Introduction Operation Management

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Operations Management

OPERATIONS MANAGEMENT

INTRODUCTION

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Course Content• Introduction – 1hr• Forecasting – 3 hrs• Decision Tables & Decision Trees – 5 hrs• Linear Programming – 2 hrs• Simulation – 1 hr• Project Management - 2 hrs• Transportation Models – 3 hrs• Location Strategy – 3 hrs• Process Strategy – 3 hrs• Capacity Planning - 2 hrs• Maintenance& Reliability – 4 hrs• Linear Programming Applications – 3 hrs• Simulation Applications – 3 hrs• Quality – 2 hrs

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References:

1. Heizer, J, Render B, Operations Management, 7th Edition, Pearson Prentice Hall, NJ, 2004

2. Chase R B, Aquilano N J,, Jacobs F R, Operations Management forCompetitive Advantage, McGraw Hill, 2001.

3. Hillier F S, Hillier M S, Lieberman G J, Introduction to ManagementScience, A Modelling and Case Studies Approach with Spreadsheets, Irwin McGraw Hill, Singapore, 2000.

4. Riggs J L, Bedworth D D, Randhawa S U, Engineering Economics,4th Edition, mcGraw Hill, Singapore, 1998.

5. Winston W L, Introduction to Mathematical Programming, Applicationsand Algorithms, Duxberg Press, 1991.

6. Newendorp P D, Decision Analysis for Petroleum Exploration, PennWellBooks, PennWell Publishing Co., Tulsa, Oklohama, 1975.

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INTRODUCTION

Operations and ProductivityOperations and Productivity• Why Study OM?

• What Operations Managers Do?

• Organizing to Produce Goods and Services

• Where are the OM Jobs?

• Exciting New Trends in OM

• Operations in the Service Sector

• The Productivity Challenge

• The Challenge of Social Responsibility

ProductionProduction is the creation of goods and services is the creation of goods and services Operations managementOperations management is the set of activities that creates goods and is the set of activities that creates goods and

services through the transformation of inputs into outputsservices through the transformation of inputs into outputs

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Why Study OM?• OM is 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 know what operations managers do

• OM is such a costly part of an organization

What Operations Managers Do?What Operations Managers Do? PlanPlan OrganizeOrganize StaffStaff LeadLead ControlControl

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Ten Critical Decisions

• Managing quality

• Design of goods and services

• Location strategies

• Layout strategies

• Human resources

• Supply-chain management

• Inventory management

• Scheduling

• Maintenance

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The Critical Decisions• Quality management

– Who is responsible for quality?– How do we define quality?

• Goods and services design– What product or service should we offer?– How should we design these products and services?

Process and Capacity designProcess and Capacity design• What processes will these products require and in what What processes will these products require and in what

order?order?• What equipment and technology is necessary for these What equipment and technology is necessary for these

processes?processes? LocationLocation

• Where should we put the facilityWhere should we put the facility• On what criteria should we base this location decision?On what criteria should we base this location decision?

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The Critical Decisions - continued

• Process and Capacity design– What processes will these products require and in what

order?– What equipment and technology is necessary for these

processes?• Location

– Where should we put the facility– On what criteria should we base this location decision?

Layout designLayout design• How should we arrange the facility?How should we arrange the facility?• How large a facility is required?How large a facility is required?

Human resources and job designHuman resources and job design• How do we provide a reasonable work environment?How do we provide a reasonable work environment?• How much can we expect our employees to produce?How much can we expect our employees to produce?

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The Critical Decisions - continued

• Supply chain management and JIT “Just-in-time” Inventory, Material Requirements Planning

– Should we make or buy this item?– Who are our good suppliers and how many should we have?– How much inventory of each item should we have?– When do we re-order?

Immediate, short term, and project schedulingImmediate, short term, and project scheduling• Is subcontracting production a good idea?Is subcontracting production a good idea?• Are we better off keeping people on the payroll during Are we better off keeping people on the payroll during

slowdowns?slowdowns? MaintenanceMaintenance

• Who is responsible for maintenance?Who is responsible for maintenance?

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Organizational Functions

• Marketing - generates demand or at least takes the order for a product or service

• Operations - creates the product

• Finance/accounting - tracks how well the organization is doing, pays the bills, collects the money

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Organizational Functions

• Marketing– Gets customers

• Operations– Creates product or service

• Finance/Accounting– Obtain funds– Tracks money

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Where are the OM Jobs?

