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Introduction: Operations Management
Some material have been adopted from OM sources such as Heizer & Render (2014); Stevenson (2012), Russell & Taylor (2011)
Cases of select companies that have excelled in Operations
Company Core Competency
• Paradigm shift in Quality! Lean manufacturing, short design-to-market cycles
• Strategic Sourcing
• Distribution system—Every Day Low Prices
• QVSC, Location, layout, supplier development
• Guaranteed Delivery, Hub and spoke system
• Supply chain management and mass customization
Essential Functions of Business
Essential functions: Marketing – generates demand, provides
customer and market information
Finance/accounting – tracks how well the organization is doing, invests money, arranges working capital, pays bills, collects the money
Production/operations – creates the product and/or delivers the service
Support functions—accounting, human resources, information systems, purchasing, engineering, etc.
The Production System
Operations Management (O.M.)
It is the systematic direction and control of the processes that
convert inputs into finished goods and services.
O.M. is the proper utilization and management of the
five ‘P’s of a business:
People Workforce
Products Inventory
Plant Machines, equipment and building
Processes Methods required for the conversion process
Production The actual conversion process (mfg. and service)
The Operations function in many businesses can control up to 70 %
of the business’s assets
Operations Activities
• Strategy
• Output Planning
• Capacity Planning
• Facility Location
• Facility Layout
• Aggregate Planning
• Inventory Management
• Materials Requirements Planning
• Scheduling
• Quality Control
What is Operations Management?
• Definition:
– “OM organizes, plans, controls, and improves the use of process, inventory, workforce, and facility & equipment in order to determine the ranking of the competitive priorities--price, quality, dependability, flexibility, and time--thereby providing short-term profit, long-term profit and improved market share” (Finch and Luebbe, 1995)
Competitive AdvantageCompetitive Advantage
Value Activities
Resources Capabilities
OM: Adding Value
Significant Events in OM
Competitive Priorities• Competing on Cost
• Competing on Quality•High performance design
•Consistent quality
• Competing on Flexibility•Customization
•Volume/product-mix Flexibility
• Competing on Time•Fast delivery
•On time delivery
•Development speed
• Dependability
Manufacturing vs. ServiceCharacteristic
Output
Customer contact
Uniformity of input
Labor content
Uniformity of output
Measurement of productivity
Opportunity to correct quality
problems before delivery to
customer
Manufacturing
Tangible
Low
High
Low
High
Easy
High
Service
Intangible
High
Low
High
Low
Difficult
Low
High
Manufacturing vs. Service (cont.)
Characteristic Mgf Service
Response Time Long Short
Capital Intensity High Low
Markets Diverse Local
Consumption Delayed ImmediateThese differences are beginning to fade
in many cases
Facilitating Good Concept• Often confusion in trying to classify
organization as manufacturer or service
• Facilitating good concept avoids this ambiguity
• All organizations defined as service
• The tangible part of the service is defined as facilitating good
• Pure services
New Trends in OM
Local or
national focus
Reliable worldwide
communication and
transportation networks
Global focus
Batch/large
shipments
Short product life cycles and
cost of capital put pressure
on reducing inventory
Just-in-time
performance
Low-bid
purchasing
Supply chain competition
requires that suppliers be
engaged in a focus on the
end customer
Supply chain
partners,
collaboration,
alliances
Past Causes Future
New Trends in OM
Lengthy
product
development
Shorter life cycles, Internet,
rapid international
communication, computer-
aided design, and
international collaboration
Rapid product
development,
alliances,
collaborative
designs
Standardized
products
Affluence and worldwide
markets; increasingly flexible
production processes
Mass
customization
with added
emphasis on
quality
Job
specialization
Changing socioculture
milieu; increasingly a
knowledge and information
society
Empowered
employees,
teams, and lean
production
Past Causes Future
Additional Trends• Service Sector Growth (80+ jobs)
• Surge in Service Productivity
• Global competition
• Competition based on
– Quality
– Time Reduction
– Technology
• Flexibility and Economies of Scope
Recent Trends (Continued)
• Worker involvement• Emphasis on supply chain management• Reengineering• Environment, Ethical, and Workforce Diversity• The Experience Economy (Pine & Gilmore, 1999)
– “Businesses must orchestrate memorable events for their customers, they argue, and that memory itself becomes the product - the "experience".”
• Mass Customized service
Classification and Evolution of Economic Offerings
Ethics and Social Responsibility
Challenges facing operations managers:
Developing and producing safe, quality products
Maintaining a clean environment
Providing a safe workplace
Honoring community commitments