"Chapter 1 INTRODUCTION TO OPERATIONS MANAGEMENT"
Chapter 1 INTRODUCTION TO OPERATIONS MANAGEMENT 1 Operations Management = OM Management of ANY activities/process that create goods and provide services » Exemplary Activities: Forecasting, Scheduling, Quality management Why to study OM » At a typical manufacturing company Profit 5% OM Cost 21% Marketing Cost 26% Manufacturing Cost 48% 2 Operations Management = OM The management of systems or processes that create goods and/or provide services Organizatio n Finance Operations Marketing The distinct –active- role of operations: Inputs become Outputs after some Transformation 3 Operations example in Manufacturing: Food Processing INPUTS PROCESS OUTPUTS Raw vegetables Cleaning Clean vegetables Metal sheets Cutting/Rolling/Welding Cans Energy, Vegetables Cutting Cut vegetables Energy, Water, Cooking Boiled Vegetables vegetables Energy, Cans, Boiled Placing Can food vegetables 4 Operations example in service: Health care Inputs Processing Outputs Doctors, nurses Examination Healthy Hospital Surgery patients Medical Supplies Monitoring Equipment Medication Laboratories Therapy 5 Types of Operations Operation Examples Goods producing Farming, mining, construction Storage/transportation Warehousing, trucking, mail, taxis, buses, hotels, location Exchange Trade, retailing, wholesaling, renting, leasing, loans Entertainment Radio, movies, TV, concerts, recording Communication Newspapers, journals, magazines, radio, TV, telephones, satellite 6 Why OM? Core of all business organizations Many areas interrelated with OM activities Management of operations is critical to create and maintain competitive advantages 7 Organization of Businesses Three basic functions – Operations/Production » Goods oriented (manufacturing and assembly) » Service oriented (health care, transportation and retailing) » Value-added (the essence of the operations functions) – Finance-Accounting » Budgets (plan financial requirements) » Economic analysis of investment proposals » Provision of funds (the necessary funding of the operations) 8 Organization of Businesses (Cont.) – Marketing » Selling » Promoting » Assessing customer wants and needs » Communicating those needs to operations The need for working closely Operations Marketing Finance 9 Operations Interfaces 10 Systems (Holistic) Approach Emphasizes interrelations among subsystems. A systems approach is essential whenever something is being designed, redesigned, implemented, or improved. It is important to take into account the impact on all parts of the system. Example: A new feature is added to a product. Designer must take into account how customers will view the change, instruction for using new feature, the cost, training of workers, production schedule, quality standard, advertising must be informed about the new feature. 11 Systems Approach “The whole is greater than the sum of the parts.” Suboptimization 12 Value Added Value added: The difference between cost of inputs and price (??) of outputs. Is this definition right? Should value added include profit? Value added: The difference between the cost of inputs and the (market or fair) value or price of outputs. 13 Value-Added Value added Inputs Transformation/ Outputs Land Conversion Goods Labor process Services Capital Feedback Control Feedback Feedback 14 Degree of Standardization ! Standardized output – Take advantage of standardized methods, less skilled workers, materials… » Example: Iron, Wheat, most of commodities Customized output – Each job is different – Workers must be skilled » Example: Hair cut 15 Manufacturing (=Goods) vs. Service operations Production of goods (goods oriented) – Tangible products » Automobile » Refrigerator Services (TV and auto repair, lawn care) » Government » Regulatory bodies, FAA, FDA » Wholesale/retail » Financial services » Education 16 Goods vs. Service Operations (Cont) 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 17 Manufacturing vs. Service ! Characteristic Manufacturing Service Output Tangible Intangible Customer contact Low High Uniformity of output High Low Labor content Low High Uniformity of input High Low Measurement of Easy Difficult productivity Opportunity to correct Easy Difficult quality problems 18 Goods-service Continuum 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 19 Manufacturing vs. Service Industries in US Year Mfg. Service U.S. Manufacturing vs. Service Employment 45 79 21 50 72 28 100 55 72 28 60 68 32 80 65 64 36 Percent 60 70 64 36 75 58 42 40 80 44 46 85 43 