Operations Management 797

8/4/2019 Operations Management 797

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Operations andOperations and

CompetitivenessCompetitivenessOperations Management - 5th Edition

Operations Management - 5th Edition

Chapter 1Chapter 1

Roberta Russell & Bernard W. Taylor, IIIRoberta Russell & Bernard W. Taylor, III


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Lecture outlineLecture outline

What do operations managers do?What do operations managers do?

Operations functionOperations function

Evolution of operations managementEvolution of operations management Operations management and ebusinessOperations management and ebusiness

Globalization and competitivenessGlobalization and competitiveness

Primary topics in operations managementPrimary topics in operations management

Learning objectives for this courseLearning objectives for this course


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What Do OperationsWhat Do OperationsManagers Do?Managers Do? What is operations?What is operations?

a function or system that transforms inputs into outputs of greatera function or system that transforms inputs into outputs of greatervaluevalue

What is a transformation process?What is a transformation process?

a series of activities along aa series of activities along a value chainvalue chainextending from supplierextending from supplierto customerto customer

activities that do not add value are superfluous and should beactivities that do not add value are superfluous and should beeliminatedeliminated

What is operations management?What is operations management? design, operation, and improvement of productive systemsdesign, operation, and improvement of productive systems


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Transformation ProcessTransformation Process

Physical: as in manufacturing operationsPhysical: as in manufacturing operations

Locational: as in transportationLocational: as in transportation

operationsoperations Exchange: as in retail operationsExchange: as in retail operations

Physiological: as in health carePhysiological: as in health care

Psychological: as in entertainmentPsychological: as in entertainment Informational: as in communicationInformational: as in communication


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INPUTMaterialMachinesLaborManagementCapital

TRANSFORMATION

PROCESS

OUTPUTGoodsServices

FeedbackFeedback

Operations as aOperations as aTransformation ProcessTransformation Process


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OperationsOperationsFunctionFunction

OperationsOperations

MarketingMarketing

FinanceFinance

andandaccountingaccounting

HumanHumanresourcesresources

OutsideOutsidesupplierssuppliers


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How is operations relevant toHow is operations relevant tomy major?my major?

AccountingAccounting

InformationInformation

TechnologyTechnology

ManagementManagement

As an auditor you mustAs an auditor you must

understand the fundamentals ofunderstand the fundamentals of

operations management.operations management.

IT is a tool, and theres no betterIT is a tool, and theres no betterplace to apply it than inplace to apply it than in

operations.operations.

We use so many things youWe use so many things you

learn in an operations classlearn in an operations class

scheduling, lean production,scheduling, lean production,

theory of constraints, and tons oftheory of constraints, and tons of

quality tools.quality tools.


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How is operations relevant toHow is operations relevant tomy major?my major?

EconomicsEconomics

MarketingMarketing

FinanceFinance

Its all about processes. IIts all about processes. Ilive by flowcharts andlive by flowcharts andPareto analysis.Pareto analysis.

How can you do a goodHow can you do a good

job marketing a product ifjob marketing a product ifyoure unsure of its qualityyoure unsure of its qualityor delivery status?or delivery status?

Most of our capitalMost of our capitalbudgeting requests arebudgeting requests arefrom operations, and mostfrom operations, and mostof our cost savings, too.of our cost savings, too.


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Evolution of OperationsEvolution of OperationsManagementManagement Craft productionCraft production

process of handcrafting products orprocess of handcrafting products or

services for individual customersservices for individual customers

Division of laborDivision of labor dividing a job into a series of small tasksdividing a job into a series of small tasks

each performed by a different workereach performed by a different worker

Interchangeable partsInterchangeable parts standardization of parts initially asstandardization of parts initially as

replacement parts; enabled massreplacement parts; enabled mass

productionproduction


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Scientific managementScientific management systematic analysis of work methodssystematic analysis of work methods

Mass productionMass production high-volume production of ahigh-volume production of a

standardized product for a massstandardized product for a massmarketmarket

Lean productionLean production adaptation of mass production thatadaptation of mass production that

prizes quality and flexibilityprizes quality and flexibility

OperationsOperationsManagement (cont.)Management (cont.)


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Historical Events inHistorical Events inOperationsOperations

ManagementManagementEra Events/Concepts Dates OriginatorIndustrial

Revolution

Steam engine 1769 James Watt

Division of labor 1776 Adam SmithInterchangeable parts 1790 Eli Whitney

Scientific

Management

Principles of scientific

management

1911 Frederick W. Taylor

Time and motion studies 1911 Frank and Lillian

GilbrethActivity scheduling chart 1912 Henry Gantt

Moving assembly line 1913 Henry Ford


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Historical Events inHistorical Events inOperations ManagementOperations Management

(cont.)(cont.)Era Events/Concepts Dates OriginatorHuman

Relations

Hawthorne studies 1930 Elton Mayo

Motivation theories 1940s Abraham Maslow

1950s Frederick Herzberg

1960s Douglas McGregor

Operations

Research

Linear programming 1947 George Dantzig

Digital computer 1951 Remington Rand

Simulation, waiting

line theory, decision

theory, PERT/CPM

1950s Operations research

groups

MRP, EDI, EFT, CIM 1960s,

1970s

Joseph Orlicky, IBM

and others


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(cont.)(cont.)

