introduction to operations management. operations function operations function is that part of a...
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INTRODUCTION TO INTRODUCTION TO OPERATIONS OPERATIONS
MANAGEMENTMANAGEMENT
Operations function Operations function is that part of a business
organization that is responsible for the creation of
goods or services
OPERATIONS AND OPERATIONS OPERATIONS AND OPERATIONS FUNCTIONFUNCTION
WHAT IS OPERATIONS WHAT IS OPERATIONS MANAGEMENTMANAGEMENT
The management of systems or processes that creates value in the form of goods and services by transforming inputs into desired outputs
The design, operation and improvement of the systems or processes that create goods and/or provide services
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Operations Operations as a transformation process
Operations Operations as a basic function Operations Operations as the technical core
THE OPERATIONS FUNCTIONTHE OPERATIONS FUNCTION
THE TRANSFORMATION PROCESSTHE TRANSFORMATION PROCESS
Inputs•Land•Materials•Labor•Management•Capital•Information
Outputs•Goods•Services
Transformation/Conversion
Process
Control
Feedback
Feedback Feedback
Value-Added
Feedback = measurements taken at various points in the transformation process
Control = The comparison of feedback against previously established standards to determine if corrective action is needed.
WHAT IS VALUE ADDED?WHAT IS VALUE ADDED?
The essence of operations function is to add value during the transformation process
Value added is the difference between the cost of intputs and the value or price of outputs.
FIRMS USE THE MONEY FIRMS USE THE MONEY GENERATED BY VALUE ADDED GENERATED BY VALUE ADDED
FOR:FOR:
R&DInvestment in new facilities and equipmentPaying workersPaying for materialsPaying for general expensesProfits
TRANSFORMATION PROCESS OF A TRANSFORMATION PROCESS OF A CANNED FOOD PROCESSORCANNED FOOD PROCESSOR
Inputs Processing Outputs
• Cleaning Canned vegetables• Making cans
• Cutting• Cooking• Packing• Labeling
Metal sheets Raw vegetablesWaterEnergyLaborBuildingEquipment
TRANSFORMATION PROCESS OF TRANSFORMATION PROCESS OF A HOSPITALA HOSPITAL
Inputs Processing Outputs
Doctors, nurses Examination Healthy patientsHospital Surgery
Medical Supplies MonitoringEquipment MedicationLaboratories Therapy
EXAMPLES OF VARIOUS EXAMPLES OF VARIOUS OPERATIONSOPERATIONS
OperationsOperations ExamplesExamplesGoods Producing Farming, mining, construction ,
manufacturing, power generation
Storage/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 television
newscasts, telephone, satellites
TYPES OF TRANSFORMATION TYPES OF TRANSFORMATION PROCESSESPROCESSES
Physical- Physical- manufacturingLocational-Locational- transportationExchange-Exchange- retailingStorage- Storage- warehousingPhysiological-Physiological- health care Informational-Informational- telecommunicationsPsychological-Psychological- entertainment
MarketingMarketingGenerates demand
gets customers
OperationsOperationscreates product or service
Finance/AccountingFinance/AccountingObtains fundsTracks organizational performance
OPERATIONS AS A BASIC OPERATIONS AS A BASIC FUNCTIONFUNCTION
Operations FinanceMarketing
Organization
BASIC FUNCTIONS OF THE BASIC FUNCTIONS OF THE BUSINESS ORGANIZATIONBUSINESS ORGANIZATION
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BUSINESS FUNCTIONS – BANKBUSINESS FUNCTIONS – BANK(1 of 3)(1 of 3)
Operations Finance/Accounting
Marketing
CheckClearing
TellerScheduling
Transactions
ProcessingSecurity
Commercial Bank© 1984-1994 T/Maker Co.
