Stevenson 14e Chap001
Stevenson 14e Chap001
Stevenson 14e Chap001
Introduction to
Operations
Management
1-1
Chapter 1: Learning Objectives
You should be able to:
LO 1.1 Define the terms operations management and supply chain
LO 1.2 Identify similarities and differences between production and service
operations
LO 1.3 Explain the importance of learning about operations management
LO 1.4 Identify the three major functional areas of organizations and explain how
they interrelate
LO 1.5 Summarize the two major aspects of process management
LO 1.6 Describe the operations function and the nature of the operations manager’s
job
LO 1.7 Explain the key aspects of operations management decision making
LO 1.8 Briefly describe the historical evolution of operations management
LO 1.9 Describe the current issues in business that impact operations management
LO 1.10 Explain the importance of ethical decision making
LO 1.11 Explain the need to manage the supply chain
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McGraw-Hill Education.
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Operations Management
What is operations?
The part of a business organization that is responsible
for producing goods or services
How can we define operations management?
The management of systems or processes that create
goods and/or provide services
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Good or Service?
Goods are physical items that include raw materials, parts, subassemblies, and
final products
Automobile
Computer
Oven
Shampoo
Services are activities that provide some combination of time, location, form or
psychological value
Air travel
Education
Haircut
Legal counsel
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Supply Chain
Supply chain – a sequence of activities and
organizations involved in producing and delivering
a good or service
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The Transformation Process
Value-Added
Measurement
and Feedback
Measurement Measurement
and Feedback and Feedback
Control
Control
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Table 1.2
Illustrations of the transformation process
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Manufacturing vs. Service
1. Degree of customer contact
2. Labor content of jobs
3. Uniformity of input
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
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Table 1.3
Typical differences between production of goods and
provision of services
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Why Study Operations Management?
Every aspect of business affects or is affected by
operations
Many service jobs are closely related to operations
Financial services
Marketing services
Accounting services
Information services
Through learning about operations and supply chains
you will have a better understanding of:
The world you live in
The global dependencies of companies and nations
Reasons that companies succeed or fail
The importance of working with others
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Basic Functions of the Business Organization
Organization
Organization
Marketing
Marketing Operations
Operations Finance
Finance
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Function Overlap
Finance & operations
Budgeting
Economic analysis of investment
proposals
Provision of funds
Marketing & operations
Demand data
Product and service design
Competitor analysis
Lead time data
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OM and Supply Chain Career Opportunities
Operations manager
Supply chain manager
Production analyst
Schedule coordinator
Production manager
Industrial engineer
Purchasing manager
Inventory manager
Quality manager
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OM-Related Professional Societies
APICS - The Association for Operations Management
American Society for Quality (ASQ)
Institute for Supply Management (ISM)
Institute for Operations Research and Management Science
(INFORMS)
The Production and Operations Management Society (POMS)
The Project Management Institute (PMI)
Council of Supply Chain Management Professionals (CSCMP)
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Process Management
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Supply & Demand
Operations &
Operations & Sales & Marketing
Supply Chains Sales & Marketing
Supply Chains
Wasteful
Supply
> Demand Wasteful
Costly
Costly
Opportunity Loss
<
Supply Demand Opportunity
Customer Loss
Customer
Dissatisfaction
Dissatisfaction
Supply
= Demand Ideal
Ideal
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Process Variation
Four Sources of Variation:
Variety of goods or services The greater the variety of goods and services
being offered offered, the greater the variation in production
or service requirements.
Structural variation in demand These are generally predictable. They are
important for capacity planning.
Random variation Natural variation that is present in all
processes. Generally, it cannot be influenced by
managers.
Assignable variation Variation that has identifiable sources. This
type of variation can be reduced, or eliminated,
by analysis and corrective action.
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Scope of Operations Management
The scope of operations management ranges across
The scope of operations management ranges across
the organization.
the organization.
The operations function includes many interrelated
activities such as:
Forecasting
Capacity planning
Locating facilities
Facilities and layout
Scheduling
Managing inventories
Assuring quality
Motivating employees
And more . . .
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Role of the Operations Manager
The Operations function consists of all activities
directly related to producing goods or providing
services.
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System Design Decisions
• System design
– Capacity
– Facility location
– Facility layout
– Product and service planning
– Acquisition and placement of equipment
• These are typically strategic decisions that
• usually require long-term commitment of resources
• determine parameters of system operation
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System Operation Decisions
• System operation
• These are generally tactical and operational decisions
– Management of personnel
– Inventory management and control
– Scheduling
– Project management
– Quality assurance
• Operations managers spend more time on system operation
decision than any other decision area
• They still have a vital stake in system design
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OM Decision Making
Most operations decisions involve many alternatives that can
have quite different impacts on costs or profits
Typical operations decisions include:
What: What resources are needed, and in what amounts?
