Chapter 1 Introduction to Operations Management PDF

**[Chapter one: Nature of Operations Management]** Operations management designs, operates, and improves productive systems---systems for getting work done. The food you eat, the movies you watch, the stores in which you shop, and the books you read are provided to you by the people in operations....

**[Chapter one: Nature of Operations Management]** Operations management designs, operates, and improves productive systems---systems for getting work done. The food you eat, the movies you watch, the stores in which you shop, and the books you read are provided to you by the people in operations. Operations managers are found in banks, hospitals, factories, and government. They design systems, ensure quality, produce products, and deliver services. They work with customers and suppliers, the latest technology, and global partners. They solve problems, reengineer processes, innovate, and integrate. An operation is more than planning and controlling; it's doing. Whether it's superior quality, speed-to-market, customization, or low cost, excellence in operations is critical to a firm's success. Operations are often defined as a transformation process. inputs (such as material, machines, labor, management, and capital) are transformed into outputs (goods and services). Requirements and feedback from customers are used to adjust factors in the transformation process, which may in turn alter inputs. In operations management, we try to ensure that the transformation process is performed efficiently and that the output is of greater value than the sum of the inputs. Thus, the role of operations is to create value. The transformation process itself can be viewed as a series of activities along a value chain extending from supplier to customer. The input--transformation--output process is characteristic of a wide variety of operating systems. In an automobile factory, sheet steel is formed into different shapes, painted and finished, and then assembled with thousands of component parts to produce a working automobile. In an aluminum factory, various grades of bauxite are mixed, heated, and cast into ingots of different sizes. In a hospital, patients are helped to become healthier individuals through special care, meals, medication, lab work, and surgical procedures. Obviously, "operations" can take many different forms. The transformation process can be:  Although history is full of amazing production feats---the pyramids of Egypt, the Great Wall of China, the roads and aqueducts of Rome---the widespread production of consumer goods and thus, operations management did not begin until the Industrial Revolution in the 1700s. Prior to that time, skilled crafts persons and their apprentices fashioned goods for individual customers from studios in their own homes. Every piece was unique, hand-fitted, and made entirely by one person, a process known as craft production. Although craft production still exists today, the availability of coal, iron ore, and steam power set into motion a series of industrial inventions that revolutionized the way work was performed. Great mechanically powered machines replaced the laborer as the primary factor of production and brought workers to a central location to perform tasks under the direction of an "overseer" in a place called a "factory." The revolution first took hold in textile mills, grain mills, metalworking, and machine-making facilities. Around the same time, Adam Smith's Wealth of Nations (1776) proposed the division of labor, in which the production process was broken down into a series of small tasks, each performed by a different worker. The specialization of the workers on limited, repetitive tasks allowed them to become very proficient at those tasks and further encouraged the development of specialized machinery. The introduction of interchangeable parts by Eli Whitney (1790s) allowed the manufacture of firearms, clocks, watches, sewing machines, and other goods to shift from customized one-at-a-time production to volume production of standardized parts. This meant the factory needed a system of measurements and inspection, a standard method of production, and supervisors to check the quality of the worker's production.00 Advances in technology continued through the 1800s. Cost accounting and other control systems were developed, but management theory and practice were virtually nonexistent. In the early 1900s an enterprising laborer (and later chief engineer) at Midvale Steel Works named Frederick W. Taylor approached the management of work as a science. Based on observation, measurement, and analysis, he identified the best method for performing each job. Once determined, the methods were standardized for all workers, and economic incentives were established to encourage workers to follow the standards. Taylor's philosophy became known as scientific management. His ideas were embraced and extended by efficiency experts Frank and Lillian Gilbreth, Henry Gantt, and others. One of Taylor's biggest advocates was Henry Ford. Henry Ford applied scientific management to the production of the Model T in 1913 and reduced the time required to assemble a car from a high of 728 hours to 1.5 hours. A Model T chassis moved slowly down a conveyor belt with six workers walking alongside it, picking up parts from carefully spaced piles on the floor and fitting them to the chassis.The short assembly time per car allowed the Model T to be produced in high volumes, or "en masse," yielding the name mass production. American manufacturers became adept at mass production over the next 50 years and easily dominated manufacturing worldwide. The human relations movement of the 1930s, led by Elton Mayo and the Hawthorne studies, introduced the idea that worker motivation, as well as the technical aspects of work, affected productivity. Theories of motivation were developed by Frederick Herzberg, Abraham Maslow, Douglas McGregor, and others. Quantitative models and techniques spawned by the operations research groups of World War II continued to develop and were applied successfully to manufacturing and services. Computers and automation led still another upsurge in technological advancements applied to operations. From the Industrial Revolution through the 1960s, the United States was the world's greatest producer of goods and services, as well as the major source of managerial and technical expertise. But in the 1970s and 1980s, industry by industry, U.S. manufacturing superiority was challenged by lower costs and higher quality from foreign manufacturers, led by Japan. Several studies published during those years confirmed what the consumer already knew---U.S.