# 00[1]. operations management
TRANSCRIPT
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Operations Operations ManagementManagement
IntroductionIntroduction
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OutlineOutline♦ What is Operations Management?♦ The heritage of Operations Management♦ Why study OM?♦ What Operations Managers do
♦ How this book is organized♦ Organizing to produce goods and services♦Where are the OM jobs?♦Exciting new trends in Operations
Management
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Outline Outline -- ContinuedContinued♦Operations in the service sector
♦ Differences between goods and services♦ Growth of services♦ Service pay
♦The Productivity challenge♦ Productivity measurement♦ Productivity variables♦ Productivity and the Service Sector
♦The challenge of social responsibility
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Learning ObjectivesLearning ObjectivesWhen you complete this chapter, you should
be able to :♦ Identify or Define:
♦ Production and productivity♦ Operations Management (OM)♦ What operations managers do♦ Services
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Learning Objectives Learning Objectives -- continuedcontinuedWhen you complete this chapter, you should
be able to :♦Describe or Explain:
♦ A brief history of operations management♦ Career opportunities in operations management♦ The future of the discipline♦ Measuring productivity
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Introduction
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What Is Operations Management?What Is Operations Management?
♦Operations function is the set of activities that creates goods and services by transforming inputs into outputs
♦Production is the creation of goods and services
♦Operations Management is the management of systems or processes that create goods and/or provide services
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Operations as a System
Transformation(Conversion)
Process
EnergyMaterials
LaborCapital
Information
Goods orServices
Feedback information forcontrol of process inputsand process technology
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The Economic System The Economic System Transforms Inputs to OutputsTransforms Inputs to Outputs
The economic system transforms inputs to outputs at about an annual 1.7% increase in productivity (capital 38% of 1.7%), labor (10% of 1.7%), management (52% of 1.7%)
Land, Labor, Capital, Management
Goods and Services
Feedback loop
Inputs Process Outputs
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ValueValue--AddedAdded
The difference between the cost of inputs and the value or price of outputs.
InputsLandLaborCapital
Transformation/Conversion
process
OutputsGoodsServices
Control
Feedback
FeedbackFeedback
Value added
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Heritage of Operations Management
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The Heritage of The Heritage of Operations ManagementOperations Management
Division of labor (Adam Smith 1776 and Charles Babbage 1852)Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)Coordinated assembly line (Ford, Sorenson/Avery 1913)
Gantt charts (Gantt 1916)Motion study (Frank and Lillian Gilbreth 1922
Quality control (Shewhart 1924; Deming 1950)
Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957)
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The Heritage of Operations The Heritage of Operations Management Management -- continuedcontinued
Material requirements planning (Orlicky 1960)Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)Globalization(1992)
Internet (1995)
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Eli WhitneyEli 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
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Frederick W. TaylorFrederick 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 time & motion studies
♦ Contributions♦Created principles related with
efficiency, exception, time study, methods analysis, standards, planning & control
© 1995 Corel Corp.
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Taylor: Management Should Take Taylor: Management Should Take More Responsibility forMore 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
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Frank & Lillian Frank & Lillian GilbrethGilbreth♦ Frank (1868-1924); Lillian (1878-1972)♦ Husband-and-wife engineering team♦ Further developed work measurement methods♦ Applied efficiency methods to their home & 12
children!♦ (Book & Movie: “Cheaper by the Dozen,” book:
“Bells on Their Toes”♦ Contributions
♦ Frank: Motion study, methods, therbligs, construction contracting, consulting
♦ Lillian: Fatigues studies, human factor in work, employee selection & training
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♦ 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!)
Henry FordHenry Ford
‘‘Make them all alike!’
