Introduction to Operations Management PDF

Chapter 1 INTRODUCTION TO OPERATIONS MANAGEMENT 1 Operations Management = OM  Management of ANY activities/process that create goods and provide services » Exemplary Activities: Forecasting, Scheduling, Quality management  Why to study OM...

Chapter 1 INTRODUCTION TO OPERATIONS MANAGEMENT 1 Operations Management = OM  Management of ANY activities/process that create goods and provide services » Exemplary Activities: Forecasting, Scheduling, Quality management  Why to study OM » At a typical manufacturing company Profit 5% OM Cost 21% Marketing Cost 26% Manufacturing Cost 48% 2 Definition of Operations Management  Operations management involves utilizing given resources as efficiently as possible to deliver services to customers and meet business goals.  Developing efficient business operations requires a hospitality organization to design efficient service environments, as part of its mission. 3 Definition of Operations Management  Operations management is the area of management concerned with designing and controlling the processes of producing goods and services.  It involves ensuring that business operations are efficient in terms of using as few resources as needed and effective in terms of meeting customer requirements. 4 Definition of Operations Management  Operations management is the administration of business structure, practices, and processes to enhance efficiency and maximize profit.  It refers to the management of functions that a business needs to run effectively day-to-day, including: Overseeing multiple departments and providing goals. 5  Scope of Operations Management  Operations Management includes: – Forecasting – Capacity planning – Scheduling – Managing inventories – Assuring quality – Motivating employees – Deciding where to locate facilities - Finance - Product design - Quality control. - Strategy. - Supply chain management. 6 Operations Management = OM The management of systems or processes that create goods and/or provide services Organization Finance Operations Marketing The distinct –active- role of operations: Inputs become Outputs after some Transformation 7  Operations example in Manufacturing: Food Processing INPUTS PROCESS OUTPUTS Raw vegetables Cleaning Clean vegetables Metal sheets Cutting/Rolling/Welding Cans Energy, Vegetables Cutting Cut vegetables Energy, Water, Cooking Boiled Vegetables vegetables Energy, Cans, Boiled Placing Can food vegetables 8 Why OM?  Core of all business organizations  Many areas interrelated with OM activities  Management of operations is critical to create and maintain competitive advantages 9 Organization of Businesses  Three basic functions – Operations/Production » Goods oriented (manufacturing and assembly) » Service oriented (health care, transportation and retailing) » Value-added (the essence of the operations functions) – Finance-Accounting » Budgets (plan financial requirements) » Economic analysis of investment proposals » Provision of funds (the necessary funding of the operations) 10  Organization of Businesses (Cont.) – Marketing » Selling » Promoting » Assessing customer wants and needs » Communicating those needs to operations  The need for working closely Operations Marketing Finance 11 Operations Interfaces Industrial Engineering Maintenance Distribution Operations Public Relations Purchasing Personnel Accounting 12 Systems (Holistic) Approach  Emphasizes interrelations among subsystems.  A systems approach is essential whenever something is being designed, redesigned, implemented, or improved. It is important to take into account the impact on all parts of the system.  Example: A new feature is added to a product.  Designer must take into account how customers will view the change, instruction for using new feature, the cost, training of workers, production schedule, quality standard, advertising must be informed about the new feature. 13  Systems Approach “The whole is greater than the sum of the parts.” Suboptimization 14 Value Added Value added: The difference between cost of inputs and price (??) of outputs. Is this definition right? Should value added include profit? Value added: The difference between the cost of inputs and the (market or fair) value or price of outputs. 15  Value-Added Value added Inputs Transformation/ Outputs Land Conversion Goods Labor process Services Capital Feedback Control Feedback Feedback 16 Degree of Standardization !  Standardized output – Take advantage of standardized methods, less skilled workers, materials… » Example: Iron, Wheat, most of commodities  Customized output – Each job is different – Workers must be skilled » Example: Hair cut 17 Goods vs. Service Operations (Cont)  Differences 1. Customer contact 2. Uniformity of input 3. Labor content of jobs 4. Uniformity of output 5. Measurement of productivity 6. Production and delivery 7. Quality assurance 8. Amount of inventory 18 Manufacturing vs. Service ! Characteristic Manufacturing Service Output Tangible Intangible Customer contact Low High Uniformity of output High Low Labor content Low High Uniformity of input High Low Measurement of Easy Difficult productivity Opportunity to correct Easy Difficult quality problems 19 Manufacturing vs. Service Industries in US Year Mfg. Service U.S. Manufacturing vs. Service Employment 45 79 21 50 72 28 100 55 72 28 60 68 32 80 65 64 36 60 70 64 36 Percent 75 58 42 40 80 44 46 85 43 57 20 90 35 65 0 95 32 68 45 50 55 60 65 70 75 80 85 90 95 00 00 30 70 Year 20 Responsibilities of Operations Management  Planning – Capacity, utilization – Location – Choosing products or services – Make or buy – Layout – Projects – Scheduling – Market share – Plan for risk reduction, plan B? – Forecasting 21 Operations Managers  Controlling – Inventory – Quality – Costs  Organization – Degree of standardization – Subcontracting – Process selection  Staffing – Hiring/lay off – Use of overtime – Incentive plans – Job assignments 22 Decision Making  Models  Quantitative approaches  Analysis of trade-offs  Systems approach 23 Models Are Beneficial  Easyto use, less expensive  Require users to organize – Increase understanding of the problem – Consistent tool – Standardized format – Specific objectives  Systematic approach to problem solving – Analysis of tradeoffs – Enable “what if” questions  Power of mathematics 24 Historical Evolution of Operations Management  Industrial revolution (1770’s)  Scientific management (1911) – Mass production – Interchangeable parts – Division of labor  Human relations movement (1920-60) – Unemployment insurance – Pension plans  Decision models (1915, 1960-70’s)  Influence of Japanese manufacturers (1970-1990) 25 Trends in Business  Major trends – The Internet, e-commerce, e-business – Management technology – Globalization – Management of supply chains – Agility 26 Recent Trends !  Worker involvement  Environmental issues, emission reductions are popular after Central European floods  Service economy in US, foreign production  E-business – information technology  Supply chain management  Total Quality Management  Globalization, emerging markets, NAFTA  Lean Production – see the next page 27 Other Important Trends  Ethicalbehavior  Operations strategy  Working with fewer resources  Cost control and productivity  Quality and process improvement  Increased regulation and product liability  Lean production 28 Summary  Definition of OM  OM’s relationship with Marketing, Finance and Accounting  OM issues, trends and models 29