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AT72.

02 Production & Operations


Management

1. Introduction to
Production & Operations
Management
Prof. Szuder Andrei Ph.D
szuder@ait.asia
School of Engineering and Technology
Asian Institute of Technology
1

Textbook

Lecture notes

References
Lee.J. Krajewski ; Larry P. Ritzman Operations
management Strategy and Analysis-Prentice
Hal. 2002
S Anil Kumar;N Suresh-Operations ManagementNew Age International Publisher.2009
W. Hopp, and M. Spearman: Factory Physics:
Foundations of Manufacturing Management,
Second Edition, McGraw-Hill, 2001
S. Nahmias: Production and Operations Analysis,
2nd edition, Irwin, 1993.
3

Grading System:
The final grade will be computed according to the
following weight distribution:
Midsem Exam 30%
Final Exam 40%
Assignments/Projects (30%)
The examinations are open book.
4

Lecture Outline
What is OM?

History of Operations Management


The Major Functions of Organization

Why Study OM?


OM is one of three major functions
(marketing, finance, and operations) of any
organization
To know how goods and services are produced
To understand what operations managers do

Why OM is such a costly part of an organization


About 40% of all jobs are in OM

Operations Management and Production


Operations Management (OM):
the goal of a company is to create value
OM is a the set of activities that creates value in the
form of goods and services by transforming inputs
into outputs
What activities ?
How to evaluate?
We need evaluation measures Productivity!!

Production
Creating goods and services

Operations Management
TIME

COST
QUALITY

Operations:
Value-added Process,
Transformation Process
Value Added

INPUTS
Materials
Energy
Technology
Labor skills
Informations
Organization
Measurement

Transformation /
Conversion process

OUTPUTS
Goods
Services

Feedback
Feedback

Feedback
Control

History of Operations Management

10

Milestones of OM Development
Industrial Revolution
Scientific Management
Human Relations Movement
Management Science
Computer Age
Just-In-Time Systems
Total Quality Management (TQM)
Reengineering
Flexibility
Time-based Competition
Supply Chain Management
Global Competition
Environmental Issues
Electronic Commerce
Century

Late 1700s
Early 1900s
1930s to 1960s
Mid-1900s
1970s
1980s
1980s
1980s
1990s
1990s
1990s
1990s
1990s
Late 1990s Early 21st

Significant Events in OM

Figure 1.3

Industrial Revolution
(late 1700s)
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
Operations management did not begin until the Industrial Revolution
in the 1700s
Prior to that time only craft production
Began in England in the 1770s. The revolution first took hold in
textile mills, grain mills, metalworking, and machine-making facilities
Division of labor - Adam Smith, 1776
Substituted machine power for labor (James Watts steam engine,
), 1780s
Interchangeable Parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably
during this period
14

Eli Whitney
Born 1765; died 1825
In 1798, received government
contract to make 10,000
muskets
Showed that machine tools
could make standardized part
to exact specifications
Musket parts could be used in
any musket

15

Eli Whitney
Whitney's defenders have
claimed that he invented the
American system of
manufacturing-- the
combination of power
machinery, interchangeable
parts, and division of labor
that would underlie the
nation's subsequent industrial
revolution.

Division of Labor

Adam Smiths Wealth of


Nations (1776) proposed
the division of labour.
Production process was
broken down into a series
of small tasks, each
performed by a different
worker.
Allowed him or her to
become very proficient at
those tasks

Industrial Revolution
(1800s)

18

Machine Tools Evolution

19

Industrial Revolution
(1800s)

Scientific Management
In the early 1900s F.W. Taylor approached the management of work
as a science.
Based on observation, measurement, and analysis, he identified the
best method for performing each job.
Separated planning from doing
Managements job was to discover workers physical limits through
measurement, analysis & observation
The methods were standardized for all workers, and economic
incentives were established to encourage workers to follow the
standards.
Emphasis was on maximizing output
Major contributors:
Fredrick Taylor: stopwatch time studies
Henry Ford: moving assembly line

Frederick W. Taylor
Born 1856; died 1915
Known as father of scientific
management
In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
Began first motion & time
studies
Created efficiency principles

1995 Corel Corp.

22

Frederick W. Taylor
Management Should Take More Responsibility
for

Matching employees to right job


Providing the proper training
Providing proper work methods and tools
Establishing legitimate incentives for work to
be accomplished

23

Maslows Hierarchy of Needs

24

Frank & Lillian Gilbreth

Frank (1868-1924); Lillian


(1878-1972)
Husband-and-wife engineering
team
Further developed work
measurement methods
Applied efficiency methods to
their home & 12 children!
16-THERBLIG Symbol
Fundamental motions of
hands of a worker.
Motion Study

Frank and Lillian Gilbreth


invented and refined this
system, roughly between
1908 - 1924.
Pioneer of Ergonomics

25

Motion Studies:
Frank & Lillian Gilbreth
Time Study

Timing how long it takes good workers


to complete each part of their jobs.

