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The Nature of Operations Management (OM)
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  1. The Nature of Operations Management (OM) • The development and administration of the activities involved in transforming resources into goods and services

  2. Key Operations Management Terms • Manufacturing • The activities and processes used in making tangible products; also called production • Operations • The activities and processes used in making both tangible and intangible products

  3. The Transformation Process

  4. Inputs, Outputs, & Transformation Processes in the Manufacture of Oak Furniture

  5. Operations Management in Service Businesses • Service providers use human and mechanical processes to provide products that are intangible. • The transformation process requires inputs such as employees, equipment and supplies. • Outputs provide a benefit from a performance, event or type of involvement with the service provider. • Approximately 80% of the U.S. economy is based on the service industry.

  6. Different Types of Transformation Processes • Nature and consumption of output • Uniformity of inputs • Uniformity of outputs • Labor required • Measurement of productivity

  7. The Steps in Planning and Designing Operations Systems • Planning the product • Designing the operations process • Standardization • Modular design • Customization • Planning capacity Did You Know? Hershey’s has the production capacity to make 33 million Hershey’s kisses per day or more than 12 billion per year.

  8. The Steps in Planning and Designing Operations Systems • Planning Facilities • Facility Location • Facility layout • Fixed-Position Layout • Project Organization • Process Layout (intermittent organizations) • Product Layout (continuous manufacturing organization)

  9. Facility Layouts • Fixed-Position Layout--Project organization • All resources needed for a product are brought to a central location. • Process Layout--Intermittent organization • Layout is organized into departments that group related processes. • Product Layout--Continuous manufacturing organization • Production is broken down into relatively simple tasks assigned to workers positioned along a line.

  10. Technology • CAD (computer-assisted design) • CAM (computer-assisted manufacturing) • Flexible Manufacturing • CIM (computer-integrated manufacturing) Did You Know? Robotic Industries Association estimates 100,000 robots work in US factories, making the US the world’s 2nd largest user of robots. Source: Robotic Industries Association Website, “Robotics Industry Posts Second Best Year Ever,” from (accessed July 18, 2001).

  11. Managing the Supply Chain Purchasing Management Inventory Control Management Routing and Scheduling Distribution Management

  12. Purchasing • Procurement • Buying the right items • Obtaining desired quality • Buying the right quantity • Paying the lowest price • Obtaining inventory at the right time

  13. Managing Inventory • Three basic types of inventory: • Finished-goods inventory • Work-in-process inventory • Raw materials inventory

  14. Inventory Control Process • Determines how many supplies and goods are needed, and keeps track of: • Quantities on hand • Where each item is • Who is responsible for it Did You Know? Scholastic, Inc., publisher of Harry Potter books used JIT to deliver 100,000 copies of one book to stores across the US just minutes before midnight on July 8, the book’s official release date.

  15. Inventory Management Approaches • Economic order quantity model (EOQ) • Identifies the optimum number of items to order. • Just in time inventory management (JIT) • Uses smaller quantities of materials that arrive “just in time.” • Material-requirements planning (MRP) • Schedules the precise quantity of materials needed to make the product.

  16. Routing and Scheduling • Routing • The sequence of operations through which a product must pass • Scheduling • The assignment of required tasks to departments or specific machines, workers, or teams • Program Evaluation and Review Technique (PERT)

  17. Hypothetical PERT Diagram for Making a McDonald’s Big Mac

  18. Managing Quality • Quality Control • The process an organization uses to maintain its established quality standards. • Malcolm Baldrige National Quality Award • Total Quality Management (TQM) • Statistical Process Control • ISO 9000

  19. Types and Percentages of Air Travel Complaints in 2005 Source: Office of Aviation Enforcement and Proceedings, Air Travel Consumer Report, February 2005, p. 39, available at gov/reports/2005/0402atcr.pdf.

  20. Malcolm Baldrige Quality Award • The Baldrige criteria are: • Leadership • Information and analysis • Strategic planning • Human resource development and management • Process management • Business results • Customer focus and satisfaction

  21. Total Quality Management (TQM) • To regain a competitive edge, a number of firms have adopted a total quality management approach. • Uniform commitment to quality in all areas of the organization will promote a culture that meets customers’ perceptions of quality.

  22. Statistical Process Control • A system in which management collects and analyzes information about the production process to pinpoint quality problems in the production system.

  23. Establishing Standards—ISO 9000 • Designed to ensure consistent product quality under many conditions • Provides a framework for documenting how a certified business keeps records, trains employees, tests products, and fixes defects • Inspection • Sampling

  24. Inspection • Purchased items and finished items • To determine what the quality level is • Work-in-process • To find defects before the product is completed so that necessary corrections can be made Did You Know? Quality Pays! The annual median income for a quality assurance/control manager is $65,536.

  25. Sampling • Whether to inspect 100 percent of the output or only part of it is related to • The cost of the inspection process • The destructiveness of the inspection process • The potential cost of product flaws in terms of human lives and safety

  26. Solve the Dilemma • What mistake did McKing make in approaching the introduction of pizza? • How could this product introduction have been coordinated to avoid the problems that were encountered? • If you were an executive at McKing, how would you proceed with the introduction of pizza into the restaurants?

  27. Explore Your Career Options • How can an understanding of total quality management (TQM) or ISO 9000 series certification assist in developing a career?

  28. Additional Discussion Questions and Exercises • What is the purpose of inventory control? • PERT charts can show a sequence of activities in days rather than seconds. • Draw a PERT chart for the chairperson of a banquet committee showing the most efficient path for these projected events:

  29. Additional Discussion Questions and Exercises

  30. Chapter 9 Quiz • An assembly line is an example of • a product layout • a process layout • a fixed-position layout • an intermittent organization • Which of the following identifies the optimum number of items to order to minimize the cost of ordering them? • just-in-time (JIT) • material-requirements planning (MRP) • economic-order quantity model • program evaluation and review technique (PERT)

  31. Chapter 9 Quiz • Which of the following characteristics is most typical of a continuous manufacturing organization? • The firm manufactures customized products. • The firm has a low volume of production. • The firm has a relatively low unit cost of production. • The firm creates many different products with many different characteristics. • Inspection is concerned with • standards of quality. • labor and energy. • routing and scheduling. • modular design and customization.

  32. Multiple Choice Questions about the Video • New Belgium Brewing Company uses what type of power at its facility? • Wind • Steam • Solar • Hydroelectric • Pedal • New Belgium is planning to increase production from ____ to ____ barrels per year. • 400,000 : 800,000 • 200,000 : 300,000 • 250,000 : 500,000 • 10,000 : 15,000 • 500,000 : 1,000,000