chapter 1: introduction to pom

© Stevenson, McGraw Hill, 2007- Assoc. Prof. Sami Fethi, EMU, All Right Reserved.

Introduction; Chapter1

MGMT 405, POM, 2010/11. Lec Notes

Chapter 1: Introduction to POM

Department of Business Administration

FALL 2010-2011

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MGMT 405, POM, 2010/11. Lec Notes © Stevenson, McGraw Hill, 2007- Assoc. Prof. Sami Fethi, EMU, All Right Reserved.


Outline: What You Will Learn . . .

Define the term operations management Identify the three major functional areas of organizations and

describe how they interrelate Compare and contrast service and manufacturing operations Describe the operations function and the nature of the

operations manager’s job Differentiate between design and operation of production

systems Describe the key aspects of operations management decision

making Briefly describe the historical evolution of operations

management Identify current trends that impact operations management

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Production/Operations Management is: The management of that part of an organization that is

responsible for producing goods and/or services. The management of systems or processes that create

goods and/or provide services.i.e. Every book you read, every e-mail you send or every medical treatment you

receive involves the operation function of one or more organizations.

The aim of production and operations is to satisfy people’s wants or needs.

Operations Management affects:The collective success or failure of companies’ POMCompanies’ ability to competeNation’s ability to compete internationally

Definition of Operations Management

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BusinessBusiness Organization Organization

The Three Basic Functions

Organization

Finance Operations Marketing

Fig 1.1

All business organizations have these three basic functions so it doesn’t matter the business a hospital, a manifacturing firm, a car wash etc.....

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Finance- is responsible for securing financial resources at favourable prices as well as analysing investment proposal and providing funds for marketing and operations.

Marketing is responsible for assessing consumer needs or wants and selling and promoting the organization’s goods and services.

Operations is responsible for producing the goods or providing the services offered by the organization.

Basic Concepts

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Value-Added ProcessValue-Added Process

Inputs Land Labor Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

The operations function involves the conversion of inputs into outputs

Figure 1.2

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Basic ConceptsInput- Materials, labour, information, technology,

equipment, legal constraints, government regulations etc....

What type of skill do the employees need?What type of materials does the firm need?

Value-Added Activities- Performed with tools machines, techniques, human skills etc....i.e. Processing.

How will the firm use its resources to produce its products/ how can the firm improve its operations?

Output- Good and services. what are their needs/what sort of products will be produced?

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Value-added Value-added is the difference between the cost of inputs and

the value or price of outputs. In non-profit organization, value-added of output is their

value to society. The greater the value-added, the greater the effectiveness of

these operations (i.e. High way construction, state school construction etc...).

In profit organization, value-added of output is measured by prices that customers are willing to pay for those goods and services.

Firms use the money generated by value-added for research and development, worker salaries and profit.

The greater the value-added, The greater the amount of funds available for these purposes.

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Is Is Goods-serviceGoods-service combination combination a a ContinuumContinuum??

Automobile assembly, steel making

Home remodeling, retail sales

Automobile Repair, fast food

Figure 1.3

Computer repair, restaurant meal

Song writing, software development

Goods Service

Surgery, teaching

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Why Product Packages?

Because there are relatively few pure goods and pure services and therefore companies sell Product packages for their own benefit or interest.

Product packages are a combination of goods and services.

Product packages can make a company more competitive.

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Example of the transformation for Example of the transformation for Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment Table 1.2

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Example of the transformation for Example of the transformation for Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy

Table 1.3

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Manufacturing or Service?Manufacturing or Service?

Tangible Act

Manufacturing and Service are often different in terms of what is done but quite similar in terms of how it is done. For example, manufacturers decide what size factory needed and service organizations must decide what size building is needed. Manufacturing and Service differ cause manufacturing is goods-oriented and service is act-oriented.

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Production of Goods vs. Delivery of Services

Production of goods – tangible outputDelivery of services – an actService job categories

Government (state, local, etc..)Wholesale/retail (clothing, food, stationery,etc..)Financial services (banking, insurance, etc..)Healthcare (doctors, dentists, hospitals, etc..)Personal services (laundry, dry cleaning, etc..)Business services ( data processing, e-business, etc..)Education (schools, colleges, etc..)

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Key Differences between mmanufacturing anufacturing and and ServiceService operations operations

1. Customer contact

2. Uniformity of input

3. Labor content of jobs

4. Uniformity of output

5. Measurement of productivity

6. Production and delivery

7. Quality assurance

8. Amount of inventory

9. Evaluation of work

10. Ability to patent design

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Goods vs. Service

Characteristic Goods Service

Customer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High Low

Inventory Much Little

Evaluation Easier Difficult

Patentable Usually Not usual

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Goods vs. Service

Year Mfg. Service45 79 2150 72 2855 72 2860 68 3265 64 3670 64 3675 58 4280 44 4685 43 5790 35 6595 25 7500 30 70

02 25 75

U.S. Manufacturing vs. Service Employment

0102030405060708090

45 50 55 60 65 70 75 80 85 90 95 00 02 05

Year

Per

cen

t

Mfg.

Service

Figure 1.4

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Why Manufacturing Matters?

Over 18 million workers in manufacturing jobsAccounts for over 70% of value of U.S. exportsAverage full-time compensation about 20% higher

than average of all workersManufacturing workers more likely to have

benefitsProductivity growth in manufacturing in the last 5

years is more than double U.S. economy

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Why Manufacturing Matters?

