Introduction to

Operations CHAPTER 1
System Design
 INTRODUCTION

Production/operations management is the process, which

combines and transforms various resources used in the
production/operations subsystem of the organization into
value added product/services

1–2
 OM Processes

Inputs Transformation Outputs

A process is a system of activities that transforms inputs into valuable outputs.

LO1-3 1–3
 Operations Management (OM)
is everywhere

OM
Schools Construction
Restaurants
Hospitality Banks

Military

Agriculture Transportation
Health Sport Teams
Care Municipalities

Government
Manufacturers Services Not-for-Profit Entertainment
Retail
Organizations
LO1-1 1–4
 OM vs OSD

The set of interrelated management activities,

which are involved in providing services and
manufacturing certain products, is called as
production/operations management.

If the same concept is extended to services

management, then the corresponding set of
management activities is called as operations
system design

LO1-1 1–5
 EVOLUTION OF OM (Russell text book)
• 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
initially as replacement parts; enabled mass
production
• Scientific management - systematic analysis of work
methods
• Mass production - high-volume production of a
standardized product for a mass market
• Lean production - adaptation of mass production
that prizes quality and flexibility
Copyright 2006 John Wiley & Sons, Inc. 1-6
 HISTORICAL EVENTS IN OM (Russell)
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
Scientific Time and motion studies 1911 Frank and Lillian Gilbreth
Management
Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford
Hawthorne studies 1930 Elton Mayo
1940s Abraham Maslow
Human
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
Copyright 2006 John Wiley & Sons, Inc. 1-7
 HISTORICAL EVENTS IN OM (Russell)
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,
Revolution 1990s
operations Robert Hayes
Business process Michael Hammer,
1990s
reengineering James Champy

Globalization WTO, European 1990s Numerous countries

Union, and other trade 2000s and companies
agreements
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain Berners-Lee SAP,
management i2 Technologies,
ORACLE,
PeopleSoft
E-commerce 2000s Amazon, Yahoo,
eBay, and others
Copyright 2006 John Wiley & Sons, Inc. 1-8
 Significant Events in OM (HEIZER)

LO1-1 1–9
5
 Operations Management (OM):
Common Challenges

• Lowering costs
• Improving quality
• Enhancing product
desirability
• Aligning OM with the
company’s competitive
strategy
• Evolving with the needs of
customers, competition, and
technology
LO1-1 1–11
 SCOPE OF OPERATIONS MANAGEMENT

OM concern with the transformation

of inputs into outputs, using physical
resources to satisfied customer and
organizational objectives of
effectiveness, efficiency and
adoptability.

LO1-1 1–12
 OM PROCESSES vs PHYSICAL RESOURCES

Inputs Transformation Outputs

physical resources

A process is a system of activities that transforms inputs into valuable outputs.

LO1-3 1–13
 PR vs OPERATIONS SYSTEM DESIGN

Physical resources under OM functions are:

1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

Copyright © 2012 The McGraw-Hill Companies, All Rights Reserved.

1–14
 IMPORTANCE OF OSD

When physical resources under OM functions

done well, organization will achieve:
–Use resources more efficiently
–Improve business processes effectiveness
–Improve relationships between business
entities
–Help meet strategic goals
–Increase customer service

LO1-1 1–15
 CONTRIBUTION OF OSD TO
ORGANIZATION
According to a study by Swink et al (2010),
companies that excel in OM and OSD will
achieve:
• 50% higher net profit margins
• 20% lower sales, general & administration
(SG&A) expenses
• 12% lower average inventories
• 30% less working capital expenses
• 2X the return on assets (ROA)

LO1-1 1–16