Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved.

11

Introduction to Operations

Management

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Learning ObjectivesLearning Objectives

Define the term operations management Identify the three major functional areas of

organizations and describe how they interrelate

Compare and contrast service and manufacturing operations

Describe the operations function and the nature of the operations manager’s job

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Learning ObjectivesLearning Objectives

Differentiate between design and operation of production systems

Describe the key aspects of operations management decision making

Briefly describe the historical evolution of operations management

Identify current trends that impact operations management

Kellogg’s CompanyKellogg’s Company

Maker of popular cereal, breakfast, and snack products, such as Kellogg’s Corn Flakes, Rice Krispies, Raisin Bran, Pop-Tarts, Eggo Waffles, and Nutri-grain bars

Founded in 1906 in Battle Creek, Michigan, by W. K. Kellogg.

Adhere to strong quality standards and developing new technologies, such as Waxtite wrappers to keep cereal fresh for long periods of time.

Figure 1.1: Kellogg’s 2006 Figure 1.1: Kellogg’s 2006 Sales Around the World (in $ billions)Sales Around the World (in $ billions)

Kellogg’s CompanyKellogg’s Company

The supply chain consists of 27 manufacturing plants in the United States and 19 plants in 15 countries around the world, including Australia, Mexico, India, Brazil, and Japan.

Key operations decisions must be made throughout Kellogg’s network of plants.

The product mix to manufactured at each plant must decided – example should every plant make every product or should plants be specialized and focus

Is it better for Kellogg's to work with smaller, local suppliers for each plant or with larger, national or international suppliers?

Inventory decisions and policies must be set for each plant, each distribution center, and each retailer that Kellogg's’ runs, works with, or sells to.

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Kellogg’s CompanyKellogg’s Company

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Operations ManagementOperations Management

Operations Management is:

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

Operations Management affects: Companies’ ability to compete Nation’s ability to compete internationally

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The OrganizationThe Organization

The Three Basic Functions

Organization

Finance Operations Marketing

Figure 1.1

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Value-Added ProcessValue-Added Process

The operations function involves the conversion of inputs into outputs

Inputs Land Labor Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

Figure 1.2

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Value-Added and Product PackagesValue-Added and Product Packages

Value-added elements make the difference between the cost of inputs and the value or price of outputs.

Product packages are a combination of goods and services.

Product packages can make a company more competitive.

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Automobile assembly, steel making

Home remodeling, retail sales

Automobile repair, fast food

The Goods–Service ContinuumThe Goods–Service ContinuumFigure 1.3

Computer repair, restaurant meal

Song writing, software development

Goods Service

Surgery, teaching

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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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HospitalHospital

Inputs Processing Outputs

Doctors, nurses Examination Treated patientsHospital Surgery

Medical supplies MonitoringEquipment MedicationLaboratories Therapy

Table 1.2

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Manufacturing or Service?Manufacturing or Service?

Tangible Act

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Production of Goods Production of Goods vs. Delivery of Servicesvs. Delivery of Services

Production of goods – tangible output Delivery of services – an act Service job categories

Government Wholesale/retail Financial services Healthcare Personal services Business services Education

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Key DifferencesKey Differences

1. Customer contact

2. Uniformity of input

3. Labor content of jobs

4. Uniformity of output

5. Measurement of productivity

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Key DifferencesKey Differences

6. Production and delivery

7. Quality assurance

8. Amount of inventory

9. Evaluation of work

10. Ability to patent design

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Goods vs. ServiceGoods vs. Service

Characteristic Goods ServiceCustomer contact Low High

Uniformity of input High Low

Labor content Low High

Uniformity of output High Low

Output Tangible Intangible

Measurement of productivity Easy Difficult

Opportunity to correct problems High Low

Inventory Much Little

Evaluation Easier Difficult

Patentable Usually Not usually

Table 1.3

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Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating and training employees Locating facilities Supply chain management And more . . .

Scope of Operations ManagementScope of Operations Management

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Types of OperationsTypes of OperationsTable 1.4

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/Transportation Warehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, financial advising, renting or leasing

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and TV newscasts, telephone, satellites

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Key Decisions of Operations ManagersKey Decisions of Operations Managers

WhatWhat resources/what amounts

WhenNeeded/scheduled/ordered

WhereWork to be done

HowDesigned/Resources allocated

WhoTo do the work

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Overlap of Business FunctionsOverlap of Business Functions

Operations

Finance

Figure 1.5

Marketing

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Operations InterfacesOperations Interfaces

Operations

Personnel/Human resources

MIS

LegalPublic Relations

Accounting

Figure 1.6

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Historical Summary of Historical Summary of Operations ManagementOperations Management

Industrial revolution (1770s) Scientific management (1911)

Mass production Interchangeable parts Division of labor

Human relations movement (1920–60) Decision models (1915, 1960–’70s) Influence of Japanese manufacturers