1-1 Introduction to Operations Management

Operations Management

William J. Stevenson

8th edition
1-2 Introduction to Operations Management

Operations Management
Figure 1.1

The management of systems or processes

that create goods and/or provide services

Organization

Finance Operations Marketing

1-3 Introduction to Operations Management

What Do Operations Managers Do?

 What is ‘Operations’?
 a function or system that transforms inputs into outputs of
greater value
 What is a Transformation Process?
 a series of activities along a value chain extending from
supplier to customer
 activities that do not add value are superfluous and should
be eliminated
 What is Operations Management?
 design, operation, and improvement of productive systems
1-4 Introduction to Operations Management

Value-Added
Figure 1.2
The difference between the cost of inputs
and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
1-5 Introduction to Operations Management

Goods-service Continuum
Figure 1.3

Steel production Home remodeling Auto Repair Maid Service Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage goods

Low percentage service High percentage service
1-6 Introduction to Operations Management
Goods-service Continuum

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management
of Service Operations (Boston: Allyn Bacon, 1978), p.11.
1-7 Introduction to Operations Management

Food Processor
Table 1.2

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
1-8 Introduction to Operations Management

Hospital Process
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
1-9 Introduction to Operations Management

Manufacturing or Service?

Tangible Act
1-10 Introduction to Operations Management

Production of Goods vs. Delivery of Services

 Production of goods – tangible output

 Delivery of services – an act

 Service job categories

 Government
 Wholesale/retail

 Financial services

 Healthcare

 Personal services

 Business services

 Education
1-11 Introduction to Operations Management

Key Differences

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
1-12 Introduction to Operations Management

Goods vs. Service

Table 1.3

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 usually
1-12
1-13 Introduction to Operations Management

Scope of Operations Management

 Operations Management includes:
 Forecasting
 Capacity planning

 Scheduling

 Managing inventories

 Assuring quality

 Motivating employees

 Deciding where to locate facilities

 And more . . .
1-14 Introduction to Operations Management

 The operations function

 Consists of all activities directly related to
producing goods or providing services
1-15 Introduction to Operations Management

Types of Operations
Table 1.4
Operations Examples
Goods 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
1-16 Introduction to Operations Management

Transformation Process

 Physical: as in manufacturing operations

 Locational: as in transportation operations

 Exchange: as in retail operations

 Physiological: as in health care

 Psychological: as in entertainment

 Informational: as in communication
1-17 Introduction to Operations Management

Responsibilities of Operations Management

Table 1.6

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
1-18 Introduction to Operations Management

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
1-19 Introduction to Operations Management

Decision Making

System Design
– capacity
– location
– arrangement of departments
– product and service planning
– acquisition and placement of
equipment
1-20 Introduction to Operations Management

Decision Making

System operation
– personnel
– inventory
– scheduling
– project
management
– quality assurance
1-21 Introduction to Operations Management

Ethical Issues
 Financial statements
 Worker safety
 Product safety
 Quality
 Environment
 Community
 Hiring/firing workers
 Closing facilities
 Worker’s rights

1-21
1-22 Introduction to Operations Management

Business Operations Overlap

Figure 1.5

Operations

Marketing Finance
1-23 Introduction to Operations Management

Operations Function

 Operations
 Marketing
 Finance and
Accounting
 Human Resources
 Outside Suppliers
1-24 Introduction to Operations Management

Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
1-25 Introduction to Operations Management

Historical Evolution of Operations Management

Table 1.7
 Industrial revolution (1770’s)
 Scientific management (1911)
 Mass production
 Interchangeable parts

 Division of labor

 Human relations movement (1920-60)

 Decision models (1915, 1960-70’s)

 Influence of Japanese manufacturers

1-26 Introduction to Operations Management

Historical Events in Operations Management

Era Events/Concepts Dates Originator

Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney

Principles of scientific
1911 Frederick W. Taylor
management
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management
Activity scheduling chart 1912 Henry Gantt

Moving assembly line 1913 Henry Ford

1-27 Introduction to Operations Management

Historical Events in Operations Management

Era Events/Concepts Dates Originator

Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operations Operations research
line theory, decision 1950s
Research groups
theory, PERT/CPM

1960s, Joseph Orlicky, IBM

MRP, EDI, EFT, CIM
1970s and others
1-28 Introduction to Operations Management

Historical Events in Operations Management

Era Events/Concepts Dates Originator

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)

TQM (total quality W. Edwards Deming,

1980s
management) Joseph Juran

Quality
Revolution Strategy and Wickham Skinner,
1990s
operations Robert Hayes

Business process Michael Hammer,

1990s
reengineering James Champy
1-29 Introduction to Operations Management

Historical Events in Operations Management

Era Events/Concepts Dates Originator

Globalization WTO, European Union, and 1990s Numerous countries
other trade agreements 2000s and companies

Internet Internet, WWW, ERP, 1990s ARPANET, Tim

Revolution supply chain management Berners-Lee SAP,
i2 Technologies,
ORACLE,
PeopleSoft

E-commerce 2000s Amazon, Yahoo,

eBay, and others
1-30 Introduction to Operations Management

Trends in Business
 Major trends
 The Internet, e-commerce, e-business
 Management technology

 Globalization

 Management of supply chains

 Agility
1-31 Introduction to Operations Management

Simple Product Supply Chain

Figure 1.7

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Consumer

Supply Chain: A sequence of activities

And organizations involved in producing
And delivering a good or service
1-32 Introduction to Operations Management

A Supply Chain for Bread

Stage of Production Value Value of

Added 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
1-33 Introduction to Operations Management

Other Important Trends

 Ethical behavior
 Operations strategy

 Working with fewer resources

 Cost control and productivity

 Quality and process improvement

 Increased regulation and product liability

 Lean production