Motion Study
Breaking each task into its separate
motions and then eliminating those that ar
e unnecessary or repetitive.
26

Therbligs
Therbligs: The Keys to
Simplifying Work
Therbligs comprise a
system for analyzing the
motions involved in
performing a task. The
identification of individual
motions, as well as
moments of delay in the
process, was designed to
find unnecessary or
inefficient motions and to
utilize or eliminate even
split-seconds of wasted time.
Frank and Lillian Gilbreth
invented and refined this
system, roughly between
1908 - 1924.
27

Ergonomics

28

Henry Ford

Born 1863; died 1947


In 1903, created Ford
Motor Company
In 1913, first used
moving assembly line
to make Model T
Unfinished product
moved by conveyor
past work station
Paid workers very well for 1911 ($5/day!)
Fordism: the mass production of standardized goods, using
dedicated machines and moving assembly lines, employing
unskilled and semi-skilled labor in fragmented jobs, with tight labor
discipline, in large factories.
29

W. Edwards Deming
Born 1900; died 1993
Engineer & physicist
Credited with teaching
Japan quality control
methods in post-WW2
Used statistics to analyze
process
His methods involve
workers in decisions
Refer to
http://www.lii.net/deming.ht
ml
30

31

Management Science (mid-1900s)


Developed new quantitative techniques for
common OM problems:
Major contributions include: inventory modeling, linear
programming, project management, forecasting,
statistical sampling, & quality control techniques
Played a large role in supporting American military
operations during World War II

Computer Age (1970s)


Computer provided the tool necessary to
support the widespread use of Management
Sciences quantitative techniques the ability to
process huge amounts of data quickly &
relatively cheaply
Major contributions include the development of
Material Requirements Planning (MRP) systems
for production control

Development in 1980s
Just-In-Time (JIT):
Techniques designed to achieve high-volume
production using coordinated material flows,
continuous improvement, & elimination of waste.
Lean system
Total Quality Management (TQM):
Techniques designed to achieve high levels of
product quality through shared responsibility & by
eliminating the root causes of product defects
Business Process Reengineering:
Clean sheet redesign of work processes to increase
efficiency, improve quality & reduce costs

Development since 1990s (1)


Flexibility:
Offer a greater variety of product choices on a mass
scale (mass customization)

Time-based competition:
Developing new product designs & delivering
customer orders more quickly than competitors

Supply Chain Management:


Cooperating with suppliers & customers to reduce
overall costs of the supply chain & increase
responsiveness to customers

Development since 1990s (2)


Global competition:
International trade agreements open new markets for
expansion & lower barriers to the entry of foreign
competitors (e.g.: NAFTA & GATT)
Creates the need for decision-making tools for facility
location, compliance with local regulations, tailoring
product offerings to local tastes, managing distribution
networks,

Environmental issues:
Pressure from consumers & regulators to reduce,
reuse & recycle solid wastes & discharges to air &
water

Lean Production/ JIT production:


Japanese manufacturers changed the rules of
production from mass production to lean
production
Lean production prizes flexibility (rather than
efficiency) and quality (rather than quantity)

Electronic Commerce
(since late 1990s)
Internet & related technologies enable new methods of
business transactions:
E-retailing creates a new outlet for selling goods &
services with global access and 24-7 availability.
B2C.
Internet provides a cheap network for coordinating
supply chain management information. B2B
Developing influence of broadband & wireless

Processes and Operations

Processes and Operations

Inputs

Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy

Figure 1.1

Processes and Operations

Inputs

Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy

Processes and
operations
1

3
5

Processes and Operations


Internal and
external customers

Inputs

Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy

Processes and
operations
1

3
5

Processes and Operations


Internal and
external customers

Inputs

Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy

Processes and
operations
1

Outputs

Services
5

Goods

Internal and
external customers

Inputs

Workers
Managers
Equipment
Facilities
Materials
Services
Land
Energy

Fedback

Processes and
operations
1

3
4

Fedback

Outputs

Services
5

Value Added

Processes and Operations

Goods

Fedback
Control

Input-Transformation-Output Relationships
for Typical Systems
Primary
Transformation
Functions

