Production Operations Production Operations Management Management

: An Overview: An Overview

Learning Objectives of this Paper

Gain an appreciation of strategic importance of operations in a global business environment

Understand how operations relates to other business functions

Develop a working knowledge of concepts and methods related to designing and managing operations

Develop a skill set for quality and process improvement

Lecture outlineLecture outline

DefinitionHistorical Milestones in POMFactors Affecting POM TodayDifferent Ways of Studying POMWrap-Up: What World-Class Producers Do

What Is Production Operations Management?

Production is the creation of goods and services

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

5

Production Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .

Scope of Production Operations Scope of Production Operations ManagementManagement

6

Production Operations ManagementProduction Operations Management

The management of systems or processes that create goods and/or provide services

Organization

Finance Operations Marketing

7

Business Operations OverlapBusiness Operations Overlap

Operations

FinanceMarketing

8

POM in the Organization Chart

OperationsOperations

Plant Manager

Plant Manager

OperationsManager

OperationsManager

DirectorDirector

Manufacturing, Production control, Quality assurance, Engineering,

Purchasing, Maintenance, etc

Manufacturing, Production control, Quality assurance, Engineering,

Purchasing, Maintenance, etc

Finance Marketing

How is Operations Relevant to my Major?

Accounting

Information Technology

Management

““As an auditor you must understand the fundamentals of operations management.”

“IT is a tool, and there’s no better place to apply it than in operations.”

“We use so many things you learn in an operations class—scheduling, lean production, theory of constraints, and tons of quality tools.”

How is Operations Relevant to my Major?

Economics

Marketing

Finance

““It’s all about processes. I It’s all about processes. I live by flowcharts and Pareto live by flowcharts and Pareto analysis.”analysis.”

““How can you do a good job How can you do a good job marketing a product if you’re marketing a product if you’re unsure of its quality or unsure of its quality or delivery status?”delivery status?”

““Most of our capital Most of our capital budgeting requests are from budgeting requests are from operations, and most of our operations, and most of our cost savings, too.”cost savings, too.”

What Do Operations Managers Do?

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

What is a transformation process?a series of activities along a value chain extending from supplier to

customeractivities that do not add value are superfluous and should be eliminated

What is operations management?design, operation, and improvement of productive systems

What Operations Managers Do

PlanOrganize StaffLeadControl

13

Why Study Production Operation Management?

Business Education

Systematic Approach to Org. Processes

Career Opportunities

Cross-Functional Applications

POM

Historical Milestones in POM

The Industrial RevolutionPost-Civil War PeriodScientific ManagementHuman Relations and BehaviorismOperations ResearchThe Service Revolution

15

The Industrial Revolution

The industrial revolution developed in England in the 1700s.

The steam engine, invented by James Watt in 1764, largely replaced human and water power for factories.

Adam Smith’s The Wealth of Nations in 1776 touted the economic benefits of the specialization of labor.

Thus the late-1700s factories had not only machine power but also ways of planning and controlling the tasks of workers.

16

The Industrial Revolution

The industrial revolution spread from England to other European countries and to the United Sates.

In 1790 an American, Eli Whitney, developed the concept of interchangeable parts.

The first great industry in the U.S. was the textile industry.

In the 1800s the development of the gasoline engine and electricity further advanced the revolution.

By the mid-1800s, the old cottage system of production had been replaced by the factory system.

. . . more

Eli Whitney

Born 1765; died 1825

In 1798, received government contract to make 10,000 muskets

Showed that machine tools could make standardized parts to exact specifications

Musket parts could be used in any musket

© 1995 Corel Corp.

18

Post-Civil War Period

During the post-Civil War period great expansion of production capacity occurred.

By post-Civil War the following developments set the stage for the great production explosion of the 20th century: increased capital and production capacity the expanded urban workforce new Western U.S. markets an effective national transportation system

19

Scientific Management

Frederick Taylor is known as the father of scientific management. His shop system employed these steps: Each worker’s skill, strength, and learning ability were

determined. Stopwatch studies were conducted to precisely set

standard output per worker on each task. Material specifications, work methods, and routing

sequences were used to organize the shop. Supervisors were carefully selected and trained. Incentive pay systems were initiated.

. . . more

20

Scientific Management

In the 1920s, Ford Motor Company’s operation embodied the key elements of scientific management: standardized product designs mass production low manufacturing costs mechanized assembly lines specialization of labor interchangeable parts

Frederick W. Taylor

Born 1856; died 1915

Known as ‘father of scientific management’

In 1881, as chief engineer for Midvale Steel, studied how tasks were done

Began first time & motion studies

Created efficiency principles

Taylor: Management Should Take More Responsibility for

Matching employees to right jobProviding the proper trainingProviding proper work methods and toolsEstablishing legitimate incentives for work to be

accomplished

Frank & Lillian Gilbreth

Frank (1868-1924); Lillian (1878-1972)

Husband-and-wife engineering team

Further developed work measurement methods

Applied efficiency methods to their home & 12 children!

