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1 2002 South-Western/Thomson Learning2002 South-Western/Thomson Learning TMTM

Slides preparedSlides prepared

by John Loucksby John Loucks

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Chapter 1Chapter 1Chapter 1Chapter 1

Production and OperationsProduction and Operations

Management (POM):Management (POM):

An IntroductionAn Introduction

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OverviewOverviewOverviewOverview

IntroductionIntroduction

Historical Milestones in OMHistorical Milestones in OM

Factors Affecting OM TodayFactors Affecting OM Today

Different Ways of Studying OMDifferent Ways of Studying OM WrapWrap--Up: What WorldUp: What World--Class Producers DoClass Producers Do

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IntroductionIntroductionIntroductionIntroduction

Operations managementOperations management is the management of anis the management of an

organizations productive resources or its productionorganizations productive resources or its production

system.system.

AA production systemproduction system takes inputs and converts themtakes inputs and converts theminto outputs.into outputs.

TheThe conversion processconversion process is the predominant activity ofis the predominant activity of

a production system.a production system.

The primary concern of anThe primary concern of an operations manageroperations manager is theis theactivities of the conversion process.activities of the conversion process.

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Organizational ModelOrganizational ModelOrganizational ModelOrganizational Model

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSales

FinanceFinance

OMOM

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Organization ChartOrganization Chart--Major ElementsMajor Elements

Facilities

Pr ction &

Inventor Control

Quality Assurance

& Control

Procurement

Engineering Design

Industrial Engineering

Process Engineering

Operations

Dis ursements

& Credits

Funds Management

Capital Requirements

Finance/Accounting

SalesPromotion

Advertising

Sales

Market Research

Marketing

Manufacturing Organization

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IntroductionIntroductionIntroductionIntroduction

Evolution in Operations ManagementEvolution in Operations Management

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EntryEntry--Level Jobs in OMLevel Jobs in OMEntryEntry--Level Jobs in OMLevel Jobs in OM

Purchasing planner/buyerPurchasing planner/buyer

Production (or operations) supervisorProduction (or operations) supervisor

Production (or operations) scheduler/controllerProduction (or operations) scheduler/controller

Production (or operations) analystProduction (or operations) analyst Inventory analystInventory analyst

Quality specialistQuality specialist

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Historical Milestones in OMHistorical Milestones in OM

The Industrial RevolutionThe Industrial Revolution

PostPost--Civil War PeriodCivil War Period

Scientific ManagementScientific Management

Human Relations and BehaviorismHuman Relations and Behaviorism Operations Research (1960s and 70s)Operations Research (1960s and 70s)

The Service Revolution (1970s and 80s)The Service Revolution (1970s and 80s)

Supply Chain Integration and Management (1990

s)Supply Chain Integration and Management (1990

s) EE--Commerce (late 1990s)Commerce (late 1990s)

CRM (early 2000)CRM (early 2000)

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The Industrial RevolutionThe Industrial RevolutionThe Industrial RevolutionThe Industrial Revolution

TheThe industrial revolutionindustrial revolution developed in England in thedeveloped in England in the

1700s.1700s.

The steam engine, invented by James Watt in 1764,The steam engine, invented by James Watt in 1764,

largely replaced human and water power for factories.largely replaced human and water power for factories. Adam SmithsAdam Smiths The Wealth of NationsThe Wealth of Nations in 1776 toutedin 1776 touted

the economic benefits of thethe economic benefits of the specialization of laborspecialization of labor..

Thus the lateThus the late--1700s factories had not only machine1700s factories had not only machine

power but also ways of planning and controlling thepower but also ways of planning and controlling thetasks of workers.tasks of workers.

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The Industrial RevolutionThe Industrial RevolutionThe Industrial RevolutionThe Industrial Revolution

The industrial revolution spread from England toThe industrial revolution spread from England toother European countries and to the United Sates.other European countries and to the United Sates.

In 1790 an American, Eli Whitney, developed theIn 1790 an American, Eli Whitney, developed the

concept ofconcept of interchangeable partsinterchangeable parts..

The first great industry in the US was the textileThe first great industry in the US was the textile

industry.industry.

In the 1800s the development of the gasoline engineIn the 1800s the development of the gasoline engine

and electricity further advanced the revolution.and electricity further advanced the revolution. By the midBy the mid--1800s, the old1800s, the old cottage systemcottage system ofof

production had been replaced by theproduction had been replaced by the factory systemfactory system..

. . . more. . . more

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PostPost--Civil War PeriodCivil War PeriodPostPost--Civil War PeriodCivil War Period

During the postDuring the post--Civil War period great expansion ofCivil War period great expansion of

production capacity occurred.production capacity occurred.