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BUSINESS FUNCTIONS – AIRLINESBUSINESS FUNCTIONS – AIRLINES(2 of 3)(2 of 3)
Operations Finance/Accounting
Marketing
GroundSupport
FlightOperations
FacilityMaintenance
Catering
Airline
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BUSINESS FUNCTIONS – BUSINESS FUNCTIONS – MANUFACTURINGMANUFACTURING
(3 of 3)(3 of 3)
Operations Finance/Accounting
Marketing
ProductionControl
Manufacturing QualityControl
Purchasing
Manufacturing
BUSINESS FUNCTIONS OVERLAPBUSINESS FUNCTIONS OVERLAP
Operations
FinanceMarketing
OPERATIONS INTERFACESOPERATIONS INTERFACES
Public Relations
Accounting
IndustrialEngineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Legal
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Operations
Finance/Accounting
Human Resources
Marketin
gSu
pp
lier
s
Production andInventory data
Capital budgeting requestsCapacity expansion and
Technology plans
BudgetsCost analysisCapital investmentsStockholder requirements
Orders for materialsProduction and delivery
Schedules QualityRequirements Design/
Performance specs
Material availabilityQuality data
Delivery schedulesDesigns
Product/ServiceAvailability
Lead-time estimatesStatus of order
Delivery schedules
Sales forecastsCustomer orders
Customer feedbackPromotions
Personnel needsSkill sets
Performance evaluationsJob design/work
measurement
Hiring/firingTrainingLegal requirementsUnion contract negotiations
OPERATIONS AS THE TECHNICAL COREOPERATIONS AS THE TECHNICAL CORE
IMPORTANCE OF OM IMPORTANCE OF OM (WHY STUDY OM?) (1 of 2)(WHY STUDY OM?) (1 of 2)
Operations is one of the three (marketing, finance and operations) major functions of an organizationOffers a major opportunity for an organization
to improve its productivity and profitabilityOM affects 1) the companies’ ability to
compete and 2) the nation’s ability to compete internationallyNearly half of the employed people over
the world have jobs in operations
IMPORTANCE OF OM IMPORTANCE OF OM (WHY STUDY OM?) (2 of 2)(WHY STUDY OM?) (2 of 2)
The OM function is responsible for a major portion of the assets of most organizationsOM is a costly part of an organization
The concepts, tools and techniques of OM are widely used in managing other functions. Business students have to understand
what operations managers do Presents career opportunities
OPTIONS FOR INCREASING OPTIONS FOR INCREASING CONTRIBUTIONCONTRIBUTION
Marketing Option
Finance & Accounting
Option
OM Option
Current Sales
Revenue : +50% Finance Costs: -50%
P roduction Costs: -20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of Goods Sold
-80,000 -120,000 -80,000 -64,000
Gross Margin
20,000 30,000 20,000 36,000
Finance Costs
-6,000 -6,000 -3,000 -6,000
Net Margin
14,000 24,000 17,000 30,000
Taxes @ 25%
-3,500 -6,000 -4,250 -7,500
Contribution 10,500 18,000 12,750 22,500
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TYPES OF PRODUCTION TYPES OF PRODUCTION PROCESSESPROCESSES
(PROCESS FLOW STRUCTURES)(PROCESS FLOW STRUCTURES)
INTERMITTENTINTERMITTENTJob shopBatch production
CONTINOUSCONTINOUSMass productionMass assemblyContinuous flow production
PROJECTPROJECT
2424
Raw materialsor customer
F GStation 2
Station 2
Station 3
Station 3
Station 4
Station 4
Material and/or labor
Station 1
Material and/or labor
Material and/or labor
Material and/or labor
Used for Repetitive or Continuous Processing
AUTOMOBILE PLANTAUTOMOBILE PLANT sequential
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EMERGENCY ROOMEMERGENCY ROOMSu
rger
y
RadiologyE.R. beds Pharmacy Billing/
exit
E.R.Triage room
E.R. AdmissionsPatient B - erratic pacemaker
Patient A - broken leg
Hallway
PRODUCTION OF GOODS PRODUCTION OF GOODS VS. VS.
DELIVERY OF SERVICESDELIVERY OF SERVICES
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Tangible Act-Oriented
Goods Services
Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.
MANUFACTURING vs. SERVICEMANUFACTURING vs. SERVICE
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Automobile Assembly, Steelmaking
Products are typically neither purely service- or purely goods-based.
Goods Services
Home Remodeling, Retail Sales
Computer Repair, Restaurant Meal
Songwriting, Software Development
Surgery, Teaching
GOODS-SERVICE CONTINUUMGOODS-SERVICE CONTINUUM
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GGOODS CONTAIN SERVICES/OODS CONTAIN SERVICES/SERVICES CONTAIN GOODSSERVICES CONTAIN GOODS
0 25 50 75 100255075100
Automobile assembly, steel makingComputer
Home remodeling, retail salesFast-food Meal
Restaurant MealAuto RepairHospital Care
Advertising AgencyInvestment Management
Consulting ServiceSurgery, Teaching,Counseling
Percent of Product that is a Good Percent of Product that is a Service
3030
Steel productionAutomobile fabrication
Home buildingRoad constructio
Auto repairAppliance repair
DressmakingFarming
Maid ServiceManual car wash
TeachingLawn mowing
High goods contentLow service content