Typical Desired
Output

System

Primary
Inputs

Hospital

Patients

MDs, nurses, medical


supplies, equipment

Health care

Healthy individuals

Restaurant

Hungry
Customer

Food, chef, wait staff,


environment

Well-prepared, wellserved food; agreeable


environment

Satisfied customers

Automobile
factory

Sheet steel,
engine parts

Tools, equipment,
workers

Fabrication and assembly


of cars

High-quality cars

Collage or
university

High school
graduates

Teachers, books,
Classrooms

Teaching knowledge and


skills

Educated individuals

Department
store

Shoppers

Displays, stocks of
goods, sales clerks

Attract shoppers,
promote products, fill
orders

Sales to satisfied
customers

Distribution
Center

Stock keeping
units (SKUs)

Storage bins, stock


pickers

Storage and
redistribution

Fast delivery,
availability of SKUs

Resources

46

Nested Processes
Processes can be broken down into sub processes, which can in
turn be broken down into still more sub processes. We refer to this
concept of a process nested process
One person or one department may be unable to do all within a
process. parts of the process, or different segments in the process
may require different skills.
Some parts of the process may be standardized for all customers,
making high-volume operations possible.
Other parts of the process may be customized, requiring processes
best suited to flexible, low-volume operations.

Nested Processes at Chase Manhattan


Bank

Nested Processes at Chase Manhattan


Bank
BANK

Operations

Retail

Products

Wholesale

Cash Management
Loan operations
Trading operations
Others

Distribution
Compliance
Finance
Human resources

Auto Finance
Cards
Mortgages
Others

Trading
Loan administration
Leasing
Others

ATM support
Customer transactions
Service quality
Others

Teller line transactions


Track branch sales
ATM hotline
Others

Credit applications
Manage retail products
Originate lease portfolio
Others

Fund management
Market making spot
Dealer support
Others

Maintain cards
Research problems
Site analysis
Others

Process deposits
Cash checks
Safe deposit boxes
Others

Loan documentation
Review credit standing
Obtain manager approval
Others

Prepare reports
Attend meetings
Input funds deals
Others

Figure 1.2

The Major Functions of Organization

50

Operations Management as a Function

Operations Management as a Function

Figure 1.3

Operations Management as a Function

Figure 1.3

Skill Areas

Quantitative methods
Organizational behavior
General management
Information systems
Economics
International business
Business ethics
and law

Organizing to Produce Goods and


Services
Essential functions:
Marketing generates demand
Production/operations creates the
product
Finance/accounting tracks how well
the organization is doing, pays bills,
collects the money

Organizational Charts
Commercial Bank
Operations

Finance

Marketing

Teller Scheduling
Check Clearing
Collection
Transaction proce
ssing
Facilities design/la
yout
Vault operations
Maintenance
Security

Investments
Security
Real estate

Loans
Commercial
Industrial
Financial
Personal
Mortgage

Accounting

Auditing
Trust Department

Organizational Charts
Airline
Operations
Ground support equipm
ent
Maintenance
Ground Operations
Facility
maintenance
Catering
Flight Operations
Crew scheduling
Flying
Communications
Dispatching
Management science

Finance/ accounting
Accounting
Payables
Receivables
General Ledger
Finance
Cash control
International
exchange

Marketing
Traffic administrati
on
Reservations
Schedules
Tariffs (pricing)
Sales
Advertising

Organizational Charts
Manufacturing
Operations

Finance/ accounting

Marketing

Facilities

Disbursements/ credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and recall

Sales promotion
Advertising
Sales
Market research

Construction; maintenance

Production and inventory control


Scheduling; materials control

Quality assurance and control


Supply-chain management
Manufacturing
Tooling; fabrication; assembly

Design

Product development and design


Detailed product specifications

Industrial engineering

Efficient use of machines, space,


and personnel

Process analysis

Development and installation of


production tools and equipment

Figure 1.1(C)

Options for Increasing Contribution

Sales
Cost of Goods
Gross Margin
Finance Costs
Subtotal
Taxes at 25%
Contribution

Marketing
Option

Finance/
Accounting
Option

OM
Option

Current

Increase
Sales
Revenue 50%

Reduce
Finance
Costs 50%

Reduce
Production
Costs 20%

$100,000
80,000
20,000
6,000
14,000
3,500
$ 10,500

$150,000
120,000
30,000
6,000
24,000
6,000
$ 18,000

$100,000
80,000
20,000
3,000
17,000
4,250
$ 12,750

$100,000
64,000
36,000
6,000
30,000
7,500
$ 22,500