Fundamentals of

Operations Management
BUS 3 – 140

Mr. Jess Marino

Fall, 2007
Agenda

– Introduction

– Green Sheet review and other administrative items

– Additional comments on the course

– Initial Lecture

Page 2 2
Introduction
Marino Background

Academics
– Graduate in Production and Operations Management
– Product of CSU system (San Diego State)
– Developed and presented several courses as a Management Consultant

Supply Chain Experience

– Over 25 years as a practitioner at all levels of responsibility
 Leadership in small and large organizations
 Many different hourly and professional jobs
 Over eight years as a Management Consultant
– Certified in Production and Operations Management by the Association for
Operations Management (APICS)
– Exposure to many industries and organizations
– Have done business in 13 countries throughout the world

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Positions Held

Director of Operations

Director of Supply Chain Management

Director of Materials

Production Control Executive Director

Manager of Fulfillment

Production Production Material Stockroom

Buyer
Supervisor Controller Controller Manager

Machine Mail Room

Operator Clerk

Production Warehouse
Expediter Clerk

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Have conducted Business in 13 Countries, Worldwide

SCOTLAND
CANADA ENGLAND HOLLAND
FRANCE

UNITED STATES
CHINA
TAIWAN
MEXICO THAILAND
HONG KONG

SINGAPORE
MALAYSIA

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Green Sheet Review
Student Information Sheet

NAME

MAJOR (and Emphasis)

CURRENT JOB (Company Optional)

PREVIOUS SUPPLY CHAIN JOBS / EXPEIRIENCE

OTHER

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Course Overview and Objectives

– Understanding how the Operations function interrelates with other functional

organizations in a business

– Understanding how an organization uses its resources, processes, data, and

technologies to create goods and provide services to customers

– Understanding how operational effectiveness can be a critical success factor in

determining an organization’s Revenue, Profitability, and Shareholder return

– Understanding the managerial responsibility for Operations, even when

production is outsourced, or done in regions far from corporate headquarters

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Student Learning Objectives for the Course

– Understand how Operations is relevant to all functions of a business

– Understand Operations Management and how it fits within the overall

organization strategy, objectives, and competitiveness

– Develop an interest in Operations and apply that understanding,

whether in a manufacturing or service career

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Course Introduction
Operations is a Key Element of a Supply Chain

Revenue Cash

Utilization of Assets Inventory

(People, Plant, Equip)

BALANCING keeping Customers completely satisfied and Resources

optimally utilized ……. against spending the least amount of Cash
and carrying the least amount of Inventory

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Scope of this Course

Customer Production Materials Customer

Production Shipping
Demand Scheduling Mgmt Service

• Forecasting • Demand & • Inventory • Process

Supply Mgmt Layout
• Aggregate
Matching • MRP • Work
Planning
• Scheduling System
• Strategic • ERP
Design
Capacity • Just In Time
Planning (JIT) • Lean
Operations
• Project
Mgmt • Quality

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 Introduction to
Operations Management
Highest Level Operations Management Process (Fig 1.2)

Process
Inputs Outputs
(Transformation)

Feedback

Feedback Feedback
Control

There is a CONVERSION that takes Information, Intelligence,

Resources, and Activities and turns them into something
VALUABLE to Customers and / or Society

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin Page 15 15
Inputs / Process / Outputs (Table 1.1)
Inputs Transforma
Land Processes
Human Cutting, drilling
Physical Labor Transporting
Intellectual Labor Teaching
Capital Farming
Raw Materials Mixing
Energy Packing
Water Copying, faxin
Metals
Wood
Equipment
Machines
* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin Page 16 16
Operations are managed for both Production and Services

Food processing Plant

Inputs Process Outputs
PRODUCTION

• Raw vegetables • Cleaning

Canned Vegetables
• Metal sheets • Making cans
• Water • Cutting
• Energy • Cooking Result is
• Labor • Packing
• Building • Labeling
TANGIBLE OUTPUT
• Equipment

Inputs Process Outputs

SERVICE
Hospital

• Doctors, nurses • Examination

Treated Patients
• Hospital • Surgery
• Medical supplies • Monitoring
• Equipment • Medication
• Laboratories • Therapy Result implies
an ACT

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Differences between Goods and Service (Book Table 1.3)

