Chapter 1

Operations and
Supply Chain Management
Introduction

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Class Schedule

Mondays and Thursdays

The Third Period

Evaluation

Assignments and Quizzes

Final Exam

50%

50%

The following should be noted when

entering OR Classrooms:
Be punctual. Do not be late.
Attend all the lectures.
Bring your textbook, supplementary materials and
calculator to every class.
Students are expected to participate in classes
actively. This means asking questions and giving
comments and ideas.

The following should be noted when entering SCM

Classroom:

Turn off your mobile phones.

Do not talk loudly.
Other activities that may disturb others are
prohibited.
Students who violate these rules can be denied
permission to enter the classroom.

The Textbook
Operations Management: Creating
Value Along the Supply Chain,
International Student Version, 7th
Edition
Roberta S. Russell
ISBN: 978-0-470-64623-6
Paperback
832 pages

Copyright 2011 John Wiley & Sons, Inc.

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Lecture Outline
What Operations and Supply Chain Managers Do
Operations Function
Evolution of Operations and Supply Chain Management
Globalization and Competitiveness
Operations
Strategy and Organization of the Text

Copyright 2011 John Wiley & Sons, Inc.

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What Operations and Supply Chain

Managers Do
What is Operations Management?
design, operation, and improvement of productive systems

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

Copyright 2011 John Wiley & Sons, Inc.

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Transformation Process
Physical: as in manufacturing operations
Locational: as in transportation or warehouse operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication

Copyright 2011 John Wiley & Sons, Inc.

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Operations as a
Transformation Process
INPUT
Material
Machines
Labor
Management
Capital

TRANSFORMATION
PROCESS

OUTPUT
Goods
Services

Feedback & Requirements

Copyright 2011 John Wiley & Sons, Inc.

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Operations Function
Operations
Marketing
Finance and
Accounting
Human
Resources
Outside
Suppliers

Copyright 2011 John Wiley & Sons, Inc.

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How is Operations Relevant

to my Major?
Accounting

Information
Technology
Management

As an auditor you must understand the

fundamentals of operations
management.
IT is a tool, and theres no better place to
apply it than in operations.
We use so many things you learn in an
operations classscheduling, lean
production, theory of constraints, and
tons of quality tools.

Copyright 2011 John Wiley & Sons, Inc.

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How is Operations Relevant

to my Major?
Economics
Marketing

Finance

Its all about processes. I live by

flowcharts and Pareto analysis.
How can you do a good job marketing a
product if youre unsure of its quality or
delivery status?
Most of our capital budgeting requests
are from operations, and most of our
cost savings, too.

Copyright 2011 John Wiley & Sons, Inc.

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Evolution of Operations and Supply

Chain Management
Craft production
process of handcrafting products or services for individual
customers

Division of labor
dividing a job into a series of small tasks each performed
by a different worker

Interchangeable parts
standardization of parts initially as replacement parts;
enabled mass production

Copyright 2011 John Wiley & Sons, Inc.

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Production Modes

Variety of Products

High

Moderate

Process-focused
JOB SHOPS
(Print shop, emergency
room, machine shop, fine
dining
Repetitive (modular)
focus
ASSEMBLY LINE
(Cars, appliances,
TVs, fast-food
restaurants)

Mass Customization
Customization at high
Volume
(Dell Computers PC)

Product focused
CONTINUOUS
(steel, beer, paper,
bread, institutional
kitchen)

Low
Low

Moderate
Volume

High

Layouts Using Work Cells

Current layout - straight lines

make it hard to balance tasks
because work may not be
divided evenly

Improved layout - in U shape,

workers have better access.
Four cross-trained workers
were reduced.

U-shaped line may reduce employee movement

and space requirements while enhancing
communication, reducing the number of workers,
and facilitating inspection

Process-Oriented Layout
ER
triage
room
Surgery

Patient A - broken leg

Emergency room admissions
Patient B - erratic heart
pacemaker
Laboratories

Radiology

ER Beds

Pharmacy

Billing/exit

Figure 9.3

McDonalds
New Kitchen
Layout

Flow Diagram

Welding
From
press
mach.

