Introduction to Operations Management

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 Overview


Introduction

Historical Milestones in OM

Factors Affecting OM Today

Different Ways of Studying OM

Wrap-Up: What World-Class Producers Do

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 Introduction


Operations management is the management of an
organization’s productive resources or its production
system which converts inputs into the organisation’s
products and services.

The production system includes raw materials,
personnel, machinery, buildings, technology, cash,
information and other resources

The conversion process is the predominant activity of
a production system.

The primary concern of an operations manager is the
activities of the conversion process.
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 Introduction


Operations Management in the 21st century has
become more challenging because of

Globalisation of trade and business

Computer and Information Technology revolution

Automation in manufacturing and services
industry

Internet

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 Organizational Model

Finance
Sales HRM

OM
QA
Marketing

MIS Accounting
Engineering

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 Entry-Level Jobs in OM


Purchasing planner/buyer

Production (or operations) supervisor

Production (or operations) scheduler/controller

Production (or operations) analyst

Inventory analyst

Quality specialist

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 Historical Milestones in OM


The Industrial Revolution

Post-Civil War Period

Scientific Management

Human Relations and Behaviorism

Operations Research

The Service Revolution

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 The Industrial Revolution


The industrial revolution began in England in the
1700s which substituted human and water power with
machine power.

The industrial revolution also paved way for the
factory system.

Adam Smith’s The Wealth of Nations in 1776 touted
the economic benefits of the division of labour and
specialization of labor.

Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.
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 The Industrial Revolution


The industrial revolution spread from England to
other European countries and to the United Sates.

In 1790, Eli Whitney, developed the concept of
interchangeable parts.

The first great industry in the US and England was
the textile industry.

In the 1800s the development of the gasoline engine
and electricity further advanced the revolution.

By the mid-1800s, the old cottage system of
production had been replaced by the factory system.
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 Post-Civil War Period


During the post-Civil War period in the US great
expansion of production capacity occurred.

The following developments set the stage for the
great production explosion of the 20th century:

abolition of slavery

the expanded urban workforce

increased capital and production capacity

new Western US markets

an effective national transportation system

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 Scientific Management


Frederick Taylor is known as the father of scientific
management – popularised the concept of efficiency.

His shop system employed these steps:

Each worker’s skill, strength, and learning ability
were determined.

Stopwatch studies were conducted to precisely set
standard output per worker on each task.

Material specifications, work methods, and routing
sequences were used to organize the shop.

Supervisors were carefully selected and trained.

Incentive pay systems were initiated.
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 Scientific Management


Scientific management’s thrust was at the lower
levels of the organisations heirarchy – the shop floor,
workers, foremen, superintendents


Mass production and efficiency were the main focus

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 Scientific Management


In the 1920s, Ford Motor Company’s operation
embodied the key elements of scientific management:

standardized product designs

mass production

low manufacturing costs

mechanized assembly lines

specialization of labor

interchangeable parts


Eg. Ford’s Model T car
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 Scientific Management at Ford’s plant


The assembly line technique was adopted where
small parts gradually became larger and larger.

Every work task was broken into smaller parts.

Net result

It had taken 728 hours to assemble a Model T now
took only 93 minutes

Cash balance increased from $2 million to $673
million

Price of the model reduced from $780 to $360

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 Human Relations and Behavioralism


Factory workers were uneducated, unskilled,
undisciplined and fresh from the farms.

They were severely disciplined by the factory
managers.

In the 1927-1932 period, researchers in the
Hawthorne Studies realized that human factors were
affecting production.

From the work of behavioralists like Abraham
Maslow, Fredrick Herzberg and others came a gradual
change in the way managers thought about and treated
workers.
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 Operations Research


During World War II, enormous quantities of
resources (personnel, supplies, equipment, …) had to
be deployed.

Military operations research (OR) teams were formed
to deal with the complexity of the deployment.

After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.