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W. Edwards DemingW. Edwards Deming
♦ Born 1900; died 1993♦ Engineer & physicist♦ Credited with teaching Japan
quality control methods in post-WW2
♦ Used statistics to analyze process
♦ His methods involve workers in decisions
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OthersOthers
♦ Henry Gantt (1861-1919)♦Gantt charts, incentive pay schemes, humanistic
approach to labour, training♦ Carl G. Barth (1860-1919)
♦Mathematical analysis, slide rule, feeds and speeds studies, consulting to automobile industry
♦ Harrington Emerson (1885-1931)♦Principles of efficiency, million-dollars-a-day
savings in railroads, methods of control
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Contributions FromContributions From
♦Human factors♦ Industrial engineering♦Management science♦Biological science♦Physical sciences♦ Information science
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Figure 1.1Figure 1.1
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Significant Events in OMSignificant Events in OM
♦ Division of labor (Smith, 1776)♦ Standardized parts (Whitney, 1800)♦ Scientific management (Taylor, 1881)♦ Coordinated assembly line (Ford 1913)♦ Gantt charts (Gantt, 1916)♦ Motion study (the Gilbreths, 1922)♦ Quality control (Shewhart, 1924)
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Significant Events Significant Events -- ContinuedContinued
♦ CPM/PERT (Dupont, 1957)♦ MRP (Orlicky, 1960)♦ CAD♦ Flexible manufacturing systems (FMS)♦ Manufacturing automation protocol (MAP)♦ Computer integrated manufacturing (CIM)
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Significance & Scope of Operations Management
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Why Study OM?Why Study OM?♦OM is one of three major functions
(marketing, finance, and operations) of any organization
♦We want (and need) to know how goods and services are produced
♦We want to know what operations managers do
♦OM is such a costly part of an organization
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Business Operations OverlapBusiness Operations Overlap
Operations
FinanceMarketing
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Relation of Operations to its Environment
Operations transformation systemSuppliers
HumanResources Marketing
Accounting Finance MIS
Engineering
SOCIETY
GOVERNMENT
ExternalEnvironment
CUSTOMERS
COMPETITORS
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Options for Increasing Options for Increasing ContributionContribution
MarketingOption
Finance &Accounting
Option
OM Option
Current SalesRevenue :
+50%
FinanceCosts: -50%
ProductionCosts: -20%
Sales $100,000 $150,000 $100,000 $100,000Cost ofGoods Sold
-80,000 -120,000 -80,000 -64,000
GrossMargin
20,000 30,000 20,000 36,000
FinanceCosts
-6,000 -6,000 -3,000 -6,000
14,000 24,000 17,000 30,000Taxes @25%
-3,500 -6,000 -4,250 -7,500
Contribution 10,500 18,000 12,750 22,500
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Scope of Operations Management
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Types of OperationsTypes of Operations
Operations ExamplesGoods Producing Farming, mining, construction,
manufacturing, power generationStorage/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 televisionnewscasts, telephone, satellites
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Responsibilities of Operations ManagementResponsibilities of Operations Management
Products & services
Planning– Capacity– Location–– Make or buy– Layout– Projects– Scheduling
Controlling/Improving– Inventory– Quality
Organizing– Degree of centralization– Process selection
Staffing– Hiring/laying off– Use of Overtime
Directing– Incentive plans– Issuance of work orders– Job assignments
– Costs– Productivity
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Operations InterfacesOperations Interfaces
Public Relations
Accounting
IndustrialEngineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Legal
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Ten Critical DecisionsTen Critical Decisions♦ Service, product design……………………………...♦ Quality management………………………………….♦ Process, capacity planning & design……………...♦ Location …………….………………………………….♦ Layout & Material Handling planning & design….♦ Human resources, job design………………………♦ Supply-chain management………………………….♦ Inventory management ………………………………♦ Scheduling …………………………………………….♦ Maintenance …………………...................................
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Ten Critical DecisionsTen Critical Decisions♦ Forecasting ……………..……………………..♦ Employee Motivation………………………....♦ Process, capacity design…….……………..♦ Location …………….…………..……………..♦ Layout design ………………….……………..♦ Human resources, job design.……………..♦ Supply-chain management…..……………..♦ Inventory management ……….……………..♦ Scheduling ……………………..……………..♦ Maintenance …………………...……………..
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The Critical DecisionsThe Critical Decisions
♦Quality management♦ Who is responsible for quality?♦ How do we define quality?
♦Service and product design♦ What product or service should we offer?♦ How should we design these products and
services?
