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Chapter 1 - Introduction to Operations Management

Operations Managementby

R. Dan Reid & Nada R. Sanders3rd Edition © Wiley 2007

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Learning Objectives Define OM Role of OM in business Decisions that operations managers

make OM differences between service and mfg. Major historical developments in OM Identify current trends in OM Define information flow between OM and

other business functions

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What is Operations Management?

The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s products and services.

It is a management function. Organization’s core function. Every organization has the OM function

Manufacturing or Service For Profit or Not For Profit

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Typical Organization Chart

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Systems Concept

outputsoutputs

SYSTEMSYSTEM

transformationstransformationsinputsinputs

productivityproductivity

OOII

missionmissiongoalsgoals

objectivesobjectives

(See (See SINKSINK, figure 2.1, p. 24), figure 2.1, p. 24)

goodsgoodsservicesservices

landlandlaborlaborcapitalcapital•facilitiesfacilities•equipmentequipment•toolstoolsenergyenergymaterialsmaterialsdatadata

PhysicalPhysical

LocationalLocational

ExchangeExchange

StorageStorage

PhysiologicalPhysiological

InformationalInformational

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Why OM? “In business today, the emphasis is not

so much on what you make, but on how you do business. Dell makes computers just like every other PC manufacturer.” Quote: KT CEO on CNBC 4/99

The resurgence of American business in the 1990’s capitalized on improved operations.

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Differences between Manufacturers and Service Organizations

Services: Intangible product Product cannot be

inventoried High customer

contact Short response

time Labor intensive

Manufacturers: Tangible product Product can be

inventoried Low customer contact Longer response time Capital intensive

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Similarities-Service/Manufacturers

All use technology Both have quality, productivity, & response

issues All must forecast demand Each will have capacity, layout, and

location issues All have customers and suppliers All have scheduling and staffing issues

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Trends in OM Service sector growing

to 80% of non-farm jobs- See Figure 1-4

Global competitiveness Demands for higher

quality Huge technology

changes Time based competition Work force diversity

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OM Decisions

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Plan of Book-Chapters link to Types of OM Decisions

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Historical Development of OM

Industrial revolution Late 1700’s Scientific management Early 1900’s Human relations movement 1930’s to 1960’s Management science Mid-1900’s Computer age 1970’s Just-in-Time Systems (JIT) 1980’s Total quality management (TQM) 1980’s Reengineering 1990’s Flexibility 1990’s Time-Based Competition 1990’s Supply chain Management 1990’s Global Competition 1990’s Environmental Issues 1990’s Electronic Commerce Late 1990’s

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Today’s OM Environment Customers demand better quality,

faster deliveries, and lower costs Increased cross-functional decision

making Recognized need to better manage

information using ERP and CRM systems

Global competition

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Business Information Flow

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Chapter 1 Highlights OM is the function that manages the resources that add

value Its role is to transform inputs into products or services Decisions are many and vary from daily tactical to long-term

strategic Key differences between mfg. and service companies are

tangibility of product and degree of customer contact Historical milestones range from 1700s Industrial Revolution

to the modern Electronic Commerce age OM must understand and implement major process changes

like JIT, TQM, supply chain management, and environmental changes

OM works closely with all other business functions