Learning Objectives

Define the term operations managementIdentify the three major functional areas of organizations and describe how they interrelateCompare and contrast service and manufacturing operationsDescribe the operations function and the nature of the operations managers job

Learning Objectives

Differentiate between design and operation of production systemsDescribe the key aspects of operations management decision makingBriefly describe the historicalevolution of operations managementIdentify current trends that impact operations management

Operations Management

Operations Management is:

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

Operations Management affects:Companies ability to competeNations ability to compete internationally

The Organization

The Three Basic Functions

Figure 1.1

Value-Added Process

The operations function involves the conversion of inputs into outputs

Figure 1.2

Value-Added & Product Packages

Value-added is the difference between the cost of inputs and the value or price of outputs.Product packages are a combination of goods and services.Product packages can make a company more competitive.

Automobile assembly, steel making

Home remodeling, retail sales

Automobile Repair, fast food

Goods-service Continuum

Figure 1.3

Computer repair, restaurant meal

Song writing, software development

Goods

Service

Surgery, teaching

Food Processor

Inputs

Processing

Outputs

Table 1.2

Hospital Process

Inputs

Processing

Outputs

Table 1.2

Manufacturing or Service?

Production of Goods vs. Delivery of Services

Production of goods tangible outputDelivery of services an actService job categoriesGovernmentWholesale/retailFinancial servicesHealthcarePersonal servicesBusiness servicesEducation

Key Differences

1. Customer contact

2. Uniformity of input

3. Labor content of jobs

4. Uniformity of output

5. Measurement of productivity

Key Differences

6. Production and delivery

7. Quality assurance

8. Amount of inventory

9. Evaluation of work

10. Ability to patent design

Goods vs Service

CharacteristicGoodsServiceCustomer contactLowHighUniformity of inputHighLowLabor contentLowHighUniformity of outputHighLowOutputTangibleIntangibleMeasurement of productivityEasyDifficultOpportunity to correct problemsHighLowInventoryMuchLittleEvaluationEasierDifficultPatentableUsuallyNot usual

Operations Management includes:ForecastingCapacity planningSchedulingManaging inventoriesAssuring qualityMotivating employeesDeciding where to locate facilitiesSupply chain managementAnd more . . .

Scope of Operations Management

Types of Operations

Table 1.4

Figure 1.4

Chart1

7921

7228

7228

6832

6436

6436

5842

4446

4357

3565

3268

3070

Mfg.

Service

Year

Percent

U.S. Manufacturing vs. Service Employment

Sheet1

YearMfg.Service

457921

507228

557228

606832

656436

706436

755842

804446

854357

903565

952575

003070

022575

052080

Sheet1

Mfg.

Service

Year

Percent

U.S. Manufacturing vs. Service Employment

Sheet2

Sheet3

Decline in Manufacturing Jobs

ProductivityIncreasing productivity allows companies to maintain or increase their output using fewer workersOutsourcingSome manufacturing work has been outsourced to more productive companies

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

Why Manufacturing Matters

More than half of the total R&D performed is in the manufacturing industriesManufacturing workers in California earn an average of about $25,000 more a year than service workersWhen a California manufacturing job is lost, an average of 2.5 service jobs are lost

Challenges of Managing Services

Service jobs are often less structured than manufacturing jobsCustomer contact is higherWorker skill levels are lowerServices hire many low-skill, entry-level workersEmployee turnover is higherInput variability is higherService performance can be affected by workers personal factors

Operations Management Decision Making

ModelsQuantitative approachesAnalysis of trade-offsSystems approachEstablishing prioritiesEthics

Key Decisions of Operations Managers

What

What resources/what amounts

When

Needed/scheduled/ordered

Where

Work to be done

How

Designed

Who

To do the work

Decision Making

Decision Making

Decision Making

ModelsQuantitative approachesAnalysis of trade-offsSystems approach

Models

A model is an abstraction of reality.

What are the pros and cons of models?

Tradeoffs

Models Are Beneficial

Easy to use, less expensiveRequire users to organizeIncrease understanding of the problemEnable what if questionsConsistent tool for evaluation and standardized formatPower of mathematics

Limitations of Models

Quantitative information may be emphasized over qualitativeModels may be incorrectly applied and results misinterpretedNonqualified users may not comprehend the rules on how to use the modelUse of models does not guarantee good decisions

Quantitative Approaches

Linear programmingQueuing TechniquesInventory modelsProject modelsStatistical models

Analysis of Trade-Offs

Decision on the amount of inventory to stock Increased cost of holding inventory

Vs.

Level of customer service

Systems Approach

The whole is greater than the sum of the parts.

Pareto Phenomenon

A few factors account for a high percentage of the occurrence of some event(s). 80/20 Rule - 80% of problems are caused by 20% of the activities.

How do we identify the vital few?

Ethical Issues

Financial statementsWorker safetyProduct safetyQualityEnvironmentCommunityHiring/firing workersClosing facilitiesWorkers rights

Business Operations Overlap

Operations

Finance

Figure 1.5

Marketing

Operations Interfaces

Historical Evolution of Operations Management

Industrial revolution (1770s)Scientific management (1911)Mass productionInterchangeable partsDivision of laborHuman relations movement (1920-60)Decision models (1915, 1960-70s)Influence of Japanese manufacturers

Table 1.7

Trends in Business

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

Management Technology

Technology: The application of scientific discoveries to the development and improvement of goods and servicesProduct and service technologyProcess technologyInformation technology

Simple Product Supply Chain

Figure 1.7

Supply Chain: A sequence of activities

And organizations involved in producing

And delivering a good or service

A Supply Chain for Bread

Stage of ProductionValue AddedValue of ProductFarmer produces and harvests wheat$0.15$0.15Wheat transported to mill$0.08$0.23Mill produces flour$0.15$0.38Flour transported to baker$0.08$0.46Baker produces bread$0.54$1.00Bread transported to grocery store$0.08$1.08Grocery store displays and sells bread$0.21$1.29Total Value-Added$1.29

Other Important Trends

Ethical behaviorOperations strategyWorking with fewer resourcesRevenue managementProcess analysis and improvementIncreased regulation and product liabilityLean production

U.S. Manufacturing vs. Service Employment

0

20

40

60

80

100

455055606570758085909500

Year

Percent

YearMfg.Service

457921

507228

557228

606832

656436

706436

755842

804446

854357

903565

953268

003070

YearMfg.Service

457921

507228

557228

606832

656436

706436

755842

804446

854357

903565

952575

003070

022575

U.S. Manufacturing vs. Service Employment

0

10

20

30

40

50

60

70

80

90

4550556065707580859095000205

Year

Percent

Mfg.

Service

YearMfg.Service

457921

507228

557228

606832

656436

706436

755842

804446

854357

903565

952575

003070

022575

U.S. Manufacturing vs. Service Employment

0

10

20

30

40

50

60

70

80

90

4550556065707580859095000205

Year

Percent

Mfg.

Service