Introduction to Operations

Management
Graeme Warren
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Questions
• What is operations management (OM)?
• Why is OM important?
• What do OM professionals do?
• What are the historical and current trends in
OM?
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Goods & Services
Distinguish between goods and services:
• Goods are physical (tangible) items that can
be manufactured.
• Services are activities (intangibles) that
provide some combination of
time/location/form or psychological value.

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Supply Chains
• Both goods and services are produced in
supply chains.
• A supply chain is a sequence of organizations
and their facilities/systems/processes that
create goods and provide services.

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Operations Management (OM)
• Definition: OM is the management of systems/processes that
create goods and provide services.

• Goods and services environments (and implications for OM)
differ with respect to:

– Measurability of quality.
– Measurability of productivity.
– Uniformity of the inputs.
– Uniformity of the outputs.
– Degree of customer contact (customers are a source of variance).
– The ability/need to hold inventory. Service are generally hard to
inventory.
– Wages (manufacturing jobs pay better).
– Ability to patent (physical good designs are easier to patent than services).

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Need to Add Value
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Process Focus
A process is one or more activities that transform inputs into
outputs.

• Upper-management processes: governance and strategizing
• Core operational processes:
– Supplier relationship management (includes purchasing).
– Order fulfillment (includes manufacturing, service
provision, logistics, and distribution).
– Customer-relationship management (includes marketing
and sales).
– New product/service development (includes R&D,
commercialization)
• Supporting operational processes: these include accounting,
HR, IT.

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Fundamental Challenge: Variation
Variation in processes arises due to:
• Customer variation (variety of product/services, level of
demand, etc.)
• Supplier variation (variation in quality, capacity, lead
times, capability, etc.)
• In-house variation in quality, inventory, labor availability,
etc.

The consequences of failing to manage variation: delays,
increased costs, shortages, poor quality, inefficiencies,
customer dissatisfaction, lost sales, lost customers, and
reputation damage.
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Why Learn About OM?
• OM has wide-ranging impact on a firm.
• OM is one of the two so-called line functions of a
business. The other is sales.
• US and world economies are increasingly service-
based (need OM skills for service-based business)

Typical OM jobs: Operations Manager, Production
Analyst, Industrial Engineer, Production Manager,
Plant Manager, Inventory Manager, Purchasing
Manager…

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OM & Decision-Making
• What, when, where, how, who questions.
• Qualitative (best-practice methods,
brainstorming) and quants (optimization,
modeling, simulation).
• Systems approach (holistic focus) rather than
subsystem improvement.
• Ability to cut through the chaos essential.
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Historical Evolution
• Craft production: skilled workers using simple,
flexible (wooden) tools to produce custom goods
in small quantities (often at great expense)
• Industrial Revolution. Innovations included
power machinery built of iron and steel,
development of gauging systems that allowed for
standardized production. Created significant
societal displacement: factories sprang up in the
cities, spawning a move from rural areas to cities.

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The History Lesson Continues…
Mass production: low-skilled workers use specialized
machinery, high volumes of interchangeable standardized
product. Skill requirements minimized by the division of
labor . Workers faced with meeting high production
targets, in very repetitive low-paying assembly line jobs.
You betcha: the workers screamed!


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Scientific management era: improved the efficiency of factories. Historical
figures:
• Taylor, father of scientific management, sought to observe, analyze
and improve work methods, worker training, and remuneration
incentives.
• Frank Gilbreth (an industrial engineer, Cheaper by the Dozen, “motion
studies”).
• Henry Gantt (scheduling and project management theory).
• Henry Ford (automaker, scientific management, mass production,
division of labor).

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Figure 3 Detroit Industry (mural by Diego Rivera depicting work at a Ford plant) and the author, at the Detroit Industry of Art. Photo used with permission of C. Warren.


Detroit Industry
More History
• Human Relations Movement addressed the psychological
needs of workers.
– Lillian Gilbreth (psychologist, wife of Frank Gilbreth, and faculty
member at Purdue) contributed much to an understanding of
the effect of repetitive task assignments on fatigue.
– Mayo, Maslow and Hertzberg (motivational theories).
– McGregor (theories X and Y) and Ouch (theory Z). Theory X
(adversarial spirit) holds that workers need to be rewarded and
punished to extract high quality work. Theory Y (empowerment,
cooperative spirit) holds that workers enjoy the mental and
physical components of work and become committed to it.
Theory Z combines Japanese cultural components like lifetime
employment, employee empowerment, and consensus building
with western notions of individualism, specialization, and short-
term employment.

