MGT-530: – Module 02/CT 01
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SEU_MGT530_Module02_PPT_Ch01.pptxIntroduction to Operations Management
Chapter 1
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You should be able to:
LO 1.1 Define the terms operations management and supply chain
LO 1.2 Identify similarities and differences between production and service operations
LO 1.3 Explain the importance of learning about operations management
LO 1.4 Identify the three major functional areas of organizations and explain how they interrelate
LO 1.5 Summarize the two major aspects of process management
LO 1.6 Describe the operations function and the nature of the operations manager’s job
LO 1.7 Explain the key aspects of operations management decision making
LO 1.8 Briefly describe the historical evolution of operations management
LO 1.9 Describe the current issues in business that impact operations management
LO 1.10 Explain the need to manage the supply chain
Chapter 1: Learning Objectives
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Operations Management
What is operations?
The part of a business organization that is responsible for producing goods or services
How can we define operations management?
The management of systems or processes that create goods and/or provide services
LO 1.1
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Goods are physical items that include raw materials, parts, subassemblies, and final products.
Automobile
Computer
Oven
Shampoo
Services are activities that provide some combination of time, location, form or psychological value.
Air travel
Education
Haircut
Legal counsel
Good or Service?
LO 1.1
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Supply Chain
Suppliers’
suppliers
Direct
suppliers
Producer
Distributor
Final
customers
Supply chain – a sequence of activities and organizations involved in producing and delivering a good or service
LO 1.1
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The Transformation Process
Inputs
Land
Labor
Capital
Information
Outputs
Goods
Services
Transformation/
Conversion
Process
Control
Measurement
and Feedback
Measurement
and Feedback
Measurement
and Feedback
Value-Added
Feedback = Measurements taken at various points in the transformation process
Control = The comparison of feedback against previously established standards to determine if corrective action is needed
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LO 1.1
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Automobile Assembly, Steelmaking
Products are typically neither purely service- or purely goods-based.
Goods Services
Home Remodeling, Retail Sales
Computer Repair, Restaurant Meal
Songwriting, Software Development
Surgery, Teaching
Goods-service Continuum
LO 1.2
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Manufacturing vs. Service
Degree of customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Production and delivery
Quality assurance
Amount of inventory
Evaluation of work
Ability to patent design
LO 1.2
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Every aspect of business affects or is affected by operations
Many service jobs are closely related to operations
Financial services
Marketing services
Accounting services
Information services
Through learning about operations and supply chains you will have a better understanding of:
The world you live in
The global dependencies of companies and nations
Reasons that companies succeed or fail
The importance of working with others
Why Study Operations Management?
LO 1.3
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Operations
Finance
Marketing
Organization
Basic Functions of the Business Organization
LO 1.4
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Function Overlap
Finance & operations
Budgeting
Economic analysis of investment proposals
Provision of funds
Marketing & operations
Demand data
Product and service design
Competitor analysis
Lead time data
LO 1.4
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Operations manager
Supply chain manager
Production analyst
Schedule coordinator
Production manager
Industrial engineer
Purchasing manager
Inventory manager
Quality manager
OM and Supply Chain Career Opportunities
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APICS - The Association for Operations Management
American Society for Quality (ASQ)
Institute for Supply Management (ISM)
Institute for Operations Research and Management Science (INFORMS)
The Production and Operations Management Society (POMS)
The Project Management Institute (PMI)
Council of Supply Chain Management Professionals (CSCMP)
OM-Related Professional Societies
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Process Management
Process - one or more actions that transform inputs into outputs
| Three Categories of Business Processes: | |
| Upper-management processes | These govern the operation of the entire organization. |
| Operational processes | These are core processes that make up the value stream. |
| Supporting processes | These support the core processes. |
LO 1.5
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Supply & Demand
Supply
Demand
>
Supply
Demand
<
Supply
Demand
=
Wasteful
Costly
Opportunity Loss
Customer Dissatisfaction
Ideal
Operations &
Supply Chains
Sales & Marketing
LO 1.5
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Process Variation
| Four Sources of Variation: | |
| Variety of goods or services being offered | The greater the variety of goods and services offered, the greater the variation in production or service requirements. |
| Structural variation in demand | These are generally predictable. They are important for capacity planning. |
| Random variation | Natural variation that is present in all processes. Generally, it cannot be influenced by managers. |
| Assignable variation | Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action. |
Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.
LO 1.5
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Scope of Operations Management
The operations function includes many interrelated activities such as:
Forecasting
Capacity planning
Facilities and layout
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .
The scope of operations management ranges across the organization.
LO 1.6
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Role of the Operations Manager
The Operations function consists of all activities directly related to producing goods or providing services.
A primary function of the operations manager is to guide the system by decision making.
System design decisions
System operation decisions
LO 1.6
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System Design Decisions
System design
Capacity
Facility location
Facility layout
Product and service planning
Acquisition and placement of equipment
These are typically strategic decisions that
usually require long-term commitment of resources
determine parameters of system operation
LO 1.6
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System Operation Decisions
System operation
These are generally tactical and operational decisions
Management of personnel
Inventory management and control
Scheduling
Project management
Quality assurance
Operations managers spend more time on system operation decision than any other decision area
They still have a vital stake in system design
LO 1.6
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Most operations decisions involve many alternatives that can have quite different impacts on costs or profits
Typical operations decisions include:
What: What resources are needed, and in what amounts?
