4 4 5 6Hours per week 40 48 56 70Labor cost per hour $10 $10 $10 $10Material (lbs.) 286 570 720 1,000Material cost per lb. $4 $4 $4 $4

Labor productivityMaterial productivityMultifactor productivity

Using dollar ($) as unit of measure for all inputs

 

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Productivity Improvement

Become efficientoutput increases with little or no increase in input

Expandboth output and input grow with output growing more rapidly

Achieve breakthroughsoutput increases while input decreases

Downsizeoutput remains the same and input is reduced

Retrenchboth output and input decrease, with input decreasing at a faster rate

OutputInput

OutputInput

OutputInput

OutputInput

OutputInput

 

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Operations and Strategy

Mission and Strategy

Mission/Vision - where are we going?

Strategy - how are we going to get there?

 

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…be the world’s best quick service

restaurant experience. Being the best means

providing outstanding quality, service,

cleanliness and value, so that we make every

customer in every restaurant smile.

Mission

 

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… focused on three worldwide strategies:♦ Be the best employer for our people in

each community around the world.♦ Deliver operational excellence to our

customers in each of our restaurants.♦ Achieve enduring profitable growth by

expanding the brand and leveraging the strengths of the McDonald’s system through innovation and technology.

Strategy

 

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Strategic Planning

Missionand Vision

CorporateStrategy

OperationsStrategy

MarketingStrategy

FinancialStrategy

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Defining a primary taskWhat is the firm in the business of doing?

Assessing core competenciesWhat does the firm do better than anyone else?

Determining order winners and order qualifiersWhat qualifies an item to be considered for purchase?What wins the order?

Positioning the firmHow will the firm choose to compete?

Deploying the strategy

Five Steps for Strategy Formulation

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Order qualifiersThe Characteristics of a product or service that qualify it to be considered for purchase by a customer.

Order winnersThe characteristics of a product or service that win orders in the marketplace – the final factor in the purchasing decision.

Order Qualifier vs. Order Winner

 

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Competitive Priorities

Cost Quality

Flexibility Speed

 

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Competitive Priorities

Cost

Achieving low costs through disciplined or efficient operationsWaste elimination and lean production

Southwest AirlinesUsing only one type of airplane facilitates crew changes, record-keeping, maintenance, and inventory costsdirect flights mean no baggage transfersmillions $ annual savings in travel agent commissions by requiring customers to contact the airline directly

 

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Competitive Priorities

QualityRitz-Carlton - one customer at a time

Every employee is empowered to satisfy a guest’s wish Teams at all levels set objectives and devise quality action plansEach hotel has a quality leader Quality reports tracks

guest room preventive maintenance cyclespercentage of check-ins with no waitingtime spent to achieve industry-best clean room appearance

Guest Preference Reports are recorded in a database

 

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Competitive Priorities

FlexibilityThe ability to adjust to changes in product mix, production volume, or designNational Bicycle Industrial Company

offers 11,231,862 variationsdelivers within two weeks at costs only 10% above standard modelsmass customization: the mass production of customized products

 

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Competitive Priorities

SpeedCiticorp

advertises a 15-minute mortgage approvalL.L. Bean

ships orders the day they are receivedWal-Mart

replenishes its stock twice a week Dell

ships custom-built computers in two daysZara

two-week design-to-rack lead time

 

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Operations’ Role in Corporate Strategy

Operations provides support for a differentiated strategy

Operations serves as a firm’s distinctive competence in executing similar strategies better than competitors

 

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Policy Deployment

known as “hoshin planning”translates strategy into measurable objectives

focuses employees on common goals & priorities to align day-to-day decisions with strategic plan

 

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Policy Deployment

Translating corporate strategy into measurable

objectives

 

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Operations Management

Materials

Customers

Products

Services

Design Improvement Planning

Lean Production

Quality Mgmt

Statistical Process Control*

Forecasting*

Resource Planning

Aggregate Planning*

Inventory Mgmt

MRPSupply Chain Mgmt

Scheduling*

Project Mgmt

Product and Service Design

Facility Location and Layout

Process

Waiting Line Analysis

Operations Strategy

Operations/Production System

* Topics not covered 

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