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Chapter 1 INTRODUCTION TO OPERATIONS MANAGEMENT. Profit 5%. OM Cost 21%. Marketing Cost 26%. Manufacturing Cost 48%. Operations Management = OM. Management of ANY activities/process that create goods and provide services Exemplary Activities: Forecasting, Scheduling, Quality management

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operations management om

Profit 5%

OM Cost 21%

Marketing

Cost 26%

Manufacturing

Cost 48%

Operations Management = OM
  • Management of ANY activities/process that create goods and provide services
      • Exemplary Activities: Forecasting, Scheduling, Quality management
  • Why to study OM
      • At a typical manufacturing company
slide3

Organization

Finance

Marketing

Operations

Operations Management = OM

The management of systems or processes that create goods and/or provide services

  • The distinct –active- role of operations:
    • Inputs become Outputs after some Transformation
slide5

Doctors, nurses

Examination

Healthy patients

Hospital

Surgery

Medical Supplies

Monitoring

Equipment

Medication

Laboratories

Therapy

Operations example in service:

Health care

Inputs

Processing

Outputs

why om
Why OM?
  • Core of all business organizations
  • Many areas interrelated with OM activities
  • Management of operations is critical to create and maintain competitive advantages
organization of businesses
Organization of Businesses
  • Three basic functions
    • Operations/Production
      • Goods oriented (manufacturing and assembly)
      • Service oriented (health care, transportation and retailing)
      • Value-added (the essence of the operations functions)
    • Finance-Accounting
      • Budgets (plan financial requirements)
      • Economic analysis of investment proposals
      • Provision of funds (the necessary funding of the operations)
organization of businesses cont

Operations

Marketing

Finance

Organization of Businesses (Cont.)
    • Marketing
      • Selling
      • Promoting
      • Assessing customer wants and needs
      • Communicating those needs to operations
  • The need for working closely
systems holistic approach
Systems (Holistic) Approach
  • Emphasizes interrelations among subsystems.
  • A systems approach is essential whenever something is being designed, redesigned, implemented, or improved. It is important to take into account the impact on all parts of the system.
  • Example: A new feature is added to a product.
  • Designer must take into account how customers will view the change, instruction for using new feature, the cost, training of workers, production schedule, quality standard, advertising must be informed about the new feature.
slide12

Suboptimization

Systems Approach

“The whole is greater than the sum of the parts.”

value added
Value Added

Value added: The difference between cost of inputs and price (??) of outputs.

Is this definition right? Should value added include profit?

Value added: The difference between the cost of inputsand the (market or fair) value or price of outputs.

slide14

Value added

Inputs

Outputs

Transformation/

Land

Goods

Conversion

Labor

Services

process

Capital

Feedback

Control

Feedback

Feedback

Value-Added

degree of standardization
Degree of Standardization !
  • Standardized output
    • Take advantage of standardized methods, less skilled workers, materials…
      • Example: Iron, Wheat, most of commodities
  • Customized output
    • Each job is different
    • Workers must be skilled
      • Example: Hair cut
manufacturing goods vs service operations
Manufacturing (=Goods) vs. Service operations
  • Production of goods (goods oriented)
    • Tangible products
      • Automobile
      • Refrigerator
  • Services (TV and auto repair, lawn care)
      • Government
      • Regulatory bodies, FAA, FDA
      • Wholesale/retail
      • Financial services
      • Education
goods vs service operations cont
Goods vs. Service Operations (Cont)
  • Differences
      • Customer contact
      • Uniformity of input
      • Labor content of jobs
      • Uniformity of output
      • Measurement of productivity
      • Production and delivery
      • Quality assurance
      • Amount of inventory
slide19

Goods-service Continuum

Steel productionAutomobile fabrication

Home remodelingRetail sales

Auto Repair

Appliance repair

Maid Service

Manual car wash

Teaching

Lawn mowing

High percentage goods

Low percentage service

Low percentage goods

High percentage service

responsibilities of operations management
Responsibilities of Operations Management
  • Planning
    • Capacity, utilization
    • Location
    • Choosing products or services
    • Make or buy
    • Layout
    • Projects
    • Scheduling
    • Market share
    • Plan for risk reduction, plan B?
    • Forecasting
operations managers
Operations Managers
  • Controlling
    • Inventory
    • Quality
    • Costs
  • Organization
    • Degree of standardization
    • Subcontracting
    • Process selection
  • Staffing
    • Hiring/lay off
    • Use of overtime
    • Incentive plans
    • Job assignments
slide23

