Introduction to Operations Management

OM Defined

Operations management:

The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s products and services

Simplified Organizational Chart

Information FlowsTo & From Operations

The Role of OM in the Business

Transformation Process

Physical: as in manufacturing operationsLocational: as in transportation operationsExchange: as in retail operationsPhysiological: as in health carePsychological: as in entertainmentInformational: as in communication

Service - Manufacturing

Services:• Intangible product• No inventories• High customer

contact• Short response time• Labor intensive

Manufacturing:• Tangible product• Can be inventoried• Low customer

contact• Capital intensive• Long response time

Service-Manufacturing Continuum

What Operations Managers Do

Plan - Organize - Staff - Lead - Control

OM Decisions

• Strategic decisions:– Decisions that set the direction for the

entire company.– Broad in scope & long-term in nature

• Tactical decisions:– Short-term & specific in nature– Bound by the strategic decisions

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?

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?

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?

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, – How much inventory of each item should we

have?– When do we re-order?

Example

Major Historical Developments

Industrial Revolution Late 1700sScientific Management Early 1900sHuman Relations Movement 1930s to 1960sManagement Science Mid-1900sComputer Age 1970sJust-In-Time Systems 1980sTotal Quality Management (TQM) 1980sReengineering 1980sFlexibility 1990sTime-based Competition 1990sSupply Chain Management 1990sGlobal Competition 1990sEnvironmental Issues 1990sElectronic Commerce Late 1990s – Early 21st Century

Industrial Revolution Late 1700s

• Replaced traditional craft methods

• Substituted machine power for labor

• Major contributions:– James Watt (1764): steam engine– Adam Smith (1776): division of labor– Eli Whitney (1790): interchangeable parts

Scientific ManagementEarly 1900s

• Separated ‘planning’ from ‘doing’

• Management’s job was to discover worker’s physical limits through measurement, analysis & observation

• Major contributors:– Fredrick Taylor: stopwatch time studies– Henry Ford: moving assembly line

Human Relations Movement1930s to 1960s

• Recognition that factors other than money contribute to worker productivity

• Major contributions:– Understanding of the Hawthorn effect:

Study of Western Electric plant in Hawthorn, Illinois intended to study impact of environmental factors (light & heat) on productivity, but found workers responded to management’s attention regardless of environmental changes

– Job enlargement– Job enrichment

Management ScienceMid-1900s

• Developed new quantitative techniques for common OM problems:– Major contributions include: inventory

modeling, linear programming, project management, forecasting, statistical sampling, & quality control techniques

Computer Age1970s

• Provided the tool necessary to support the widespread use of Management Science’s quantitative techniques – the ability to process huge amounts of data quickly & relatively cheaply

• Major contributions include the development of Material Requirements Planning (MRP) systems for production control

Developments: 1980sJapanese Influence

• Just-In-Time (JIT):– Techniques designed to achieve high-volume

production using coordinated material flows, continuous improvement, & elimination of waste

• Total Quality Management (TQM):– Techniques designed to achieve high levels of

product quality through shared responsibility & by eliminating the root causes of product defects

• Business Process Reengineering:– ‘Clean sheet’ redesign of work processes to

increase efficiency, improve quality & reduce costs

Developments: 1990s

• Flexibility:– Offer a greater variety of product choices on a

mass scale (mass customization)

• Time-based competition:– Developing new product designs & delivering

customer orders more quickly than competitors

• Supply Chain Management– Cooperating with suppliers & customers to reduce

overall costs of the supply chain & increase responsiveness to customers

Developments: 1990s

• Global competition:– International trade agreements open new markets for

expansion & lower barriers to the entry of foreign competitors (e.g.: NAFTA & GATT)

– Creates the need for decision-making tools for facility location, compliance with with local regulations, tailoring product offerings to local tastes, managing distribution networks, …

• Environmental issues:– Pressure from consumers & regulators to reduce, reuse

& recycle solid wastes & discharges to air & water

Electronic Commerce

• Internet & related technologies enable new methods of business transactions:– E-tailing creates a new outlet for retail goods &

services with global access and 24-7 availability– Internet provides a cheap network for coordinating

supply chain management information

• Developing influence of broadband & wireless

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Trends in Business

• Major trends– The Internet, e-commerce, e-business– Management technology– Globalization– Management of supply chains– Outsourcing– Agility– Ethical behavior

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Management Technology

• Technology: The application of scientific discoveries to the development and improvement of goods and services

• Product and service technology

• Process technology

• Information technology

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Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainSimple Product Supply Chain

Supply Chain: A sequence of activitiesAnd organizations involved in producingAnd delivering a good or service

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Other Important Trends

• Working with fewer resources

• Revenue management

• Process analysis and improvement

• Increased regulation and product liability

• Lean production