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chapter 1 Introduction to Operations

Management PowerPoint
Presentation
by
Charlie
Cook
© The McGraw-Hill Companies, Inc., 2003
 Chapter Objectives

• Introduce and define operations management (OM) in

terms of its contribution and the activities it involves.
• Describe how operations contributes to the overall
betterment of society.
• Present operations as a function that addresses
issues in both manufacturing and services.
• Show how operations management is gaining more
recognition both internally and externally to an
organization.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–2

 Chapter Objectives (cont’d)
• Demonstrate how the operations management
function interacts with the other functional areas within
an organization.
• Present a brief history of operations management as a
field and its evolution to its current role in an
organization.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–3

 Managerial Issues
• Shift in balance of power to consumers
–Globalization of business and markets
–E-commerce
• Achieving higher levels of productivity
–Creating higher quality products
–Delivering better customer service
–Achieving shorter delivery times
–Reducing labor and material costs

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–4

 What Is Operations Management?
• Operations Management
–Management of the conversion process which
transforms inputs such as raw material and
labor into outputs in the form of finished goods
and services.

Inputs Outputs
(customers Transformation Process (goods
and/or (components) and
materials) services)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–5

 Role of OM within an Organization

Exhibit 1.1
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–6
 Top-down Approach to OM Strategy
• Operations Strategy Decisions
–Strategic (long-range)
• Needs of customers
(capacity planning)
–Tactical (medium-range)
• Efficient scheduling of
resources
–Operational planning
and control (short-range)
• Immediate tasks and
activities

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–7

 An Operational-Level OM Perspective
• OM’s function focuses on adding value
through the transformation process
(technical core) of converting inputs into
outputs.
–Physical: manufacturing
–Locational: transportation
–Exchange:retailing
–Storage: warehousing
–Physiological: health care
–Informational: telecommunications

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–8

 The Transformation Process within OM

Exhibit 1.2
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–9
 Input-Transformation-Output
Relationships for Typical Systems

Exhibit 1.3
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–10
 OM’s Contributions to Society
• Higher Standard of Living
–Ability to increase productivity
–Lower cost of goods and services
• Better Quality Goods and Services
–Competition increases quality
• Concern for the Environment
–Recycling and concern for air and water quality
• Improved Working Conditions
–Better job design and employee participation

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–11

 Annual Change in Productivity in
the United States (1980-2000)

Source: Economic Report of the President, United States

Government Printing Office, Washington, DC. January, 2001.
Exhibit 1.4
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–12
 Services as a Percent of Gross Domestic
Product (GDP) for Different Countries

Source: The World Factbook 2000, Central

Intelligence Agency, Washington, DC.
Exhibit 1.5
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–13
 The Emergence of OM
• Application of OM to Service Operations
–Batch cooking operations at McDonald’s
–Just-in-Time (JIT) at Northern Telecomm, Inc.
–Automatic inventory replenishment at Wal-Mart

Service Product Good

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–14

 Growth in Services in the United States

Source: Handbook of U.S. Labor Statistics, edited by Eva E. Jacobs, Exhibit 1.6
1-6 Fifth Edition, Bernan Press, 2001, Table 2-1, pp. 161–164.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–15
 Differences Between
Goods and Services

• Goods • Services
–Tangible –Intangible
–Can be –Cannot be
inventoried inventoried
–No interaction –Direct interaction
between between
customer and customer and
process process

Exhibit 1.7
1-6 Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–16
 Most Products Are a “Bundle”
of Goods and Services

Exhibit 1.8
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–17
 An Expanded Definition of Quality
• Quality is important in all functional areas of
an organization.
• Quality is now much more than the technical
requirements for manufactured goods.
• Service quality (customer
relationships) is equally
important. Quality

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–18

 A New Paradigm for OM
• Post-War U.S. Dominance in Manufacturing
–Available capacity built to support the war effort
–Pent-up demand for consumer goods
–Destruction of overseas production capabilities
• Proactive Operations Function (Skinner)
–Add value to products, increase profit margins.
–Compete on dimensions other than costs:
• Quality
• Speed of delivery
• Process flexibility

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–19

 The Ever-Changing World of OM
• Increased Global Competition
–Transformation into a global economy
–Pressure to excel on multiple competitive
dimensions
–Increased emphasis on logistics
• Advances in Technology
–Information technology (IT)
–Internet email and commerce (B2B)
–Automation and robotics

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–20

 Ford’s Global Network to Support
the Manufacturing of the Escort

Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed. Exhibit 1.9
(New York: W.W. Norton and Company, 1997), p. 58.
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–21
 Linking OM to Customers and Suppliers
• Benefits of Buffering the Transformation
Process
–The process was not disturbed by
environmental interaction.
–The process was often more efficient than input
and distribution processes.
–Productivity was maximized when processes
operated at continuous rates.
–Process management skills were different from
those of other functional activities.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–22

 Linking OM to Customers and Suppliers
• Disadvantages of Buffering the Transformation
Process
–Information lag in interaction with other
functional activities.
–Lack of communication between customers and
the shop floor for problem solving.
• Value Chain
–Steps an organization requires to produce a
good or a service regardless of where they are
performed.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–23

 The Value Chain and Its Support Functions

Exhibit 1.10
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–24
 Line and Staff Jobs in OM

Exhibit 1.11
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–25
 Inputs Provided by OM to
Other Functional Areas

Exhibit 1.12
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–26
 Historical Development of OM
• Prior to 1900
–Cottage industry produced custom-made goods.
–Watt’s steam engine in 1785.
–Whitney’s standardized gun parts in 1801.
–Industrial Revolution began at mid-century.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–27

 Historical Development of OM (cont.)
• Scientific Management (Frederick W. Taylor)
–Systematic approach to increasing worker
productivity through time study, standardization
of work, and incentives.
–Viewed workers as an interchangeable asset.
• Other Management Pioneers
–Frank and Lillian Gilbreth
• Motion study and industrial psychology
–Henry L. Gantt
• Scheduling and the Gantt chart

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–28

 Historical Development of OM (cont.)
• Moving Assembly Line (1913)
–Labor specialization reduced assembly time.
• Hawthorne Studies
–Yielded unexpected results in the productivity of
Western Electric plant workers after changes in
their production environment.
–Led to recognition of the importance of work
design and employee motivation.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–29

 Historical Development of OM (cont.)
• Operations Research (Management Science)
–Outgrowth of WWII needs for logistics control
and weapons-systems design.
–Seeks to obtain mathematically optimal
(quantitative) solutions to complex problems.
• OM Emerges as a Field
–1950–1960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–30

 Historical Development of OM (cont.)
• OM Emerges as a Field
–1950–1960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.
• The Marriage of OM and IT
–Integrated solutions approaches
• Business process reengineering
• Supply chain management
• Systems integration (SAP)

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–31

 Historical Development of OM (cont.)
• Operations Management in Services
–OM concepts can apply to both manufacturing
and service operations.
• Integration of Manufacturing and Services
–Conducting world class operations requires
compatible manufacturing and service
operations.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 1–32