Introduction to Operation Management

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.

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

Supply Chain – a sequence of activities and organizations involved in producing and

delivering a good or service.
The Transformation Process

Feedback – measurements taken at various points in the transformation process

Control – The comparison of feedback against previously established standards to

determine if corrective action is needed.

Good-service Continuum – products are typically neither purely service or purely

goods based.

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

Basic Business Organization Functions

 Finance and Operations

 Budgeting
 Economic analysis of investment proposals
 Provision of funds
 Marketing and Operations
 Demand data
 Product and service design
 Competitor analysis
 Lead time data

Operation Management and Supply Chain Career Opportunities

 Operations manager
 Supply chain manager
 Production analyst
 Schedule coordinator
 Production manager
 Industrial engineer
  Purchasing manager
 Quality manager

Operation Management Related Professional Societies

 The Association for Operations Management (APICS)

 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)

Process Management

Process – one or more actions that transform inputs into outputs

3 Categories of Business Processes:

 Upper-management processes – these govern the operation of the entire

organization
 Operational processes – these are core processes that make up the value
stream
 Supporting processes – these support the core processes.
Supply and Demand

Process Variation

4 Sources of Variation

 Variety of goods and services being offered – the greater the variety goods
and services offered, the greater the variation in production of 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.

Variations can be disruptive to operations and supply chain processes. They may result
in additional costs, delays, and shortages, poor quality, and inefficient work systems.

Scope of Operations Management

- The scope of operations management ranges across the organization

The operations function includes many interrelated activities such as:

 - Forecasting
- Capacity planning
- Facilities and layout
- Scheduling
- Managing inventories
- Assuring quality
- Motivating employees
- Deciding where to locate facilities

Role of the Operations Manager

The Operations Function consists of all activities directly related to producing goods or
providing services. A primary function of the operations manager is to guide the system
by decision making.

- System Design Decisions

- System Operation Decisions

System Design Decisions

 System Design
 Capacity
 Facility layout
 Facility location
 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
 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 are. They still have a vital stake in system design.

OM Decision Making

 Most operations decisions involve many alternatives that can have quite different
impacts on costs or profits
 Typical operations decision include:
 What – What resources are needed, and in what amounts?
 When – When will each resource be needed? When should the work be
scheduled? When should materials and other supplies be ordered?
 Where – Where will the work be done?
 How – How will the product or service be designed? How will the work be
done? How will resources be allocated?
 Who – Who will do the work?

General Approach to Decision Making

 Modeling is a key tool used by all decision makers

 Model – an abstraction of reality; a simplication of something
 Common features of models:
o They are simplifications of real-life phenomena
o 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.

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?

Benefits of Models

 Models are generally easier to use and less expensive than dealing with the real
system
 Require users to organize and sometimes quantify information
 Increase understanding of the problem
 Enable managers to analyze “What if?” questions
 Serve as a consistent tool for evaluation and provide a standardized format for
analyzing a problem
 Enable users to bring the power of mathematics to bear on problem.

Systems Approach

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

The system approach

- Emphasizes interrelationships among subsystems

- Main theme is that the whol is greater than the sum of its parts
- The output and objectives of the organization take precedence over those of
any one subsystem

Establishing Priorities

- In nearly all cases. Certain issues or items are more important than others
 - Recognizing this allows managers to foucs their attention to those efforts that
will do the most goods
Pareto Phenomenon – a few factors account for a high percentage of
occurrence of some events
o This critical few factors should receive the highest priority
o This is a concept that is appropriately applied to all areas and levels
of management

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

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 worker, and separating management activities
from work activities
- Emphasis was on maximizing output

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, 1920
 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

Decision Models and 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 Groups – OR applications in warfare
 George Dantzig – linear programming, 1947

Influence of Japanese Manufacturers

 Refined and developed management practices that increased productivity

o Credited with fueling the “quality revolution”
o Just-in-time production

Key Issues for Operations Managers Today

 Economic conditions
 Innovating
 Quality problems
 Risk management
 Competing in a global economy

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

Ethical Issues in Operations

 Ethical issues arise in many aspects of operations management:

 Financial statements
 Worker safety
 Product safety
 Quality
 Environment
 Community
 Hiring and firing workers
 Closing facilities
 Workers rights

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

The Supply Chain Issues

 The need to improve operations

 Increasing levels of outsourcing
 Increasing transportation costs
 Competitive pressures
 Increasing globalization
 Increasing importance of e-business
 The complexity of supply chains
 The need to manage inventories