Storage bins
Mach. 3
Machine 1

Mach. 2

Mach. 4

Paint
shop

Flow Diagram

Welding

Machine 4
Machine 3

Paint
shop

Machine 2
From
press
mach.

Machine 1
Storage
bins

Volkswagen

HISTORY OF LEAN PRODUCTION

1850: Eli Whitney perfected the concept of
interchangeable parts
Late 1890s: Frederick Taylor invented Scientific
Management.
1913: Henry Fords ideas about continuous assembly
lines and flow system were applied in the production
of Fords Model T
A breakthrough in productivity and efficiency
Problems of the system: inflexibility - inability to provide
variety; bad attitude towards workers

Henry Ford
(163-1947)

Fords manufacturing plant

Interchangeable parts are parts that are for practical purposes

identical. They are made to specifications that ensure that they are so
nearly identical that they will fit into any device of the same type

Eli Whitney
Born 1765; died 1825
In 1798, received government
contract to make 10,000 muskets
Showed that machine tools could
make standardized parts to exact
specifications
Musket parts could be used in any
musket

Frederick W. Taylor
Born 1856; died 1915
Known as father of scientific
management
In 1881, as chief engineer for Midvale
Steel, studied how tasks were done
Began first motion and time studies

Created efficiency principles

Taylors Principles
Management Should Take More
Responsibility for:

Matching employees to right job

Providing the proper training
Providing proper work methods and tools
Establishing legitimate incentives for
work to be accomplished

Frank & Lillian Gilbreth

Frank (1868-1924); Lillian (1878-1972)
Husband-and-wife engineering team
Further developed work measurement
methods
Applied efficiency methods to their
home and 12 children!
Book & Movie: Cheaper by the
Dozen, book: Bells on Their Toes

Henry Ford
Born 1863; died 1947
In 1903, created Ford Motor Company
In 1913, first used moving assembly
line to make Model T
Unfinished product moved by conveyor
past work station

Paid workers very well for 1911

($5/day!)

HISTORY OF LEAN PRODUCTION

1950: Toyota Production System (TPS) was
developed by Taiichi Ohno and Shigeo Shingo
TPS evolved out of need: the market place in post war
Japan required many varieties of models in small quantities
- much different from Fords concept of mass production
TPS most important objective: increasing production
efficiency through consistently and thoroughly eliminating
waste.

1973: First oil shock: other Japanese firms began to

take notice of the production method.
Since then it has been studied, copied and
implemented in many industries and countries,
however Toyota remains the best practitioner of TPS.

Taiichi Ohno
(1912-1990)

Shigeo Shingo
(1909-1990)

WHAT IS LEAN PRODUCTION?

Definition by
American Production Inventory Control Society (APICS)

A philosophy of production that emphasizes the minimization of

the amount of all the resources (including time) used in the
various activities of the enterprise. It involves:
_ identifying and eliminating non-value-adding activities,
_ employing teams of multi-skilled workers,
_ using highly flexible, automated machines

WASTE

Evolution of Operations and

Supply Chain Management
Scientific management
systematic analysis of work methods

Mass production
high-volume production of a standardized product for a mass
market

Lean production
adaptation of mass production that prizes quality and flexibility

Copyright 2011 John Wiley & Sons, Inc.

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Historical Events in
Operations Management
Era
Industrial
Revolution

Scientific
Management

Events/Concepts

Steam engine
Division of labor
Interchangeable parts
Principles of scientific
management
Time and motion studies

Dates
1769
1776
1790

Originator
James Watt

Adam Smith
Eli Whitney

1911

Frederick W. Taylor

1911

Activity scheduling chart

1912

Frank and Lillian

Gilbreth
Henry Gantt

Moving assembly line

1913

Henry Ford

Copyright 2011 John Wiley & Sons, Inc.

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Historical Events in
Operations Management
Era

Events/Concepts

Human
Relations

Motivation theories

Operations
Research

Hawthorne studies

Linear programming
Digital computer
Simulation, waiting
line theory, decision
theory, PERT/CPM
MRP, EDI, EFT, CIM

Copyright 2011 John Wiley & Sons, Inc.