GGOODS-SERVICES OODS-SERVICES CONTINUUMCONTINUUM
Low goods contentHigh service content
CHARACTERISTICS OF CHARACTERISTICS OF GOODS (1 of 5)GOODS (1 of 5)
Tangible product Consistent product
definition High uniformity of
inputs and outputs Often easy to
automate
CHARACTERISTICS OF CHARACTERISTICS OF GOODS (2 of 5)GOODS (2 of 5)
Activities tend to be smooth and efficient
Production usually separate from consumption ie. often produced for later consumption (can be inventoried)
Requires no or low customer contact
CHARACTERISTICS OF CHARACTERISTICS OF GOODS (3 of 5)GOODS (3 of 5)
Low labor content Measurement of
productivity is easy Site of facility is
important for cost Location is often
centralized
CHARACTERISTICS OF CHARACTERISTICS OF GOODS (4 of 5)GOODS (4 of 5)
Can be resold Quality is generally
measurable Quality assurance is
more straightforward Selling function is
distinct from production
CHARACTERISTICS OF CHARACTERISTICS OF GOODS (5 of 5)GOODS (5 of 5)
Product is transportable
The production activities are quite obvious
CHARACTERISTICS OF CHARACTERISTICS OF SERVICES (1 of 5)SERVICES (1 of 5)
Intangible Inconsistent product
definition Low uniformity of inputs
and outputs Often unique and/or often
knowledge based, so difficult to automate
CHARACTERISTICS OF CHARACTERISTICS OF SERVICES(2 of 5)SERVICES(2 of 5)
Activities are slower and awkward
Produced & consumed simultaneously (cannot be inventoried)
Generally requires high customer contact
CHARACTERISTICS OF CHARACTERISTICS OF SERVICES (3 of 5)SERVICES (3 of 5)
High labor content Measurement of
productivity is difficult Site of facility is important
for customer contact Location is often
dispersed
CHARACTERISTICS OF CHARACTERISTICS OF SERVICES (4 of 5)SERVICES (4 of 5)
Reselling is unusual Quality is difficult to
measure Quality assurance is
more challenging Selling is part of service
CHARACTERISTICS OF CHARACTERISTICS OF SERVICES (5 of 5)SERVICES (5 of 5)
Provider, not the product is transportable
The production function may be less obvious
GOODS VS. SERVICES (1 of 3)GOODS VS. SERVICES (1 of 3)CHARACTERISTICSCHARACTERISTICS GOODS GOODS SERVICESERVICE
Customer contact Low High
Uniformity of inputs and outputs
High Low
Labor content Low High
Automation Easy Generally difficult
Output Tangible
Intangible, often unique
Measurement of productivity Easy Difficult
Opportunity to correct problems
High Low
Inventory Much Little
Quality measurement & evaluation
Easier Difficult
Production activities Obvious Not so obvious
GOODS VS. SERVICES (2 of 3)GOODS VS. SERVICES (2 of 3)CHARACTERISTICSCHARACTERISTICS GOODSGOODS SERVICESERVICE
Production and consumption Separate Generally take place at the same time
Location Centralized Generally dispersed
Locational factors to be considered
Cost-oriented Revenue-oriented
Reselling Possible Not possible
Patentability Usually Not usually
Activities Smooth and efficient
Slower and awkward
Inventoriability andTransportability
Inventoriable &Transportable
Non inventoriable and so nontransportable
CHARACTERISTICSCHARACTERISTICS GOODSGOODS SERVICESERVICE
Job structure More structured
Less structured
Worker skill levels Generally higher
Generally lower
Employee turnover Generally lower
Generally higher
Opportunity to correct problems High Low
GOODS VS. SERVICES (3 of 3)GOODS VS. SERVICES (3 of 3)
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MANAGING SERVICES IS MANAGING SERVICES IS CHALLENGINGCHALLENGING
Jobs in services are often less structured than in manufacturing
Customer contact is generally much higher in services compared to manufacturing
In many services, worker skill levels are low compared to those of manufacturing employees
Services are adding many new workers in low-skill, entry-level positions
Employee turnover is high in services, especially in low-skill jobs
Input variability tends to be higher in many service environments than in manufacturing
Service performance can be adversely affected by many factors outside of the manager’s control (e.g., employee and customer attitudes)
SERVICE JOB CATEGORIES SERVICE JOB CATEGORIES (1 of 2)(1 of 2)
Governmental services Municipal services Trade services (wholesale/retail) Finance, insurance, real estate Medical (healthcare) Personal services
SERVICE JOB CATEGORIESSERVICE JOB CATEGORIES(2 of 2)(2 of 2)
Business services Education Food, lodging and entertainment Utilities and transportation Legal, consulting Repair
1850 75 1900 25 50 75 2000 40 50 60 70 1970 75 80 85 90 95 2000Percent
United States
Canada
France
Italy
Britain
Japan
W Germany
19702000
Services
Industry
Farming
250
200
150
100
50
0
80
%70
60
50
40
30
20
10
0
U.S. Employment, % Share
Services as a Percent of GDP
U.S. Exports of ServicesIn Billions of Dollars
Year 2000 data is estimated
DEVELOPMENT OF THE SERVICE DEVELOPMENT OF THE SERVICE ECONOMYECONOMY
1-1-4848
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
cent
Mfg.