Era Events/Concepts Dates OriginatorQuality

Revolution

JIT (just-in-time) 1970s Taiichi Ohno (Toyota)

TQM (total qualitymanagement)

1980s W. Edwards Deming,Joseph Juran

Strategy and

operations

1990s Wickham Skinner,

Robert HayesBusiness process

reengineering

1990s Michael Hammer,

James Champy


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(cont.)(cont.)Era Events/Concepts Dates OriginatorGlobalization WTO, European Union,

and other trade

agreements

1990s

2000s

Numerous countries

and companies

Internet

Revolution

Internet, WWW, ERP,

supply chain management

1990s ARPANET, Tim

Berners-Lee SAP,

i2 Technologies,

ORACLE,PeopleSoft

E-commerce 2000s Amazon, Yahoo,

eBay, and others


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Continuum fromContinuum from

Goods to ServicesGoods to Services

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff,Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

O i


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OperationsOperationsManagement and E-Management and E-

BusinessBusiness

Categories of E-Commerce

Bus

ine

ss

Bus

ine

ss

Consumer

Consumer

BusinessBusiness ConsumerConsumer

B2B

Commerceone.com

B2C

Amazon.com

C2B

Priceline.com

C2C

eBay.com


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An Integrated ValueAn Integrated Value

ChainChain

Value chain:Value chain: set of activities that create and deliverset of activities that create and deliver

products to customerproducts to customer

Manufacturer Supplier Customer

Flow of information (customer order)Flow of information (customer order)

Manufacturer Supplier Customer

Flow of information (customer order)Flow of information (customer order)

Flow of product (order fulfillment)Flow of product (order fulfillment)


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Impact of E-Business onImpact of E-Business onOperations ManagementOperations Management

Comparison shopping

by customers

Direct contact withcustomers

Business processesconducted online

Customer expectations escalate;

quality must be maintained andcosts lowered

No more guessing about demand isnecessary; inventory costs go down;product and service designimproves; build to-order products

and services is made possible Transaction costs are lower;

customer support costs decrease; e-procurement saves big bucks

Benefits of E-Business Impact on Operations

f i


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(cont.)(cont.)

Access to customers

worldwide

Middlemen areeliminated

Access to suppliersworldwide

Demand increases; order fulfillment

and logistics become major issues;production moves overseas

Logistics change from delivering to astore or distribution center to deliveringto individual homes; consumerdemand is more erratic and

unpredictable than business demand Outsourcing increases; more alliances

and partnerships among firms areformed; supply is less certain; globalsupply chain issues arise


I f E B i


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(cont.)(cont.)

Online auctions and e-

marketplaces

Better and fasterdecision making

Competitive bidding lowers cost

of materials; supply needs can befound in one location

More timely information isavailable with immediate accessby all stakeholders in decision-making process; customer orders

and product designs can beclarified electronically; electronicmeetings can be held;collaborative planning isfacilitated


I f E B i


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(cont.)(cont.)

IT synergy

Expanded supplychains

Productivity increases as

information can be shared moreefficiently internally andbetween trading partners

Order fulfillment, logistics,warehousing, transportation anddelivery become focus of

operations management; risk isspread out; trade barriers fall



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Globalization andGlobalization andCompetitivenessCompetitiveness

Favorable costFavorable cost

Access to internationalAccess to international

marketsmarkets

Response to changesResponse to changesin demandin demand

Reliable sources ofReliable sources of

supplysupply

14 major trade14 major tradeagreements in 1990sagreements in 1990s

Peak: 26% in 2000Peak: 26% in 2000World Trade Compared to World GDP

Source: Real GDP and Trade Growth of OECD Countries, 200103, International Trade Statistics 2003, World Trade Organization,www.wto.org


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Globalization andGlobalization andCompetitiveness (cont.)Competitiveness (cont.)

Hourly Wage Rates for Selected Countries

Source: International Comparisons of Hourly Compensation Costs for Production Workers inManufacturing, Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.

Germany: $26.18Germany: $26.18

USA: $21.33USA: $21.33

Taiwan: $5.41Taiwan: $5.41

Mexico: $2.38Mexico: $2.38

China: $0.50China: $0.50


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Globalization andGlobalization andCompetitiveness (cont.)Competitiveness (cont.)

