CH1: Introduction to Operations

Management
• Learning Objectives
• After this lecture, students will be able to
1. Define the terms operations management and supply chain
2. Identify the three major functional areas of organizations
and describe how they interrelated
3. Identify similarities and differences between production
and service operations
4. Explain the key aspects of operations management
decision making
5. Explain the need to manage the supply chain
 Outline
▶ Definition of Operations Management
(OM)
▶ Organizational Functions
▶ Why Study OM?
▶ Significant Events in OM
▶ Goods Versus Services
▶ Measuring productivity
 What Is Operations Management?

• Production is the creation of goods and

services
• Operations management (OM) is the set of
activities that create value in the form of
goods and services by transforming inputs into
outputs
• Operations management:
• The business function responsible for
planning, coordinating, and controlling the
resources needed to produce a company’s
products and services
 Operations Interfaces
Industrial
Engineering Maintenance

Distribution
Operations Public Relations

Purchasing Personnel
Accounting
 Organizing to Produce Goods and
Services
• Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the product
3. Finance/accounting – tracks how well the
organization is doing, pays bills, collects the
money
4. Human Resources – provides labor, employs,
assigns and gives training.
 Why Study OM?
1. OM is one of four major functions of any
organization, we want to study how people
organize themselves for productive enterprise
2. We want (and need) to know how goods and
services are produced
3. We want to understand what operations
managers do
4. OM is such a costly part of an organization
 The Strategic Decisions
1. Design of goods and services
– Defines what is required of operations
– Product design determines quality,
sustainability and human resources
2. Managing quality
– Determine the customer’s quality expectations
– Establish policies and procedures to identify
and achieve that quality
 The Strategic Decisions
3. Process and capacity design
▶ How is a good or service produced?
▶ Commits management to specific technology,
quality, resources, and investment.
4. Location strategy
▶ Nearness to customers, suppliers, and talent.
▶ Considering costs, infrastructure, logistics, and
government.
 The Strategic Decisions
5. Layout strategy
▶ Integrate capacity needs, personnel levels,
technology, and inventory
▶ Determine the efficient flow of materials,
people, and information.
6. Human resources and job design
▶ Recruit, motivate, and retain personnel with
the required talent and skills.
▶ Integral and expensive part of the total system
design.
 The Strategic Decisions
7. Supply-chain management
▶ Integrate supply chain into the firm’s strategy.
▶ Determine what is to be purchased, from
whom, and under what conditions.
8. Inventory management
▶ Inventory ordering and holding decisions.
▶ Optimize considering customer satisfaction,
supplier capability, and production schedules.
 The Strategic Decisions
9. Scheduling
▶ Determine and implement intermediate- and
short-term schedules.
▶ Utilize personnel and facilities while meeting
customer demands.
10. Maintenance
▶ Consider facility capacity, production
demands, and personnel.
▶ Maintain a reliable and stable process.
 Operations for
Goods and Services
▶ Manufacturers produce tangible product,
services often intangible
▶ Operations activities often very similar
▶ Distinction not always clear
▶ Few pure services
 Differences Between Goods and Services

• Production of goods (goods oriented)

– Tangible products
• Automobile
• Refrigerator
• Services (TV and auto repair, lawn care)
• Government
• Regulatory bodies, FAA, FDA
• Wholesale/retail
• Financial services
• Education
 Goods vs. Service Operations (Cont)

• 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
 Manufacturing vs. Service
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of output High Low
Labor content Low High
Uniformity of input High Low
Measurement of Easy Difficult
productivity
Opportunity to correct Easy Difficult
quality problems
 Historical Evolution of Operations
Management
• Industrial revolution (1770’s)
• Scientific management (1911)
– Mass production
– Interchangeable parts
– Division of labor
• Human relations movement (1920-60)
– Unemployment insurance
– Pension plans
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers (1970-1990)
 The Industrial Revolution

• •The industrial revolutiondeveloped in England in the

1700s.
• •The steam engine, invented by James Watt in 1764,
largely replaced human and water power for factories.
• •Adam Smith’s The Wealth of Nationsin 1776 touted
the economic benefits of the specialization of labor.
• •Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.
 Major Historical Developments

• Industrial Revolution Late 1700s

• Scientific Management Early 1900s
• Human Relations Movement 1930s to 1960s
• Management Science Mid-1900s
• Computer Age 1970s
• Just-In-Time Systems 1980s
• Total Quality Management (TQM) 1980s
• Reengineering 1980s
• Flexibility 1990s
• Time-based Competition 1990s
• Supply Chain Management 1990s
• Global Competition 1990s
• Environmental Issues 1990s
• Electronic Commerce Late 1990s – Early 21st Century
 Industrial Revolution Late 1700s