Service
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THE DECLINE IN MANUFACTURING THE DECLINE IN MANUFACTURING EMPLOYMENTEMPLOYMENT
ProductivityProductivity– Increasing productivity allows companies to maintain
or increase their output using fewer workersOutsourcingOutsourcing
– Some manufacturing work has been outsourced to more productive companies
A Statistical ArtifactA Statistical Artifact– Manufacturers are increasingly using contract and
temporary labor which no longer show up in the statistics as manufacturing employment
SERVICES IN SERVICES IN MANUFACTURINGMANUFACTURING
In manufacturing, services can be divided into two groups:Core ServicesValue-added Services
Core servicesCore services are basic things that customers want from products they purchase
CORE SERVICESCORE SERVICES
CORE SERVICES PERFORMANCE CORE SERVICES PERFORMANCE OBJECTIVESOBJECTIVES
OperationsManagement
Price (or cost Reduction)
Value-added services Value-added services differentiate the organization from competitors and build
relationships that bind customers to the firm in a positive way
VALUE-ADDED SERVICESVALUE-ADDED SERVICES
VALUE-ADDED SERVICE VALUE-ADDED SERVICE CATEGORIESCATEGORIES
OperationsManagement
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PROCESS MANAGEMENTPROCESS MANAGEMENTProcess - one or more actions that transform inputs into outputs
Three Categories of Business ProcessesThree Categories of Business Processes::
Upper-management Upper-management processesprocesses
These govern the operation of the entire organization.
Operational Operational processesprocesses
These are core processes that make up the value stream.
Supporting Supporting processesprocesses
These support the core processes.
MATCH BETWEEN MATCH BETWEEN SUPPLY & DEMANDSUPPLY & DEMAND
Ideal
Operations & Supply Chains Sales & Marketing
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PROCESS VARIATIONPROCESS 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 variability 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.
Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.
THE SCOPE OF OM: WHAT DO THE SCOPE OF OM: WHAT DO OPERATIONS MANAGERS DOOPERATIONS MANAGERS DO
Plan - Organize - Staff - Lead - Control
CRITIAL OM DECISIONSCRITIAL OM DECISIONS
CCRITICAL OM DECISIONSRITICAL OM DECISIONS Service, product design Process, capacity design Planning of the technology Location Layout design Human resources, job design Production planning and scheduling Supply chain management Inventory management Maintenance Quality management and more
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The Operations Function Operations Function consists of all activities directly related to producing goods or providing services.
A primary function of the operations manager is to guide the system by decision making.
–System Design DecisionsSystem Design Decisions–System Operation DecisionsSystem Operation Decisions
ROLE OF THE OPERATIONS ROLE OF THE OPERATIONS MANAGERMANAGER
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SYSTEM DESIGN DECISIONSSYSTEM DESIGN DECISIONS
System DesignSystem Design Decisions Decisions – Capacity– Facility location– Facility layout– Product and service planning– Process planning– Technology planning– Acquisition and placement of equipment
These are typically strategic decisions that requireThese are typically strategic decisions that require• long-term commitment of resources• Determine parameters of system operation
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SYSTEM OPERATION SYSTEM OPERATION DECISIONSDECISIONS
System OperationSystem Operation– Management of personnel– Inventory management and control– Scheduling– Project management– Quality assurance
Operations managers spend more time on system operation decision than any other decision area but they still have a vital stake in system design
Most operations decisions involve many alternatives that can have quite different impacts on costs or profitsTypical operations decisions include:
What:What: What resources are needed, and in what amounts?
When:When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered?
Where:Where: Where will the work be done?
How:How: How will he product or service be designed? How will the work be done? How will resources be allocated?
Who:Who: Who will do the work?
OPERATIONS MANAGEMENT OPERATIONS MANAGEMENT AND DECISION MAKINGAND DECISION MAKING
OPERATIONS MANAGEMENT AND OPERATIONS MANAGEMENT AND DECISION MAKINGDECISION MAKING
Models Quantitative approaches Analysis of tradeoffs Systems approach Establishing priorities
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GENERAL APPROACH TO GENERAL APPROACH TO DECISION MAKINGDECISION MAKING
Modeling is a key tool used by all decision makers– Model - Model - an abstraction of reality; a
simplification of something.– Common features of models:Common features of models:
They are simplifications of real-life phenomena They omit unimportant details of the real-life
systems they mimic so that attention can be focused on the most important aspects of the real-life system
MODELSMODELS
Types of Models:Types of Models:– Physical ModelsPhysical Models
Look like their real-life counterparts– Schematic ModelsSchematic Models
Look less like their real-life counterparts than physical models
– Mathematical ModelsMathematical Models
Do not look at all like their real-life counterparts
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UNDERSTANDING MODELSUNDERSTANDING MODELS
Keys to successfully using a model in Keys to successfully using a model in decision makingdecision making– What is its purpose?
