CHAPTER 1 INTRODUCTION. LEARNING OBJECTIVES Describe and Explain concepts, functions and nature of...

CHAPTER 1CHAPTER 1

INTRODUCTIONINTRODUCTION

LEARNING OBJECTIVESLEARNING OBJECTIVES

Describe and Explain concepts, functions and nature of OM

Identify current OM problems, issues and trends.

Describe and Explain approaches used by OM

What Is OM?What Is OM?

FeedbackFeedback looploop

OutputsOutputs

Goods and

services

ProcessesProcesses

Transformation/ conversion process

InputsInputs

Labor,capital,Land,

Information

Production is the creation of goods and services.

Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs.

Operations management (OM) is the management of systems or processes that create goods and/or provide services.

Organizing to Produce Organizing to Produce Goods and ServicesGoods and Services

Essential functions: Marketing – generates demand Production/operations – creates the product Finance/accounting – tracks how well the

organization is doing, pays bills, collects the money

Organizational ChartsOrganizational Charts

OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science

Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange

Airline

MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising

GOODS- SERVICES CONTINUUMGOODS- SERVICES CONTINUUM

Automobile

Computer

Installed carpeting

Fast-food meal

Restaurant meal/auto repair

Hospital care

Advertising agency/investment management

Consulting service/teaching

Counseling

Percent of Product that is a GoodPercent of Product that is a Good Percent of Product that is a ServicePercent of Product that is a Service

100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||

GOODS vs SERVICEGOODS vs SERVICE

Characteristic Goods Service

Customer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High Low

Inventory Much Little

Evaluation Easier Difficult

Patentable Usually Not usual

WHY STUDY OM ?WHY STUDY OM ?

one of three major functions (marketing, finance, and operations) of any organization.

we want (and need) to know how goods and services are produced.

we want to understand what operations managers do.

a costly part of an organization

WHAT OPERATIONS MANAGERS DO?WHAT OPERATIONS MANAGERS DO?

PlanningOrganizingStaffingLeadingControlling

Where are the OM Jobs?Where are the OM Jobs?

Significant Events in OMSignificant Events in OM

Current Trend in OMCurrent Trend in OM

Coordinate the relationships between mutually supportive but separate organizations.

Optimizing global supplier, production, and distribution networks.

Increased co-production of goods and services.

Current Issues in OM (cont’d)Current Issues in OM (cont’d)

Managing the customer’s experience during the service encounter.

Raising the awareness of operations as a significant competitive weapon.

New Trends in OMNew Trends in OM

Local or national focus

Reliable worldwide communication and transportation networks

Global focus, moving production offshore

Batch (large) shipments

Short product life cycles and cost of capital put pressure on reducing inventory

Just-in-time performance

Low-bid purchasing

Supply chain competition requires that suppliers be engaged in a focus on the end customer

Supply chain partners, collaboration, alliances, outsourcing

PastPast CausesCauses FutureFuture

New Trends in OM (cont’d)New Trends in OM (cont’d)

Lengthy product development

Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration

Rapid product development, alliances, collaborative designs

Standardized products

Affluence and worldwide markets; increasingly flexible production processes

Mass customization with added emphasis on quality

Job specialization

Changing socioculture milieu; increasingly a knowledge and information society

Empowered employees, teams, and lean production


New Trends in OM (cont’d)New Trends in OM (cont’d)

Low-cost focus

Environmental issues, ISO 14000, increasing disposal costs

Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing

Ethics not at forefront

Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution

High ethical standards and social responsibility expected


Productivity ChallengeProductivity Challenge

Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital)

The objective is to improve productivity!The objective is to improve productivity!