By postBy post--Civil War the following developments set theCivil War the following developments set the

stage for the great production explosion of the 20

thstage for the great production explosion of the 20

thcentury:century:

increased capital and production capacityincreased capital and production capacity

the expanded urban workforcethe expanded urban workforce

new Western US marketsnew Western US markets an effective national transportation systeman effective national transportation system

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Scientific ManagementScientific ManagementScientific ManagementScientific Management

Frederick Taylor is known as the father ofFrederick Taylor is known as the father of scientificscientific

managementmanagement. His. His shop systemshop system employed these steps:employed these steps:

Each workers skill, strength, and learning abilityEach workers skill, strength, and learning ability

were determined.were determined. Stopwatch studies were conducted to precisely setStopwatch studies were conducted to precisely set

standard output per worker on each task.standard output per worker on each task.

Material specifications, work methods, and routingMaterial specifications, work methods, and routing

sequences were used to organize the shop.sequences were used to organize the shop. Supervisors were carefully selected and trained.Supervisors were carefully selected and trained.

Incentive pay systems were initiated.Incentive pay systems were initiated.

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Scientific ManagementScientific ManagementScientific ManagementScientific Management

In the 1920s, Ford Motor Companys operationIn the 1920s, Ford Motor Companys operation

embodied the key elements of scientific management:embodied the key elements of scientific management:

standardized product designsstandardized product designs

mass productionmass production low manufacturing costslow manufacturing costs

mechanized assembly linesmechanized assembly lines

specialization of laborspecialization of labor

interchangeable partsinterchangeable parts

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Human Relations and BehavioralismHuman Relations and BehavioralismHuman Relations and BehavioralismHuman Relations and Behavioralism

In the 1927In the 1927--1932 period, researchers in the1932 period, researchers in the

Hawthorne Studies realized that human factors wereHawthorne Studies realized that human factors were

affecting production.affecting production.

Researchers and managers alike were recognizingResearchers and managers alike were recognizingthat psychological and sociological factors affectedthat psychological and sociological factors affected

production.production.

From the work ofFrom the work of behavioralistsbehavioralists came a gradualcame a gradual

change in the way managers thought about andchange in the way managers thought about andtreated workers.treated workers.

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Operations ResearchOperations ResearchOperations ResearchOperations Research

During World War II, enormous quantities ofDuring World War II, enormous quantities ofresources (personnel, supplies, equipment, ) had toresources (personnel, supplies, equipment, ) had to

be deployed.be deployed.

MilitaryMilitary operations researchoperations research (OR) teams were formed(OR) teams were formed

to deal with the complexity of the deployment.to deal with the complexity of the deployment.

After the war, operations researchers found their wayAfter the war, operations researchers found their way

back to universities, industry, government, andback to universities, industry, government, and

consulting firms.consulting firms. OR helps operations managers make decisions whenOR helps operations managers make decisions when

problems are complex and wrong decisions areproblems are complex and wrong decisions are

costly.costly.

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The Service RevolutionThe Service RevolutionThe Service RevolutionThe Service Revolution

The creation of services organizations acceleratedThe creation of services organizations accelerated

sharply after World War II.sharply after World War II.

Today, more than twoToday, more than two--thirds of the US workforce isthirds of the US workforce is

employed in services.employed in services. About twoAbout two--thirds of the US GDP is from services.thirds of the US GDP is from services.

There is a huge trade surplus in services.There is a huge trade surplus in services.

Investment per office worker now exceeds theInvestment per office worker now exceeds the

investment per factory worker.investment per factory worker.

Thus there is a growing need for service operationsThus there is a growing need for service operations

management.management.

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The Computer RevolutionThe Computer RevolutionThe Computer RevolutionThe Computer Revolution

Explosive growth of computer and communicationExplosive growth of computer and communication

technologiestechnologies

Easy access to information and the availability ofEasy access to information and the availability of

more informationmore information Advances in software applications such as EnterpriseAdvances in software applications such as Enterprise

Resource Planning (ERP) softwareResource Planning (ERP) software

Widespread use of emailWidespread use of email

More and more firms becoming involved in EMore and more firms becoming involved in E--Business using the InternetBusiness using the Internet

Result:Result: faster, better decisions over greater distancesfaster, better decisions over greater distances

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Today's Factors Affecting OMToday's Factors Affecting OMToday's Factors Affecting OMToday's Factors Affecting OM

Global CompetitionGlobal Competition

Quality, Customer Service, and Cost ChallengesQuality, Customer Service, and Cost Challenges

Rapid Expansion of Advanced TechnologiesRapid Expansion of Advanced Technologies

Continued Growth of the Service SectorContinued Growth of the Service Sector Scarcity of Operations ResourcesScarcity of Operations Resources

SocialSocial--Responsibility IssuesResponsibility Issues

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Studying Operations ManagementStudying Operations Management