– How is it used to generate results?– How are the results interpreted and used?– What are the model’s assumptions and limitations?
BENEFITS OF MODELSBENEFITS OF MODELSModels are generally easier to use and less expensive than
dealing with the real system
Require users to organize and sometimes quantify information
Provide a systematic approach to problem solving
Increase understanding of the problem
Enable managers to analyze “What if?” questions
Enable managers to specify objectives
Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem
Enable users to bring the power of mathematics to bear on a problem.
MODEL LIMITATIONSMODEL LIMITATIONS
Quantitative information may be emphasized at the expense of qualitative information
Models may be incorrectly applied and the results misinterpreted This is a real risk with the widespread availability of
sophisticated, computerized models are placed in the hands of uninformed users.
The use of models does not guarantee good decisions.
QUANTITATIVE APPROACHES QUANTITATIVE APPROACHES (ANALYTICAL TOOLS USED IN OM)(ANALYTICAL TOOLS USED IN OM)A decision making approach that frequently seeks to obtain a mathematically optimal solution
Linear programmingQueuing techniquesInventory modelsProject modelsStatistical modelsSimulationDecision analysis
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METRICS AND TRADE-OFFSMETRICS AND TRADE-OFFS
Performance MetricsPerformance Metrics– All managers use
metrics to manage and control operations Profits Costs Productivity Forecast accuracy
Analysis of Trade-OffsAnalysis of Trade-Offs– A trade-off is giving up
one thing in return for something else Carrying more
inventory (an expense) in order to achieve a greater level of customer service
Tradeoffs
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DEGREE OF CUSTOMIZATIONDEGREE OF CUSTOMIZATION Relative to other standardized products and services customized products:Relative to other standardized products and services customized products:
– Tend to be more labor intensive– Tend to be more time consuming– Tend to require more highly-skilled people– Tend to require more flexible equipment– Have much lower volume of output– Have higher price tags
Degree of customization has a significant influence on the entire Degree of customization has a significant influence on the entire organizationorganization– Process selection– Job design– Affects marketing, sales, accounting, finance, and information systems
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ESTABLISHING PRIORITIESESTABLISHING PRIORITIESIn nearly all cases, certain issues or items are more
important than others
Recognizing this allows managers to focus their attention to those efforts that will do the most good
Pareto PhenomenonPareto Phenomenon - a few factors account for a high percentage of occurrence of some event(s)
The critical few factors should receive the highest priority
80/20 Rule- 80% of the problems are caused by 20% of the activities
This is a concept that is appropriately applied to all areas and levels of management
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SYSTEMS APPROACHSYSTEMS APPROACH
SystemSystem - a set of interrelated parts that must work togetherThe business organization is a system composed of
subsystems
marketing subsystem
operations subsystem
finance subsystem
The systems approachThe systems approach Emphasizes interrelationships among subsystems
Main theme is that the whole is greater than the sum of its parts
The output and objectives of the organization take precedence over those of any one subsystem
ETHICAL ISSUES IN OPERATIONSETHICAL ISSUES IN OPERATIONS
Ethical issues arise in many aspects of operations management:
Financial statementsWorker safetyProduct safetyQualityThe environmentThe communityHiring and firing workersClosing facilitiesWorkers rights
HISTORICAL EVOLUTION HISTORICAL EVOLUTION OF OPERATIONS OF OPERATIONS MANAGEMENTMANAGEMENT
HISTORICAL EVENTS IN OMHISTORICAL EVENTS IN OM
Industrial Revolution (1770s) Scientific Management (1911) Human Relations Movement (1920-1960) Decision Models – Management Science
(1915, 1940-70s) Quality Revolution (1970s-1990s ) Globalization (1970s- ) Information Age/Internet Revolution (1990s-)
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INDUSTRIAL REVOLUTIONINDUSTRIAL REVOLUTIONPre-Industrial RevolutionPre-Industrial Revolution
Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods
Some key elements of the industrial revolutionSome key elements of the industrial revolutionBegan in England in the 1770sDivision of labor - Adam Smith, 1776Application of the “rotative” steam engine, 1780sCotton Gin and Interchangeable Parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably during this period
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SSCIENTIFIC MANAGEMENTCIENTIFIC MANAGEMENT
Movement was led by efficiency engineer, Frederick Frederick Winslow TaylorWinslow Taylor– Believed in a “science of management”“science of management” based on
observation, measurement, analysis and improvement of work methods, and economic incentives
– Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperate between management and workers, and separating management activities from work activities
– Emphasis was on maximizing output
FREDERICK W. TAYLORFREDERICK 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 motion & time studies
Created efficiency principles
© 1995 Corel Corp.© 1995 Corel Corp.
