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

Slides preparedSlides preparedby John Loucksby John Loucks

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Chapter 1Chapter 1Chapter 1Chapter 1

Introduction to Operations ManagementIntroduction to Operations Management

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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 Wrap-Up: What World-Class Producers DoWrap-Up: What World-Class Producers Do

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IntroductionIntroductionIntroductionIntroduction

Operations managementOperations management is the management of an is the management of an organization’s productive resources or its production organization’s productive resources or its production system.system.

A A production systemproduction system takes inputs and converts them takes inputs and converts them into outputs.into outputs.

The The conversion processconversion process is the predominant activity of is the predominant activity of a production system.a production system.

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

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Organizational ModelOrganizational ModelOrganizational ModelOrganizational Model

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSalesFinanceFinance

OMOM

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Entry-Level Jobs in OMEntry-Level Jobs in OMEntry-Level Jobs in OMEntry-Level 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 Post-Civil War PeriodPost-Civil War Period Scientific ManagementScientific Management Human Relations and BehaviorismHuman Relations and Behaviorism Operations ResearchOperations Research The Service RevolutionThe Service Revolution

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The Industrial RevolutionThe Industrial RevolutionThe Industrial RevolutionThe Industrial Revolution

The The industrial revolutionindustrial revolution developed in England in the developed 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 Smith’s Adam Smith’s The Wealth of NationsThe Wealth of Nations in 1776 touted in 1776 touted the economic benefits of the the economic benefits of the specialization of laborspecialization of labor..

Thus the late-1700s factories had not only machine Thus the late-1700s factories had not only machine power but also ways of planning and controlling the power but also ways of planning and controlling the tasks of workers.tasks of workers.

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The Industrial RevolutionThe Industrial RevolutionThe Industrial RevolutionThe Industrial Revolution

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

In 1790 an American, Eli Whitney, developed the In 1790 an American, Eli Whitney, developed the concept of concept of interchangeable partsinterchangeable parts..

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

In the 1800s the development of the gasoline engine In the 1800s the development of the gasoline engine and electricity further advanced the revolution.and electricity further advanced the revolution.

By the mid-1800s, the old By the mid-1800s, the old cottage systemcottage system of of production had been replaced by the production had been replaced by the factory systemfactory system..

. . . more. . . more

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Post-Civil War PeriodPost-Civil War PeriodPost-Civil War PeriodPost-Civil War Period

During the post-Civil War period great expansion of During the post-Civil War period great expansion of production capacity occurred.production capacity occurred.

By post-Civil War the following developments set the By post-Civil War the following developments set the stage for the great production explosion of the 20th stage for the great production explosion of the 20th century: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 of Frederick Taylor is known as the father of scientific scientific managementmanagement. His . His shop systemshop system employed these steps: employed these steps: Each worker’s skill, strength, and learning ability Each worker’s skill, strength, and learning ability

were determined.were determined. Stopwatch studies were conducted to precisely set Stopwatch 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 routing Material 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 Company’s operation In the 1920s, Ford Motor Company’s 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 1927-1932 period, researchers in the In the 1927-1932 period, researchers in the Hawthorne Studies realized that human factors were Hawthorne Studies realized that human factors were affecting production.affecting production.

Researchers and managers alike were recognizing Researchers and managers alike were recognizing that psychological and sociological factors affected that psychological and sociological factors affected production.production.

From the work of From the work of behavioralistsbehavioralists came a gradual came a gradual change in the way managers thought about and change in the way managers thought about and treated workers.treated workers.

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Operations ResearchOperations ResearchOperations ResearchOperations Research

During World War II, enormous quantities of During World War II, enormous quantities of resources (personnel, supplies, equipment, …) had to resources (personnel, supplies, equipment, …) had to be deployed.be deployed.

Military Military 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 way After the war, operations researchers found their way back to universities, industry, government, and back to universities, industry, government, and consulting firms.consulting firms.

OR helps operations managers make decisions when OR helps operations managers make decisions when problems are complex and wrong decisions are problems 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 accelerated The creation of services organizations accelerated sharply after World War II.sharply after World War II.

Today, more than two-thirds of the US workforce is Today, more than two-thirds of the US workforce is employed in services.employed in services.

About two-thirds of the US GDP is from services.About two-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 the Investment per office worker now exceeds the

investment per factory worker.investment per factory worker. Thus there is a growing need for service operations Thus 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 communication Explosive growth of computer and communication technologiestechnologies

Easy access to information and the availability of Easy access to information and the availability of more informationmore information

Advances in software applications such as Enterprise Advances 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 E-More and more firms becoming involved in E-

Business using the InternetBusiness using the Internet Result:Result: faster, better decisions over greater distances faster, 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 Social-Responsibility IssuesSocial-Responsibility 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

InputsInputsInputsInputs OutputsOutputsOutputsOutputsConversionConversionSubsystemSubsystemConversionConversionSubsystemSubsystem

Production SystemProduction System

ControlControlSubsystemSubsystem

ControlControlSubsystemSubsystem

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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

Physical Physical (Manufacturing)(Manufacturing) Locational Services Locational Services (Transportation)(Transportation) Exchange Services Exchange Services (Retailing)(Retailing) Storage Services Storage 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 global We focus on OM as we think of global competitiveness, because that is where the vast competitiveness, because that is where the vast majority of a firm’s workers, capital assets, and majority of a firm’s workers, capital assets, and expenses reside.expenses reside.

To succeed, a firm must have a strong operations To succeed, a firm must have a strong operations function teaming with the other organization function teaming with the other organization functions.functions.

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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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Strategic DecisionsStrategic Decisions

These decisions are of strategic importance and have These decisions are of strategic importance and have long-term significance for the organization.long-term significance for the organization.

Examples include deciding:Examples include deciding: the design for a new product’s production processthe design for a new product’s production process where to locate a new factorywhere to locate a new factory whether to launch a new-product development planwhether to launch a new-product development plan

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Operating DecisionsOperating DecisionsOperating DecisionsOperating Decisions

These decisions are necessary if the ongoing These decisions are necessary if the ongoing production of goods and services is to satisfy market production of goods and services is to satisfy market demands and provide profits.demands and provide profits.

Examples include deciding:Examples include deciding: how much finished-goods inventory to carryhow much finished-goods 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 DecisionsControl Decisions

These decisions concern the day-to-day activities of These decisions concern the day-to-day activities of workers, quality of products and services, production workers, 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, and Information about the outputs, the conversions, and the inputs is fed back to management.the inputs is fed back to management.

This information is matched with management’s This information is matched with management’s expectationsexpectations

When there is a difference, management must take When 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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Wrap-Up: World Class PracticeWrap-Up: World Class PracticeWrap-Up: World Class PracticeWrap-Up: World Class Practice

OM important in OM important in anyany organization organization Global competition forces rapid evolution of OM Global 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