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Operations ManagementAn Introduction
Learning objectives:
-define operations management
-define the role and function of operations management
-list components of operations management-describe past/current/future challenges of operations
management
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Organizational Model
OM
Marketing
MISEngineering
HRM
R&D
Accounting
SalesFinance
Operations
management is
only one
function of any
organization.
The overall
success of anorganization
depends on the
integration of
its various
functions.Many times
OM issues
overlap with
HR, finance,
marketingissues, etc.
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Operations and Supply Strategy
Setting broad policies and plans for using therecourses of a firm to best support its long-termcompetitive strategy
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Organization Chart-Major Elements
Facilities
Production &
Inventory ontrol
Quality Assurance
& ControlProcurement
Engineering Design
Industrial Engineering
Process Engineering
Operations
Disbursements
& Credits
Funds Management
Capital Requirements
Finance/Accounting
Sales Promotion
Advertising
Sales
Market Research
Marketing
Manufacturing Organization
…A snapshot of the
various components of
functions in an
organization.
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Historical Milestones in OM (operations
management) The Industrial Revolution Post-Civil War Period
Scientific Management
Human Relations and Behaviorism Operations Research
The Service Revolution The service revolution
changed approaches to
OM…
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Today's Factors Affecting OM
Global Competition
U.S. Quality, Customer Service, and Cost Challenges
Computers and Advanced Production Technology
Growth of U.S. Service Sector
http://www.census.gov/econ/www/servmenu.html
Scarcity of Production Resources
Issues of Social Responsibility http://www.bsr.org/ ; http://vcr.csrwire.com/
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The notion of tradeoffs and how to deal with them
Cost
Quality
DeliveryFlexibility
For example, if we
improve customer serviceproblem solving by cross-
training personnel to deal
with a wider-range of
problems, they may
become less efficient at
dealing with commonly
occurring problems.
For example, if we reduce costs by reducing product qualityinspections, we might reduce product quality.
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Today's Factors Affecting OM- some examples
Volkswagen is setting out to build a plant in Chattanooga, Tennessee, where vehicle production will be
due to commence in early 2011. The supervisory board of Volkswagen AG approved the plans and aninvestment volume of up to 1 billion USD (around 620 million euro). The Group’s management board
had previously pinpointed Chattanooga as the site for its new plant. “The USA market,” said Prof Martin
Winterkorn, CEO of Volkswagen AG, “is an important part of our volume strategy and we are now very
resolutely accessing that market. Volkswagen will be extremely active there.”
http://www.automobilesreview.com/auto-news/volkswagen-builds-factory-in-tennessee-usa/3065/
In a 2008 survey of 100 senior manufacturing executives commissioned by Advanced TechnologyServices and conducted by Nielsen, 81 percent said they would be affected by the serious lack of skilled labor, costing an average $52 million each over the next five years. This figure reflects morethan just the cost of recruiting, training, and retaining workers; it includes the high price of lostproduction as well. http://www.qualitydigest.com/inside/metrology-article/the-cost-poor-calibration-and-quality.html
Cleaning products giant JohnsonDiversey has joined the U.S. EPA's Climate Savers program, pledging$19 million toward emissions reduction efforts that the company expects will save $31 million over thenext five years. http://vcr.csrwire.com/node/10389
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Ops challenges : quality
Eight key forces are considered to influence quality:
Partnering
Learning systems
Adaptability and speed of change Environmental sustainability
Globalization
Knowledge focus
Customization and differentiation
Shifting demographics
Partnering Experience
Frank Galliers Ltd defines "partnering" as workingcollaboratively with clients and suppliers bringing togetherall requisite expertise in order to fulfil the contractrequirements achieving best value for money against theKey Performance Indicators:Cost - achieving or improving budgeted contract costsTiming - meeting the contract programme on timeQuality - meeting or improving pre-determined clientquality standards
Defects - achieving zero defects at 12 months
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Components of OM
OMMission and
Strategy
ProductDesignProcurement
Quality
Management
Schedule
Location
Layout
Process
Design
Reliability &
Maintenance Inventory
Human
Resources &
Job Design
These are the topics of
our course
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U.S. Cost Challenges
There is continuing pressure to reduce direct costs (of producing and selling) and overheadcosts.
Cost-cutting measures being used include:
Moving production to low-labor-cost countries
Negotiating lower labor rates with union/workers
Automating processes to reduce the amount of labor needed
Reducing health care and retirement benefits
Washington, D.C. (AHN) - Soaring fuel price, the weak greenback and inflation are cutting the China price of U.S. manufacturers that had outsourced their production to Asia. The price advantage was 40 to 50 percent off.China and other Asian countries' export model, which worked for over 30 years, may no longer be viable if fuel pricescontinue to soar as cost of shipping finished product made in Asia eats up profit, according to Morgan Stanley.Because the Chinese model was premised on an oil price of $20 per barrel, some U.S. companies which outsourced
production in China are mulling transferring operations to Mexico, while others are planning to return to the U.S. As aresult steel exports from China to the U.S. dipped 38 percent from January to July, while production of steel in the U.S.went up 10 percent.Other sectors which had returned to the U.S. include furniture, electronic appliances and textiles. One of the mostprominent is Thomasville Furniture, which announced in June it was bringing back the production of upholstered andwood furniture to the U.S. and in the process create 100 jobs in North Carolina.
But not everyone will return to the U.S. Notwithstanding the high shipping bill, raw material and labor is considerablycheaper in China than in the U.S.
…see next
slides for
more…
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Advanced Production Technology
Computer-aided design (CAD) - allows engineers to designproducts directly on computer terminals
Computer-aided manufacturing (CAM) - translates CADinformation into machinery instructions
Flexible manufacturing systems (FMS) - clusters of automated machinery produce a variety of products
Automated storage & retrieval systems (ASRS) - computer-
controlled warehouses Automatic identification systems (AIS) - data is “read” into
computers using bar coding and the like
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Scarcity of Production Resources
Raw materials like titanium, nickel, coal, natural gas, water,and petroleum products are periodically unavailable or inshort supply.
Southwest has locked in 80 percent of its fuel costs, equivalent to $24 per barrel for all of 2004. The remaining 20 percent will be bought at market value.
Ray Neidl, an analyst at Manhattan-based Blaylock & Partners, said Southwest is in a good
position by hedging its fuel costs, unlike most other airlines that are now paying marketprices for fuel.
http://www.allbusiness.com/marketing-advertising/strategic-marketing/1053930-1.html
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Conclusions:
Operations Strategy defined
Operations strategy is a long-range game plan for theproduction of a company’s products/services, and provides
a road map for the production function in helping to achievethe business strategy.
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Challenges posed to operations
management by the "new economy"
1. The organizational unit of analysis is an operating unit(e.g., a factory, a company, or a division/business unitwithin a company).
2. Operations management is concerned primarily with
stable, well-specified "products" and "processes."
3. A major concern of operations managers is reducing thevariable cost of production.
4. Your competitors are your enemies, and the key toprevailing against them lies in differentiation (e.g., throughlower cost, superior performance, etc.).
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The new approach to operations
management
Project management is at least as important as processmanagement
Critical mass versus process efficiency
The "network effect“
…these last two slides show approaches
to OM today and the foundations of OMdecisions… these can be used in the
analysis/decisions for
applications/cases/examples throughout
the course…
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