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Operations Management
Definition
Operations management is defined
as the design, operation, and
improvement of the systems that
create and deliver the firms primary
products and services.
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Why Study Operations Management?
Operations
Management
Business Education/
Career Opportunities
Systematic Approach
to Org. Processes
Increase Competitive
Advantage/Survival
Cross-Functional
Applications
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Current Trends
96 of the top 100 industries in the U.S. have large $
worth of exports. Exporting industries are
characterized by early ongoing investments in
advanced product and process technologies.
Productivity is increasing and has become a basis
for competition. Success domestically and globally
is dependent on the ability to compete on many
fronts, including operations (e.g., internet - easy to
find potential customers, but hard to deliver)
Outsourcing of manufacturing and services (e.g.,
India and China) is accelerating.


WS8
**Wickham Skinner: The Role of the Industrial Managers in the Massive U.S. Negative Trade Balance, April 2000
Factors Affecting a Firm's Ability to Ward off Imports and/or Export
External
transportation costs
logistics resources
labor supply, capabilities
training resources
communications
public infrastructure
Environmental/social
environmental protection
health costs
labor unions
education system
consumer tastes
retailing capabilities
employee
Economic/Political
exchange rates
trade barriers
capital costs
inflation
capital availability
social costs/legal
funds flows
savings rate
interest rates
minimum wage
Suppliers
abilities
coordination
location
competition
cooperation
Technological
R&D
engineering
product development
process development
new products
development process
Corporate
strategy
risk avoidance
role of functions
Fin-Mktg-Mfg-Eng-R&D
balance sheet
financial capacity
marketing policies
export sales competencies
Technological sophistication of mgt
Operations
costs/productivity
quality
delivery cycle
delivery reliability
flexibility for prod change
flexibility for vol. change
New product introduction
inventory mgt.
Prod. Planning Control
Equip. & process tech
#, size, location of facilities
logistics
customer service
information technology
WS6
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Operations Decision Making
People Plants Parts Processes
Planning and Control
Materials &
Customers
Products &
Services
Input Output
Operations Management
Marketing Strategy Finance Strategy
Marketplace
Corporate Strategy
Operations Strategy
The Transformation Process (value adding)
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Key OM Concepts
Efficiency - Doing something at the lowest
possible cost
Effectiveness - Doing the right things to
create the most value for the organization
Value - Quality divided by price
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Transformations
Physical--manufacturing
Locational--transportation
Exchange--retailing
Storage--warehousing
Physiological--health care
Informational--telecommunications
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Examples of Production Systems
System Inputs Conversion Output
(desired)
Hospital Patients
MDs, Nurses
Medical Supplies
Equipment
Health Care Healthy
Individuals
Restaurant Hungry Customers
Food, Chef
Servers
Atmosphere
Prepare Food
Serve Food
Satisfied
Customers
Automobile
Plant
Sheet Steel
Engine Parts
Tools, Equipment
Workers
Fabrication
and Assembly
of Cars
High Quality
Automobiles
University High School Grads
Teachers, Books
Classroom
Transferring
of Knowledge
and Skills
Educated
Individuals
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Service or Good?
If you drop it on your foot, it wont hurt
you. (Good or service?)
Services never include goods and
goods never include services. (True or
false?)
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What about McDonalds?
Service or Manufacturing?
The company certainly manufactures tangible
products
Why then would we consider McDonalds a
service business?
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Front and Back Office
Front Office
Customer
Service Provider
Back Office
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Core Factory Services
Core Services are basic things that
customers want from products that they
purchase.
Quality
Flexibility
Speed
Price (or production cost)
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Value-Added Services
Value-added services differentiate the
organization from competitors and build
relationships that bind customers to the firm
in a positive way.
Information
Problem Solving and Field Support
Sales Support
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History of Operations
Cottage System
TIME
<1700
1700 - 1800
1850s
1890s
1910s
1930s
1940s
1970s
1980s
1990s
Industrial Revolution
Civil War
Scientific Management
Hawthorne Studies
Mass Customization
Service Revolution
Global Competition
Operations Research
Moving Assembly Line
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Development of OM as a Field The Names
and Emphasis Change, but the Elements
Remain Basically the Same!

Scientific
Management
Moving Assembly
Line
Hawthorne
Studies
Operations
Research
Historical
Underpinnings
Manufacturing
Strategy
TQM &
Six Sigma
JIT/Lean
Manufacturing
Business Process
Reengineering
Manufacturing
Resources Planning
Electronic
Enterprise
Service Quality
and Productivity
Global Supply
Chain Mgt.
OMs Emergence
as a Field
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Some Current Issues
Implementing/sustaining Quality Management initiatives
Consolidating operations resulting from mergers
Speeding up the time to get new products to market
Developing flexible production systems to enable mass
customization of products and services
Developing and integrating new technologies
Managing global supplier, production and distribution
networks
Outsourcing
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Purchasing Managers Index
Began 1931
Measures:
New Manufacturing Orders
Production Volume
Deliveries
Inventory Levels
Employment
Index Measures Economic Activity
>50.0% Expanding
<42.7% Contracting
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Purchasing Managers Index
A Leading Indicator since:
- Manufacturing must order materials in
advance of production
- The indicator is based on plans of supply
management (purchasing) executives
Source: Institute for Supply Management
(ISM) ism.org (previously National
Association of Purchasing Management)