(Book & Movie: “Cheaper by the Dozen,” book: “Bells on Their Toes”

© 1995 Corel Corp.

Henry Ford

Born 1863; died 1947 In 1903, created Ford

Motor Company

In 1913, first used moving assembly line to make Model T

Unfinished product moved by conveyor past work station

Paid workers very well for 1911 ($5/day!)

© 1995 Corel Corp.

25

W. Edwards Deming

Born 1900; died 1993 Engineer & physicist Credited with teaching Japan

quality control methods in post-WW2

Used statistics to analyze process

His methods involve workers in decisions

26

Dr. Demings 14 Points

• 1. Constancy of purpose

• 2. The new philosophy

• 3. Cease dependence on mass inspection

• 4. End lowest tender contracts

• 5. Improve every process

• 6. Institute training on the job

• 7. Institute leadership

• 8. Drive out fear

27

Dr. Demings 14 Points

• 9. Break down barriers

• 10. Eliminate exhortations

• 11. Eliminate arbitrary numerical targets

• 12. Permit pride of workmanship

• 13. Encourage education

• 14. Top management commitment and action

28

Human Relationsand Behavioralism

In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were affecting production.

Researchers and managers alike were recognizing that psychological and sociological factors affected production.

From the work of behavioralists came a gradual change in the way managers thought about and treated workers.

29

Operations Research

During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had to be deployed.

Military operations research (OR) teams were formed to deal with the complexity of the deployment.

After the war, operations researchers found their way back to universities, industry, government, and consulting firms.

OR helps operations managers make decisions when problems are complex and wrong decisions are costly.

30

The Service Revolution

The creation of services organizations accelerated sharply after World War II.

Today, more than two-thirds of the U.S. workforce is employed in services.

About two-thirds of U.S. GDP is from services. There is a huge trade surplus in services. Investment per office worker now exceeds the

investment per factory worker. Thus there is a growing need for service operations

management.

Significant Events in POM

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)

Significant Events - Continued

CPM/PERT (Dupont, 1957) MRP (Orlicky, 1960)CADFlexible manufacturing systems (FMS)Manufacturing automation protocol (MAP)Computer integrated manufacturing (CIM)

33

Organizational Model

POMPOM

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSalesFinanceFinance

Operations Function

Operations

Marketing

Finance and accounting

Human resources

Outside suppliers

35

Organizational Functions

Marketing Gets customers

Operations creates product or service

Finance/Accounting Obtains funds Tracks money

© 1995 Corel Corp.

36

Functions - Bank

OperationsFinance/

AccountingMarketing

Check

Clearing

Teller

Scheduling

Transactions

ProcessingSecurity

Commercial Bank

© 1984-1994 T/Maker Co.

37

Functions - Airline

OperationsFinance/

AccountingMarketing

Ground

Support

Flight

Operations

Facility

MaintenanceCatering

Airline

38

Functions - Manufacturer

OperationsFinance/

AccountingMarketing

Production

ControlManufacturing

Quality

ControlPurchasing

Manufacturing

39

Operations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

Personnel

Purchasing

Distribution

MIS

Legal

40

Where Are the POM Jobs?Technology/methodsFacilities/space utilizationStrategic issuesResponse timePeople/team developmentCustomer serviceQualityCost reduction Inventory reductionProductivity improvement

41

New Challenges in POM

Local or national focus

Batch shipments Low bid purchasing

Lengthy product development

Standard products Job specialization

Global focus Just-in-time

Supply chain partnering

Rapid product development, alliances

Mass customization

Empowered employees, teams

42

Local or national focus

Reliable worldwide communication and transportation networksGlobal focus, moving production offshore

Batch (large) shipmentsShort product life cycles and cost of capital put pressure on reducing inventory

Just-in-time performance

Low-bid purchasingSupply chain competition requires that suppliers be engaged in a focus on the end customer

Supply chain partners, collaboration, alliances, outsourcing

Past Causes Future

Changing Challenges for the Operations Manager

43

Lengthy product development

Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs

Standardized productsAffluence and worldwide markets; increasingly flexible production processes

Mass customization with added emphasis on quality

Job specializationChanging socioculture milieu; increasingly a knowledge and information society

Empowered employees, teams, and lean production

Changing Challenges for the Operations Manager

Past Causes Future

44

Low-cost focus

Environmental issues, ISO 14000, increasing disposal costsEnvironmentally sensitive production, green manufacturing, recycled materials, remanufacturing

Ethics not at forefront

Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution

High ethical standards and social responsibility expected

Changing Challenges for the Operations Manager

Past Causes Future

45

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 …………………...

