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Chapter 1 - Introduction to Operations Management

Operations Management

6th Edition

R. Dan Reid & Nada R. Sanders

Learning Objectives

Define operations management.
Describe difference between manufacturing and service organizations.
Describe decisions that operations managers make.
Identify major historical developments in operations management.
Identify current trends in operations management.
Describe the flow of information between operations management and other business functions.

Operations Management

The business function responsible for planning, coordinating, and controlling the resources needed to produce products and services for a company

Operations Management Characteristics

A management function
An organization’s core function
In every organization
Small or large
Service or Manufacturing
For-profit or Not-for-profit

Typical Organization Chart

What is the Role of OM?

OM Transforms inputs to outputs
Inputs are resources such as
People, Facilities and Processes, Material, Technology and Information
Outputs are finished goods and services

OM’s Transformation Process

OM’s Transformation Role

To add value
Increase product value at each stage
Value added is the net increase between output product value and input material value
Provide an efficient transformation
Efficiency – means performing activities well and at the lowest possible cost

Service Organizations vs. Manufacturers

Services:

Intangible product
Product cannot be inventoried
High customer contact
Short response time
Labor intensive

Manufacturers:

Physical product
Product is inventoried
Low customer contact
Longer response time
Capital intensive

Similarities for Service/Manufacturers

Both use technology
Both have quality, productivity, & response issues
Both must forecast demand
Both can have capacity, layout, and location issues
Both have customers, suppliers, scheduling and staffing issues

Service vs. Manufacturing

Manufacturing can provide services
Services can provide tangible goods
Some companies are a blend of Service/Manufacturing/Quasi-Manufacturing (QM) organizations
QM characteristics include
Low customer contact
Capital intensive

Growth of the Service Sector

OM Decisions

All organizations make decisions and follow a similar path

Strategic decisions  Tactical decisions

Tactical and Strategic decisions must align

OM Decisions – cont’d

Strategic Decisions

Set the direction for the entire company; they are broad in scope and long-term in nature
Less frequent

Tactical Decisions

Focus on specific day-to-day issues like resource needs, schedules, & quantities to produce
More frequent

OM Decisions – cont’d

Historical Development of OM

Concept	Time	Description
Industrial Revolution	Late 1700’s	Machine to human power
Scientific Management	Early 1900’s	Analysis and measurement; assembly lines and mass production
Human relations movement	1930’s to 1960’s	Human elements i.e.; worker motivation and job satisfaction
Management science	1940’s to 1960’s	Quantitative techniques
Computer age	1960’s	Quantitative models and data processing improvements
Environmental Issues	1970’s	Waste reduction, recycle, reuse
Just-In-Time (JIT)	1980’s	High volume production with minimal inventories
Total Quality Management (TQM)	1980’S	Eliminate causes of production defects

Historical Development cont’d

Concept	Time	Description
Reengineering	1980’s	Redesign processes for greater efficiency and cost reduction
Global competition	1980’s	Compete in the global market
Flexibility	1990’s	Customization on a mass scale
Time-based competition	1990’s	Speed of delivery
Supply Chain Management (SCM)	1990’s	Reduce cost of entire system
Electronic commerce	2000’s	Use of the Internet for business
Outsourcing and flattening of the world	2000’s	Technology enabling outsourcing jobs virtually anywhere
Big data analytics	2010’s	Math and statistics applied large volumes of data to gain business insights.

Scientific Management

Scientific management is an approach to management that focused on improving output by redesigning jobs and determining acceptable levels of worker output.

Promoted by Frederick W. Taylor
Increase worker productivity and organizational output
Popularized by Henry Ford
Assembly line
Mass production

Human Relations Movement

Hawthorne studies are studies responsible for creating the human relations movement, which focused on giving more consideration to workers’ needs.

Human relations movement is a philosophy based on the recognition that factors other than money can contribute to worker productivity.
Job enlargement is an approach in which workers are given a larger portion of the total task to do.
Job enrichment is an approach in which workers are given a greater role in planning.

