Chapter 1

Introduction to Operations and

Supply Chain Management

Russell and Taylor

Operations Management, 8th Edition
 Lecture Outline

• The Operations Function – Slide 8

• The Evolution of Operations and Supply Chain
Management – Slide 13
• Globalization – Slide 21
• Productivity and Competitiveness – Slide 25
• Strategy and Operations – Slide 30
• Organization of the Text – Slide 45
• Learning Objectives of this Course – Slide 47

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-2
 Learning Objectives
• Describe what the operations function is and how it
relates to other business functions.
• Discuss the key factors that have contributed to the
evolution of operations and supply chain management.
• Discuss how and why businesses operate globally, and
the importance of globalization in supply chain
management.
• Calculate and interpret productivity measures used for
measuring competitiveness.
• Discuss the importance of operations and supply chain
management to a firm’s strategy, and the process of
developing, aligning and deploying strategy.

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 Operations Management
• What is Operations Management?
• design, operation, and improvement of productive
systems
• What is Operations?
• a function or system that transforms inputs into
outputs of greater value
• What is a Value Chain?
• a series of activities from supplier to customer that add
value to a product or service

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 Transformation Process

• A series of activities along a value chain extending from

supplier to customer
• Activities that do not add value are superfluous and
should be eliminated

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 Transformation Process
• Physical: as in manufacturing operations
• Locational: as in transportation or warehouse
operations
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-6
 Operations as a
Transformation Process

INPUT
• Material
TRANSFORMATION OUTPUT
• Machines • Goods
PROCESS
• Labor • Services
• Manageme
nt
• Capital

Feedback & Requirements

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 The Operations Function
• Organizing work
• Selecting processes
• Arranging layouts
• Locating facilities
• Designing jobs
• Measuring performance
• Controlling quality
• Scheduling work
• Managing inventory
• Planning production

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

 Operations Function

• Operations
• Marketing
• Finance and
Accounting
• Human
Resources
• Suppliers

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 Sample Organizational Structure
CEO
Chief Executive Officer

CFO COO CIO

Chief Financial Officer Chief Operating Officer Chief Information Officer

VP Human Resources

VP Operations

VP Supply Chain
Management

VP Marketing

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e C3-10
 How is Operations Relevant
to my Major?

• Accounting • “As an auditor you must understand the

fundamentals of operations
management.”
• Information • “IT is a tool, and there’s no better place to
Technology apply it than in operations.”

• Management • “We use so many things you learn in an

operations class—scheduling, lean
production, theory of constraints, and
tons of quality tools.”

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-11
 How is Operations Relevant
to my Major?

• Economics • “It’s all about processes. I live by

flowcharts and Pareto analysis.”
• Marketing • “How can you do a good job marketing a
product if you’re unsure of its quality or
delivery status?”
• Finance • “Most of our capital budgeting requests
are from operations, and most of our
cost savings, too.”

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-12
Evolution of Operations and Supply Chain Management

• Craft production
• process of handcrafting products or services for
individual customers
• Division of labor
• dividing a job into a series of small tasks each
performed by a different worker
• Interchangeable parts
• standardization of parts that enabled mass production
• Scientific management
• systematic analysis of work methods

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-13
 Evolution of Operations and
Supply Chain Management
• Mass production
• high-volume production of a standardized product for a
mass market
• Quality revolution
• an emphasis on quality and the strategic role of
operations
• Lean production
• adaptation of mass production that prizes quality and
flexibility

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-14
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-15
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operations Operations research
line theory, decision 1950s
Research groups
theory, PERT/CPM
1960s, Joseph Orlicky, IBM
MRP, EDI, EFT, CIM
1970s and others

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-16
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran
Quality Strategy and Wickham Skinner,
1980s
Revolution operations Robert Hayes
Michael Hammer,
Reengineering 1990s
James Champy
Six Sigma 1990s GE, Motorola

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-17
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain management Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union, 1990s China, India,
Global supply chains, 2000s Emerging
Outsourcing, Service economies
Science

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-18
 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Sustainability Global warming Today Numerous
Carbon footprint companies,
Green products statesmen,
governments,
Corporate social
responsibility (CSR) United Nations,
World Economic
UN Global Compact
Forum

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 Evolution of Operations and Supply
Chain Management
• Supply chain management
– management of the flow of information, products, and services
across a network of customers, enterprises, and supply chain
partners

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-20
 Globalization
• Why “go global”?
– favorable cost
– access to international markets
– response to changes in demand
– reliable sources of supply
– latest trends and technologies
• Increased globalization
– results from the Internet and falling trade barriers

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 Hourly Compensation

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 GDP
16.00
14.99
Figure 1.7 - GDP (in trillions $US)
14.00

12.00

10.00

8.00
7.32

6.00 5.87

4.00 3.60
2.77
2.48 2.44
2.19
2.00 1.86 1.85

0.00
U.S. China Japan Germany France Brazil U.K. Italy Russian FederationIndia

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 Trade in Goods, % of GDP

Figure 1.8 - Trade in Goods as % of GDP

80.0

70.0

60.0
Percent

Brazil
50.0 China
Germany
India
40.0 Japan
Mexico
U.S.
30.0

20.0

10.0

0.0
2007 2008 2009 2010 2011

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 Manufacturing Output

$2,500.00

$2,000.00

$1,500.00
China
Germany
Japan
$1,000.00 U.S.