Characteristic

Customer contact

Uniformity of Input

Labor content

Uniformity of Output

Output
* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin Page 18 18
Goods and Services continuum (Fig 1.3)

Goods

Compute
* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

Automobile
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Combination of Production and Service

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

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

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Manufacturing Jobs

U.S. Manufacturing vs. Service Employment

90
80 > 70%
Mfg.
70 Service
60
Percent

50
40
30
20
10
0
45 50 55 60 65 70 75 80 85 90 95 00 02 05
Year
• Greater PRODUCTIVITY allows for increased output with fewer workers
• Many manufacturing jobs have moved OFFSHORE to lower labor cost areas

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

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How Operations Interacts
with Other Organizations
Key intersections with Sales & Marketing and with Finance

FINANCE & ACCOUNTING

– Budgeting
– Authorizing Capital spending
– Authorizing major inventory buys
– Cost accounting
– Make vs. Buy decisions
– Location planning
– Managing international trade
– Analyzing trade-off decisions

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Key intersections with Sales & Marketing and with Finance

SALES & MARKETING

– Forecasting Demand
– Influencing demand
– Committing supply
– Negotiating schedules with customers
– Providing competitive information
– Requesting new products and services
– Opening new markets

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Interaction with other Functional Organizations

Or
IT
Page 25 25
Competitiveness, Strategy,
and Productivity
Strategy Terms

Mission
• The reason for existence for an organization
Mission Statement
• States the purpose of an organization
Goals
• Provide detail and scope of mission
Strategies
• Plans for achieving organizational goals
Tactics
• The methods and actions taken to accomplish
strategies

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin Page 27 27
How terms have meaning to the business

Mission

Goals

Organizational Strategies

Functional Goals

Finance Marketing Operations

Strategies Strategies Strategies

Tactics Tactics Tactics

Operating Operating Operating

procedures procedures procedures

* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin Page 28 28
Competitiveness

World Class Operations enable companies to gain a

COMPETITVE ADVANTAGE over others trying to serve
the same customers and markets

The three biggest levers are:

• Cost
• Quality and Reliability
• Assurance of Supply

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How Operations impacts Competitiveness

– Cost
– Quality
– Product design
– Response Time
– Flexibility
– Scalability
– Service
– Location

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Factors that impact Operations Strategy

Factor

Price
The strategy is tied to where a COMPETITIVE EDGE
can be gained or maintained

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Operations Strategies vary by mission of the Business (2.4)

Decision Area
1 Product and Service design Costs, qualit

2 Capacity Cost structu

3 Process selection and layout Costs, flexib

4 Work design Quality of w
5 Location Costs, visibi

6 Quality Ability to me
* From Stevenson, Operations Management, Ninth Edition, McGraw Hill Irwin

7 Inventory Page 32 Costs, short

32
Operations Strategies can also vary by Industry
Relative weight and importance can vary. For some Items and
Industries, it can be primarily Price; for others Delivery, etc

QUALITY QUANTITY DELIVERY SERVICE PRICE

QUALITY QUANTITY DELIVERY SERVICE PRICE

QUALITY QUANTITY DELIVERY SERVICE PRICE

QUALITY QUANTITY DELIVERY SERVICE PRICE

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Productivity

Productivity is a RATIO of Inputs and Outputs

Output
Productivity =
Input

Inputs and Outputs can be measured at different degrees

Output Output Output Output

Partial Measures
Labor Machine Capital Energy

Output Output
Multifactor Measures
Labor + Machine Labor + Capital + Energy

Goods or services produced

Total Measure
All inputs used to produce them

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Additional Productivity Terms

Efficiency

Performance to a Standard (e.g. Time to assemble a Computer,

PO’s placed per hour, etc.) Emphasis is Value-Added activities

Utilization

Per cent of time that is devoted to Value-Added activities

Productivity

Efficiency * Utilization

Effectiveness

The Contribution that the activity / department

provides to the overall mission of the business

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Steps for Improving Productivity

– Measure key outputs and indicators

– Analyze the production system as a whole
– Benchmark Best In Class processes within and across industries
– Solicit ideas from everyone in the organization
– Set achievable, stretch goals
– Ensure executive supporrt
– Measure the improvements
– Publicize the improvements

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