More than half of the total R&D performed is in the manufacturing industries

Manufacturing workers in California earn an average of about $25,000 more a year than service workers

When a California manufacturing job is lost, an average of 2.5 service jobs are lost

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Challenges of Managing Services

Service jobs are often less structured than manufacturing jobs

Customer contact is higherWorker skill levels are lowerServices hire many low-skill, entry-level workersEmployee turnover is higher Input variability is higherService performance can be affected by worker’s

personal factors

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Key Decisions of Operations Managers

WhatWhat resources/what amounts

WhenNeeded/scheduled/ordered

WhereWork to be done

HowDesigned

WhoTo do the work

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Types of OperationsTypes of Operations

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/Transportation Warehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, banking,renting, leasing, library, loans

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and televisionnewscasts, telephone, satellites

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Historical Evolution of Operations Management

System for P & O have existed since ancient times. The great wall of China Egyptian pyramids

i.e. More than 100000 workers for 20 years. The ships of Roman empire The roads and aqueducts of the Roman These are all examples of the human ability to

organize for operation and production These also show the roots of the Industrial

Revolution

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Historical Evolution of Operations Management Industrial revolution (1770’s) in England Scientific management (1911)

Mass production Interchangeable partsDivision of labor

Human relations movement (1920-60) A psychologist focusing on human factor in work-tiredness and motivation.

Decision models (Harris 1915-inventory model, 1960-70’s) The factory movement was accompanied by the development of several

quantitative techniques. After ww II-the importance of military and manifucturing sectors, the models of forecasting, inventory management, project management were developed.

Influence of Japanese manufacturers JIT production, quality revolution, continual improvement etc.

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The evolution of POM Production of goods remained at a handicraft level untill the

Industrial revolution took place. In 1764 (1770s), the Industrial revolution began and James Watt invented the steam engine and advanced the use of mecanical power to increase productivity.

Eli Whitney (1798) found out and introduced the concepts of standardised parts and interchangeable parts. He then developed musket system because the type of muskets were handcrafted-he produced 10000 muskets by using the concept of interchangeable parts.

By using the same concept, he allowed the manifacture of fire-alarms, clocks, watchs, sewing machines etc..

Soon after, by conducting the concept of steam engine, Richard Trevithick (1802) invented the first train and Richard Fulton (1807) invented the first steam boat.

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The evolution of POM The first steam boat and the first train indicate a long stream of

application in which human anad animal powers were replaced by engine power.

The Industrial revolution was the transformation of a society from peasant and local occupation into a society with world wide connections in terms of great use of machinery and large-scale commercial operations. This is the first step of factory system.

This system replaced the traditional production system by the concept of mass-production by bringing together large numbers of semi-skilled workers.

Adam Smith’s ‘The wealth of nations’ (1776) pointed out the importances and advantages of the division of labor where the production process was broken down into series of small tasks and each performed by a different worker.

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The evolution of POM With aid of the concept of the division of labor: Workers who continually perfomed the same task, they would

gain skill and experience. Saving time or avoiding lost time due to changing jobs. Workers’ concentration on the same job increased would lead to

the development of special tools and techniques for faster and easier task.

Specialization jobs and division of labor began to take place. A prominent mathematician and engineer Charles babbage (1832) promoted an economic analysis of work and pay on the basis of skill requirement.

In the earliest days of manufacturing, goods were produced using craft production-highly skilled workers conducting simple, flexible tools to produce small quantities customized goods .

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Introduction; Chapter1The evolution of POM Frederick Taylor (1911) who is often referred to as the father of

scientific management, published ‘the priciples of scientific management’. This helped to achieve wide tasks in industry.

Frank Gilber (principles of motion economy), Henry Gantt (schudeling and charts design for system) and Herrington Emerson (organizational efficiency) used Taylor’s ideas to improve the system of operation and production management.

Influence of Japanese manufacturers JIT production, quality revolution, continual improvement etc. Using the concept of JIT production, Japanese manufacturers

changed the rules of production from Mass Production to Lean Production.

Lean production prizes flexibility rather then efficiency, as well as quality rather than quantity. This indicates the first step of ‘Era of Industrial globalization’.

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The evolution of POM

Figure 1.5

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School of Management

The process school of management was developed by Henry Fayol in 1900 management can be viewed as a continuous process the function of planning, organizing and controlling

The behavioural school of management was developed by Elton Mayo in 1920 human relation movement on production output Productivity depends not only on the physical

environment but also on social norms and personal feelings (i.e. Western Electric’s Hawthorne plant)

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School of ManagementThe quantitative school of management

is concerned with decision making, mathematical modeling as well as system theory

represents a productive system In 1915, Harris developed an Economic Order

Quantity model for inventory management In 1931, Shewhart developed a Quantity decision

model for use in Statistical quality control work In 1947, George Dantzing developed PERT/CPM In the late 1950s and early 1960s Edward Bowman,

Robert Fetter and Elwood Buffa developed the concept called Modern poduction Management

As computers became available in the 1950s, the power of opeartions research was multiplied

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School of Management

The School of Modern Management In the late 1960s, MRP and CPR were introduced by Joseph

Orlicky and Oliver White In the late 1970s, MRP II, JIT, TMQ and KANBAN

systems were developed the School of Modern Management includes the system and

the contingency approaches. these are also called new contemporary management

approaches the system approach points out that an organization has

interdependent factors as such individuals, status, motives, goals etc and must work together

the contingency approach reveals that organizations are different so different and changing cases need to conduct different approaches and techniques in reaching a solution

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Trends in Industrial Globalization

Major trendsThe Internet, e-commerce, e-businessManagement technologyGlobalizationManagement of supply chainsOutsourcingAgilityEthical behavior

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Thanks

chapter 1: introduction to pom

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