Chapter 1

Introduction to Operations Management

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Lecture Outline

What Operations and Supply Chain Managers DoOperations FunctionEvolution of Operations and Supply Chain ManagementGlobalization and CompetitivenessOperationsStrategy and Organization of the TextLearning Objectives for This Course

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What Operations and Supply Chain Managers Do

What is Operations Management?design, operation, and improvement of productive systemsWhat is Operations?a function or system that transforms inputs into outputs of greater valueWhat is a Transformation Process?a series of activities along a value chain extending from supplier to customeractivities that do not add value are superfluous and should be eliminated

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Transformation Process

Physical: as in manufacturing operationsLocational: as in transportation or warehouse operationsExchange: as in retail operationsPhysiological: as in health carePsychological: as in entertainmentInformational: as in communication

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Operations as a Transformation Process

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INPUT MaterialMachinesLaborManagementCapital

TRANSFORMATIONPROCESS

OUTPUT GoodsServices

Feedback & Requirements

Operations Function

Operations Marketing Finance and

Accounting Human

Resources Outside

Suppliers

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How is Operations Relevant to my Major?

Accounting

Information Technology

Management

As an auditor you must understand the fundamentals of operations management.IT is a tool, and theres no better place to apply it than in operations.

We use so many things you learn in an operations classscheduling, lean production, theory of constraints, and tons of quality tools.

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How is Operations Relevant to my Major?

Economics

Marketing

Finance

Its all about processes. I live by flowcharts and Pareto analysis.How can you do a good job marketing a product if youre unsure of its quality or delivery status?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 productionprocess of handcrafting products or services for individual customersDivision of labordividing a job into a series of small tasks each performed by a different workerInterchangeable partsstandardization of parts initially as replacement parts; enabled mass production

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Evolution of Operations and Supply Chain Management

Scientific managementsystematic analysis of work methodsMass productionhigh-volume production of a standardized product for a mass marketLean productionadaptation of mass production that prizes quality and flexibility

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Historical Events in Operations Management

Era Events/Concepts Dates Originator

IndustrialRevolution

Steam engine 1769 James WattDivision of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney

Scientific Management

Principles of scientificmanagement

1911 Frederick W. Taylor

Time and motion studies 1911 Frank and Lillian GilbrethActivity scheduling chart 1912 Henry GanttMoving assembly line 1913 Henry Ford

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Historical Events in Operations Management

Era Events/Concepts Dates Originator

Human Relations

Hawthorne studies 1930 Elton Mayo

Motivation theories1940s Abraham Maslow1950s Frederick Herzberg1960s Douglas McGregor

Operations Research

Linear programming 1947 George DantzigDigital computer 1951 Remington RandSimulation, waitingline theory, decisiontheory, PERT/CPM

1950s Operations research groups

MRP, EDI, EFT, CIM 1960s, 1970sJoseph Orlicky, IBMand others

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Historical Events in Operations Management

Era Events/Concepts Dates Originator

QualityRevolution

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)TQM (total qualitymanagement)

1980sW. Edwards Deming, Joseph Juran

Strategy andoperations

1980sWickham Skinner, Robert Hayes

Reengineering 1990sMichael Hammer,James Champy

Six Sigma 1990s GE, Motorola

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Historical Events in Operations Management

Era Events/Concepts Dates OriginatorInternet Revolution

Internet, WWW, ERP, supply chain management

1990s ARPANET, TimBerners-Lee SAP,i2 Technologies,ORACLE, Dell

E-commerce 2000s Amazon, Yahoo, eBay, Google, and others

Globalization WTO, European Union, Global supply chains, Outsourcing, Service Science

1990s2000s

China, India, emerging economies

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Historical Events in Operations Management

Era Events/Concepts Dates OriginatorGreen Revolution

Global warming, An Inconvenient Truth, Kyoto

Today Numerous 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

Competitivenessdegree to which a nation can produce goods and services that meet the test of international marketsProductivityratio of output to inputOutputsales made, products produced, customers served, meals delivered, or calls answeredInputlabor hours, investment in equipment, material usage, or square footage

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Measures of Productivity

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Osborne Industries

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C6*C8

C7*C9

C5/C6

C5/C7

C5/C13

Productivity Growth

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Percent Change in Input and Output

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Strategy and Operations

How the mission of a company is accomplishedProvides direction for achieving a missionUnites the organizationProvides consistency in decisionsKeeps organization moving in the right direction

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Strategy Formulation

1. Defining a primary taskWhat is the firm in the business of doing?

2. Assessing core competenciesWhat does the firm do better than anyone else?

3. Determining order winners and order qualifiersWhat qualifies an item to be considered for purchase?What wins the order?

4. Positioning the firmHow will the firm compete?

5. Deploying the strategy

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Strategic Planning

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Missionand Vision

CorporateStrategy

OperationsStrategy

MarketingStrategy

FinancialStrategy

Voice of theBusinessVoice of th

e

Customer

Order Winnersand Order Qualifiers

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

Positioning the Firm

CostSpeedQualityFlexibility

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Positioning the Firm: Cost

Waste eliminationrelentlessly pursuing the removal of all wasteExamination of cost structurelooking at the entire cost structure for reduction potentialLean productionproviding low costs through disciplined operations

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Positioning the Firm: Speed

Fast moves, Fast adaptations, Tight linkagesInternetCustomers expect immediate responses

Service organizationsalways competed on speed (McDonalds, LensCrafters, and Federal Express)

Manufacturerstime-based competition: build-to-order production and efficient supply chains

Fashion industrytwo-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 specificationsRitz-Carlton - one customer at a time

Service system designed to move heaven and earth to satisfy customerEmployees empowered to satisfy a guests wish Teams set objectives and devise quality action plansEach hotel has a quality leader

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Positioning the Firm: Flexibility

Ability to adjust to changes in product mix, production volume, or designMass customization: the mass production of customized partsNational Bicycle Industrial Companyoffers 11,231,862 variationsdelivers within two weeks at costs only 10% above standard models

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Policy Deployment

Policy deploymenttranslates corporate strategy into measurable objectivesHoshinsaction 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 scorecardmeasuring more than financial performance

1. finances2. customers3. processes4. learning and growing

Key performance indicatorsset of measures to help managers evaluate performance in critical areas

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Balanced Scorecard Worksheet

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Balanced Scorecard

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Radar Chart Dashboard

Operations Strategy

Products

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Services Processand

Technology

Capacity

HumanResources Quality

Facilities Sourcing OperatingSystems

Learning Objectives of this Course

Gain an appreciation of strategic importance of operations and supply chain management in a global business environmentUnderstand how operations relates to other business functionsDevelop a working knowledge of concepts and methods related to designing and managing operations and supply chainsDevelop a skill set for continuous improvement

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