McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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INTRODUCTIONPART ONE

• Chapter One• Introduction to Operations Management

• Chapter Two•Competitiveness, Strategy, and Productivity

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter One

Introduction to

Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Operations Management

Organization

Finance Operations Marketing

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

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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5

Typical Organization Chart

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Business Operations Overlap

Marketing

Operations

Finance

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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• Operations Management includes:– Forecasting– Capacity planning– Scheduling– Managing inventories– Assuring quality– Motivating employees– And more . . .

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Types of Operations

Operations Examples

Goods Producing Farming, mining, construction,manufacturing, power generation

Storage/Transportation Warehousing, trucking, mailservice, 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

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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What is Role of OM?

• OM Transforms inputs to outputs

– Inputs are resources such as

• People, Material, and Money

– Outputs are goods and services

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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© Wiley 2010 10

OM’s Transformation Role

• To add value

– Increase product value at each stage

– Value added is the net increase between output product value and

input material value

• Provide an efficient transformation

– Efficiency – means performing activities well for least possible cost

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Value-Added

The difference between the cost of inputs and the value or price of outputs.

Inputs Land Labor Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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OM’s Transformation Process

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Stage of Production Value 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

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetablesMetal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Major Characteristics of Production Systems

Degree of standardizationType of operation– project– job shop–

repetitive production/assembly line–

continuous processing

Introduction to Operations Management

batch

–

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Manufacturing or Service?

Tangible Act

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Key Differences

• Customer contact

• Uniformity of input

• Labor content

• Uniformity of output

• Measurement of productivity

• Quality assurance

These differences are beginning to fadein many cases

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Manufacturing vs Service

CharacteristicOutput

Customer contact

Uniformity of input

Labor content

Uniformity of output

Measurement of productivity

Opportunity to correct

ManufacturingTangible

Low

High

Low

High

Easy

High

ServiceIntangible

High

Low

High

Low

Difficult

Lowquality problems

High

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Steel productionAutomobile fabrication

House buildingRoad construction

DressmakingFarming

Auto RepairAppliance repair

Maid ServiceManual car wash

TeachingLawn mowing

Low service contentHigh goods content

High service contentLow goods content

Increasinggoods content

Increasingservice content

Goods-service continuumIntroduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Major Tasks of Operations Managers

Quality ProductionTimely ProductionCost-effective Production

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Responsibilities of Operations Management

Products & services

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

Controlling– Inventory– Quality

Organizing– Degree of centralization– Subcontracting

Staffing– Hiring/laying off– Use of Overtime

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

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Pareto Phenomenon

• A vital few things are important for reachingan objective or solving a problem.

• 80/20 Rule - 80% of problems are caused by20% of the activities.

How do we identify the vital few?

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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• The Internet• E-Business• Supply Chain Management

Recent TrendsIntroduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainIntroduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Continuing Trends

• Quality and process improvement

• Technology

• Globalization

• Operations strategy

• Environmental issues

Introduction to Operations Management

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-30 Important Quality Dimensions in Manufacturing

• Performance• Features• Reliability• Conformance• Durability• Serviceability• Aesthetics• Perceived Quality

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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• Dimension 1: Performance• Does the product or service do what it is supposed to do,

within its defined tolerances?• Performance is often a source of contention between

customers and suppliers, particularly when deliverables are not adequately defined within specifications.

• The performance of a product often influences profitability or reputation of the end-user. As such, many contracts or specifications include damages related to inadequate performance.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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• Dimension 2: Features• Does the product or services possess all of the features

specified, or required for its intended purpose?• While this dimension may seem obvious, performance

specifications rarely define the features required in a product. Thus, it’s important that suppliers designing product or services from performance specifications are familiar with its intended uses, and maintain close relationships with the end-users.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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• Dimension 3: Reliability• Will the product consistently perform within specifications?• Reliability may be closely related to performance. For instance,

a product specification may define parameters for up-time, or acceptable failure rates.