When: When will each resource be needed? When should the work be
How: How will the product or service be designed? How will the work be
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General Approach to Decision Making
Modeling is a key tool used by all decision makers
Model - an abstraction of reality; a simplification of something
Common features of models:
They are simplifications of real-life phenomena
They omit unimportant details of the real-life systems they
mimic so that attention can be focused on the most important
aspects of the real-life system
Physical Model – miniature airplane
Schematic Model – drawing of a city
Mathematical Model – Inventory optimization
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Understanding Models
Keys to successfully using a model in decision
making
What is its purpose?
How is it used to generate results?
How are the results interpreted and used?
What are the model’s assumptions and limitations?
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Benefits of Models
1. Generally easier to use and less expensive than dealing with the real
system
2. Require users to organize and sometimes quantify information
3. Increase understanding of the problem
4. Enable managers to analyze “What if?” questions
5. Serve as a consistent tool for evaluation and provide a standardized
format for analyzing a problem
6. Enable users to bring the power of mathematics to bear on a problem
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Model Limitations
Quantitative information may be emphasized at the
expense of qualitative information
Models may be incorrectly applied and the results
misinterpreted
This is a real risk with the widespread availability of
sophisticated, computerized models placed in the hands
of uninformed users
The use of models does not guarantee good decisions
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Quantitative Approaches
A decision-making approach that frequently seeks to
obtain a mathematically optimal solution
Supported by computer calculations
Often work together with qualitative approaches
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Metrics and Trade-Offs
Performance metrics Analysis of trade-offs
All managers use metrics to A trade-off is giving up one
manage and control operations thing in return for
Profits something else
Costs Carrying more inventory
Quality (an expense) in order to
Productivity achieve a greater level of
Flexibility customer service
Inventories
Schedules
Forecast accuracy
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Systems Perspective
System - a set of interrelated parts that must work together
The business organization is a system composed of subsystems
Marketing subsystem
Operations subsystem
Finance subsystem
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Establishing Priorities
In nearly all cases, certain issues or items are more
important than others
Recognizing this allows managers to focus their attention
to those efforts that will do the most good
Pareto Phenomenon - a few factors account for a high percentage of
occurrence of some event(s)
The critical few factors should receive the highest priority
This is a concept that is appropriately applied to all areas and
levels of management
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Historical Evolution of OM
Industrial Revolution
Scientific management
Human relations movement
Decision models and management science
Influence of Japanese manufacturers
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Industrial Revolution
Pre-Industrial Revolution
Craft production - System in which highly skilled workers use simple,
flexible tools to produce small quantities of customized goods
Some key elements of the industrial revolution
Began in England in the 1770s
Division of labor - Adam Smith, 1776
Application of the “rotative” steam engine, 1780s
Cotton gin and interchangeable parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably
during this period
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Scientific Management
Movement was led by efficiency engineer, Frederick
Winslow Taylor
Believed in a “science of management” based on observation,
measurement, analysis and improvement of work methods, and
economic incentives
Management is responsible for planning, carefully selecting and
training workers, finding the best way to perform each job,
achieving cooperation between management and workers, and
separating management activities from work activities
Emphasis was on maximizing output
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Human Relations Movement
The human relations movement emphasized the
importance of the human element in job design
Lillian Gilbreth – applications of psychology
Elton Mayo – Hawthorne studies on worker motivation, 1930
Abraham Maslow – motivation theory, 1940s; hierarchy of needs,
1954
Frederick Hertzberg – Two Factor Theory, 1959
Douglas McGregor – Theory X and Theory Y, 1960s
William Ouchi – Theory Z, 1981
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Decision Models & Management Science
F.W. Harris – mathematical model for inventory management, 1915
Dodge, Romig, and Shewart – statistical procedures for sampling and
quality control, 1930s
Tippett – statistical sampling theory, 1935
Operations Research (OR) Groups – OR applications in warfare
George Dantzig – linear programming, 1947
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Influence of Japanese Manufacturers
Refined and developed management practices that
increased productivity
Credited with fueling the “quality revolution”
Just-in-Time production
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Table 1.5
Historical summary of operations management
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Operations Today
Technology Management
Global competition
Working with fewer resources
Revenue management
Agility
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Key Issues for Operations Managers Today
Economic conditions
Innovating
Quality problems
Risk management
Cyber-security
Competing in a global economy
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Environmental Concerns
Sustainability
Using resources in ways that do not harm ecological
systems that support human existence
Sustainability measures often go beyond traditional
environmental and economic measures to include measures
that incorporate social criteria in decision making
All areas of business will be affected
Product and service design
Consumer education programs
Disaster preparation and response
Supply chain waste management
Outsourcing decisions
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Ethical Issues in Operations
Ethical issues that may arise in many aspects of operations
management:
Financial statements
Worker safety
Product safety
Quality
The environment
The community
Hiring and firing workers
Closing facilities
Workers’ rights
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The Need for Supply Chain Management
In the past, organizations did little to manage the
supply chain beyond their own operations and
immediate suppliers which led to numerous
problems
Oscillating inventory levels
Inventory stockouts
Late deliveries
Quality problems
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Supply Chain Issues
1. The need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-business
7. The complexity of supply chains
8. The need to manage inventories
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