Operations as a SystemOperations as a System

Decision Making in OMDecision Making in OM

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Operations as a SystemOperations as a SystemOperations as a SystemOperations as a System

InputsInputs OutputsOutputs

ConversionConversion

SubsystemSubsystem

Production SystemProduction System

ControlControl

SubsystemSubsystem

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Inputs of an Operations SystemInputs of an Operations SystemInputs of an Operations SystemInputs of an Operations System

ExternalExternal

Legal, Economic, Social, TechnologicalLegal, Economic, Social, Technological

MarketMarket

Competition, Customer Desires, Product Info.Competition, Customer Desires, Product Info. Primary ResourcesPrimary Resources

Materials, Personnel, Capital, UtilitiesMaterials, Personnel, Capital, Utilities

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Conversion SubsystemConversion SubsystemConversion SubsystemConversion Subsystem

PhysicalPhysical (Manufacturing)(Manufacturing)

Locational ServicesLocational Services (Transportation)(Transportation)

Exchange ServicesExchange Services (Retailing)(Retailing)

Storage ServicesStorage Services (Warehousing)(Warehousing) Other Private ServicesOther Private Services (Insurance)(Insurance)

Government ServicesGovernment Services (Federal)(Federal)

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Outputs of an Operations SystemOutputs of an Operations SystemOutputs of an Operations SystemOutputs of an Operations System

DirectDirect

ProductsProducts

ServicesServices

IndirectIndirect WasteWaste

PollutionPollution

Technological AdvancesTechnological Advances

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Production as an Organization FunctionProduction as an Organization FunctionProduction as an Organization FunctionProduction as an Organization Function

US companies cannot compete with marketing,US companies cannot compete with marketing,finance, accounting, and engineering alone.finance, accounting, and engineering alone.

We focus on OM as we think of globalWe focus on OM as we think of global

competitiveness, because that is where the vastcompetitiveness, because that is where the vast

majority of a firms workers, capital assets, andmajority of a firms workers, capital assets, and

expenses reside.expenses reside.

To succeed, a firm must have a strong operationsTo succeed, a firm must have a strong operations

function teaming with the other organizationfunction teaming with the other organizationfunctions.functions.

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Service OperationsService OperationsService OperationsService Operations

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Decision Making in OMDecision Making in OMDecision Making in OMDecision Making in OM

Strategic DecisionsStrategic Decisions

Operating DecisionsOperating Decisions

Control DecisionsControl Decisions

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StrategicDecisionsStrategicDecisions

These decisions are of strategic importance and haveThese decisions are of strategic importance and havelonglong--term significance for the organization.term significance for the organization.

Examples include deciding:Examples include deciding:

the design for a new products production processthe design for a new products production process where to locate a new factorywhere to locate a new factory

whether to launch a newwhether to launch a new--product development planproduct development plan

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OperatingDecisionsOperatingDecisionsOperatingDecisionsOperatingDecisions

These decisions are necessary if the ongoingThese decisions are necessary if the ongoingproduction of goods and services is to satisfy marketproduction of goods and services is to satisfy market

demands and provide profits.demands and provide profits.

Examples include deciding:Examples include deciding:

how much finishedhow much finished--goods inventory to carrygoods inventory to carry

the amount of overtime to use next weekthe amount of overtime to use next week

the details for purchasing raw material next monththe details for purchasing raw material next month

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Control DecisionsControlDecisions

These decisions concern the dayThese decisions concern the day--toto--day activities ofday activities ofworkers, quality of products and services, productionworkers, quality of products and services, production

and overhead costs, and machine maintenance.and overhead costs, and machine maintenance.

Examples include deciding:Examples include deciding:

labor cost standards for a new productlabor cost standards for a new product

frequency of preventive maintenancefrequency of preventive maintenance

new quality control acceptance criterianew quality control acceptance criteria

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What Controls the Operations System?What Controls the Operations System?What Controls the Operations System?What Controls the Operations System?

Information about the outputs, the conversions, andInformation about the outputs, the conversions, andthe inputs is fed back to management.the inputs is fed back to management.

This information is matched with managementsThis information is matched with managements

expectationsexpectations

When there is a difference, management must takeWhen there is a difference, management must take

corrective action to maintain control of the systemcorrective action to maintain control of the system

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WrapWrap--Up: World Class PracticeUp: World Class PracticeWrapWrap--Up: World Class PracticeUp: World Class Practice

OM important inOM important in anyany organizationorganization

Global competition forces rapid evolution of OMGlobal competition forces rapid evolution of OM

Decision based framework focus of courseDecision based framework focus of course

Strategic, Operating, and ControlStrategic, Operating, and Control

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End of Chapter 1End of Chapter 1End of Chapter 1End of Chapter 1