57 20 90 35 65 0 95 32 68 45 50 55 60 65 70 75 80 85 90 95 00 00 30 70 Year 20 Responsibilities of Operations Management Planning – Capacity, utilization – Location – Choosing products or services – Make or buy – Layout – Projects – Scheduling – Market share – Plan for risk reduction, plan B? – Forecasting 21 Operations Managers Controlling – Inventory – Quality – Costs Organization – Degree of standardization – Subcontracting – Process selection Staffing – Hiring/lay off – Use of overtime – Incentive plans – Job assignments 22 Scope of Operations Management Operations Management includes: – Forecasting – Capacity planning – Scheduling – Managing inventories – Assuring quality – Motivating employees – Deciding where to locate facilities – And more . . . 23 Help comes from Models A structure which has been built purposefully to exhibit features and characteristics of some other object. Do not use “thing” or “something” in a definition. For – Improved understanding and communication – Experimentation – Standardization for analysis Abstraction vs. computability 24 Modeling ! Use models – Physical models (prototypes) – Schematic models (Graphs, charts, pictures) – Mathematical models, » Statistical models » Inventory models » Linear programming » Queuing techniques » Project management models 25 What type of models Simulation models : to test a proposed idea – Monte Carlo Simulation Optimization models : to create an optimal idea – Linear programming Pattern recognition models : to recognize a pattern – Statistics, Forecasting, data mining Other classes to learn the rest. 26 Decision Making Models Quantitative approaches Analysis of trade-offs Systems approach 27 Models Are Beneficial Easyto use, less expensive Require users to organize – Increase understanding of the problem – Consistent tool – Standardized format – Specific objectives Systematic approach to problem solving – Analysis of tradeoffs – Enable “what if” questions Power of mathematics 28 Pareto Phenomenon • A few factors account for a high percentage of the occurrence of some event(s). • 80/20 Rule - 80% of problems are caused by 20% of the activities. How do we identify the vital few? 29 Historical Evolution of Operations Management Industrial revolution (1770’s) Scientific management (1911) – Mass production – Interchangeable parts – Division of labor Human relations movement (1920-60) – Unemployment insurance – Pension plans Decision models (1915, 1960-70’s) Influence of Japanese manufacturers (1970-1990) 30 Trends in Business Major trends – The Internet, e-commerce, e-business – Management technology – Globalization – Management of supply chains – Agility 31 Recent Trends ! Worker involvement Environmental issues, emission reductions are popular after Central European floods Service economy in US, foreign production E-business – information technology Supply chain management Total Quality Management Globalization, emerging markets, NAFTA Lean Production – see the next page 32 Production systems classified Craft Production : System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods. – Carpenter Lean production : System that uses minimal amounts of resources to produce a high volume of high-quality goods with some variety. – Dell Mass production: System in which lower-skilled workers use specialized machinery to produce high volumes of standardized goods. – Ford 33 Production systems classified Agile=Lean manufacturing It provides flexibility to switch quickly and economically from one product design to another with little disruption. This characteristic, in turn enables faster response to changes in customer demand. A sophisticated computerized inventory control system allows the plant to keep track of large number of parts. Keys to being an agile manufacturer are : – Reduction in inventories, – Reduction in turnaround times, – Availability of automated flexible machinery, – Rapid collection and processing of information 34 Simple Product Supply Chain 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 35 A Supply Chain for Bread Stage of Production Value Added Value of 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 36 Other Important Trends Ethicalbehavior Operations strategy Working with fewer resources Cost control and productivity Quality and process improvement Increased regulation and product liability Lean production 37 Summary Definitionof OM OM’s relationship with Marketing, Finance and Accounting Goods vs. service industries OM issues, trends and models Manufacturing systems 38