Chapter 1 - Introduction To Operations Management

Chapter 1 - Introduction to Operations Management
Operations Management
6th Edition
R. Dan Reid & Nada R. Sanders
Copyright © 2016 John Wiley & Sons, Inc.

Learning Objectives
2
Define operations management.

Describe difference between manufacturing and service
organizations.
Describe decisions that operations managers make.
Identify major historical developments in operations
management.
Identify current trends in operations management.
Describe the flow of information between operations
management and other business functions.

Operations Management
3
The business function responsible for planning,

coordinating, and controlling the resources needed
to produce products and services for a company

Operations Management Characteristics
4
A management function
An organization’s core function
In every organization
 Small or large
 Service or Manufacturing
 For-profit or Not-for-profit

Typical Organization Chart
5

What is the Role of OM?
6
OM Transforms inputs to outputs
 Inputs are resources such as

 People, Facilities and Processes, Material, Technology and
Information
 Outputs are finished goods and services

OM’s Transformation Process
7

OM’s Transformation Role
8
To add value
 Increase product value at each stage

 Value added is the net increase between output product
value and input material value
Provide an efficient transformation
 Efficiency – means performing activities well and at the

lowest possible cost

Service Organizations vs. Manufacturers
9
Services: Manufacturers:
Intangible product Physical product
Product cannot be inventoried Product is inventoried
High customer contact Low customer contact
Short response time Longer response time
Labor intensive Capital intensive

Similarities for Service/Manufacturers
10
Both use technology

Both have quality, productivity, & response issues
Both must forecast demand
Both can have capacity, layout, and location issues
Both have customers, suppliers, scheduling and
staffing issues

Service vs. Manufacturing
11
Manufacturing can provide services

Services can provide tangible goods
Some companies are a blend of
Service/Manufacturing/Quasi-Manufacturing (QM)
organizations
QM characteristics include
 Low customer contact
 Capital intensive

Growth of the Service Sector
12
OM Decisions
13
All organizations make decisions and follow a

similar path
Strategic decisions  Tactical decisions
Tactical and Strategic decisions must align

OM Decisions – cont’d
14
Strategic Decisions Tactical Decisions

 Set the direction for the  Focus on specific day-to-
entire company; they are day issues like resource
broad in scope and long-term needs, schedules, &
in nature quantities to produce
 Less frequent  More frequent

OM Decisions – cont’d
15

Historical Development of OM
16
Concept Time Description

Industrial Revolution Late 1700’s Machine to human power
Scientific Management Early 1900’s Analysis and measurement; assembly
lines and mass production
Human relations 1930’s to 1960’s Human elements i.e.; worker motivation
movement and job satisfaction
Management science 1940’s to Quantitative techniques
1960’s
Computer age 1960’s Quantitative models and data processing
improvements
Environmental Issues 1970’s Waste reduction, recycle, reuse
Just-In-Time (JIT) 1980’s High volume production with minimal
inventories
Total Quality 1980’S Eliminate causes of production defects
Management (TQM)
Historical Development cont’d
17
Concept Time Description

Reengineering 1980’s Redesign processes for greater efficiency
and cost reduction
Global competition 1980’s Compete in the global market
Flexibility 1990’s Customization on a mass scale
Time-based competition 1990’s Speed of delivery
Supply Chain Management 1990’s Reduce cost of entire system
(SCM)
Electronic commerce 2000’s Use of the Internet for business
Outsourcing and flattening 2000’s Technology enabling outsourcing jobs
of the world virtually anywhere
Big data analytics 2010’s Math and statistics applied large
volumes of data to gain business
insights.
Scientific Management
18
Scientific management is an approach to management that

focused on improving output by redesigning jobs and
determining acceptable levels of worker output.
Promoted by Frederick W. Taylor

 Increase worker productivity and organizational output
Popularized by Henry Ford
 Assembly line
 Mass production

Human Relations Movement
19
Hawthorne studies are studies responsible for creating the

human relations movement, which focused on giving more
consideration to workers’ needs.
Human relations movement is a philosophy based on the

recognition that factors other than money can contribute to
worker productivity.
 Job enlargement is an approach in which workers are given a larger
portion of the total task to do.
 Job enrichment is an approach in which workers are given a greater
role in planning.

Management Science
20
Management science is a field of study that focuses on

the development of quantitative techniques to solve
operations problems.
 An example is Linear programing

Just-in-time (JIT)
21
Just-in-time (JIT) is An all-inclusive organizational

philosophy designed to achieve high-volume production
through elimination of waste and continuous
improvement.

Total Quality Management (TQM)
22
Total quality management (TQM) is a philosophy that

seeks to improve quality by eliminating causes of product
defects and by making quality the responsibility of
everyone in the organization.
ISO 9000 is a global set of standards, with many

companies requiring their suppliers to meet the standards
as a condition for obtaining contracts.

Business Process Reengineering, Flexibility, and
Time-based competition
23
Reengineering is redesigning a company’s processes to

make them more efficient.
Flexibility is an organizational strategy in which the
company attempts to offer a greater variety of product
choices to its customers.
Mass customization is the ability of a firm to highly
customize its goods and services at high volumes.
Time-based competition is an organizational strategy
focusing on efforts to develop new products and deliver
them to customers faster than competitors.

Supply Chain Management
24
Supply chain management (SCM) Management of the

flow of materials from suppliers to customers in order to
reduce overall cost and increase responsiveness to
customers.