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The Critical Decisions The Critical Decisions -- ContinuedContinued
♦Process and capacity design♦ What processes will these products require and in
what order?♦ What equipment and technology is necessary for
these processes?♦Location
♦ Where should we put the facility♦ On what criteria should we base this location
decision?
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The Critical Decisions The Critical Decisions -- ContinuedContinued
♦Layout design♦ How should we arrange the facility?♦ How large a facility is required?
♦Human resources and job design♦ How do we provide a reasonable work
environment?♦ How much can we expect our employees to
produce?
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The Critical Decisions The Critical Decisions -- ContinuedContinued
♦Supply chain management♦ Should we make or buy this item?♦ Who are our good suppliers and how many should
we have?♦ Inventory, material requirements planning,
JIT “just-in-time” inventory, ♦ How much inventory of each item should we have?♦ When do we re-order?
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The Critical Decisions The Critical Decisions -- ContinuedContinued
♦ Intermediate, short term, and project scheduling♦ Is subcontracting production a good idea?♦ Are we better off keeping people on the payroll
during slowdowns?♦Maintenance
♦ Who is responsible for maintenance?
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Operations Manager
Role & Responsibilities
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What Operations Managers DoWhat Operations Managers Do
♦Plan♦Organize
♦ Staff♦Lead
♦Control
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Key Decisions of Operations Managers
♦WhatWhat resources/what amounts
♦WhenNeeded/scheduled/ordered
♦WhereWork to be done
♦HowDesigned
♦WhoTo do the work
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Role of Operations Manager
1. Managing a cost centre2. Managing the short and long term3. Manager of technology4. Coordinating the whole5. Managing the work and money flow6. Using the common denominator of time7. Tangible outputs 8. Linking the thinking and doing ends of a business9. Managing complexity
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Examples of Operations Function
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Organizational FunctionsOrganizational Functions
♦Marketing♦ Gets customers
♦Operations♦ creates product or service
♦Finance/Accounting♦ Obtains funds♦ Tracks money
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Functions Functions -- BankBank
Operations Finance/Accounting
Marketing
CheckClearing
TellerScheduling
TransactionsProcessing
Security
Commercial Bank© 1984-1994 T/Maker Co.
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Functions Functions -- AirlineAirline
Operations Finance/Accounting
Marketing
GroundSupport
FlightOperations
FacilityMaintenance Catering
Airline© 1984-1994 T/Maker Co.
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Functions Functions -- ManufacturerManufacturer
Operations Finance/Accounting
Marketing
ProductionControl
Manufacturing QualityControl Purchasing
Manufacturing
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Organizational ChartsOrganizational Charts
Commercial Bank
OperationsTeller SchedulingCheck ClearingTransactions processingFacilities design/layoutVault operationsMaintenanceSecurity
FinanceInvestmentsSecurityReal Estate
Accounting
Auditing
MarketingLoans
CommercialIndustrialFinancialPersonalMortgage
Trust Department
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Organizational ChartsOrganizational ChartsAirline
OperationsGround support equipmentMaintenanceGround Operations
Facility maintenanceCatering
Flight OperationsCrew schedulingFlyingCommunicationsDispatching
Management science
Finance & Accounting
AccountingPayablesReceivablesGeneral LedgerFinanceCash controlInternational exchange
MarketingTraffic administrationReservationsSchedulesTariffs (pricing)SalesAdvertising
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Organizational ChartsOrganizational ChartsManufacturing
OperationsFacilities:
Construction:maintenanceProduction & inventory control
Scheduling: materials controlSupply-chain managementManufacturing
Tooling, fabrication,assemblyDesign
Product development and designDetailed product specifications
Industrial engineeringEfficient use of machines, space, and personnel
Process analysisDevelopment and installation of production tools
and equipment
Finance & Accounting
Disbursements/creditsReceivablesPayablesGeneral ledger
Funds ManagementMoney marketInternational
exchangeCapital requirements
Stock issueBond issues and
recall
MarketingSales promotionsAdvertisingSalesMarket research
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Where Are the OM Jobs?Where Are the OM Jobs?♦Technology/methods♦Facilities/space utilization♦Strategic issues♦Response time♦People/team development♦Customer service♦Quality♦Cost reduction♦ Inventory reduction♦Productivity improvement