When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered?
Where: Where will the work be done?
How: How will he product or service be designed? How will the work be done? How will resources be allocated?
Who: Who will do the work?
OM Decision Making
LO 1.7
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General Approach to Decision Making
Modeling is a key tool used by all decision makers
Model - an abstraction of reality; a simplification of something.
Common features of models:
They are simplifications of real-life phenomena
They omit unimportant details of the real-life systems they mimic so that attention can be focused on the most important aspects of the real-life system
LO 1.7
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Understanding Models
Keys to successfully using a model in decision making
What is its purpose?
How is it used to generate results?
How are the results interpreted and used?
What are the model’s assumptions and limitations?
LO 1.7
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Models are generally easier to use and less expensive than dealing with the real system
Require users to organize and sometimes quantify information
Increase understanding of the problem
Enable managers to analyze “What if?” questions
Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem
Enable users to bring the power of mathematics to bear on a problem.
Benefits of Models
LO 1.7
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Quantitative information may be emphasized at the expense of qualitative information
Models may be incorrectly applied and the results misinterpreted
This is a real risk with the widespread availability of sophisticated, computerized models are placed in the hands of uninformed users
The use of models does not guarantee good decisions
Model Limitations
LO 1.7
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A decision-making approach that frequently seeks to obtain a mathematically optimal solution
Supported by computer calculations
Often work together with qualitative approaches
Quantitative Approaches
LO 1.7
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Performance metrics
All managers use metrics to manage and control operations
Profits
Costs
Quality
Productivity
Flexibility
Inventories
Schedules
Forecast accuracy
Metrics and Trade-Offs
Analysis of trade-offs
A trade-off is giving up one thing in return for something else
Carrying more inventory (an expense) in order to achieve a greater level of customer service
LO 1.7
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System - a set of interrelated parts that must work together
The business organization is a system composed of subsystems
Marketing subsystem
Operations subsystem
Finance subsystem
The systems approach
Emphasizes interrelationships among subsystems
Main theme is that the whole is greater than the sum of its parts
The output and objectives of the organization take precedence over those of any one subsystem
Systems Approach
LO 1.7
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In nearly all cases, certain issues or items are more important than others
Recognizing this allows managers to focus their attention to those efforts that will do the most good
Pareto Phenomenon - a few factors account for a high percentage of occurrence of some event(s)
The critical few factors should receive the highest priority
This is a concept that is appropriately applied to all areas and levels of management
Establishing Priorities
LO 1.7
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Historical Evolution of OM
Industrial Revolution
Scientific management
Human relations movement
Decision models and management science
Influence of Japanese manufacturers
LO 1.8
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Pre-Industrial Revolution
Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods
Some key elements of the industrial revolution
Began in England in the 1770s
Division of labor - Adam Smith, 1776
Application of the “rotative” steam engine, 1780s
Cotton gin and interchangeable parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably during this period
Industrial Revolution
LO 1.8
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.
Movement was led by efficiency engineer, Frederick Winslow Taylor
Believed in a “science of management” based on observation, measurement, analysis and improvement of work methods, and economic incentives
Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperation between management and workers, and separating management activities from work activities
Emphasis was on maximizing output
Scientific Management
LO 1.8
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The human relations movement emphasized the importance of the human element in job design
Lillian Gilbreth – applications of psychology
Elton Mayo – Hawthorne studies on worker motivation, 1930
Abraham Maslow – motivation theory, 1940s; hierarchy of needs, 1954
Frederick Hertzberg – Two Factor Theory, 1959
Douglas McGregor – Theory X and Theory Y, 1960s
William Ouchi – Theory Z, 1981
Human Relations Movement
LO 1.8
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Decision Models & Management Science
F.W. Harris – mathematical model for inventory management, 1915
Dodge, Romig, and Shewart – statistical procedures for sampling and quality control, 1930s
Tippett – statistical sampling theory, 1935
Operations Research (OR) Groups – OR applications in warfare
George Dantzig – linear programming, 1947
LO 1.8
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Influence of Japanese Manufacturers
Refined and developed management practices that increased productivity
Credited with fueling the “quality revolution”
Just-in-Time production
LO 1.8
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Economic conditions
Innovating
Quality problems
Risk management
Competing in a global economy
Key Issues for Operations Managers Today
LO 1.9
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Environmental Concerns
Sustainability
Using resources in ways that do not harm ecological systems that support human existence
Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making
All areas of business will be affected
Product and service design
Consumer education programs
Disaster preparation and response
Supply chain waste management
Outsourcing decisions
LO 1.9
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Ethical Issues in Operations
Ethical issues that may arise in many aspects of operations management:
Financial statements
Worker safety
Product safety
Quality
The environment
The community
Hiring and firing workers
Closing facilities
Workers’ rights
LO 1.9
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The Need for Supply Chain Management
In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems:
Oscillating inventory levels
Inventory stockouts
Late deliveries
Quality problems
LO 1.10
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Supply Chain Issues
The need to improve operations
Increasing levels of outsourcing
Increasing transportation costs
Competitive pressures
Increasing globalization
Increasing importance of e-business
The complexity of supply chains
The need to manage inventories
LO 1.10
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