Global Marketplace
25
 Global marketplace is a trend in business focusing on customers,

suppliers, and competitors from a global perspective.
 OM decides
 Whether to tailor products to different customer needs
 Where to locate facilities
 How to manage suppliers
 How to meet local government standards
 Regional trading agreements

 North American Free Trade Agreement (NAFTA)
 European Union (EU)
 World Trade Organization (WTO)

Sustainability and Green Operations
26
Sustainability is a trend in business to consciously

reduce waste, recycle, and reuse products and parts.
ISO 14000 was developed by the International

Organization for Standardization (ISO) to provide
guidelines and a certification program documenting a
company’s environmentally responsible actions.

Electronic Commerce
27
Business-to-business (B2B) is Electronic commerce

between businesses.
Business-to-customers (B2C) is Electronic commerce

between businesses and their customers.
Customer-to-customer (C2C) is Electronic commerce

between customers.

Outsourcing and Flattening of the World
28
Outsourcing
is obtaining
goods or
services from
an outside
provider

Big Data Analytics
29
Big data analytics is applying mathematics and statistics to

large volumes of structured and unstructured data to gain
unprecedented business insights.
Data comes in all forms
 Point-of-sale (POS)
 Radio frequency identification (RFID)
 Global positioning systems (GPS) data
 Twitter feeds
 Facebook
 Call centers
 Consumer blogs.

Today’s OM Environment
30
Customers demand better quality, greater speed, and

lower costs
Companies implementing lean system concepts – a
total systems approach to efficient operations
Recognized need to better manage information
using ERP and CRM systems
Increased cross-functional decision making

OM in Practice
31
OM has the most diverse organizational function

Manages the transformation process
OM has many faces and names such as;
 V. P. Operations, Director of Supply Chains,
Manufacturing Manager
 Plant Manger, Quality Specialists, etc.
All business functions need information from OM

in order to perform their tasks

Business Information Flow
32

OM Across the Organization
33
Most businesses are supported by the functions of:

 Operations
 Marketing
 Finance

OM Across the Organization (cont’d)
34
 Marketing is not fully able to meet customer needs if they do

not understand what operations can produce
 Finance cannot judge the need for capital investments if they
do not understand operations concepts and needs
 Information systems (IS) enables the information flow
throughout the organization
 Human Resources must understand job requirements and
worker skills
 Accounting needs to consider inventory management,
capacity information, and labor standards

Chapter 1 Highlights
35
 OM is the business function that is responsible for

managing and coordinating the resources needed to
produce a company’s products and services.
 The role of OM is to transform organizational inputs into
company’s products or services outputs
 OM is responsible for a wide range of decisions, ranging
from strategic to tactical.
 Organizations can be divided into manufacturing and
service organizations, which differ in the tangibility of the
product or service

Chapter 1 Highlights – cont’d
36
 Many historical milestones have shaped OM. Some of these

are the Industrial Revolution, scientific management, the
human relations movement, management science, and the
computer age
 OM is a highly important function in today’s dynamic
business environment. Among the trends with significant
impact are Just-In-Time, TQM, Reengineering, Flexibility,
Time-based Competition, SCM, Global Marketplace, and
Environmental Issues
 OM teams with all other business functions

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Chapter 1 - Introduction to Operations Management

Copyright © 2016 John Wiley & Sons, Inc.

Define operations management.

Copyright © 2016 John Wiley & Sons, Inc.

The business function responsible for planning,

Copyright © 2016 John Wiley & Sons, Inc.

An organization’s core function

In every organization

Copyright © 2016 John Wiley & Sons, Inc.

Copyright © 2016 John Wiley & Sons, Inc.

OM Transforms inputs to outputs

 Inputs are resources such as

 Outputs are finished goods and services

Copyright © 2016 John Wiley & Sons, Inc.

Copyright © 2016 John Wiley & Sons, Inc.

To add value

 Increase product value at each stage

 Efficiency – means performing activities well and at the

Copyright © 2016 John Wiley & Sons, Inc.

Copyright © 2016 John Wiley & Sons, Inc.

Both use technology

Copyright © 2016 John Wiley & Sons, Inc.

Manufacturing can provide services

Copyright © 2016 John Wiley & Sons, Inc.

All organizations make decisions and follow a

Strategic decisions  Tactical decisions

Tactical and Strategic decisions must align

Copyright © 2016 John Wiley & Sons, Inc.

Strategic Decisions Tactical Decisions

Copyright © 2016 John Wiley & Sons, Inc.

Copyright © 2016 John Wiley & Sons, Inc.

Concept Time Description

Concept Time Description

Scientific management is an approach to management that

Promoted by Frederick W. Taylor

Copyright © 2016 John Wiley & Sons, Inc.

Hawthorne studies are studies responsible for creating the

Human relations movement is a philosophy based on the

Copyright © 2016 John Wiley & Sons, Inc.

Management science is a field of study that focuses on

Copyright © 2016 John Wiley & Sons, Inc.

Just-in-time (JIT) is An all-inclusive organizational

Copyright © 2016 John Wiley & Sons, Inc.

Total quality management (TQM) is a philosophy that

ISO 9000 is a global set of standards, with many

Copyright © 2016 John Wiley & Sons, Inc.

Reengineering is redesigning a company’s processes to

Copyright © 2016 John Wiley & Sons, Inc.

Supply chain management (SCM) Management of the

Copyright © 2016 John Wiley & Sons, Inc.

 Global marketplace is a trend in business focusing on customers,

 Where to locate facilities

 How to manage suppliers

 How to meet local government standards

 Regional trading agreements

 European Union (EU)

 World Trade Organization (WTO)

Copyright © 2016 John Wiley & Sons, Inc.

Sustainability is a trend in business to consciously

ISO 14000 was developed by the International

Copyright © 2016 John Wiley & Sons, Inc.

Business-to-business (B2B) is Electronic commerce

Business-to-customers (B2C) is Electronic commerce