$500.00

$0.00
2004 2005 2006 2007 2008 2009 2010 2011

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 Productivity and Competitiveness
• Competitiveness
• degree to which a nation can produce goods and
services that meet the test of international markets
• Productivity
• ratio of output to input
• Output
• sales made, products produced, customers served,
meals delivered, or calls answered
• Input
• labor hours, investment in equipment, material usage,
or square footage

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 Measures of Productivity

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 Osborne Industries

B5*B7
B6*B8

B4/B5
B4/B6
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 Percent Change in Input and Output

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 Changes in Productivity

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 Strategy and Operations
• How the mission of a company is accomplished
• Provides direction for achieving a mission
• Unites the organization
• Provides consistency in decisions
• Keeps organization moving in the right direction

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 Strategy Formulation

1. Defining a primary task

• What is the firm in the business of doing?
2. Assessing core competencies
• What does the firm do better than anyone else?
3. Determining order winners and order qualifiers
• What qualifies an item to be considered for
purchase?
• What wins the order?
4. Positioning the firm
• How will the firm compete?
5. Deploying the strategy

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-32
 Strategic Planning

Mission
and Vision

Voice o i ce of t h e
f t he Vo
Busines r
s Corporate Custome
Strategy

Marketing Operations Financial

Strategy Strategy Strategy

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-33
 Order Winners
and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts,
Operations and Process Management, Prentice Hall, 2006, p. 47

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-34
 Positioning the Firm
• Cost
• Speed
• Quality
• Flexibility

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 Positioning the Firm: Cost
• Waste elimination
• relentlessly pursuing the removal of all waste
• Examination of cost structure
• looking at the entire cost structure for reduction potential
• Lean production
• providing low costs through disciplined operations

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-36
 Positioning the Firm: Speed

• Fast moves, Fast adaptations, Tight linkages

• Internet
• Customers expect immediate responses
• Service organizations
• always competed on speed (McDonald’s, LensCrafters, and
Federal Express)
• Manufacturers
• time-based competition: build-to-order production and efficient
supply chains
• Fashion industry
• two-week design-to-rack lead time of Spanish retailer, Zara

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-37
 Positioning the Firm: Quality

• Minimizing defect rates or conforming to design

specifications
• Ritz-Carlton - one customer at a time
• Service system designed to “move heaven and earth”
to satisfy customer
• Employees empowered to satisfy a guest’s wish
• Teams set objectives and devise quality action plans
• Each hotel has a quality leader

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 Positioning the Firm: Flexibility

• Ability to adjust to changes in product mix,

production volume, or design
• Mass customization
• mass production of customized parts
• National Bicycle Industrial Company
• offers 11,231,862 variations
• delivers within two weeks at costs only 10% above
standard models

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 Policy Deployment
• Policy deployment
• translates corporate strategy into measurable
objectives
• Hoshins
• action plans generated from the policy
deployment process

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 Policy Deployment

Derivation of an Action Plan Using Policy Deployment

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 Balanced Scorecard
• Balanced scorecard
• measuring more than financial performance
• finances
• customers
• processes
• learning and growing
• Key performance indicators
• set of measures to help managers evaluate
performance in critical areas

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 Balanced Scorecard

Radar Chart Dashboard

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 Operations Strategy

Services Process
and
Products Technology

Human
Resources Quality
Capacity

Facilities Sourcing Operating

Systems

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-44
 Organization of This Text:
Part I – Operations Management

1. Intro. to Operations and Supply Chain Management

2. Quality Management
3. Statistical Quality Control
4. Product Design
5. Service Design
6. Processes and Technology
7. Capacity and Facilities Design
8. Human Resources
9. Project Management

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-45
 Organization of This Text:
Part II – Supply Chain Management
10. Supply Chain Strategy and Design
11. Global Supply Chain Procurement and Distribution
12. Forecasting
13. Inventory Management
14. Sales and Operations Planning
15. Resource Planning
16. Lean Systems
17. Scheduling

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-46
 Learning Objectives of this Course
• Gain an appreciation of strategic importance of
operations and supply chain management in a global
business environment
• Understand how operations relates to other business
functions
• Develop a working knowledge of concepts and
methods related to designing and managing
operations and creating value along the supply chains
• Develop a skill set for continuous improvement

© 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e 1-47
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