MGT 3110 Operations Management

Dr. P. Dileepan

Chapter 1

Introduction to Operations Management

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 1: Learning ObjectivesYou should be able to:

1. Define the term operations management2. Identify the three major functional areas of organizations and describe how they

interrelate3. Identify similarities and differences between production and service operations4. Describe the operations function and the nature of the operations manager’s job5. Summarize the two major aspects of process management6. Briefly describe the historical evolution of operations management7. Characterize current trends in business that impact operations management8. Define the term productivity and explain why it is important to organizations and

countries9. Provide some reasons for poor productivity and some ways of improving it

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

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Operations FinanceMarketing

Organization

Basic Functions of the Business Organization

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The Transformation Process

Inputs• Land• Labor• Capital• Information

Outputs• Goods• Services

Transformation/Conversion

Process

Control

Measurementand Feedback

Measurementand Feedback

Measurementand 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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Supply Chain

Suppliers’suppliers

Directsuppliers

Producer DistributorFinal

Customers

Supply Chain – a sequence of activities and organizations involved in producing and delivering a good or service

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Supply Chain for Bread

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Goods are physical items that include raw materials, parts, subassemblies, and final products.

• Automobile• Computer• Oven• Shampoo

Services are activities that provide some combination of time, location, form or psychological value.

• Air travel• Education• Haircut• Legal counsel

Good or Service?

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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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Tangible Act-Oriented

Goods Services

Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.

Manufacturing vs. Service?

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Manufacturing vs. Service1. Degree of customer contact2. Uniformity of input3. Labor content of jobs4. Uniformity of output5. Measurement of productivity6. Production and delivery7. Quality assurance8. Amount of inventory9. Evaluation of work10.Ability to patent design

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Managing Services is Challenging1. Jobs in services are often less structured than in manufacturing2. Customer contact is generally much higher in services compared to

manufacturing3. In many services, worker skill levels are low compared to those of

manufacturing employees4. Services are adding many new workers in low-skill, entry-level positions5. Employee turnover is high in services, especially in low-skill jobs6. Input variability tends to be higher in many service environments than in

manufacturing7. Service performance can be adversely affected by many factors outside of the

manager’s control (e.g., employee and customer attitudes)

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Scope of Operations Management

The operations function includes many interrelated activities such as:

ForecastingCapacity planningFacilities and layoutSchedulingManaging inventoriesAssuring qualityMotivating employeesDeciding where to locate facilitiesAnd more . . .

The scope of operations management ranges across the organization.

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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 Decisions– System Operation Decisions

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System Design Decisions• System Design

– Capacity– Facility location– Facility layout– Product and service planning– Acquisition and placement of equipment

• These are typically strategic decisions that• usually require long-term commitment of resources• determine parameters of system operation

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System Operation Decisions• System Operation

• These are generally tactical and operational decisions– Management of personnel– Inventory management and control– Scheduling– Project management– Quality assurance

• Operations managers spend more time on system operation decision than any other decision area

• They still have a vital stake in system design

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Decision MakingMost operations decisions involve many alternatives that can have quite

different impacts on costs or profitsTypical operations decisions include:

What: What resources are needed, and in what amounts?

When: When will each resource be needed? When should the work be

scheduled? When should materials and other supplies be ordered?

Where: Where will the work be done?

How: How will he product or service be designed? How will the work be

done? How will resources be allocated?

Who: Who will do the work?