Management Science

Management science is a field of study that focuses on the development of quantitative techniques to solve operations problems.
An example is Linear programing

Just-in-time (JIT)

Just-in-time (JIT) is An all-inclusive organizational philosophy designed to achieve high-volume production through elimination of waste and continuous improvement.

Total Quality Management (TQM)

Total quality management (TQM) is a philosophy that seeks to improve quality by eliminating causes of product defects and by making quality the responsibility of everyone in the organization.

ISO 9000 is a global set of standards, with many companies requiring their suppliers to meet the standards as a condition for obtaining contracts.

Business Process Reengineering, Flexibility, and Time-based competition

Reengineering is redesigning a company’s processes to make them more efficient.
Flexibility is an organizational strategy in which the company attempts to offer a greater variety of product choices to its customers.
Mass customization is the ability of a firm to highly customize its goods and services at high volumes.
Time-based competition is an organizational strategy focusing on efforts to develop new products and deliver them to customers faster than competitors.

Supply Chain Management

Supply chain management (SCM) Management of the flow of materials from suppliers to customers in order to reduce overall cost and increase responsiveness to customers.

Global Marketplace

Global marketplace is a trend in business focusing on customers, suppliers, and competitors from a global perspective.
OM decides
Whether to tailor products to different customer needs
Where to locate facilities
How to manage suppliers
How to meet local government standards
Regional trading agreements
North American Free Trade Agreement (NAFTA)
European Union (EU)
World Trade Organization (WTO)

Sustainability and Green Operations

Sustainability is a trend in business to consciously reduce waste, recycle, and reuse products and parts.

ISO 14000 was developed by the International Organization for Standardization (ISO) to provide guidelines and a certification program documenting a company’s environmentally responsible actions.

Electronic Commerce

Business-to-business (B2B) is Electronic commerce between businesses.

Business-to-customers (B2C) is Electronic commerce between businesses and their customers.

Customer-to-customer (C2C) is Electronic commerce between customers.

Outsourcing and Flattening of the World

Outsourcing is obtaining goods or services from an outside provider

Big Data Analytics

Big data analytics is applying mathematics and statistics to large volumes of structured and unstructured data to gain unprecedented business insights.
Data comes in all forms
Point-of-sale (POS)
Radio frequency identification (RFID)
Global positioning systems (GPS) data
Twitter feeds
Facebook
Call centers
Consumer blogs.

Today’s OM Environment

Customers demand better quality, greater speed, and lower costs
Companies implementing lean system concepts – a total systems approach to efficient operations
Recognized need to better manage information using ERP and CRM systems
Increased cross-functional decision making

OM in Practice

OM has the most diverse organizational function
Manages the transformation process
OM has many faces and names such as;
V. P. Operations, Director of Supply Chains, Manufacturing Manager
Plant Manger, Quality Specialists, etc.
All business functions need information from OM in order to perform their tasks

Business Information Flow

OM Across the Organization

Most businesses are supported by the functions of:
Operations
Marketing
Finance

OM Across the Organization (cont’d)

Marketing is not fully able to meet customer needs if they do not understand what operations can produce
Finance cannot judge the need for capital investments if they do not understand operations concepts and needs
Information systems (IS) enables the information flow throughout the organization
Human Resources must understand job requirements and worker skills
Accounting needs to consider inventory management, capacity information, and labor standards

Chapter 1 Highlights

OM is the business function that is responsible for managing and coordinating the resources needed to produce a company’s products and services.
The role of OM is to transform organizational inputs into company’s products or services outputs
OM is responsible for a wide range of decisions, ranging from strategic to tactical.
Organizations can be divided into manufacturing and service organizations, which differ in the tangibility of the product or service

Chapter 1 Highlights – cont’d

Many historical milestones have shaped OM. Some of these are the Industrial Revolution, scientific management, the human relations movement, management science, and the computer age
OM is a highly important function in today’s dynamic business environment. Among the trends with significant impact are Just-In-Time, TQM, Reengineering, Flexibility, Time-based Competition, SCM, Global Marketplace, and Environmental Issues
OM teams with all other business functions