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Introduction to Operations
Management
1-1
Learning Objectives
Define the term operations management
Identify the three major functional areas of
organizations and describe how they
interrelate
Compare and contrast service and
manufacturing operations
Describe the operations function and the
nature of the operations manager’s job
1-2
Learning Objectives
Differentiate between design and operation
of production systems
Describe the key aspects of operations
management decision making
Briefly describe the historicalevolution of
operations management
Identify current trends that impact operations
management
1-3
Operations Management
Operations Management is:
The management of systems or processes
that create goods and/or provide services
1-4
The Organization
Figure 1.1
Organization
1-5
Value-Added Process
Figure 1.2
The operations function involves the conversion of
inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback
1-6
Value-Added & Product
Packages
Value-added is the difference between the
cost of inputs and the value or price of
outputs.
Product packages are a combination of
goods and services.
Product packages can make a company
more competitive.
1-7
Goods-service Continuum
Figure 1.3
Goods Service
Surgery, teaching
1-8
Food Processor
Table 1.2
1-9
Hospital Process
Table 1.2
1-10
Manufacturing or Service?
Tangible Act
1-11
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
1-12
Key Differences
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
1-13
Key Differences
1-14
Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual1-15
Scope of Operations Management
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
Supply chain management
And more . . .
1-16
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
1-17
Figure 1.4
65
50 64 36
70
40 64 36
75
30 58 42
80 44 46
20
85 43 57
10
90 35 65
0
95 25 75
45 50 55 60 65 70 75 80 85 90 95 00 02 05
00 30 70
02 25 75 Year
1-18
Decline in Manufacturing Jobs
Productivity
Increasing productivity allows companies to
maintain or increase their output using fewer
workers
Outsourcing
Some manufacturing work has been outsourced
to more productive companies
1-19
Why Manufacturing Matters
Over 18 million workers in manufacturing
jobs
Accounts for over 70% of value of U.S.
exports
Average full-time compensation about 20%
higher than average of all workers
Manufacturing workers more likely to have
benefits
Productivity growth in manufacturing in the
last 5 years is more than double U.S.
economy
1-20
Why Manufacturing Matters
More than half of the total R&D performed is
in the manufacturing industries
Manufacturing workers in California earn an
average of about $25,000 more a year than
service workers
When a California manufacturing job is lost,
an average of 2.5 service jobs are lost
1-21
Challenges of Managing
Services
Service jobs are often less structured than
manufacturing jobs
Customer contact is higher
Worker skill levels are lower
Services hire many low-skill, entry-level workers
Employee turnover is higher
Input variability is higher
Service performance can be affected by worker’s
personal factors
1-22
Operations Management
Decision Making
Models
Quantitative approaches
Analysis of trade-offs
Systems approach
Establishing priorities
Ethics
1-23
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
1-24
Ethical Issues
Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Worker’s rights
1-25
Business Operations Overlap
Figure 1.5
Operations
Marketing Finance
1-26
Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing Public
Operations Relations
Legal
Personnel
Accounting MIS
1-27
Historical Evolution of Operations
Management
Table 1.7
1-28
Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior
1-29
Management Technology
Technology: The application of scientific
discoveries to the development and
improvement of goods and services
Product and service technology
Process technology
Information technology
1-30
Simple Product Supply Chain
Figure 1.7
1-31
A Supply Chain for Bread
1-32
Other Important Trends
Ethical behavior
Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement
Increased regulation and product liability
Lean production
1-33
Mission/Strategy/Tactics
2-34
Strategy
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
2-35
Planning and Decision Making
Figure 2.1
Mission
Goals
Organizational Strategies
Functional Goals
2-36
Strategy Example
Example 1
2-37
Examples of Strategies
Low cost
Scale-based strategies
Specialization
Flexible operations
High quality
Service
2-38
Strategy and Tactics
Distinctive Competencies
The special attributes or abilities that give an
organization a competitive edge.
Strategy Factors
Price
Quality
Time
Flexibility
Service
Location
2-39
Examples of Operations Strategies
Table 2.2
Price Low Cost U.S. first-class postage
Motel-6, Red Roof Inns
2-40
Global Strategy
Strategic decisions must be made with
respect to globalization
What works in one country may not work in
another
Strategies must be changed to account for
these differences
Other issues
Political, social, cultural, and economic
differences
2-41
Strategy Formulation
Distinctive competencies
Environmental scanning
SWOT
Order qualifiers
Order winners
2-42
Strategy Formulation
Order qualifiers
Characteristics that customers perceive as
minimum standards of acceptability to be
considered as a potential purchase
Order winners
Characteristics of an organization’s goods or
services that cause it to be perceived as
better than the competition
2-43
Key External Factors
Economic conditions
Political conditions
Legal environment
Technology
Competition
Markets
2-44
Key Internal Factors
Human Resources
Facilities and equipment
Financial resources
Customers
Products and services
Technology
Suppliers
2-45
Operations Strategy
Operations strategy – The approach,
consistent with organization strategy,
that is used to guide the operations
function.
2-46
Strategic OM Decisions
Table 2.4
Decision Area Affects
Product and service design Costs, quality liability and environmental
Capacity Cost structure, flexibility
Process selection and layout Costs, flexibility, skill level, capacity
Quality-based
strategies
Focuses on maintaining or
improving the quality of an
organization’s products or
services
Quality at the source
Time-based strategies
Focuses on reduction of
time needed to accomplish
tasks
2-48
Time-based Strategies
JAN FEB MAR APR MAY JUN
Planning
Designing
Processing
Changeover On time!
Delivery
2-49