Chapter OneChapter OneThe Operations FunctionThe Operations Function

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Operations ManagementOperations ManagementContemporary Concepts and Cases 5/eContemporary Concepts and Cases 5/e

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Chapter OutlineChapter Outline

Why Study Operations Management?Why Study Operations Management?

Definitions of Operations Management and Definitions of Operations Management and Supply ChainsSupply Chains

Decisions at Pizza U.S.A.Decisions at Pizza U.S.A.

Operations Decisions - A FrameworkOperations Decisions - A Framework

Cross-Functional Decision MakingCross-Functional Decision Making

Operations as a ProcessOperations as a Process

Contemporary Operations ThemesContemporary Operations Themes

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Why Study Operations Management?Why Study Operations Management?

Cross-functional nature of decisionsCross-functional nature of decisionsOperations is a major function in every Operations is a major function in every organizationorganizationPrinciples of process thinking can be applied Principles of process thinking can be applied across the businessacross the businessOperations Management is an interesting and Operations Management is an interesting and challenging field of studychallenging field of study

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Definition ofDefinition ofOperations ManagementOperations Management

The operations function of an organization is responsible for producing and delivering goods or services of value to customers of the organization.

Operations managers make decisions to manage the transformation process that converts inputs into desired finished goods or services.

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Key Points in OM DefinitionKey Points in OM Definition

Decisions:Decisions:

The operations manager must decide:The operations manager must decide:• Process, quality, capacity, inventoryProcess, quality, capacity, inventory

Function:Function:

Major functional areas in organizations:Major functional areas in organizations:• Operations, marketing, financeOperations, marketing, finance

Process:Process:

Planning and controlling the transformation Planning and controlling the transformation process and its interfacesprocess and its interfaces

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Major Major DecisionsDecisions at Pizza USA at Pizza USAA Framework for OMA Framework for OM

ProcessProcess– How to produce & deliver?How to produce & deliver?

QualityQuality– Criteria, measurement & process for achieving?Criteria, measurement & process for achieving?

CapacityCapacity– Physical facilities & labor?Physical facilities & labor?

InventoryInventory– What, when & how much?What, when & how much?

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Key Decisions of Operations ManagersKey Decisions of Operations Managers

WhatWhatWhat resources/what amountsWhat resources/what amounts

WhenWhenNeeded/scheduled/orderedNeeded/scheduled/ordered

WhereWhereWork to be doneWork to be done

HowHowDesignedDesigned

WhoWhoTo do the workTo do the work

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Definition of Supply ChainDefinition of Supply Chain

Network of manufacturing and service Network of manufacturing and service operations that supply one anotheroperations that supply one another

From raw materials through manufacturing to From raw materials through manufacturing to the end consumerthe end consumer

Flows of materials, money, and informationFlows of materials, money, and information

Links operations Links operations acrossacross organizations organizations

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Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply ChainSimple Product Supply ChainFigure 1.7

Supply Chain: A sequence of activitiesAnd organizations involved in producingAnd delivering a good or service

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Stage of Production Value Added

Value of Product

Farmer produces and harvests wheat $0.15 $0.15

Wheat transported to mill $0.08 $0.23

Mill produces flour $0.15 $0.38

Flour transported to baker $0.08 $0.46

Baker produces bread $0.54 $1.00

Bread transported to grocery store $0.08 $1.08

Grocery store displays and sells bread $0.21 $1.29

Total Value-Added $1.29

A Supply Chain for BreadA Supply Chain for Bread

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Cross-FunctionalCross-FunctionalDecision MakingDecision Making

Operations as the primary Operations as the primary function.function.

