Operations Management Textbook PDF

Operations Management Seventh Edition R. Dan Reid & Nada R. Sanders Chapter 1 Introduction to Operations Management ©2020 John Wiley & Sons, Inc. All rights reserved. Learning Objectives 1. Define operations management. 2. Describe th...

Operations Management Seventh Edition R. Dan Reid & Nada R. Sanders Chapter 1 Introduction to Operations Management ©2020 John Wiley & Sons, Inc. All rights reserved. Learning Objectives 1. Define operations management. 2. Describe the difference between manufacturing and service organizations. 3. Describe decisions that operations managers make. 4. Identify major historical developments in operations management. 5. Identify current trends in operations management. 6. Describe the flow of information between operations management and other business functions. © 2020 John Wiley & Sons, Inc. All rights reserved. 2  Learning Objective 1 Define operations management. LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 3  Operations Management The business function responsible for planning, coordinating, and controlling the resources needed to produce a company’s goods and services. LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 4  Operations Management Characteristics A management function. An organization’s core function. In every organization. o small or large o service or manufacturing o for-profit or not-for-profit LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 5  Typical Organization Chart FIGURE 1.1 Organizational Chart showing the three major business functions LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 6  What Is the Role of OM? OM transforms inputs to outputs. o Inputs include resources such as: human resources, facilities and processes, materials, technology and information. o Outputs are the finished goods and services. LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 7  OM’s Transformation Process FIGURE 1.2 The transformation process LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 8  Transformation Process: Value Added and Efficiency Value added process. o Value added is the net increase between output product value and input material value. o The greater the value added, the more productive a business is. Efficient transformation. o Efficiency means performing activities well and at the lowest possible cost. LO 1 © 2020 John Wiley & Sons, Inc. All rights reserved. 9  Learning Objective 2 Describe the difference between manufacturing and service organizations. LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 10  Service Organizations vs. Manufacturers Services: Manufacturers: Intangible product Physical, tangible Product cannot be product inventoried Product is inventoried High customer contact Low customer contact Short response time Longer response time Labor intensive Capital intensive LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 11  Service vs. Manufacturing Manufacturing can provide services. Services can provide tangible goods. Some companies are a blend of service/manufacturing/quasi-manufacturing organizations. Quasi-manufacturing characteristics include: o low customer contact o capital intensive LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 12  Characteristics of Manufacturing and Service Organizations FIGURE 1.3 LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 13  Growth of the Service Sector FIGURE 1.4 U.S. employment by economic sector LO 2 © 2020 John Wiley & Sons, Inc. All rights reserved. 14  Learning Objective 3 Describe decisions that operations managers make. LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 15  OM Decisions All organizations make decisions and follow a similar path. Strategic decisions → Tactical decisions Tactical and strategic decisions must align. LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 16  Strategic and Tactical Decisions Relationship FIGURE 1.5 The relationship between strategic and tactical decisions LO 3 © 2020 John Wiley & Sons, Inc. All rights reserved. 17  Learning Objective 4 Identify major historical developments in operations management. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 18  Historical Development of OM: 1700s−1980s Concept Time Explanation Industrial Revolution Late 1700s Brought in innovations that changed production by using machine power instead of human power. Scientific management Early 1900s Brought the concepts of analysis and measurement of the technical aspects of work design and development of moving assembly lines and mass production. Human relations 1930s to Focused on understanding human elements of job movement 1960s design, such as worker motivation and job satisfaction. Management science 1940s to Focused on the development of quantitative 1960s techniques to solve operations problems. Computer age 1960s Enabled processing of large amounts of data and allowed widespread use of quantitative procedures. Environmental issues 1970s Considered waste reduction, the need for recycling, and product reuse. Just-in-time systems (JIT) 1980s Designed to achieve high-volume production with minimal inventories. Total quality management 1980s Sought to eliminate causes of production defects. (TQM) LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 19  Historical Development of OM: 1980s−Present Concept Time Explanation Reengineering 1980s Required redesigning a company’s processes in order to provide greater efficiency and cost reduction. Global competition 1980s Designed operations to compete in the global market. Flexibility 1990s Offered customization on a mass scale. Time-based competition 1990s Based on time, such as speed of delivery. Supply chain management 1990s Focused on reducing the overall cost of the system that manages the flow of materials and information from suppliers to final customers. Electronic commerce 2000s Uses the Internet and World Wide Web for conducting business activity. Outsourcing and flattening 2000s Convergence of technology has enabled of the world outsourcing of virtually any job imaginable from anywhere around the globe, therefore “flattening” the world. Big data analytics 2010s – Applies math and statistics to large present volumes of structured and unstructured LO 4 © 2020 John Wiley & Sons,data Inc. All to rights reserved. gain unprecedented business 20  Scientific Management Scientific management was an approach to management that focused on improving output by redesigning jobs and determining acceptable levels of worker output. Promoted by Frederick W. Taylor. o Increase worker productivity and organizational output Popularized by Henry Ford. o Moving assembly line o Mass production LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 21  Human Relations Movement Hawthorne studies are studies responsible for creating the human relations movement, which focused on giving more consideration to workers’ needs. Human relations movement is a philosophy based on the recognition that factors other than money can contribute to worker productivity. o Job enlargement is an approach in which workers are given a larger portion of the total task to do. o Job enrichment is an approach in which workers LO 4 are given a©greater 2020 John Wileyrole inAllplanning. & Sons, Inc. rights reserved. 