-made products of that era were inferior and could not compete on the world market. Early rationalizations that the Japanese success in manufacturing was a cultural phenomenon were disproved by the successes of Japanese owned plants in the United States, such as the Matsushita purchase of a failing Quasar television plant in Chicago from Motorola. Part of the purchase contract specified that Matsushita had to retain the entire hourly workforce of 1000 persons. After only two years, with the identical workers, half the management staff, and little or no capital investment, Matsushita doubled production, cut assembly repairs from 130% to 6%, and reduced warranty costs from \$16 million a year to \$2 million a year. You can bet Motorola took notice, as did the rest of U.S. industry. The quality revolutionbrought with it a realization that production should be tied to consumer demand. Product proliferation, shortened product lifecycles, shortened product development times, changes in technology, more customized products, and segmented markets did not fit mass production assumptions. Using a concept known as just-in-time, Toyota changed the rules of production from mass production to lean production, a system that prizes flexibility (rather than efficiency) and quality (rather than quantity). The renewed emphasis on quality and the strategic importance of operations made some U.S. companies competitive again. Others continued to stagnate, buoyed temporarily by the expanding economies of the Internet era and globalization. Productivity soared as return on investment in information technology finally came to fruition. New types of businesses and business models emerged, such as Amazon, Google, and eBay, and companies used the Internet to connect with customers and suppliers around the world. The inflated expectations of the dot-com era came to an end and, coupled with the terrorist attacks of 9-11 and their aftermath, brought many companies back to reality, searching for ways to cut costs and survive in a global economy. They found relief in the emerging economies of China and India, and began accelerating the outsourcing of not only goods production, but services, such as information technology, call centers, and other business processes. The outsourcing of business processes brought with it a new awareness of business-to-business (B2B) services and the need for viewing services as a science. With more and more activities taking place outside the enterprise in factories, distribution centers, offices and stores overseas, managers needed to develop skills in coordinating operations across a global supply chain. The field of supply chain management was born to manage the flow of information, products, and services across a network of customers, enterprises, and supply chain partners. Supply chain management concentrates on the input and output sides of transformation processes. Increasingly, however, as the transformation process is performed by suppliers who may be located around the world, the supply chain manager is also concerned with the timeliness, quality, and legalities of the supplier's operations. The era of globalization was in full swing in 2008 when a financial crisis brought on by risky loans, inflated expectations, and unsavory financial practices brought the global economy to a standstill. Operations management practices based on assumptions of growth had to be reevaluated for declining markets and resources. At the same time, concerns about global warming (worldwide) and health-care operations (domestically) ramped up investment and innovation in those fields. It is likely that the next era in the evolution of OM will be the Green Revolution, which some companies and industries are embracing wholeheartedly, while others are hesitant to accept. **[The Scope of Operations Management]** The scope of operations management ranges across the organization. Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and quality improvement of the organization's products or services. The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more. We can use an airline company to illustrate a service organization's operations system. The system consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide territory. The activities include: **Forecasting** such things as weather and landing conditions, seat demand for flights, and the growth in air travel. **Capacity planning** essential for the airline to maintain cash flow and make a reasonable profit. (Too few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.) **Facilities and layout**, important in achieving effective use of workers and equipment. **Scheduling** of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers. **Managing inventories** of such items as foods and beverages, first-aid equipment, in-flight magazines, pillows and blankets, and life preservers. **Assuring quality**, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb service, where the emphasis is on efficiency and courtesy. **Motivating and training** employees in all phases of operations. **Locating facilities** according to managers' decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs. **[Manufacturing Operations and Service Operations]** All organizations can be broadly divided into two categories: manufacturing organizations and service organizations. Although both categories have an OM function, these differences pose unique challenges for the operations function as the nature of what is being produced is different. There are two primary distinctions between these categories of organizations. First, manufacturing