• Reliability is a major contributor to brand or company image, and is considered a fundamental dimension of quality by most end-users.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Dimension 4: ConformanceDoes the product or service conform to the specification?If it’s developed based on a performance specification, does it perform as specified? If it’s developed based on a design specification, does it possess all of the features defined?

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Dimension 5: DurabilityHow long will the product perform or last, and under what conditions?Durability is closely related to warranty. Requirements for product durability are often included within procurement contracts and specifications.For instance, fighter aircraft procured to operate from aircraft carriers include design criteria intended to improve their durability in the demanding naval environment.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Dimension 6: ServiceabilityIs the product relatively easy to maintain and repair?As end users become more focused on Total Cost of Ownership than simple procurement costs, serviceability (as well as reliability) is becoming an increasingly important dimension of quality and criteria for product selection.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Dimension 7: AestheticsThe way a product looks is important to end-users. The aesthetic properties of a product contribute to a company’s or brand’s identity. Faults or defects in a product that diminish its aesthetic properties, even those that do not reduce or alter other dimensions of quality, are often cause for rejection.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Dimension 8: PerceptionPerception is reality. The product or service may possess adequate or even superior dimensions of quality, but still fall victim to negative customer or public perceptions.As an example, a high quality product may get the reputation for being low quality based on poor service by installation or field technicians. If the product is not installed or maintained properly, and fails as a result, the failure is often associated with the product’s quality rather than the quality of the service it receives.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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SummaryIt should be obvious from the discussion above that the individual dimensions of quality are not necessarily distinct. Depending on the industry, situation, and type of contract or specification several or all of the above dimensions may be interdependent.When designing, developing or manufacturing a product (or delivering a service) the interactions between the dimensions of quality must be understood and taken into account.While these dimensions may not constitute a complete list of relevant dimensions, taking them into consideration should provide us with a better understanding of the slippery concept of quality.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-40 Important Quality Dimensions in Servicing

• Time• Timeliness• Completeness• Courtesy• Consistency• Accessibility & Convenience• Accuracy• Responsiveness

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Time: How long must a customer wait?Timeliness: Will a package be delivered by 10:30 the next morning?Completeness: Are all items in the order included?Courtesy: Do front-line employees greet each customer cheerfully?Consistency: Are services delivered in the same fashion for every customer?Accessibility and convenience: Is the service easy to obtain?Accuracy: Is the service performed right the first time?Responsiveness: Can service personnel react quickly and resolve unexpected problems?

Important Quality Dimensions in Servicing

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-42 Exciter, Satisfier, Dissatisfier

• An exciter is something that a company does that leaves their customer not just satisfied, but a raving fan!  The customer is left with an extremely positive impression and feels the need to share their great experience with their friends and family.  They are providing this positive feedback without being prompted by the company to do so.  In a world where word of mouth referrals drive business more than media advertising, this is huge!  

• These are "front of the box" features that typically set your product apart from the competition.  They're typically hard to discover or require unique assets. 

• Exciters are also features that get your development team excited to work on ‘something cool’ and keep team moral high.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-43 Exciter, Satisfier, Dissatisfier

• A satisfier is something that a company does that leaves their customer satisfied and happy, but not necessarily with any certain "wow" factor.  An example of this would be arriving to a clean hotel room with good customer service, but nothing beyond that.  The customer leaves with positive thoughts in their mind and if asked, would give the hotel a good review.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-44 Exciter, Satisfier, Dissatisfier

• Dissatisfiers are features customer just expect to be there, or defects where the product is designed to perform a task that it doesn't (a bug). 

• A dissatisfier turn a client or candidate away and send them out into the marketplace with a negative impression of the company.  An example would be a hotel giving someone a room that had barely been cleaned and providing below average customer service.  The person going through that experience would be certain to leave with a negative thought in their mind and to share that thought with their friends and family.  

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-45 Exciter, Satisfier, Dissatisfier

• Indifferent features are issues customers just don't care about.  Perhaps you may think they're cool, but the general customer doesn't really care.  Many times indifferents are required for another feature For example, the differential gear in a car. you may think the distribution ratio and response is impressive, but most customers just don't care.

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-46 Product Life Cycle

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1-47 Product Life Cycle