TAYLOR: MANAGEMENT TAYLOR: MANAGEMENT SHOULD TAKE MORE SHOULD TAKE MORE RESPONSIBILITY FOR RESPONSIBILITY FOR
Planning Matching employees to right job Providing the proper training Providing proper work methods and tools Establishing legitimate incentives for work
to be accomplished Achieving cooperation between
management and workers Separating management activities from
worker activities
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SCIENTIFIC MANAGEMENT- SCIENTIFIC MANAGEMENT- CONTRIBUTORSCONTRIBUTORS
Frank GilbrethFrank Gilbreth - father of motion studiesHenry GanttHenry Gantt - developed the Gantt chart
scheduling system and recognized the value of non-monetary rewards for motivating employees
Harrington EmersonHarrington Emerson - applied Taylor’s ideas to organization structure
Henry FordHenry Ford - employed scientific management techniques to his factories
Moving assembly lineMass production
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!)
HENRY FORDHENRY FORD
‘‘Make them Make them all alike!’all alike!’
© 1995 Corel © 1995 Corel Corp.Corp.
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HUMAN RELATIONS HUMAN RELATIONS MOVEMENTMOVEMENT
The human relations movement emphasized the importance of the human element in job designLillian GilbrethLillian GilbrethElton MayoElton Mayo – Hawthorne studies on worker
motivation, 1930Abraham MaslowAbraham Maslow – Motivation theory, 1940s;
Hierarchy of Needs, 1954Frederick HertzbergFrederick Hertzberg – Two Factor Theory, 1959Douglas McGregorDouglas McGregor – Theory X and Theory Y,
1960sWilliam OuchiWilliam Ouchi – Theory Z, 1981
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DECISION MODELS AND DECISION MODELS AND MANAGEMENT SCIENCEMANAGEMENT SCIENCE
F.W. HarrisF.W. Harris – Mathematical Model for Inventory Management, 1915
Dodge, Romig, and ShewartDodge, Romig, and Shewart – Statistical Procedures for Sampling and Quality Control, 1930s
TippettTippett – Statistical Sampling Theory, 1935Operations Research (OR) GroupsOperations Research (OR) Groups – OR
applications in WarfareGeorge DantzigGeorge Dantzig – Linear Programming, 1947
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INFLUENCE OF JAPANESE INFLUENCE OF JAPANESE MANUFACTURERSMANUFACTURERS
Refined and developed management practices that increased productivityCredited with fueling the “quality “quality revolutionrevolution””
Just-in-Time productionJust-in-Time production
W. EDWARDS DEMINGW. 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
THE HERITAGE OF OM THE HERITAGE OF OM (1 OF 3) (1 OF 3)
Industrial Revolution (1770s)
Division of Labor (Adam Smith 1776 and Charles Babbage 1852)
Standardized (interchangeable) parts (Whitney 1800)
Scientific Management (Taylor, 1911)
Coordinated assembly line (Ford/Sorenson 1913)
EOQ Model (Harris, 1915)
Gannt Charts (Gannt, 1916)
Motion Study (Frank and Lillian Gilbreth, 1922)
Quality Control Studies (Shewhart, Dodge, Romig 1924; Deming 1950)
THE HERITAGE OF OM THE HERITAGE OF OM (2 OF 3) (2 OF 3)
Hawthorne Studies (Elton Mayo, (1930s)
Early Development of Quantitative Tools (OR Groups, 1940s) CPM/PERT (DuPont, 1957)
Extensive Development and Wide Application of OR tools (950-960)
Commercial Digital Computers-early applications(1951, Sperry Univac, IBM)
Operations Management Gaining Popularity (late 50s, early 60s) First Signs of Automation (1950s)
Widespread use of computers in business (1970s)
Materials Requirements Planning (Orlicky 1965)
Service quality and productivity emphasized (McDonald’s restaurants, 1970s)
Emphasis on manufacturing strategy (Skinner and other researchers, mid 70s- early 80s)
THE HERITAGE OF OM THE HERITAGE OF OM (3 OF 3) (3 OF 3)
Emphasis on quality, flexibility, time-based competition, JIT, lean production (Japanese manufacturers, especially Toyota, 1970s-1980s)
Total Quality Management (1980s- 1990s)
Baldrige National Quality Award (1987)
Factory automation: CIM; FMS, CAD/CAM, Robots (1970s-1990s )
Synchronous Manufacturing, TOC (E. Goldratt,)
Business Process Reengineering (M. Hammer,90s)
Internet and world wide web (90s)
Emphasis on Supply Chain Management (90s)
E-commerce (2000s)
EXCITING NEW EXCITING NEW CHALLANGES IN CHALLANGES IN
OPERATIONS MANAGEMENTOPERATIONS MANAGEMENT
NEW CONCEPTS AND NEW CONCEPTS AND TRENDS IN OMTRENDS IN OM
Mass Customization Supply Chain ManagementOutsourcingLean manufacturingAgilityElectronic Commerce
MASS CUSTOMIZATIONMASS CUSTOMIZATION
Mass Customization Mass Customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers
The rapid, low cost production of goods and services that fulfill constantly changing and increasingly unique customer desires.
SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT
The management of the sequence of organizations- their facilities, functions and activities- that are involved in producing and delivering a product or service
SCM requires the application of a systems approach to managing the flow of information, materials and services from raw material suppliers through factories and warehoses to the end user (customer)
SUPPLY CHAINSUPPLY CHAIN
Suppliers’suppliers
Directsuppliers
Producer DistributorFinal
Customers
Supply Chain – Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service
A simple supply chain :
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In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems such as:
Oscillating inventory levels Inventory stockouts Late deliveries Quality problems
THE NEED FOR THE NEED FOR MANAGING THE SUPPLY MANAGING THE SUPPLY
CHAINCHAIN
Stage of ProductionValue Added
Value of Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
A SUPPLY CHAIN FOR BREADA SUPPLY CHAIN FOR BREAD
OUTSOURCINGOUTSOURCING
Buying goods or services rather than producing goods or performing services within the organization. ie. The act of moving a firm’s internal activities and decision responsibility to outside providers
REASONS TO OUTSOURCEREASONS TO OUTSOURCE
Organizationally-driven
Improvement-driven
Financially-driven
Revenue-driven
Cost-driven
Employee-driven
LEAN MANUFACTURINGLEAN MANUFACTURING
Systems that use minimal amounts of resources - less space, less inventory, fewer workers, fewer levels of management- to produce a high volume of high-quality goods with some variety
An adaptation of mass production that prizes quality and flexibility
Incorporates advantages of mass production (high volume, low unit cost) and craft production (variety and flexibility)
A COMPARISON OF CRAFT, MASS A COMPARISON OF CRAFT, MASS AND LEAN PRODUCTIONAND LEAN PRODUCTION
( 1 OF 3) ( 1 OF 3)CRAFTCRAFT MASSMASS LEANLEAN
Description High variety, customized output, one or a few workers responsible for an entire unit of output
High volume of standardized output, capitalizes on division of labor, specialized equipment and interchangeable parts
Moderate to high volume of output, more variety than mass production, less inventory, emphasis on quality, highly skilled workers, flexible equipment, employee involvement and teamwork
A COMPARISON OF CRAFT, MASS A COMPARISON OF CRAFT, MASS AND LEAN PRODUCTIONAND LEAN PRODUCTION
( 2 OF 3) ( 2 OF 3)
CRAFTCRAFT MASSMASS LEANLEAN
Advantages Wide range of choice, output tailored to customer needs
Low cost per unit, requires mostly low-skilled workers
Flexibility, variety, high quality of goods, high volume, low costs, time reduction, teamwork
A COMPARISON OF CRAFT, MASS AND A COMPARISON OF CRAFT, MASS AND LEAN PRODUCTIONLEAN PRODUCTION
(3 OF 3) (3 OF 3)CRAFTCRAFT MASSMASS LEANLEAN
Disadvantages Slow, requires skilled workers, no economies of scale, high cost, low standardization
Rigid system, difficult to accommodate changes in output volume, product design or process design. Volume may be emphasized at the expense of quality
No safety nets to offset any system breakdowns, require higher skilled workers than mass production, responsibilities are greater that lead to pressure, anxiety and stress
AGILITYAGILITY
The ability of an organization to respond quickly to demands or opportunities.
Involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings
ELECTRONIC COMMERCEELECTRONIC COMMERCE
The use of computer networks, primarily the internet, to buy and sell products, services, and information.
OTHER TRENDS ( 1 OF 2)OTHER TRENDS ( 1 OF 2)
Enhancing Value-Added ServicesManagement of TechnologyThe Internet, e-commerce, e-businessEmphasis on Operations Strategy Increasing Emphasis on Cost Control and
Productivity ImprovementQuality and Process Improvements Increasing emphasis on business and social
responsibility
OTHER TRENDS ( 1 OF 2)OTHER TRENDS ( 1 OF 2)
Developing flexible supply chains to enable mass customization of products and services
Achieving the Service Factory
GLOBALIZATION GLOBALIZATION
GLOBALIZATION CAN TAKE GLOBALIZATION CAN TAKE THE FORM OF: THE FORM OF:
Selling in foreign markets Producing in foreign lands Purchasing from foreign suppliers Partnering with foreign firms
REASONS TO GLOBALIZE REASONS TO GLOBALIZE OPERATIONS (1 OF 2)OPERATIONS (1 OF 2)
To take advantage of favorable costsTo gain access to and attract international
marketsTo build reliable sources of supply To improve the supply chainTo be more responsive to changes in
demand
REASONS TO GLOBALIZE REASONS TO GLOBALIZE OPERATIONS (1 OF 2)OPERATIONS (1 OF 2)
To provide better goods and services To learn to improve operations To attract and retain global talent To keep abreast of the latest trends and
technologies
Some of these reasons are tangible, and others are intangible
EXAMPLES OF GLOBAL EXAMPLES OF GLOBAL OPERATIONS OPERATIONS
Boeing –Boeing – both sales and production are worldwide.