organizations produce a physical or tangible product that can be stored in inventory before it is needed by the customer. Service organizations, on the other hand, produce intangible products that cannot be produced ahead of time. Second, in manufacturing organizations customers typically have no direct contact with the process of production. Customer contact occurs through distributors or retailers. For example, a customer buying a computer never comes in contact with the factory where the computer is produced. However, in service organizations the customers are typically present during the creation of the service. Customers here usually come in contact with some aspect of the operation. Consider a restaurant or a barber shop, where the customer is present during the creation of the service. The differences between manufacturing organizations and service organizations are typically not as clear-cut as they might appear in the preceding example. Usually there is much overlap between them, and their distinctions are increasingly becoming murky. Most manufacturers provide services as part of their business, and many service firms manufacture physical goods they use during service delivery. For example, a manufacturer of jet engines, such as Rolls Royce, not only produces engines but services them. A barber shop may sell its own line of hair care products. We can further divide a service operation into high contact and low contact segments. High contact segments are those parts of the operation where the customer is present, such as the service area of the post office or the dining area of a restaurant. However, these services also have a low contact segment. These can be thought of as "back room" or "behind the scenes" segments. Examples would include the kitchen segment at a fast food restaurant or the laboratory for specimen analysis at a hospital. Service quality determined with difficulty (customer service and customer satisfaction are difficult to measure.) while in manufacturing operation product quality can easily be determined. **Productivity measurement in** manufacturing is straightforward and easy but Service productivity measurement is more difficult because, there are certain intangible variables in service that are difficult to measure objectively. Service operations are subject to more variability of inputs and outputs than manufacturing operations are. Each patient, each TV repair presents a specific problem that often must be diagnosed before it can be remedied. Low variability of inputs requirements for manufacturing are generally more uniform than for service. Finally, in addition to pure manufacturing and pure service, there are companies that have some characteristics of each type of organization. It is difficult to tell whether these companies are actually manufacturing or service organizations. An excellent example is an automated warehouse or a mail-order catalog business. These businesses have low customer contact and are capital intensive. They are most like manufacturing organizations yet they provide a service. We call these companies *quasi-manufacturing organizations*. The operational requirements of these two types of organizations are different, from labor to inventory issues. These differences are shown in Table 1-1. As a result, it is important to understand how to manage both service and manufacturing operations. **Characteristic** **Manufacturing** **Service** ----------------------------- --------------------------- ------------------------- Input/output Tangible Intangible Contact with customer Low High Uniformity of input High Low Intensity Capital intensive Labor intensive Uniformity of output High Low Measurement of productivity Easy Difficult Storage Output can be inventoried Not Delivery time Long lead times Short lead time Quality Objectively determined Subjectively determined **[Operations Decision making]** The chief role of an operations manager is that of planner and decision maker. In this capacity, the operations manager exerts considerable influence over the degree to which the goals and objectives of the organization are realized. Most decisions involve many possible alternatives that can have quite different impacts on costs or profits. Consequently, it is important to make *informed* decisions. Operations management professionals make a number of key decisions that affect the entire organization. These include the following: - *What*: What resources will be 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? When is corrective action needed? - *Where*: Where will the work be done? - *How*: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be allocated? - *Who*: Who will do the work? Hundreds of decisions are made every day in the operation activity. Even minor decisions determine the company's success or failure. It ranges from simple judgmental to complex analysis, which can also involve judgment (past experience and common sense). They involve a way of blending objective and subjective data to arrive at a choice. The use of quantitative methods of analysis adds to the objectivity of such decisions. The major areas in which operations managers make decisions are: 1. **Strategic decision** - - - 2. **Design decisions** - - - 3. **Operating Decision:** deals with operating the factory the system once it is in place. It includes forecasting, materials management, inventory management, aggregate planning, scheduling. **[Characteristics of Decisions]** Operations decision range from simple judgments to complex analyses, which also involves judgment. Judgment typically incorporates basic knowledge, experience, and common sense. They enable to blend objectives and sub-objective data to arrive at a choice. The appropriateness of a given type of analysis depends on: - The significant or long lasting decisions, - The time availability and the cost of analysis, and - The degree of complexity of the decision. *The significant or long lasting decisions* deserve more considerations than routine ones.