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Historical Evolution of OM

• Industrial Revolution• Scientific Management• Human Relations Movement• Decision Models and Management Science• Influence of Japanese Manufacturers

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Industrial Revolution• Pre-Industrial Revolution

– Craft production - System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods

• Some key elements of the industrial revolution– Began in England in the 1770s– Division of labor - Adam Smith, 1776– Application of the “rotative” steam engine, 1780s– Cotton Gin and Interchangeable parts - Eli Whitney, 1792

• Management theory and practice did not advance appreciably during this period

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Scientific Management• Movement was led by efficiency engineer, Frederick Winslow

Taylor– Believed in a “science of management” based on observation,

measurement, analysis and improvement of work methods, and economic incentives

– Management is responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperate between management and workers, and separating management activities from work activities

– Emphasis was on maximizing output

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Scientific Management - contributors

• Frank Gilbreth - father of motion studies• Henry Gantt - developed the Gantt chart scheduling system

and recognized the value of non-monetary rewards for motivating employees

• Harrington Emerson - applied Taylor’s ideas to organization structure

• Henry Ford - employed scientific management techniques to his factories

• Moving assembly line• Mass production

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Human Relations Movement

• The human relations movement emphasized the importance of the human element in job design– Lillian Gilbreth– Elton Mayo – Hawthorne studies on worker motivation, 1930– Abraham Maslow – motivation theory, 1940s; hierarchy of needs,

1954– Frederick Hertzberg – Two Factor Theory, 1959– Douglas McGregor – Theory X and Theory Y, 1960s– William Ouchi – Theory Z, 1981

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Decision Models & Management Science

• F.W. Harris – mathematical model for inventory management, 1915• Dodge, Romig, and Shewart – statistical procedures for sampling and

quality control, 1930s• Tippett – statistical sampling theory, 1935• Operations Research (OR) Groups – OR applications in warfare• George Dantzig – linear programming, 1947

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Influence of Japanese Manufacturers

• Refined and developed management practices that increased productivity– Credited with fueling the “quality revolution– Just-in-Time production

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Key Issues for Operations Managers Today

• Economic conditions• Innovating• Quality problems• Risk management• Competing in a global economy

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Ethical Issues in Operations

Financial statementsWorker safetyProduct safetyQualityThe environmentThe communityHiring and firing workersClosing facilitiesWorkers rights

• Ethical issues arise in many aspects of operations management:

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Productivity

• Productivity– A measure of the effective use of resources,

usually expressed as the ratio of output to input

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Productivity =Units produced

Input used

Partial Productivity Measures

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Single-factor productivity =

Labor productivity =

Capital productivity =

Units producedSingle input used

Units producedLabor-hours used

Units producedCapital used

Multifactor Productivity

Multifactor Productivity =Output

Labor + Material + Energy + Capital + Miscellaneous

Total Productivity =Output

Sum of all the inputs

What is the multifactor productivity?

Productivity Calculation Example

Units produced: 5,000 Standard price: $30/unitLabor input: 500 hoursCost of labor: $25/hourCost of materials: $5,000Cost of overhead: 2x labor cost

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Solution

Multifactor Productivity =Output

Labor +Material +Overhead

$25/hour))hours (2(500+$5,000+$25/hour)hours (500

$30/unitunits 5,000=

3.5294=

500,42$

$150,000=

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Productivity Growth

Productivity Growth = Current productivity - Previous productivity

Previous productivity100%

Productivity Growth = 23 - 25

25100% 8%

Example: Labor productivity on the ABC assembly line was 25 units per hour in 2009. In 2010, labor productivity was 23 units per hour. What was the productivity growth from 2009 to 2010?

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Service Sector ProductivityService sector productivity is difficult to measure and

manage becauseIt involves intellectual activitiesIt has a high degree of variability

A useful measure related to productivity is process yieldWhere products are involved

ratio of output of good product to the quantity of raw material input. Where services are involved, process yield measurement is

often dependent on the particular process: ratio of cars rented to cars available for a given day ratio of student acceptances to the total number of students approved

for admission.

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Factors Affecting Productivity

Capital

Methods

Technology Management

Quality

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Improving Productivity1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations

3. Develop methods for productivity improvements

4. Establish reasonable goals5. Make it clear that management supports and encourages productivity

improvement

6. Measure and publicize improvements

Don’t confuse productivity with efficiency

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