Note: Production is a measure of output only and not a measure of efficiency

ProductivityProductivity

measure of process improvement.represents output relative to input

Productivity =Productivity =Units producedUnits produced

Input usedInput used

Productivity CalculationsProductivity Calculations

Labor productivity:

Productivity =Productivity =Units producedUnits produced

Labor-hours usedLabor-hours used

= = = = 44 units/labor-hour units/labor-hour1,0001,000

250250

Productivity Calculations (cont’d)Productivity Calculations (cont’d)

Multi-factors productivity:

OutputOutput

Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous

Productivity =Productivity =

Productivity VariablesProductivity Variables

Labor - contributes about 10% of the annual increase.

Capital - contributes about 38% of the annual increase

Management - contributes about 52% of the annual increase

Global View of OperationsGlobal View of Operations

Reasons to GlobalizeReasons to Globalize

1.1. Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.)

2.2. Improve supply chainImprove supply chain

3.3. Provide better goods and servicesProvide better goods and services

4.4. Understand marketsUnderstand markets

5.5. Learn to improve operationsLearn to improve operations

6.6. Attract and retain global talentAttract and retain global talent

Tangible Tangible ReasonsReasons

Intangible Intangible ReasonsReasons

Developing Missions and StrategiesDeveloping Missions and Strategies

MissionMission

statements tell an organization where it statements tell an organization where it is going.is going.

The The Strategy Strategy

tells the organization how to get theretells the organization how to get there

Strategies for Competitive AdvantageStrategies for Competitive Advantage

Differentiationbetter, or at least different.

Cost leadershipcheaper, achieving maximum value

ResponeRapid, flexible and reliable performance

10 Strategic OM Decisions10 Strategic OM Decisions

6. Human resources and job design

7. Supply chain management

8. Inventory

9. Scheduling

10. Maintenance

1. Goods and service design

2. Quality 3. Process and

capacity design4. Location

selection5. Layout design

OM’s Contribution to StrategyOM’s Contribution to Strategy

Product

Quality

Process

Location

Layout

Human resource

Supply chain

Inventory

Scheduling

Maintenance

FLEXIBILITY:Sony’s constant innovation of new products………………………………....Design HP’s ability to lead the printer market………………………………Volume

Southwest Airlines No-frills service……..…..LOW COST

DELIVERY: Pizza Hut’s 5-minute guarantee at lunchtime…………………..…..………………….Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability

QUALITY: Motorola’s HDTV converters….……........Conformance Motorola’s pagers………………………..….Performance

Caterpillar’s after-sale service on heavy equipment……………....AFTER-SALE SERVICE

Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE

OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage

Response(Faster)

Cost leadership(Cheaper)

Differentiation(Better)

Strategy Development and ImplementationStrategy Development and Implementation

SWOT analysis

Strategy

Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission

Import/export or license existing product

ExamplesU.S. SteelHarley Davidson

International Strategy

Four International Operations StrategiesFour International Operations StrategiesC

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HighHigh

LowLow

HighHighLowLow

Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)

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Four International Operations StrategiesFour International Operations Strategies

International StrategyInternational Strategy



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Standardized product

Economies of scale Cross-cultural

learning

ExamplesTexas InstrumentsCaterpillarOtis Elevator

Global Strategy


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Standardized product Economies of scale Cross-cultural learning


Global Strategy







Global StrategyGlobal Strategy




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Use existing domestic model globally

Franchise, joint ventures, subsidiaries

ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe

Multidomestic Strategy


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HighHighLowLow




Global Strategy




Multidomestic Strategy Use existing

domestic model globally Franchise, joint ventures,

subsidiaries

ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe







subsidiaries




Global StrategyGlobal Strategy

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Move material, people, ideas across national boundaries

Economies of scale Cross-cultural

learning

ExamplesCoca-ColaNestlé

Transnational Strategy


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HighHighLowLow




Global Strategy Transnational Strategy

Move material, people, ideas across national boundaries

Economies of scale Cross-cultural learning

ExamplesCoca-ColaNestlé






subsidiaries



CHAPTER 1 INTRODUCTION. LEARNING OBJECTIVES Describe and Explain concepts, functions and nature of...

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