Dates

Originator

1950s

Operations research
groups

1930
1940s
1950s
1960s
1947
1951

1960s,
1970s

Elton Mayo
Abraham Maslow
Frederick Herzberg
Douglas McGregor
George Dantzig
Remington Rand

Joseph Orlicky, IBM

and others
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Historical Events in
Operations Management
Era

Events/Concepts
JIT (just-in-time)
TQM (total quality

Quality

management)
Strategy and

Revolution

operations

Dates Originator
1970s
1980s
1980s

Reengineering

1990s

Six Sigma

1990s

Copyright 2011 John Wiley & Sons, Inc.

Taiichi Ohno (Toyota)

W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy
GE, Motorola

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Historical Events in
Operations Management
Era

Internet
Revolution

Events/Concepts

Dates Originator

Internet, WWW, ERP,

1990s
supply chain management

ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,

E-commerce
Globalization

WTO, European Union,

Global supply chains,
Outsourcing, Service
Science

Copyright 2011 John Wiley & Sons, Inc.

2000s

ORACLE,
Dell
Amazon, Yahoo,

1990s

eBay, Google, and

others
China, India,
emerging
economies

2000s

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Historical Events in
Operations Management
Era

Green
Revolution

Events/Concepts

Global warming, An
Inconvenient Truth, Kyoto

Copyright 2011 John Wiley & Sons, Inc.

Dates Originator
Today

Numerous
scientists,
statesmen and
governments

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Evolution of Operations and Supply

Chain Management

Supply chain management

management of the flow of information, products, and services across a
network of customers, enterprises, and supply chain partners

Copyright 2011 John Wiley & Sons, Inc.

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Globalization
Why go global?

favorable cost
access to international markets
response to changes in demand
reliable sources of supply
latest trends and technologies

Increased globalization
results from the Internet and falling trade barriers

Copyright 2011 John Wiley & Sons, Inc.

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Hourly Compensation

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GDP per Capita

March 2009

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Trade in Goods, % of GDP

March 2009

Having a producer economy and healthy trade balance is an advantage in a

global slump. In spite of having corruption, pollution and quality problems,
China is steering its way out of the recession and entering the decade of
China.
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India
Outsourcing of services
Accounting, claim processing,

Computer programming
Financial analysis
Medical diagnosis
Architectural design, etc.,

Copyright 2011 John Wiley & Sons, Inc.

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Productivity and Competitiveness

Globalization brings more customers and more competition

Competitiveness
degree to which a nation can produce goods and
services that meet the test of international markets

Productivity
ratio of output to input

Output
sales made, products produced, customers served,
meals delivered, or calls answered

Input
labor hours, investment in equipment, material usage,
or square footage
Copyright 2011 John Wiley & Sons, Inc.

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Measures of Productivity

Copyright 2011 John Wiley & Sons, Inc.

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 Mance Fraily, the Production Manager at Ralts Mills,

can currently expect his operation to produce 1000
square yards of fabric for each ton of raw cotton.
Each ton of raw cotton requires 5 labor hours to
process.
He believes that he can buy a better quality raw
cotton, which will enable him to produce 1200 square
yards per ton of raw cotton with the same labor hours.
What will be the impact on productivity if he
purchases the higher quality raw cotton?

Copyright 2011 John Wiley & Sons, Inc.

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Copyright 2011 John Wiley & Sons, Inc.

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 Joanna French is currently working a total of 12 hours per

day to produce 240 dolls. She thinks that by changing the
paint used for the facial features and fingernails that she can
increase her rate to 360 dolls per day.
Total material cost for each doll is approximately $3.50; she
has to invest $20 in the necessary supplies per day; energy
costs are assumed to be only $4.00 per day; and she thinks
she should be making $10 per hour for her time.
Viewing this from a total (multifactor) productivity
perspective, what is her productivity at present and with the
new paint?

Copyright 2011 John Wiley & Sons, Inc.

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Copyright 2011 John Wiley & Sons, Inc.

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Osborne Industries

B5*B7
B6*B8
B4/B5
B4/B6
Copyright 2011 John Wiley & Sons, Inc.

B4/B14

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Productivity Growth

2008
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Percent Change in Input and Output

2008
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Strategy and Operations

How the mission of a company is accomplished
Provides direction for achieving a mission
Unites the organization
Provides consistency in decisions
Keeps organization moving in the right direction

Copyright 2011 John Wiley & Sons, Inc.