Benetton –Benetton – moves inventory to stores around the world faster than its competitor by building flexibility into design, production, and distribution
Sony –Sony – purchases components from suppliers in Thailand, Malaysia, and around the world
GMGM is building four similar plants in Argentina, Poland, China, and Thailand
SOME MULTINATIONAL SOME MULTINATIONAL CORPORATIONS (1CORPORATIONS (1 of 3) of 3)
CountryCountry Foreign SalesForeign SalesCompanyCompany of Originof Origin as % of Totalas % of Total
Nestlé Switzerland 98.2Nokia Finland 97.6Philips Netherlands 94.0Bayer Germany 89.8ABB Germany 87.2SAP Germany 80.0Exxon Mobil United States 79.6Royal Dutch/Shell Netherlands 73.3IBM United States 62.7McDonald’s United States 61.5
SOME MULTINATIONAL SOME MULTINATIONAL CORPORATIONS (2CORPORATIONS (2 of 3)of 3)
WorkforceCompany Home
Country% SalesOutsideHomeCountry
% AssetsOutsideHomeCountry
% Foreign
Colgate-Palmolive
USA 72 63 NA
DowChemical
USA 60 50 NA
Gillette USA 62 53 NA
Honda Japan 63 36 NA
IBM USA 57 47 51
Citicorp USA 34 46 NA
SOME MULTINATIONAL SOME MULTINATIONAL CORPORATIONS (3CORPORATIONS (3 of 3)of 3)
WorkforceCompany Home
Country% SalesOutsideHomeCountry
% AssetsOutsideHomeCountry
% Foreign
ICI Britain 78 50 NA
Nestlé Switzerland 98 95 97
Philips Netherlands 94 85 82
Siemens Germany 51 NA 38
Electronics
Unilever Britain & Netherlands
95 70 64
BOEING SUPPLIERS BOEING SUPPLIERS
Firm Country PartsAlenia Italy Wing flaps
AeroSpaceTechnologies
Australia Rudder
CASA Spain Ailerons
doors, wing sectionFuji Japan Landing gear
GEC Avionics United Kingdom Flight computersKorean Air Korea Flap supports
Menasco Aerospace Canada Landing gears
Short Brothers Ireland Landing gear doors
SingaporeAerospace
Singapore Landing gear doors
| | | | | |19751975 19801980 19851985 19901990 19951995 20002000
$ 35 $ 35 –
$ 30 $ 30 –
$ 25 $ 25 –
$ 20 $ 20 –
$ 15 $ 15 –
$ 10 $ 10 –
$ 5 $ 5 –
$ 0 $ 0 –
GermanyGermanyJapanJapan
United StatesUnited States
EUEU
Asian NIEsAsian NIEs
MexicoMexico
AN INTERNATIOAL AN INTERNATIOAL COMPARISON OF HOURLY COMPARISON OF HOURLY
WAGE RATES WAGE RATES
COMPETITIVENESSCOMPETITIVENESS
COMPETITIVENESSCOMPETITIVENESS
The degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens.
COMPETITIVENESS OF COMPETITIVENESS OF SELECTED COUNTRIESSELECTED COUNTRIES
US Singapore Finland Ireland Germany UK Japan Mexico Russia
100100
8080
6060
4040
2020
00
BARRIERS TO ENTRYBARRIERS TO ENTRY
Economies of scale Capital investment Access to supply and distribution channels Learning curves
COMPETITION WITHIN INDUSTRIES COMPETITION WITHIN INDUSTRIES INCREASES WHEN INCREASES WHEN
Firms are relatively equal in size Resources, products and services are
standardized Industry growth is slow
MEASURES OF COMPETITIVENESS MEASURES OF COMPETITIVENESS
Productivity GDP (Gross domestic product) growth Market capitalization Technological infrastructure Quality of education Efficiency of government
PRIMARY TOPICS IN PRIMARY TOPICS IN OPERATIONS MANAGEMENTOPERATIONS MANAGEMENT
Strategy Products and services Processes and
technologies Facilities Project management Managing the supply
chain
Managing inventories Forecasting demand
for products and services
Production planning and scheduling
Ensuring quality
PURPOSE OF THE TEXT PURPOSE OF THE TEXT
To gain an appreciation of the strategic importance of operations and how operations relates to other business functions
To develop a working knowledge of the concepts and methods related to designing and managing operations
To develop a skill set for organizing activities as a part of a process