22  Management Science Management science is a field of study that focuses on the development of quantitative techniques to solve operations problems. o An example is linear programming. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 23  Just-in-Time (JIT) Just-in-time (JIT) is an all-inclusive organizational philosophy designed to achieve high-volume production through elimination of waste and continuous improvement. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 24  Total Quality Management (TQM) Total quality management (TQM) is a philosophy that seeks to improve quality by eliminating causes of product defects and by making quality the responsibility of everyone in the organization. ISO 9000 is a global set of standards, with many companies requiring their suppliers to meet the standards as a condition for obtaining contracts. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 25  Business Process Reengineering, Flexibility, and Time-based competition Reengineering is redesigning a company’s processes to make them more efficient. Flexibility is an organizational strategy in which the company attempts to offer a greater variety of product choices to its customers. Mass customization is the ability of a firm to highly customize its goods and services at high volumes. Time-based competition is an organizational strategy focusing on efforts to develop new products and deliver them to customers faster than competitors. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 26  Supply Chain Management Supply chain management (SCM) is management of the flow of materials from suppliers to customers in order to reduce overall cost and increase responsiveness to customers. FIGURE 1.6 The traditional publishing supply chain LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 27  Global Marketplace Global marketplace is a trend in business focusing on customers, suppliers, and competitors from a global perspective. OM decides: o whether to tailor products to different customer needs o where to locate facilities o how to manage suppliers o how to meet local government standards Regional trading agreements such as NAFTA and the EU are designed to guarantee continued competition LO 4 on the international level. © 2020 John Wiley & Sons, Inc. All rights reserved. 28  Sustainability and Green Operations Sustainability is a trend in business to consciously reduce waste, recycle, and reuse products and parts. ISO 14000 was developed by the International Organization for Standardization (ISO) to provide guidelines and a certification program documenting a company’s environmentally responsible actions. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 29  Electronic Commerce Business-to-business (B2B) is electronic commerce between businesses. Business-to-customers (B2C) is electronic commerce between businesses and their customers. Customer-to-customer (C2C) is electronic commerce between customers. LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 30  Outsourcing and Flattening of the World Outsourcing is obtaining goods or services from an outside provider. FIGURE 1.8 U.S. market for outsourcing services 1996−2014 LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 31  Big Data Analytics Big data analytics is applying mathematics and statistics to large volumes of structured and unstructured data to gain unprecedented business insights. Data comes in all forms: o point-of-sale (POS) o radio frequency identification (RFID) o global positioning systems (GPS) data o Twitter feeds o Facebook o call centers o consumer blogs LO 4 © 2020 John Wiley & Sons, Inc. All rights reserved. 32  Learning Objective 5 Identify current trends in operations management. LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 33  Today’s OM Environment Customers demanding better quality, greater speed, and lower costs Companies implementing lean system concepts —a total systems approach to efficient operations Recognized need to better manage information using ERP and CRM systems Increased cross-functional decision making LO 5 © 2020 John Wiley & Sons, Inc. All rights reserved. 34  Learning Objective 6 Describe the flow of information between operations management and other business functions. LO 6 © 2020 John Wiley & Sons, Inc. All rights reserved. 35  Operations Management in Practice Of all the business functions, operations is the most diverse in terms of the tasks performed. OM has many faces and names, such as: o V. P. Operations, Director of Supply Chains, Manufacturing Manager, Plant Manger, Quality Specialists, etc. All business functions need information from OM in order to perform their tasks. LO 6 © 2020 John Wiley & Sons, Inc. All rights reserved. 36  Information Flow across the Organization Most businesses are supported by the functions of: o Operations o Marketing o Finance FIGURE 1.9 Organizational chart showing flow of information LO 6 © 2020 John Wiley & Sons, Inc. All rights reserved. 37  Business Information Flow FIGURE 1.10 Information flow between operations and other business functions LO 6 © 2020 John Wiley & Sons, Inc. All rights reserved. 38  OM across the Organization Marketing is not fully able to meet customer needs if its managers do not understand what operations can produce. Finance cannot judge the need for capital investments if its managers do not understand operations concepts and needs. Information systems (IS) enables the information flow throughout the organization. Human resources must understand job requirements and worker skills. Accounting needs to consider inventory LO 6 © 2020 John Wiley & Sons, Inc. All rights reserved. 39 management, capacity information, and labor Chapter 1 Highlights (LO 1−3) OM is the business function that is responsible for managing and coordinating the resources needed to produce a company’s products and services. Organizations can be divided into manufacturing and service organizations, which differ in the tangibility of the product or service. OM is responsible for a wide range of decisions, ranging from strategic to tactical. © 2020 John Wiley & Sons, Inc. All rights reserved. 40 Chapter 1 Highlights (LO 4−6) Many historical milestones have shaped OM. Some of these are the Industrial Revolution, scientific management, the human relations movement, management science, and the computer age. OM is a highly important function in today’s dynamic business environment. Among the trends with significant impact are just-in-time, TQM, reengineering, flexibility, time-based competition, SCM, global marketplace, and environmental issues. © 2020 John Wiley & Sons, Inc. All rights reserved. 41 Copyright ©2020 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions. © 2020 John Wiley & Sons, Inc. All rights reserved. 42