BJMP2033 – Production &

Operations Management
Chapter 1
Operations and
Supply Chain Management
Introduction

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 Lecture Outline

1. What Operations and Supply Chain

Managers Do
2. Operations Function
3. Evolution of Operations and Supply Chain
Management
4. Globalization and Competitiveness
5. Operations

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 What Operations and Supply Chain
Managers Do
• What is Operations Management?
• is that aspect of a business enterprise which is involved in
producing goods and services in the most efficient and effective
way.
• design, operation, and improvement of productive systems
• What is Operations?
• ‘Operations’ means the production of goods and services for the
business
• a function or system that transforms inputs into outputs of greater
value
• Operations Manager usually do?
1. Preparing program budgets
2. Facilitating programs around the company
3. Controlling the inventory
4. Handling logistics
5. Interviewing candidates and supervising employees
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 Transformation Process
• What is a 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
• 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

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 Operations as a
Transformation Process

INPUT
•Material
TRANSFORMATION OUTPUT
•Machines
•Goods
•Labor PROCESS
•Services
•Management
•Capital

Feedback & Requirements

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 Transformation

• How bananas fried are made? 1-6

 Operations Function

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

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 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.”

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 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.”

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 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 initially as replacement parts;
enabled mass production

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 Evolution of Operations and
Supply Chain Management
• Scientific management
• systematic analysis of work methods. E.g., Henry Ford
use it in production of Model T in 1913. He reduced the time
to assemble a car from 728 hours to 1 ½ hours.
• Mass production
• high-volume production of a standardized product for
a mass market. E.g., Short time in assembling Model T
has resulted to produce in mass quantities.
• Lean production
• Toyota introduces it to replace Mass production. A
new ways of adaptation of mass production that
prizes quality and flexibility.

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 New era of Business
• Electronic business, commonly referred to as
"eBusiness" or "e-Business", may be defined as the
application of information and communication
technologies (ICT) in support of all the activities of
business.
• www.eBay.com
• www.amazon.com
• Google
• www.lelong.com.my
• Types of e-Business: B2B, B2C, B2G, C2C etc.

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 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

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 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

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 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

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 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

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 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Green Global warming, An Today Numerous
Revolution Inconvenient Truth, Kyoto scientists,
statesmen and
governments

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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

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 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 per Capita

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 Trade in Goods, % of GDP

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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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 Measures of Productivity
• Based on data given below on Osborne Industries,
calculate:
1. Labor productivity
2. Machine productivity
3. Multifactor productivity

Average labor rate is $15 an hour & the average machine

usage is $10 an hour.

Units produced 100,000

Labor hours 10,000
Machine hours 5,000
Cost of materials $35,000
Cost of energy $15,000 1-25
 Osborne Industries

C6*C8

C7*C9

C5/C6

C5/C7

C5/C13
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 Exercise 1.1
• Tried & True Clothing has opened four new stores. Data
on monthly sales and labor hours are given below.
Which store location has the highest labor productivity?

Store Annandale Blacksburg Charlottesville Danville

Sales volume $40,000 $12,000 $60,000 $25,000

Labor hours 250 60 500 200

Productivity Q W E R

= Sales volume/labor hours

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 Productivity Growth

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 Exercise 1.2
• In 2010 fish tournament, Hans caught 12 Siakap
in four-hour period. This year, he caught 15 in six-
hour period.
1. In which year he the most productive?
2. If the average size of the Siakap last year was
20Ib and the average for this year was 25Ib,
would your decision change?
  2010 2011
Hours fishing 4 6
Bass caught 12 15
Average weight 20 25

Bass/hr A B
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 Percent Change in Input and Output

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 Exercise 1.3

• Data:
Labor Hours Units of Output Productivity

Finland 89.5 136 A

Denmark 83.6 100 S

Norway 72.7 102 D

Iceland 67.8 89 F

• Which country is most productive?

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 Strategy and Operations
1. How the mission of a company is accomplished
2. Provides direction for achieving a mission
3. Unites the organization
4. Provides consistency in decisions
5. 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

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 Strategic Planning

Mission
and Vision

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

Marketing Operations Financial

Strategy Strategy Strategy

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 Order Winners and Order Qualifiers

Order Winners – characteristic of a product/service that

qualify it to be considered for purchase by a customer

Order Qualifiers – characteristics of a product/service that

wins orders in the marketplace
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 Which one is the winner?

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 Positioning the Firm
1. Cost
2. Speed
3. Quality
4. Flexibility

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 Positioning the Firm: Cost
• Waste elimination
• persistently 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

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 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

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 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: the 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
• The outcome of the process is cascade of action
plans (or hoshins) aligned to complete each
functional objective, which will, in turn, combine
to achieve the strategic plan
• 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
1.Finances – how should we look to our shareholders?
2.Customers – how should we look to our customers?
3.Processes – At which business processes must we
excel?
4.Learning and growing – how will we sustain our
ability to change and improve?
• Key performance indicators
• set of measures to help managers evaluate
performance in critical areas

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 Why Implement a Balanced
Scorecard?
1. Increase focus on strategy and results
2. Improve organizational performance by
measuring what matters
3. Align organization strategy with the work
people do on a day-to-day basis
4. Focus on the drivers of future performance
5. Improve communication of the
organization’s Vision and Strategy
6. Prioritize Projects / Initiatives

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 Balance Score Card

• The balanced scorecard suggests that we view the organization

from four perspectives, and to develop metrics, collect data and
analyse it relative to each of these perspectives: C, F, IBP & L&G
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 Balanced Scorecard Worksheet

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 Balanced Scorecard

Dashboard
Radar Chart

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 Operations Strategy

Services Process
and
Products
Technology

Human
Resources Quality
Capacity

Facilities Sourcing Operating

Systems

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