1-1introduction to operations management. 1-2introduction to operations management operations...
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1-1 Introduction to Operations Management
Introduction toIntroduction toOperations ManagementOperations Management
1-2 Introduction to Operations Management
Operations Management
• What is operations?–The part of a business organization that is
responsible for producing goods or services
• How can we define operations management?–The management of systems or processes
that create goods and/or provide services
1-3 Introduction to Operations Management
Supply & Demand
Supply Demand>
Supply Demand<
Supply Demand=
Operations & Supply Chains Sales & Marketing
WastefulCostly
Opportunity LossCustomer Dissatisfaction
Ideal
1-4 Introduction to Operations Management
The management of systems or processes that create goods and/or provide services
Basic Functions of the Business Organization
Operations FinanceMarketing
Organization
1-5 Introduction to Operations Management
Supply Chain
Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service
Suppliers’suppliers
Directsuppliers
Producer DistributorFinal
Customers
1-6 Introduction to Operations Management
The Transformation Process --OM Model
Inputs•Land•Labor•Capital•Information
Outputs•Goods•Services
Transformation/Conversion
Process
Control
Feedback
Feedback Feedback
Value-Added
Feedback = measurements taken at various points in the transformation process
Control = The comparison of feedback against previously established standards to determine if corrective action is needed.
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Food ProcessorFood Processor
Inputs Processing Outputs
Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans
Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment
Table 1.2
1-8 Introduction to Operations Management
Hospital ProcessHospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy patientsHospital Surgery
Medical Supplies MonitoringEquipment MedicationLaboratories Therapy
Table 1.2
1-9 Introduction to Operations Management
Automobile Assembly, Steelmaking
Products are typically neither purely service- or purely goods-based.
Goods Services
Home Remodeling, Retail Sales
Computer Repair, Restaurant Meal
Songwriting, Software Development
Surgery, Teaching
Goods-service Continuum
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High-paying service jobs:Information, Financial, Health,
Education, Professional and Business Services
• These high-payinghigh-paying service jobs accounted for 56% of the service job growth56% of the service job growth since 1990!• In 2006 they accounted for 41% of jobs.41% of jobs.• CompensationCompensation in these jobs grew four four times fastertimes faster than in service industry overall
How is the service industry doing?
100
110
120
130
140
150
160
1990 1992 1994 1996 1998 2000 2002 2004 2006
High-payingTotal
1-11 Introduction to Operations ManagementU.S. Trade Flows (exports + imports of
goods and services) as % of GDP
Recessions in yellow
More trade is associated with
economic expansion
Trade expanded 3 times faster than GDP, by a factor of 150(!) since 1950
1-12 Introduction to Operations Management
Does the trade deficit cause unemployment?
Trade deficit expands
Unemployment drops
Most of the expansion in the trade deficit occurred during the roaring 1990s!
Since2000
Before2000
1-13 Introduction to Operations Management
U.S. manufacturing output hurt by imports?
1990s: Surge in imports and manufacturing output
2000-2002: Manufacturing drops, imports slow
Since 2000: Both recovering
Manufacturing output expands despite imports
1-14 Introduction to Operations Management
Loss of manufacturing jobs:Only in the U.S.?
Manufacturing jobs: 1993 normalized to 100
3m jobs lost in the U.S.
It’s a worldwide phenomenon!
1-15 Introduction to Operations Management
The real culprit: Productivity
Output per hour in
Manufacturing
Overall Economy
1-16 Introduction to Operations Management
How about outsourcing of service jobs?
Trade in Services as % of GDP
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Exports
Imports
The U.S. has a persistent surplussurplus in trade of services
SurplusSurplus
1-17 Introduction to Operations Management
Trade in goods and services
• Increased trade tends to coincide with economic expansion
• Manufacturing employment is down in the U.S. Just like everywhere else!
• Service employment has grown despite outsourcing.
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Manufacturing vs. Service?Manufacturing vs. Service?
Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.
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Production of Goods vs. Delivery of ServicesProduction of Goods vs. Delivery of Services
• Production of goods – tangible output
• Delivery of services – an act
• Service job categories– Government
– Wholesale/retail
– Financial services
– Healthcare
– Personal services
– Business services
– Education
1-20 Introduction to Operations Management
Manufacturing vs ServiceManufacturing vs Service
Characteristic Manufacturing ServiceOutput
Customer contact
Uniformity of input
Labor content
Uniformity of output
Measurement of productivity
Opportunity to correct
Tangible
Low
High
Low
High
Easy
High
Intangible
High
Low
High
Low
Difficult
Lowquality problems
High
1-21 Introduction to Operations Management
Process ManagementProcess Management
Three Categories of Business Processes:
Upper-management processes
These govern the operation of the entire organization.