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History. Again.
• Management science and decision theory. Techniques of
the type encountered in QMB3600 (e.g., linear
programming, waiting line models). WWII produced
significant innovation in forecasting, quality control,
inventory management, and project management for
military applications. The proliferation of computers in the
80s and beyond has made the embedding of management
science in numerous settings commonplace (e.g., airline
scheduling).

• Japanese manufacturers. Toyota and other corporations
introduced techniques like lean manufacturing, total quality
management, bucket-brigade manufacturing, worker teams
and empowerment, and a customer-centric focus.

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Current Issues & Trends
• The Internet (e-commerce, e-business) and other IT developments.
• Developments in technology (process and service technology) and
management of technology.
• Globalization (including the effect of treaties like GATT and NAFTA).
• Focus on productivity improvement, agility, and lean operations.
Various trends have emerged: flat hierarchical structures with
significant delegation of responsibility and higher expectations of
workers, awareness of and exploitation of flexibility in resource
usage.
• Yield management (revenue management by influencing yield).
• Process analysis and improvement (business process re-
engineering (BPR), total quality management (TQM).
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Continuing Issues That Impact OM
• The lingering recession (and general world economic outlook)
• Terrorism, significant market exposures (e.g., commodities
prices), and natural (weather, earthquakes) and non-natural
(e.g., Fukushima) disasters underscore the need for risk
management.
• Need to actively manage the supply chain has become vital
due to increased energy costs, increased transportation,
increasing complexity of the supply chain, and the need to
manage inventories.
• Environmental concerns: green initiatives, adoption of
environmentally sustainable practices that decrease emissions,
carbon footprints, and increase recycling, refurbishing, repair,
and re-use. Regulatory differentials continue to incentivize
manufacturing in locations where environmental protections
are lax.

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A selection of Fair Trade coffees available in Norway. Image by Helt via Wikimeda Commons. This file is licensed under the
Creative Commons Attribution-Share Alike 3.0 Unported license.
Ethics
• Argue for some sort of ethical stance with regard
to decisions that affect stakeholders (employees,
shareholders, customers, suppliers, the
community, and the environment).
• Decisions may include hiring/firing decisions,
clarity and transparency in financial reporting,
ensuring product/service safety and quality,
acting to maximize shareholder value, etc.
• Conflicts are everywhere
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Markula Center Ethical Principles
• Utilitarian Principle: action or inaction should maximize some measure of
utility. Individuals may legitimately disagree on the definition of utility or
how it is measured. Key utilitarian philosophers: of the utilitarian
tradition: Bentham and Mill
• Rights Principle: protect the rights of others. Principle is far from clear in
the case of something like the protection of the rights of the vulnerable
(what is the definition of “vulnerable?”) Do animals have rights?
• Fairness Principle: hold equals to the same standard. Isn’t there circularity
in referring to “standards” in the definition of a moral standard?
• Common Good Principle: action should contribute to the common good.
What exactly is the “common good?”
• Virtue Principle is the idea that action and inaction should be informed by
notions of virtue such as honesty, integrity, compassion, etc. Again, there
will likely be disagreement between individuals on the definitions, on the
fine lines between virtue and non-virtue, e.g., being compassionate versus
patronizing. Key virtue philosopher: Aristotle.

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Aristotle in Nuremberg Chronicle. In the public domain because its copy right has expired.
Ethics Continued
• Why question the Markula definitions?
• Difficult to argue for fixed general principles. Instead, seek
pragmatic ethical guidelines developed from research, dialog
among stakeholders, and holding decision-makers
accountable.
• Three main strands of ethics philosophy: utilitarianism,
deontological ethics (Kant), and virtue ethics.
• Read the two papers by Prof. Sunil Babbar:
– “Teaching Ethics for Quality as an Innovation in a Core Operations
Management Course”
– “Expanding the quality paradigm for contemporary realignment: an
ethics perspective”

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FIN