• Technology/methods• Facilities/space utilization• Strategic issues• Response time• People/team development• Customer service• Quality• Cost reduction• Inventory reduction• Productivity improvement

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New Challenges in OM

• Local or national focus

• Batch shipments• Low bid purchasing

• Lengthy product development

• Standard products• Job specialization

¨ Global focus¨ Just-in-time¨ Supply chain

partnering

¨ Rapid product development

¨ Mass customization

¨ Empowered employees

From To

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Characteristics of Goods

• Tangible product

• Consistent product definition

• Production usually separate from consumption

• Can be inventoried

• Low customer interaction

Characteristics of Service• Intangible product

• Produced & consumed at same time

• Often unique

• High customer interaction

• Inconsistent product definition

• Often knowledge-based

• Frequently dispersed

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Goods versus Services

• Can be resold• Can be inventoried

• Some aspects of quality measurable

• Selling is distinct from production

¨ Reselling unusual¨ Difficult to inventory

¨ Quality difficult to measure

¨ Selling is part of service

Good Service

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Goods versus Services

• Product is transportable

• Site of facility important for cost

• Often easy to automate

• Revenue generated primarily from tangible product

¨ Provider, not product is transportable

¨ Site of facility important for customer contact

¨ Often difficult to automate

¨ Revenue generated primarily from intangible service.

Good Service

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The Economic System Transforms Inputs to Outputs

The economic system transforms inputs to outputs

Land, Labor, Capital, Management

Goods and Services

Feedback loop

Inputs Process Outputs

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Productivity¨ Measure of process improvement

¨ Represents output relative to input

¨ Productivity increases improve standard of living

ProductivityProductivityUnits producedUnits produced

Input usedInput used

Productivity = Output

Labor + Material+ Energy+ Capital+Miscellaneous

Productivity VariablesProductivity Variables

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Measurement Problems

• Quality may change while the quantity of inputs and outputs remains constant.

• External elements may cause an increase or decrease in productivity.

• Precise units of measure may be lacking

Productivity Variables

• Labor - contributes about 1/6 of the annual increase

• Capital - contributes about 1/6 of the annual increase

• Management - contributes about 2/3 of the annual increase

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Key Variables for Improved Labor Productivity

• Basic education appropriate for the labor force

• Diet of the labor force

• Social overhead that makes labor available

• Maintaining and enhancing skills in the midst of rapidly changing technology and knowledge

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Jobs in US

26%

18%

16%

14%

6%6% 5% 5%

3%1%

Education, Health, etc.

Manufacturing

Retail Trade

State & Local Gov't

Finance, Insurance

Wholesale Trade

Transport, Public Util.

Construction

Federal Government

Mining

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Employment by Sector (Malaysia)

Sector Share (%) - 2003

Agriculture etc.

Mining

Manufacturing

Construction

Services

–Elec, gas and water

–Wholesale, retail, hotel and restraunts

–Finance, insurance real estates and business service

–Transport, storage and communications

Govt services

Other services

13.8

0.3

21.7

9.5

50.3

0.9

17.1

6.3

5.2

10.1

10.7

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Productivity Growth 1971- 1992

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

United StatesWest GermanyJapan

Whole Economy Manufacturing

% p

er y

ear LaborLabor

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Growth Rate of Labor Productivity

0

2

4

6

0 2 4 6 8 10 12

Growth Rate of Gross Capital Per Worker (%)

U.S.

U.K.

W Germany

France

Japan

1964-84

1979-84Gro

wth

Ra

te o

f L

ab

or

Pro

du

cti

vit

y (

%)

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0

2

4

6

8

10

10 15 20 25 30 35

Nonresidential fixed investment to GNP (%)

U.S.

U.K.

Canada

Italy

Belgium

France

Netherlands

Japan

Best fitPe

rce

nt

inc

rea

se

in

p

rod

uc

tiv

ity

(M

fg)

Investment and Productivity in Selected Nations

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Service Productivity

• Typically labor intensive• Frequently individually processed• Often an intellectual task performed by

professionals• Often difficult to mechanize• Often difficult to evaluate for quality

Introduction Operation Management

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