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Latest Trends in Operations Management
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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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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
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New Operations Themes
♦ Service and Manufacturing (differences and implications)
♦ Customer-Directed Operations♦ Continuous Improvement♦ Time Reduction♦ Integration of Operations and Other Functions♦ Environmental Concerns♦ Globalization of Operations
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New Challenges in OMNew Challenges in OM
♦ Local or national focus♦ Batch shipments♦ Low bid purchasing
♦ Lengthy product development
♦ Standard products♦ Job specialization
♦ Global focus♦ Just-in-time♦ Supply chain
partnering♦ Rapid product
development, alliances
♦ Mass customization♦ Empowered
employees, teams
FromFrom ToTo
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Changing Challenges for the Changing Challenges for the Operations ManagerOperations Manager
Past Causes FutureLocal ornationalfocus
Low-cost, reliableworldwide communicationand transportationnetworks
Global Focus
Batch(large)shipments
Cost of capital putspressure on reducinginvestment in inventory
Just-in-time shipments
Low-bidpurchasing
Quality emphasis requiresthat suppliers be engagedin product improvement
Supply-chain partners
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Changing Challenges for the Changing Challenges for the Operations ManagerOperations Manager
Past Causes FutureLengthyproductdevelopment
Shorter life cycles, rapidinternationalcommunications, computer-aided design, andinternational collaboration
Rapid productdevelopment
Standardizedproducts
Affluence and worldwidemarkets; increasingly flexibleproduction processes
Mass customization
Jobspecialization
Changing socioculturalmilieu. Increasingly aknowledge and informationsociety.
Empoweredemployees, teams,and lean production
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Goods versus Services
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Steel productionAutomobile fabrication
Home remodelingRetail sales
Auto RepairAppliance repair
Maid ServiceManual car wash
TeachingLawn mowing
High percentage goodsLow percentage service
GoodsGoods--service Continuumservice Continuum
Low percentage goodsHigh percentage service
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Goods Contain Services & Goods Contain Services & Services Contain GoodsServices Contain Goods
0 25 50 75 100255075100
AutomobileComputerInstalled Carpeting
Fast-food MealRestaurant Meal
Auto RepairHospital Care
Advertising AgencyInvestment Management
Consulting ServiceCounseling
Percent of Product that is a Good Percent of Product that is a Service
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Characteristics of GoodsCharacteristics of Goods
♦ Tangible product♦ Consistent product
definition♦ Production usually
separate from consumption
♦ Can be inventoried♦ Low customer
interaction
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Food ProcessorFood Processor
Inputs Processing Outputs
Raw Vegetables Cleaning Canned vegetablesMetal Sheets Making cans
Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment
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Characteristics of ServiceCharacteristics of Service
♦ Intangible product♦ Produced & consumed at
same time♦ Often unique♦ High customer interaction♦ Inconsistent product
definition♦ Often knowledge-based♦ Frequently dispersed
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Hospital ProcessHospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy patientsHospital Surgery
Medical Supplies MonitoringEquipment MedicationLaboratories Therapy
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Goods Versus ServicesGoods Versus Services
♦Can be resold♦Can be inventoried
♦Some aspects of quality measurable
♦Selling is distinct from production
♦Reselling unusual♦Difficult to
inventory♦Quality difficult to
measure♦Selling is part of
service
GoodsGoods ServiceService
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Goods Versus Services Goods Versus Services --ContinuedContinued
♦ Product is transportable
♦ Site of facility important for cost
♦ Often easy to automate
♦ Revenue generated primarily from tangible product
♦ Provider, not product is transportable
♦ Site of facility important for customer contact
♦ Often difficult to automate
♦ Revenue generated primarily from intangible service.
GoodsGoods ServiceService
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Manufacturing vs ServiceManufacturing vs Service
Characteristic Manufacturing ServiceOutput
Customer contact
Uniformity of input
Labor content
Uniformity of output
Measurement of productivity
Opportunity to correct
Tangible
Low
High
Low
High
Easy
High
Intangible
High
Low
High
Low
Difficult
Lowquality problems
High
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