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Purchasing Managers Index
Dec-05 55.6 42.7 50
Jan-06 54.8 42.7 50
Feb-06 56.7 42.7 50
Mar-06 55.2 42.7 50
Apr-06 57.3 42.7 50
May-06 54.4 42.7 50
Jun-06 53.8 42.7 50
Jul-06 54.7 42.7 50
Aug-06 54.5 42.7 50
Sep-06 52.9 42.7 50
Oct-06 51.2 42.7 50
Nov-06 49.5 42.7 50
Quality
Management
Statistical
Process Control
Just in Time
Materials Requirement Planning
Inventory Control
Aggregate
Planning
Operations Management - Overview
Project
Management
Supply Chain
Management
Process Analysis
and Design
Process Control
and Improvement
Waiting Line Analysis and
Simulation
Services
Manufacturing
Operations
Strategy
Facility Layout
Consulting and
Reengineering
Process Analysis
Job Design
Capacity Management
Planning for Production
Supply Chain
Strategy
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Operations Strategy
Customer Needs
Corporate Strategy
Operations Strategy
Decisions on Processes
and Infrastructure
Example
Strategy Process
More Product
Increase Org. Size
Increase Production Capacity
Build New Factory
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Competitive Dimensions
Cost
Quality and Reliability
Delivery
Flexibility
Speed
Reliability
Coping with Changes in Demand
New Product Introduction
Speed
Flexibility
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Dealing with Trade-offs
Cost
Quality
Delivery Flexibility
Example II, if we improve
customer service problem
solving by cross-training
personnel to deal with a
wider-range of problems,
they may become less
efficient at dealing with
commonly occurring
problems.
For example, if we reduce costs by reducing product
quality inspections, we might reduce product quality.
Irwin/McGraw-Hill
Order Qualifiers and Winners
Order Qualifiers: Screening criterion
that permits a firms products or
services to be considered as possible
candidates for purchase
Order Winners: Criterion that
differentiates the products or services
of one firm from another
Strategy Begins with Priorities
Consider the personal computer assembler
1. How would we segment the market according to
product group?
2. How would we identify product requirements,
demand patterns, and profit margins for each group?
3. How do we identify order winners and order
qualifiers for each group?
4. How do we convert order winners into specific
performance requirements?
Us
(Core competencies)
Competition
(Them)
Differentiation
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Manufacturings Role in
Corporate Strategy
Stage I--Internally Neutral - minimize
potential manufacturing negative
Stage II--Externally Neutral - achieve parity
with competitors
Stage III--Internally Supportive - support
business strategy
Stage IV--Externally Supportive -
manufacturing based competitive strategy
Irwin/McGraw-Hill
Four Stages of Service Firm
Competitiveness
Stage I. Available for Service
Stage II. Journeyman
Stage III. Distinctive Competence Achieved
Stage IV. World Class Service Delivery
Irwin/McGraw-Hill
U. S. Competitiveness Drivers
Product Development
speed development & enhance
manufacturability
Waste Reduction (JIT Philosophy)
WIP, space, tool costs, and human effort
Improved Customer-Supplier Relationships
borrowed from Japanese Keiretsu
Improved Leadership
strong, independent boards of directors
Irwin/McGraw-Hill
Execution!!
Unless you translate big thoughts into concrete
steps for action, theyre pointless. (Larry Bossidy)
Strategy is execution. (Louis Gerstner)
In the business world, having a good objective
means nothing if you implement it badly. (Fareed
Zakaria)
You cannot have an execution culture without
robust dialogue - one that brings reality to the
surface through openness, candor, and informality.
Robust dialogue starts when people go in with
open minds. You cannot set realistic goals until
youve debated the assumptions behind them.


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Productivity
Partial measures
output/(single input)
Multi-factor measures
output/(multiple inputs)
Total measure
output/(total inputs)
Inputs
Outputs
= ty Productivi
Irwin/McGraw-Hill
Example
10,000 Units Produced

Sold for $10/unit

500 labor hours

Labor rate: $9/hr

Cost of raw material: $5,000

Cost of purchased material: $25,000
What is the
labor productivity?
Irwin/McGraw-Hill

10,000 units/500hrs = 20 units/hour ...

... or we can arrive at a unitless figure

(10,000 unit*$10/unit)/(500hrs*$9/hr) = 22.22


Example--Labor Productivity
Irwin/McGraw-Hill
Example:
Productivity Measurement

You have just determined that your service
employees have used a total of 2400 hours
of labor this week to process 560 insurance
forms. Last week the same crew used only
2000 hours of labor to process 480 forms.
Is productivity increasing or decreasing?
Irwin/McGraw-Hill
Balanced Scorecard
1. Financial perspective
2. Internal perspective
3. Customer perspective
4. Innovation and learning perspective