Other primary functions:Other primary functions:– MarketingMarketing– FinanceFinance

Supporting functions: all othersSupporting functions: all others

Major cross-functional decision making Major cross-functional decision making relationships (See Table 1.2)relationships (See Table 1.2)

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Operations as a Operations as a ProcessProcess

Transformation(Conversion)

Process

Input Output

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Operations as a Operations as a ProcessProcess

TransformationFabrication

Input OutputTransformationAssembly

Fabrication: making the parts

Assembly: putting the parts together

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Operations as a Operations as a ProcessProcess (Figure 1.1)(Figure 1.1)

Transformation(Conversion)

Process

EnergyMaterials

LaborCapital

Information

Goods orServices

Feedback information forcontrol of process inputsand process technology

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Relation of Operations to its Relation of Operations to its EnvironmentEnvironment(Figure 1.2)(Figure 1.2)

Operations transformation systemSuppliers

HumanResources

Marketing

Accounting Finance MIS

Engineering

SOCIETY

GOVERNMENT

ExternalEnvironment

CUSTOMERS

COMPETITORS

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Food ProcessorFood Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans

Water CuttingEnergy CookingLabor PackingBuilding LabelingEquipment

Table 1.2

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Hospital ProcessHospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy patientsHospital Surgery

Medical Supplies MonitoringEquipment MedicationLaboratories Therapy

Table 1.2

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Contemporary Operations ThemesContemporary Operations Themes

Service and Manufacturing (differences and Service and Manufacturing (differences and implications)implications)

Customer-Directed OperationsCustomer-Directed Operations

Lean OperationsLean Operations

Integration of Operations and Other FunctionsIntegration of Operations and Other Functions

Environmental ConcernsEnvironmental Concerns

Supply Chain ManagementSupply Chain Management

Globalization of OperationsGlobalization of Operations

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U.S. Manufacturing vs. Service Employment

0

20

40

60

80

100

45 50 55 60 65 70 75 80 85 90 95 00

Year

Perc

ent

Year Mfg. Service45 79 2150 72 2855 72 2860 68 3265 64 3670 64 3675 58 4280 44 4685 43 5790 35 6595 32 6800 30 70

Figure 1.4

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Environmental ConcernsEnvironmental Concerns

““Volkswagen, Germany’s biggest car maker, was Volkswagen, Germany’s biggest car maker, was reported to be setting aside DM1 billion ($470m) reported to be setting aside DM1 billion ($470m) to pay for compliance with a European directive to pay for compliance with a European directive that will come into force in 2007 forcing car that will come into force in 2007 forcing car makers to pay for recycling their vehicles. New makers to pay for recycling their vehicles. New cars will be required to be 85% recyclable.” cars will be required to be 85% recyclable.”

The Economist, 15 February 2001The Economist, 15 February 2001

See: See: www.arn.nl

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Globalization: Who took my job?Globalization: Who took my job?

Early 1990sEarly 1990s

Small town near Charlotte, NCSmall town near Charlotte, NC

Aluminum smelter closed after 50 yearsAluminum smelter closed after 50 years

Only significant industry in townOnly significant industry in town

In many families, several generations had In many families, several generations had worked there. Now all out of work.worked there. Now all out of work.

Who caused it to close?Who caused it to close?

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MiklMiklós Némethós Németh

WHO!?WHO!?

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U.S. production of aluminum dropped dramatically in the early 1990s because the Russians dumped aluminum on the world market. Why? The opening of the Hungarian border, 2 May 1989, led to the fall of the Berlin Wall in November, 1989, which led to the breakup of the Soviet Union in 1991, which caused them to downsize their military, which gave them overcapacity in aluminum production, which caused them to dump in the world markets, which led to the closing of U.S. smelters such as the one near Charlotte, NC.

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MiklMiklós Némethós NémethWas the Hungarian Prime Was the Hungarian Prime Minister who opened the Minister who opened the border on 2 May 1989.border on 2 May 1989.

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Moral of the StoryMoral of the StoryIn an age of globalization, you never In an age of globalization, you never

know who will be the competition or who know who will be the competition or who is doing something that will affect your is doing something that will affect your

job or your life.job or your life.

The aluminum workers in NC had never The aluminum workers in NC had never heard of Miklheard of Miklós Németh, but he ultimately ós Németh, but he ultimately

cost them their jobs.cost them their jobs.

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