• Replaced traditional craft methods

• • Substituted machine power for labor
• • Major contributions:
• –James Watt (1764): steam engine
–Adam Smith (1776): division of labor
–Eli Whitney (1790): interchangeable parts
 Scientific Management Early 1900s

• Separated ‘planning’ from ‘doing’

• Management’s job was to discover worker’s
physical limits through measurement, analysis
& observation
• Major contributors:
–Fredrick Taylor: stopwatch time studies
–Henry Ford: moving assembly line
 Human Relations Movement 1930s to 1960s

• Recognition that factors other than money contribute to

worker productivity
• Major contributions:
–Understanding of the Hawthorn effect: Study of Western
Electric plant in Hawthorn, Illinois intended to study impact
of environmental factors (light & heat) on productivity, but
found workers responded to management’s attention
regardless of environmental changes
–Job enlargement
–Job enrichment
 Management Science Mid-1900s

• Developed new quantitative techniques for

common OM problems:
• –Major contributions include: inventory
modeling, linear programming, project
management, forecasting, statistical sampling,
& quality control techniques
– Played a large role in supporting American
military operations during World War II
 Computer Age 1970s

• Provided the tool necessary to support the

widespread use of Management Science’s
quantitative techniques
• – the ability to process huge amounts of data
quickly & relatively cheaply
• Major contributions include the development
of Material Requirements Planning (MRP)
systems for production control
 Developments: 1980s Japanese Influence

• Just-In-Time (JIT):
– Techniques designed to achieve high-volume production
using coordinated material flows, continuous
improvement, & elimination of waste
• Total Quality Management (TQM): – Techniques designed
to achieve high levels of product quality through shared
responsibility & by eliminating the root causes of product
defects
• Business Process Reengineering: – ‘Clean sheet’ redesign
of work processes to increase efficiency, improve quality &
reduce costs
 Developments: 1990s

• Flexibility: – Offer a greater variety of product

choices on a mass scale (mass customization) •
Time-based competition: – Developing new
product designs & delivering customer orders
more quickly than competitors
• Supply Chain Management – Cooperating with
suppliers & customers to reduce overall costs
of the supply chain & increase responsiveness
to customers
 Developments: 1990s

• Global competition:
• – International trade agreements open new markets for
expansion & lower barriers to the entry of foreign
competitors (e.g.: NAFTA & GATT) – Creates the need for
decision-making tools for facility location, compliance
with with local regulations, tailoring product offerings to
local tastes, managing distribution networks, …
• Environmental issues: – Pressure from consumers &
regulators to reduce, reuse & recycle solid wastes &
discharges to air & water
 Electronic Commerce

• Internet & related technologies enable new

methods of business transactions:
– E-tailing creates a new outlet for retail goods
& services with global access and 24-7
availability
– Internet provides a cheap network for
coordinating supply chain management
information
• Developing influence of broadband & wireless
Operations Management Decision Making

• Models
• Quantitative approaches
• Analysis of trade-offs
• Systems approach
• Establishing priorities
• Ethics
 Help comes from Models
• A structure which has been built purposefully to exhibit
features and characteristics of some other object.

Do not use “thing” or “something” in a definition.

• For
– Improved understanding and communication
– Experimentation
– Standardization for analysis
• Abstraction vs. computability
 Modeling !
• Use models
– Physical models (prototypes)
– Schematic models (Graphs, charts, pictures)
– Mathematical models,
• Statistical models
• Inventory models
• Linear programming
• Queuing techniques
• Project management models
 What type of models
• Simulation models : to test a proposed idea
– Monte Carlo Simulation
• Optimization models : to create an optimal
idea
– Linear programming
• Pattern recognition models : to recognize a
pattern
– Statistics, Forecasting, data mining
 Production systems classified
• Craft Production : System in which highly skilled workers use
simple, flexible tools to produce small quantities of
customized goods.
– Carpenter
• Lean production : System that uses minimal amounts of
resources to produce a high volume of high-quality goods
with some variety.
– Dell
• Mass production: System in which lower-skilled workers use
specialized machinery to produce high volumes of
standardized goods.
– Ford
 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

System Design
capacity
location
arrangement of departments
product and service planning
acquisition and placement of equipment
 • System operation
• – • personnel
• – • inventory
• – • scheduling
• – • project
• management
• – • quality assurance
 Contemporary Themes in Operations

• These contemporary themes make operations

an exciting and interesting place for aspiring
managers and those who want the challenge
of leadership
 Operations New Themes
• Service and Manufacturing
• Customer Directed Operations
• Lean Operations
• Integration of Operations with Other Functions
• Environmental concerned of operations
• Supply Chain Management Concerned
Operations
• Globalization of Operation
 Review questions

1. Define what Operations Management is?

2. Discuss the major functional areas of business
organizations
3. Differentiate between design and operation of
production systems
4. Describe the key aspects of operations
management decision making
5. Briefly describe the historical evolution of
operations management