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Introduction to Operations Management

Operations Management

William J. Stevenson

8th edition

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Introduction to Operations Management

CHAPTER

Introduction to Operations Management

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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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

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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 Land Labor Capital Transformation/ Conversion process
Feedback

Outputs Goods Services

Control
Feedback Feedback

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Introduction to Operations Management

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 service

Low percentage goods High percentage service

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Introduction to Operations Management

Food Processor
Processing
Cleaning Making cans Cutting Cooking Packing Labeling

Table 1.2

Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Outputs
Canned vegetables

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Introduction to Operations Management

Hospital Process
Processing
Examination Surgery Monitoring Medication Therapy

Table 1.2

Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Outputs
Healthy patients

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Introduction to Operations Management

Manufacturing or Service?

Tangible

Act

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Introduction to Operations Management

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.
2. 3. 4. 5. 6. 7. 8.

Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity Production and delivery Quality assurance Amount of inventory

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Manufacturing vs Service
Manufacturing Service
Tangible Low
High

Characteristic
Output
Customer contact Uniformity of input Labor content Uniformity of output

Intangible
High Low High Low Difficult Low

Low
High Easy

Measurement of productivity Opportunity to correct quality problems

High

High

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Scope of Operations Management

Operations Management includes:

Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .

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The operations function

Consists of all activities directly related to producing goods or providing services

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Types of Operations
Examples

Table 1.4

Operations
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

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Figure 1.4
U.S. Manufacturing vs. Service Employment
Year Mfg. Service 45 79 21 50 72 28 55 72 28 60 68 32 65 64 36 70 64 36 75 58 42 80 44 46 85 43 57 90 35 65 95 32 68 00 30 70
100 80
Percent

60 40 20 0 45 50 55 60 65 70 75 80 85 90 95 00 Year

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Responsibilities of Operations Management

Table 1.6

Planning
Capacity Location Products & services Make or buy Layout Projects Scheduling Inventory Quality Costs Productivity

Organizing
Degree of centralization Process selection

Staffing
Hiring/laying off Use of Overtime

Directing
Incentive plans Issuance of work orders Job assignments

Controlling/Improving

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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

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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

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Decision Making

Models Quantitative approaches Analysis of trade-offs Systems approach

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Models

A model is an abstraction of reality.

Physical Schematic Mathematical

Tradeoffs

What are the pros and cons of models?

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Models Are Beneficial

Easy to use, less expensive Require users to organize Systematic approach to problem solving Increase understanding of the problem Enable what if questions Specific objectives Consistent tool Power of mathematics Standardized format

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Quantitative Approaches

Linear programming Queuing Techniques Inventory models Project models Statistical models

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Systems Approach

The whole is greater than the sum of the parts.

Suboptimization

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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?

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Business Operations Overlap

Figure 1.5

Operations

Marketing

Finance

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Operations Interfaces
Industrial Engineering Maintenance

Distribution

Purchasing

Operations

Public Relations

Legal

Personnel
Accounting MIS

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Historical Evolution of Operations Management

Table 1.7

Industrial revolution (1770s) Scientific management (1911)

Mass production Interchangeable parts Division of labor

Human relations movement (1920-60) Decision models (1915, 1960-70s) Influence of Japanese manufacturers

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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 Suppliers

Direct Suppliers

Producer

Distributor

Final 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

Value Added
$0.15 $0.08 $0.15 $0.08

Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker

Value of Product
$0.15 $0.23 $0.38 $0.46

Baker produces bread

Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

$0.54
$0.08 $0.21 $1.29

$1.00
$1.08 $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