OR helps operations managers to replace intuitive
decisions making for large complex problem with an
approach that identifies optimal or best solutions
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 The Service Revolution


The creation of services organizations accelerated
sharply after World War II.

Today, more than two-thirds of the workforce is
employed in services which contributes to about two-
thirds of the country’GDP.

There is a huge trade surplus in services.

Investment per office worker now exceeds the
investment per factory worker.

Thus there is a growing need for service operations
management.
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 The Computer Revolution


Explosive growth of computer and communication
technologies

Easy access to information and the availability of
more information

Advances in software applications such as Enterprise
Resource Planning (ERP) software

Widespread use of email

More and more firms becoming involved in E-
Business using the Internet

Result: faster, better decisions over greater distances
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 Computer revolution


Robotics and numerical control

Computer aided design

Statistical process control for quality (TQM)

JIT manufacturing

Benchmarking

ISO standards

Time based competition

Process reengineering

Outsourcing

Supply chain management

Virtual organisations
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 Today's Factors Affecting OM


Global Competition

Quality, Customer Service, and Cost Challenges

Rapid Expansion of Advanced Technologies

Continued Growth of the Service Sector

Scarcity of Operations Resources

Social-Responsibility Issues

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 Today's Factors Affecting OM


“To succeed in global competition, companies must
make a commitment to customer responsiveness and
continuous improvement toward the goal of quickly
developing innovative products and services that have
the best combination of exceptional quality, fast and
on-time delivery, and low prices and costs.”

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 Studying Operations Management


Operations as a System

Decision Making in OM

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 Operations as a System

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

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 Inputs of an Operations System


External

Legal, Economic, Social, Technological

Market

Competition, Customer Desires, Product Info.

Primary Resources

Materials, Personnel, Capital, Utilities

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 Conversion Subsystem


Physical (Manufacturing)

Locational Services (Transportation)

Exchange Services (Retailing)

Storage Services (Warehousing)

Other Private Services (Insurance)

Government Services (Federal)

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 Outputs of an Operations System


Direct

Products

Services

Indirect

Waste

Pollution

Technological Advances

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 Some examples

Production system Primary inputs Conversion Outputs

subsystem
Department store Buildings, stocks, Attracts customers Marketed goods
personnel, stores goods and
customers sells
Automobile factory Raw materials, Raw materials are Automobiles
paints, tools, transformed into
workers, equipment, finished products
buildings,
Accounting firm accountant, Compiles data, Audited financial
computers, office, supplies statements
information, information,
personnel computes taxes
College / university

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 Decision Making in OM


Strategic Decisions

Operating Decisions

Control Decisions

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 Strategic Decisions


These decisions are of strategic importance and have
long-term significance for the organization.

Examples include deciding:

the design for a new product’s production process

where to locate a new factory

whether to launch a new-product development plan

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 Operating Decisions


These decisions are necessary if the ongoing
production of goods and services is to satisfy market
demands and provide profits.

Examples include deciding:

how much finished-goods inventory to carry

the amount of overtime to use next week

the details for purchasing raw material next month

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 Control Decisions


These decisions concern the day-to-day activities of
workers, quality of products and services, production
and overhead costs, and machine maintenance.

Examples include deciding:

labor cost standards for a new product

frequency of preventive maintenance

new quality control acceptance criteria

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 What Controls the Operations System?


Information about the outputs, the conversions, and
the inputs is fed back to management.

This information is matched with management’s
expectations

When there is a difference, management must take
corrective action to maintain control of the system

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 Wrap-Up: World Class Practice


OM important in any organization

Global competition forces rapid evolution of OM

Decision based framework focus of course

Strategic, Operating, and Control

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 Assignment


Look up the internet and visit the site of “Fortune”
magazine

List the top 10 companies and indicate to which
industry category each company belongs.

Note the current Fortune ranking of the company

For two companies, write the production inputs,
conversion sub-systems and the outputs.

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