46

The Critical Decisions

Quality management Who is responsible for quality? How do we define quality?

Service and product design What product or service should we offer? How should we design these products and services?

47

The Critical Decisions - Continued

Process and capacity design What processes will these products require and in

what order? What equipment and technology is necessary for

these processes?

Location Where should we put the facility On what criteria should we base this location

decision?

48

The Critical Decisions - Continued

Layout design How should we arrange the facility? How large a facility is required?

Human resources and job design How do we provide a reasonable work environment? How much can we expect our employees to produce?

49

The Critical Decisions - Continued

Supply chain management Should we make or buy this item? Who are our good suppliers and how many should we

have?

Inventory, material requirements planning, JIT “just-in-time” inventory, How much inventory of each item should we have? When do we re-order?

50

The Critical Decisions - Continued

Intermediate, short term, and project scheduling Is subcontracting production a good idea? Are we better off keeping people on the payroll

during slowdowns?

Maintenance Who is responsible for maintenance?

51

Different Ways to Study POM

Production as a System Production as an Organization Function Decision Making in POM

52

Production as a System

InputsInputsInputsInputs OutputsOutputsOutputsOutputsConversionConversionSubsystemSubsystemConversionConversionSubsystemSubsystem

Production SystemProduction System

ControlControlSubsystemSubsystem

ControlControlSubsystemSubsystem

53

Inputs of a Production System

External Legal, Economic, Social, Technological

Market Competition, Customer Desires, Product Info.

Primary Resources Materials, Personnel, Capital, Utilities

54

Outputs of a Production System

Direct Products Services

Indirect Waste Pollution Technological Advances

55

Conversion Subsystem

Physical (Manufacturing) Locational Services (Transportation) Exchange Services (Retailing) Storage Services (Warehousing) Other Private Services (Insurance) Government Services (Federal, State, Local)

Transformation Process

Physical: Physical: as in manufacturing operationsas in manufacturing operations

Locational: Locational: as in transportation operationsas in transportation operations

Exchange: Exchange: as in retail operationsas in retail operations

Physiological: Physiological: as in health careas in health care

Psychological: Psychological: as in entertainmentas in entertainment

Informational: Informational: as in communicationas in communication

Operations as a Transformation Operations as a Transformation ProcessProcess

INPUT •Material•Machines•Labor•Management•Capital

TRANSFORMATIONPROCESS

OUTPUT •Goods•Services

58

Production as an Organization Function

We focus on POM as we think of global competitiveness, because that is where the vast majority of a firm’s workers, capital assets, and expenses reside.

To succeed, a firm must have a strong operations function teaming with the other organization functions.

Processes and OperationsProcesses and Operations

Outputs• Services• Goods

Internal andexternal customers

Information on performance

Processes and operations

5

1

2

3

4

Inputs• Workers• Managers• Equipment• Facilities• Materials• Services• Land• Energy

60

Responsibilities of Operations ManagementResponsibilities of Operations Management

Products & services

Planning– Capacity– Location–– Make or buy– Layout– Projects– Scheduling

Controlling/Improving– Inventory– Quality

Organizing– Degree of centralization– Process selection

Staffing– Hiring/laying off– Use of Overtime

Directing– Incentive plans– Issuance of work orders– Job assignments

– Costs– Productivity

61

Key Decisions of Operations Managers

WhatWhat resources/what amounts WhenNeeded/scheduled/ordered WhereWork to be done HowDesigned WhoTo do the work

Types of POM Decisions

Strategic choices Process Quality Capacity Location Layout Operating Decisions

63

Decision Making in POM

Strategic Decisions Operating Decisions Control Decisions

64

Characteristics of Goods Tangible product Consistent product

definition Production usually

separate from consumption

Can be inventoried Low customer

interaction

© 1995 Corel Corp.

65

Characteristics of Service

Intangible product Produced & consumed at same

time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed

© 1995 Corel Corp.

66

Goods Versus Services

Can be resoldCan be inventoried

Some aspects of quality measurable

Selling is distinct from production

Reselling unusual Difficult to inventory Quality difficult to

measure Selling is part of service

Goods Service

67

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 transportable

Site of facility important for customer contact

Often difficult to automate

Revenue generated primarily from intangible service.

GoodsGoods ServiceService