\ Plant investment, which is a long-range decision, may deserve more thorough analysis. *The time*\ *availability and the cost of analysis* also influence the amount of analysis. *The degree of complexityof the decision increases when* many variables are involved, variables are highly independent and the data describing the variables are uncertain. Business decision-makers have always had to work with incomplete and uncertain data. Fig. 1.3 below depicts the information environment of decisions. In some situations a decision maker has complete information about the decision variables; at the other extremes, no information is available. Operations management decisions are made all along this continuum. Complete certainty in decision-making requires data on all elements in the population. If such data are not available, large samples lend more certainty than do small ones. Beyond this, subjective information is likely to be better than no data at all. The following are quantitative tools used under the three situations. **[Certainty] [Risk] [Uncertainty]** \- Algebra, Breakeven analysis, - Statistical analysis - Game theory \- Cost benefit analysis, - Queuing theory - Decision theory \- Calculus, mathematical - Simulation \- Programming, linear and - Network analysis; \- Nonlinear, integer, dynamic - PERT \- Programming etc. - Decision tree, Utility theory, etc **[Productivity]** One of the primary responsibilities of a manager is to achieve *productive use* of an organization's resources. The term *productivity* is used to describe this. **Productivity** is an index that measures output (goods and services) relative to the input (labor, materials, energy, and other resources) used to produce it. It is usually expressed as the ratio of output to input:  Although productivity is important for all business organizations, it is particularly important for organizations that use a strategy of low cost, because the higher the productivity, the lower the cost of the output. A productivity ratio can be computed for a single operation, a department, an organization, or an entire country. In business organizations, productivity ratios are used for planning workforce requirements, scheduling equipment, financial analysis, and other important tasks. Productivity has important implications for business organizations and for entire nations. For nonprofit organizations, higher productivity means lower costs; for profit-based organizations, productivity is an important factor in determining how competitive a company is. For a nation, the rate of *productivity growth* is of great importance. Productivity growth is the increase in productivity from one period to the next relative to the productivity in the preceding period. Thus, For example, if productivity increased from 80 to 84, the growth rate would be  Productivity growth is a key factor in a country's rate of inflation and the standard of living of its people. Productivity increases add value to the economy while keeping inflation in check. Productivity growth was a major factor in the long period of sustained economic growth in the United States in the 1990s. **[Computing Productivity]** Productivity measures can be based on a single input (partial productivity), on more than one input (multifactor productivity), or on all inputs (total productivity). The choice of productivity measure depends primarily on the purpose of the measurement. If the purpose is to track improvements in labor productivity, then labor becomes the obvious input measure. Partial measures are often of greatest use in operations management. The following tableprovides some examples of partial productivity measures.  The units of output used in productivity measures depend on the type of job performed. The following are examples of labor productivity: Similar examples can be listed for *machine productivity* (e.g., the number of pieces per hour turned out by a machine). Determine the productivity for these cases: a. Four workers installed 720 square yards of carpeting in eight hours. b. A machine produced 70 pieces in two hours. However, two pieces were unusable.\  Calculations of multifactor productivity measure inputs and outputs using a common unit of measurement, such as cost. For instance, the measure might use cost of inputs and units of the output: *Note:* The unit of measure must be the same for all factors in the denominator. Deter mine the multifactor productivity for the combined input of labor and machine time using the following data:  Productivity measures are useful on a number of levels. For an individual department or organization, productivity measures can be used to track performance *over time.* This allows managers to judge performance and to decide where improvements are needed. For example, if productivity has slipped in a certain area, operations staff can examine the factors used to compute productivity to determine what has changed and then devise a means of improving productivity in subsequent periods. Productivity measures also can be used to judge the performance of an entire industry or the productivity of a country as a whole. These productivity measures are *aggregate* measures. In essence, productivity measurements serve as scorecards of the effective use of resources. Business leaders are concerned with productivity as it relates to *competitiveness:* If two firms both have the same level of output but one requires less input because of higher productivity, that one will be able to charge a lower price and consequently increase its share of the market. Or that firm might elect to charge the same price, thereby reaping a greater profit. Government leaders are concerned with national productivity because of the close relationship between productivity and a nation's standard of living. High levels of productivity are largely responsible for the relatively high standards of living enjoyed by people in industrial nations. Furthermore, wage and price increases not accompanied by productivity increases tend to create inflationary pressures on a nation's economy. **[References]** **Russel and Tailor**, operations management, Creating Value Along the Supply Chain, 7^th^ edition. **William J. Stevenson,**operations management, 11^th^editions. **Anil Kumar,** operations management, 1^st^edition.