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Strategy Formulation
1. Defining a primary task
What is the firm in the business of doing?
2. Assessing core competencies
What does the firm do better than anyone else?
3. Determining order winners and order qualifiers
What qualifies an item to be considered for purchase?
What wins the order?
4. Positioning the firm
How will the firm compete?
5. Deploying the strategy
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Strategic Planning
Mission
and Vision
Voice o
f th
Busines e
s

Marketing
Strategy

Copyright 2011 John Wiley & Sons, Inc.

Corporate
Strategy

Operations
Strategy

he
Voice of t r
Custome

Financial
Strategy

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Order Winners
and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan
Betts, Operations and Process Management, Prentice Hall, 2006, p. 47

Copyright 2011 John Wiley & Sons, Inc.

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Positioning the Firm

Cost
Speed
Quality
Flexibility

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Positioning the Firm: Cost

Waste elimination
relentlessly pursuing the removal of all waste

Examination of cost structure

looking at the entire cost structure for reduction potential

Lean production
providing low costs through disciplined operations

Copyright 2011 John Wiley & Sons, Inc.

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Positioning the Firm: Speed

Fast moves, Fast adaptations, Tight linkages
Internet
Customers expect immediate responses

Service organizations
always competed on speed (McDonalds, LensCrafters,
and Federal Express)

Manufacturers
time-based competition: build-to-order production and
efficient supply chains

Fashion industry
two-week design-to-rack lead time of Spanish retailer, Zara

Copyright 2011 John Wiley & Sons, Inc.

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Positioning the Firm: Quality

Minimizing defect rates or conforming to design
specifications
An opportunity to please customers

Ritz-Carlton - one customer at a time

Service system designed to move heaven and earth
to satisfy customer
Employees empowered to satisfy a guests wish
Teams set objectives and devise quality action plans
Each hotel has a quality leader

Copyright 2011 John Wiley & Sons, Inc.

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Positioning the Firm: Flexibility

Ability to adjust to changes in product mix, production volume,
or design

Mass customization: the mass production of customized

parts
National Bicycle Industrial Company
offers 11,231,862 variations
delivers within two weeks at costs only 10% above standard models

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Policy Deployment

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Policy Deployment

Derivation of an Action Plan Using Policy Deployment

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Balanced Scorecard
Balanced scorecard
measuring more than financial performance

1. finances
2. customers
3. processes
4. learning and growing
Key performance indicators
set of measures to help managers evaluate performance in
critical areas

Copyright 2011 John Wiley & Sons, Inc.

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Balanced Scorecard Worksheet

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Balanced Scorecard

Radar Chart

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Dashboard

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Operations Strategy
Services
Products

Capacity

Facilities

Copyright 2011 John Wiley & Sons, Inc.

Human
Resources

Sourcing

Process
and
Technology
Quality

Operating
Systems

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Organization of This Text:

Part I Operations Management
1. Operations and Supply Chain Management
Introduction
2. Quality and Quality Management
3. Process Capability and Statistical Process Control
4. Designing Products
5. Designing Services
6. Processes and Technology
7. Capacity and Facilities Planning
8. Human Resources in Operations Management
9. Managing Projects

Copyright 2011 John Wiley & Sons, Inc.

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Organization of This Text:

Part II Supply Chain Management
10. Strategic Supply Chain Management and Design
11. Supply Chain Procurement and Distribution
Globalization
12. Forecasting
13. Role of Inventory Management
14. Aggregate Sales and Operations Planning
15. Resource Planning Systems
16. Lean System Methods
17. Scheduling

Copyright 2011 John Wiley & Sons, Inc.

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Learning Objectives of this Course

Gain an appreciation of strategic importance of
operations and supply chain management in a global
business environment
Understand how operations relates to other business
functions
Develop a working knowledge of concepts and
methods related to designing and managing
operations and supply chains
Develop a skill set for continuous improvement

Copyright 2011 John Wiley & Sons, Inc.

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Copyright 2011 John Wiley & Sons, Inc.

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by the use of these programs or from the use of the
information herein.

Copyright 2011 John Wiley & Sons, Inc.

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