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
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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
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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
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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
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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
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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
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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
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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
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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
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1-22 Introduction to Operations Management
Business Operations Overlap
Figure 1.5
Operations
Marketing Finance
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Operations Function
Operations
Marketing
Finance and
Accounting
Human Resources
Outside Suppliers
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Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing Public
Operations Relations
Legal
Personnel
Accounting MIS
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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
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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
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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
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Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Agility
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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
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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
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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