Scope of Operations Management

  • Operations Management includes:
    • Forecasting
    • Capacity planning
    • Scheduling
    • Managing inventories
    • Assuring quality
    • Motivating employees
    • Deciding where to locate facilities
    • And more . . .
help comes from models
Help comes from Models
  • A structure which has been built purposefully to exhibit features and characteristics of some other object.

Do not use “thing” or “something” in a definition.

  • For
    • Improved understanding and communication
    • Experimentation
    • Standardization for analysis
  • Abstraction vs. computability
modeling
Modeling !
  • Use models
    • Physical models (prototypes)
    • Schematic models (Graphs, charts, pictures)
    • Mathematical models,
      • Statistical models
      • Inventory models
      • Linear programming
      • Queuing techniques
      • Project management models
what type of models
What type of models
  • Simulation models : to test a proposed idea

– Monte Carlo Simulation

  • Optimization models : to create an optimal idea

– Linear programming

  • Pattern recognition models : to recognize a pattern

– Statistics, Forecasting, data mining

Other classes to learn the rest.

decision making
Decision Making
  • Models
  • Quantitative approaches
  • Analysis of trade-offs
  • Systems approach
models are beneficial
Models Are Beneficial
  • Easy to use, less expensive
  • Require users to organize
    • Increase understanding of the problem
    • Consistent tool
    • Standardized format
    • Specific objectives
  • Systematic approach to problem solving
    • Analysis of tradeoffs
    • Enable “what if” questions
  • Power of mathematics
slide29

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?

historical evolution of operations management
Historical Evolution of Operations Management
  • Industrial revolution (1770’s)
  • Scientific management (1911)
    • Mass production
    • Interchangeable parts
    • Division of labor
  • Human relations movement (1920-60)
    • Unemployment insurance
    • Pension plans
  • Decision models (1915, 1960-70’s)
  • Influence of Japanese manufacturers (1970-1990)
trends in business
Trends in Business
  • Major trends
    • The Internet, e-commerce, e-business
    • Management technology
    • Globalization
    • Management of supply chains
    • Agility
recent trends
Recent Trends !
  • Worker involvement
  • Environmental issues, emission reductions are popular after Central European floods
  • Service economy in US, foreign production
  • E-business – information technology
  • Supply chain management
  • Total Quality Management
  • Globalization, emerging markets, NAFTA
  • Lean Production – see the next page
production systems classified
Production systems classified
  • Craft Production : System in which highly skilled workers use simple, flexible tools to produce small quantities of customized goods.
    • Carpenter
  • Lean production : System that uses minimal amounts of resources to produce a high volume of high-quality goods with some variety.
    • Dell
  • Mass production: System in which lower-skilled workers use specialized machinery to produce high volumes of standardized goods.
    • Ford
production systems classified agile lean manufacturing
Production systems classifiedAgile=Lean manufacturing
  • It provides flexibility to switch quickly and economically from one product design to another with little disruption. This characteristic, in turn enables faster response to changes in customer demand.
  • A sophisticated computerized inventory control system allows the plant to keep track of large number of parts.
  • Keys to being an agile manufacturer are :
    • Reduction in inventories,
    • Reduction in turnaround times,
    • Availability of automated flexible machinery,
    • Rapid collection and processing of information
slide35

Suppliers’ Suppliers

DirectSuppliers

Final

Consumer

Distributor

Producer

Simple Product Supply Chain

Supply Chain: A sequence of activities and organizations involved in producing and delivering a good or service

other important trends
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
summary
Summary
  • Definition of OM
  • OM’s relationship with Marketing, Finance and Accounting
  • Goods vs. service industries
  • OM issues, trends and models
  • Manufacturing systems