Operations ManagementOperations ManagementContemporary Concepts and CasesContemporary Concepts and Cases

Chapter OneChapter OneThe Operations FunctionThe Operations Function

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter OutlineChapter Outline

Why Study Operations Management?Why Study Operations Management?

Definitions of Operations Management and Definitions of Operations Management and Supply ChainsSupply Chains

Decisions at Pizza U.S.A.Decisions at Pizza U.S.A.

Operations Decisions - A FrameworkOperations Decisions - A Framework

Cross-Functional Decision MakingCross-Functional Decision Making

Operations as a ProcessOperations as a Process

Contemporary Operations ThemesContemporary Operations Themes

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Why Study Operations Management?Why Study Operations Management?

Cross-functional nature of decisionsCross-functional nature of decisionsOperations is a major function in every Operations is a major function in every organizationorganizationPrinciples of process thinking can be applied Principles of process thinking can be applied across the businessacross the businessOperations Management is an interesting and Operations Management is an interesting and challenging field of studychallenging field of study

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Definition ofDefinition ofOperations ManagementOperations Management

The operations function of an organization is responsible for producing and delivering goods or services of value to customers of the organization.

Operations managers make decisions to manage the transformation process that converts inputs into desired finished goods or services.

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Key Points in OM DefinitionKey Points in OM Definition

Decisions:Decisions:

The operations manager must decide:The operations manager must decide:• Process, quality, capacity, inventoryProcess, quality, capacity, inventory

Function:Function:

Major functional areas in organizations:Major functional areas in organizations:• Operations, marketing, financeOperations, marketing, finance

Process:Process: planning and controlling the planning and controlling the

transformation process and its interfacestransformation process and its interfaces

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Major Major DecisionsDecisions at Pizza USA at Pizza USAA Framework for OMA Framework for OM

ProcessProcess– How to produce & deliver?How to produce & deliver?

QualityQuality– Criteria, measurement & process for achieving?Criteria, measurement & process for achieving?

CapacityCapacity– Physical facilities & labor?Physical facilities & labor?

InventoryInventory– What, when & how much?What, when & how much?

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Definition of Supply ChainDefinition of Supply Chain

Network of manufacturing and service Network of manufacturing and service operations that supply one anotheroperations that supply one another

From raw materials through manufacturing to From raw materials through manufacturing to the end consumerthe end consumer

Flows of materials, money, and informationFlows of materials, money, and information

Links operations Links operations acrossacross organizations organizations

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Cross-FunctionalCross-FunctionalDecision MakingDecision Making

Operations as the primary Operations as the primary function.function.

Other primary functions:Other primary functions:– MarketingMarketing– FinanceFinance

Supporting functions: all othersSupporting functions: all others

Major cross-functional decision making Major cross-functional decision making relationships (See Table 1.2)relationships (See Table 1.2)

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Operations as a Operations as a ProcessProcess

Transformation(Conversion)

Process

Input Output

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Operations as a Operations as a ProcessProcess

TransformationFabrication

Input OutputTransformationAssembly

Fabrication: making the parts

Assembly: putting the parts together

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Operations as a Operations as a ProcessProcess (Figure 1.1)(Figure 1.1)

Transformation(Conversion)

Process

EnergyMaterials

LaborCapital

Information

Goods orServices

Feedback information forcontrol of process inputsand process technology

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Relation of Operations to its Relation of Operations to its EnvironmentEnvironment(Figure 1.2)(Figure 1.2)

Operations transformation systemSuppliers

HumanResources

Marketing

Accounting Finance MIS

Engineering

SOCIETY

GOVERNMENT

ExternalEnvironment

CUSTOMERS

COMPETITORS

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Contemporary Operations ThemesContemporary Operations Themes

Service and Manufacturing (differences and Service and Manufacturing (differences and implications)implications)

Customer-Directed OperationsCustomer-Directed Operations

Lean OperationsLean Operations

Integration of Operations withOther FunctionsIntegration of Operations withOther Functions

Environmental Concerns and SustainabilityEnvironmental Concerns and Sustainability

Supply Chain ManagementSupply Chain Management

Globalization of OperationsGlobalization of Operations

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Environmental ConcernsEnvironmental Concerns

““Volkswagen, Germany’s biggest car maker, was Volkswagen, Germany’s biggest car maker, was reported to be setting aside DM1 billion ($470m) reported to be setting aside DM1 billion ($470m) to pay for compliance with a European directive to pay for compliance with a European directive that will come into force in 2007 forcing car that will come into force in 2007 forcing car makers to pay for recycling their vehicles. New makers to pay for recycling their vehicles. New cars will be required to be 85% recyclable.” cars will be required to be 85% recyclable.”

The Economist, 15 February 2001The Economist, 15 February 2001

See: See: www.arn.nl/english to learn what the Netherlands has to learn what the Netherlands has done to implement this directive.done to implement this directive.

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Globalization: Who took my job?Globalization: Who took my job?

Early 1990sEarly 1990s

Small town near Charlotte, NCSmall town near Charlotte, NC

Aluminum smelter closed after 50 yearsAluminum smelter closed after 50 years

Only significant industry in townOnly significant industry in town

In many families, several generations had In many families, several generations had worked there; now all out of workworked there; now all out of work

Who caused plant to close?Who caused plant to close?

MiklMiklós Némethós Németh

WHO!?WHO!?

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• U.S. production of aluminum dropped dramatically in the early 1990s because Russia dumped aluminum on the world market.

• Why? The opening of the Hungarian border on May 2, 1989 led to the fall of the Berlin Wall in November 1989…

• …which led to the breakup of the Soviet Union in 1991…

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• …which caused Russia to downsize their military…

• …which gave Russia overcapacity in aluminum production…

• …which caused Russia to dump aluminum in the world markets…

• …which led to the closing of U.S. smelters such as the one near Charlotte, NC.

MiklMiklós Némethós Németh

The Hungarian Prime The Hungarian Prime Minister who opened the Minister who opened the Hungarian border on May Hungarian border on May

2, 19892, 1989

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Moral of the StoryMoral of the Story

In an age of globalization, you never In an age of globalization, you never know who will be the competition or know who will be the competition or

who is doing something that will who is doing something that will affect your job or your life.affect your job or your life.

The aluminum workers in North The aluminum workers in North Carolina had never heard of MiklCarolina had never heard of Miklós ós

Németh, but he ultimately cost them Németh, but he ultimately cost them their jobs.their jobs.

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SummarySummary

Why Study Operations Management?Why Study Operations Management?

Definition of Operations Management and Definition of Operations Management and Supply ChainsSupply Chains

Decisions at Pizza U.S.A.Decisions at Pizza U.S.A.

Operations Decisions - A FrameworkOperations Decisions - A Framework

Cross-Functional Decision MakingCross-Functional Decision Making

Operations as a SystemOperations as a System

Contemporary Operations ThemesContemporary Operations Themes

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End of Chapter One