1-1 Introduction to Operations Management

Operations Management

William J. Stevenson

8th edition
 1-2 Introduction to Operations Management

CHAPTER
1

Introduction to
Operations Management

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
1-3 Introduction to Operations Management

Operations Management
Figure 1.1

The management of systems or processes

that create goods and/or provide services

Organization

Finance Operations Marketing

1-4 Introduction to Operations Management

Value-Added
Figure 1.2
The difference between the cost of inputs
and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
1-5 Introduction to Operations Management

Goods-service Continuum
Figure 1.3

Steel production Home remodeling Auto Repair Maid Service Teaching

Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage goods

Low percentage service High percentage service
1-6 Introduction to Operations Management

Food Processor
Table 1.2

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
1-7 Introduction to Operations Management

Hospital Process
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
1-8 Introduction to Operations Management

Manufacturing or Service?

Tangible Act
1-9 Introduction to Operations Management

Production of Goods vs. Delivery of Services

 Production of goods – tangible output

 Delivery of services – an act

 Service job categories

 Government
 Wholesale/retail

 Financial services

 Healthcare

 Personal services

 Business services

 Education
1-10 Introduction to Operations Management

Key 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
1-11 Introduction to Operations Management

Manufacturing vs Service

Characteristic Manufacturing Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
1-12 Introduction to Operations Management

Scope of Operations Management

 Operations Management includes:
 Forecasting
 Capacity planning

 Scheduling

 Managing inventories

 Assuring quality

 Motivating employees

 Deciding where to locate facilities

 And more . . .
1-13 Introduction to Operations Management

 The operations function

 Consists of all activities directly related to
producing goods or providing services
1-14 Introduction to Operations Management

Types of Operations
Table 1.4
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
1-15 Introduction to Operations Management

Figure 1.4
U.S. Manufacturing vs. Service Employment
Year Mfg. Service
45 79 21
100
50 72 28
55 72 28 80
60 68 32
65 64 36
Percent 60
70 64 36 40
75 58 42
80 44 46 20
85 43 57
0
90 35 65
95 32 68 45 50 55 60 65 70 75 80 85 90 95 00
00 30 70 Year
1-16 Introduction to Operations Management

Responsibilities of Operations Management

Table 1.6

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
1-17 Introduction to Operations Management

Key Decisions of Operations Managers

 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed
 Who
To do the work
1-18 Introduction to Operations Management

Decision Making

System Design
– capacity
– location
– arrangement of departments
– product and service planning
– acquisition and placement of
equipment
1-19 Introduction to Operations Management

Decision Making

System operation
– personnel
– inventory
– scheduling
– project
management
– quality assurance
1-20 Introduction to Operations Management

Decision Making

 Models
 Quantitative approaches

 Analysis of trade-offs

 Systems approach
1-21 Introduction to Operations Management

Models

A model is an abstraction of reality.

– Physical
– Schematic
– Mathematical Tradeoffs

What are the pros and cons of models?

1-22 Introduction to Operations Management

Models Are Beneficial

 Easy to use, less expensive
 Require users to organize
 Systematic approach to problem solving
 Increase understanding of the problem
 Enable “what if” questions
 Specific objectives
 Consistent tool
 Power of mathematics
 Standardized format
1-23 Introduction to Operations Management

Quantitative Approaches

• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
1-24 Introduction to Operations Management

Systems Approach

“The whole is greater than

the sum of the parts.”

Suboptimization
1-25 Introduction to Operations Management

Pareto Phenomenon

• A few factors account for a high

percentage of the occurrence of some
event(s).
• 80/20 Rule - 80% of problems are caused
by 20% of the activities.

How do we identify the vital few?

1-26 Introduction to Operations Management

Business Operations Overlap

Figure 1.5

Operations

Marketing Finance
1-27 Introduction to Operations Management

Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
1-28 Introduction to Operations Management

Historical Evolution of Operations Management

Table 1.7
 Industrial revolution (1770’s)
 Scientific management (1911)
 Mass production
 Interchangeable parts

 Division of labor

 Human relations movement (1920-60)

 Decision models (1915, 1960-70’s)

 Influence of Japanese manufacturers

1-29 Introduction to Operations Management

Trends in Business
 Major trends
 The Internet, e-commerce, e-business
 Management technology

 Globalization

 Management of supply chains

 Agility
1-30 Introduction to Operations Management

Simple Product Supply Chain

Figure 1.7

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Consumer

Supply Chain: A sequence of activities

And organizations involved in producing
And delivering a good or service
1-31 Introduction to Operations Management

A Supply Chain for Bread

Stage of Production Value Value of

Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
1-32 Introduction to Operations Management

Other Important Trends

 Ethical behavior
 Operations strategy

 Working with fewer resources

 Cost control and productivity

 Quality and process improvement

 Increased regulation and product liability

 Lean production