Operational processes These are core processes that make up the value stream.
Supporting processes These support the core processes.
Process - one or more actions that transform inputs into outputs
1-22 Introduction to Operations Management
Process ManagementProcess Management
Four Sources of Variation:
Variety of goods or services being offered
The greater the variety of goods and services offered, the greater the variation in production or service requirements.
Structural variation in demand
These are generally predictable. They are important for capacity planning.
Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers.
Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action.
Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.
1-23 Introduction to Operations Management
• Operations Management includes:– Forecasting– Capacity planning– Scheduling– Managing inventories– Assuring quality– Motivating employees– Deciding where to locate facilities– And more . . .
Scope of Operations ManagementScope of Operations Management
1-24 Introduction to Operations Management
Role of the Operations Manager
The Operations Function consists of all activities directly related to producing goods or providing services.
A primary function of the operations manager is to guide the system by decision making.
–System Design–System Operation
1-25 Introduction to Operations Management
Types of OperationsTypes of OperationsTable 1.4
Operations ExamplesGoods Producing Farming, mining, construction,
manufacturing, power generationStorage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,hotels, airlines
Exchange Retailing, wholesaling, banking,renting, leasing, library, loans
Entertainment Films, radio and television,concerts, recording
Communication Newspapers, radio and televisionnewscasts, telephone, satellites
1-26 Introduction to Operations Management
U.S. Manufacturing vs. Service EmploymentU.S. Manufacturing vs. Service Employment
1-27 Introduction to Operations Management
The Decline in Manufacturing Employment
Productivity– Increasing productivity allows companies to maintain or increase their
output using fewer workers
Outsourcing– Some manufacturing work has been outsourced to more productive
companies
A Statistical Artifact– Manufacturers are increasingly using contract and temporary labor which
no longer show up in the statistics as manufacturing employment
1-28 Introduction to Operations Management
Why Manufacturing Matters?Myth #1: advanced economy like the U.S. no longer needs to
manufacture and can thrive exclusively as a hub for high-value-added design and innovation
1-29 Introduction to Operations Management
Why Manufacturing Matters?
Myth #2: the migration of mature manufacturing industries away from developed countries like the U.S. is just part of a healthy, natural process of economic evolution that allows resources to be redeployed to new, higher-potential businesses.
1-30 Introduction to Operations Management
Key Decisions of Operations Managers
• WhatWhat resources/what amounts
• WhenNeeded/scheduled/ordered
• WhereWork to be done
• HowDesigned
• WhoTo do the work
1-31 Introduction to Operations Management
Decision MakingDecision Making• ModelsModels
• Quantitative approachesQuantitative approaches
• Analysis of trade-offsAnalysis of trade-offs
• Systems approachSystems approach
1-32 Introduction to Operations Management
Systems ApproachSystems Approach
“The whole is greater than the sum of the parts.”
SuboptimizationSuboptimization
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Operations
FinanceMarketing
Operation Management link
Operation + Marketing + Finance
1-34 Introduction to Operations Management
Why Operations Management?Why Operations Management?
Career Opportunities abound
• Operations manager
• Purchasing manager
• Supply chain manager
• Distribution manager
• Quality manager
• Etc.
Visit APICS, ISM, ASQ, CSCMP websites
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Operations InterfacesOperations Interfaces
Public Relations
Accounting
IndustrialEngineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Legal
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Trends in Business• Major trends
– e-commerce, e-business– Management of technology– Globalization– Management of supply chains– Agility
1-38 Introduction to Operations Management
The need for managing supply chainThe need for managing supply chain
• In the past, organizations did little to manage the supply chain beyond their own operations and immediate suppliers which led to numerous problems:–Oscillating inventory levels–Inventory stockouts–Late deliveries–Quality problems
1-39 Introduction to Operations Management
Suppliers’ Suppliers
DirectSuppliers Producer Distributor Final
Consumer
Simple Product Supply ChainSimple Product Supply Chain
Supply Chain: when something is deliver either services or goods then SUPPLY CHAIN is there
1-40 Introduction to Operations Management
Elements of Supply Chain ManagementElements of Supply Chain Management
• Customers – what products/services do customers want
• Forecasting – predicting timing and volume of customer demand
• Design – incorporating customer wants, manufacturability, and time to market
• Capacity planning – matching supply and demand• Processing – controlling quality, scheduling work
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Elements of Supply Chain ManagementElements of Supply Chain Management
• Inventory – meeting demand requirements while managing costs
• Purchasing – evaluating potential suppliers, supporting the needs of operations on purchased goods and services
• Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier relations
• Location – determining the location of facilities
• Logistics – deciding how to best move information and materials