Trade with China: Percent of each countrys tradeTrade with China: Percent of each countrys trade

Source:Source:Share of China in Exports and Imports of Major Traders, 2000 and 2002, International Trade Statistics 2003, World Trade Organization, www.wto.orgShare of China in Exports and Imports of Major Traders, 2000 and 2002, International Trade Statistics 2003, World Trade Organization, www.wto.org


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Risks of GlobalizationRisks of Globalization

Cultural differencesCultural differences

Supply chain logisticsSupply chain logistics

Safety, security, andSafety, security, and

stabilitystability

Quality problemsQuality problems

Corporate imageCorporate image

Loss of capabilitiesLoss of capabilities


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Competitiveness andCompetitiveness andProductivityProductivity CompetitivenessCompetitiveness

degree to which a nation can produce goods anddegree to which a nation can produce goods andservices that meet the test of international marketsservices that meet the test of international markets

ProductivityProductivity ratio of output to inputratio of output to input

OutputOutput sales made, products produced, customers served,sales made, products produced, customers served,

meals delivered, or calls answeredmeals delivered, or calls answered

InputInput labor hours, investment in equipment, material usage,labor hours, investment in equipment, material usage,

or square footageor square footage


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Measures of Productivity

Competitiveness andCompetitiveness andProductivity (cont.)Productivity (cont.)


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Changes in Productivity forChanges in Productivity forSelect CountriesSelect Countries

Internet-enabledproductivity

Internet-enabledproductivity

- Dot com bust- 9/11 terrorist attacks

- Dot com bust- 9/11 terrorist attacks

Source: International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau of LaborStatistics, U.S. Department of Labor, September 2003. U.S. figures for 20022003 from Major Sector Productivity andCosts Index, Bureau of Labor Statistics, U.S. Department of Labor, March 2004


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Become efficientBecome efficient output increases with little or no increase in inputoutput increases with little or no increase in input

ExpandExpand

both output and input grow with output growing moreboth output and input grow with output growing morerapidlyrapidly

Achieve breakthroughsAchieve breakthroughs output increases while input decreasesoutput increases while input decreases

DownsizeDownsize output remains the same and input is reducedoutput remains the same and input is reduced

RetrenchRetrench both output and input decrease, with input decreasingboth output and input decrease, with input decreasing

at a faster rateat a faster rate

Productivity IncreaseProductivity Increase


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Competitiveness andCompetitiveness and

ProductivityProductivity

Productivity as a Function of Inputs and Outputs, 20012002

Source: International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau ofLabor Statistics, U.S. Department of Labor, September 2003

BreakthroughPerformance

BreakthroughPerformance

More EfficientMore Efficient

RetrenchRetrench


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Global CompetitivenessGlobal CompetitivenessRankingRanking

1.1. FinlandFinland

2.2. United StatesUnited States

3.3. SwedenSweden

4.4. DenmarkDenmark5.5. TaiwanTaiwan

6.6. SingaporeSingapore

7.7. SwitzerlandSwitzerland

8.8. IcelandIceland9.9. NorwayNorway

10.10.AustraliaAustralia

Source: Global Competitiveness Report

20032004, World Economic Forum,January 2004, www.weforum.org


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OperationsOrientedOperationsOrientedBarriers to EntryBarriers to Entry

Economies of ScaleEconomies of Scale

Capital InvestmentCapital Investment

Access to Supply and DistributionAccess to Supply and DistributionChannelsChannels

Learning CurveLearning Curve

P i T i iPrimary Topics in


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Primary Topics inPrimary Topics inOperationsOperations

ManagementManagement

Primar Topics inPrimary Topics in


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Primary Topics inPrimary Topics inOperations ManagementOperations Management

(cont.)(cont.)


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Operations StrategyOperations Strategy

Strategy: Chapter 2Strategy: Chapter 2 Maintaining an operations strategy to support firmsMaintaining an operations strategy to support firms

competitive advantagecompetitive advantage

Quality: Chapters 3 and 4Quality: Chapters 3 and 4 Focusing on quality in operational decision makingFocusing on quality in operational decision making

Product and Services: Chapter 5Product and Services: Chapter 5 Designing quality products and servicesDesigning quality products and services

Processes, Technologies, and Capacity: Chapter 6Processes, Technologies, and Capacity: Chapter 6 Setting up process so that it works smoothly andSetting up process so that it works smoothly and

efficientlyefficiently


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Operations Strategy (cont.)Operations Strategy (cont.)

Facilities: Chapter 7Facilities: Chapter 7 Setting up facility so that it works smoothlySetting up facility so that it works smoothly

and efficientlyand efficiently

Human Resources: Chapter 8Human Resources: Chapter 8 Designing jobs and work to produce qualityDesigning jobs and work to produce quality

productsproducts

Project Management: Chapter 9Project Management: Chapter 9 Managing complex projectsManaging complex projects


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Supply Chain ManagementSupply Chain Management

Supply Chain: Chapter 10Supply Chain: Chapter 10 Managing supply chainManaging supply chain

Forecasting: Chapter 11Forecasting: Chapter 11 Predicting customer demandPredicting customer demand

Aggregate Planning: Chapter 12Aggregate Planning: Chapter 12 How much to produce and when to produceHow much to produce and when to produce

itit Inventory Management: Chapter 13Inventory Management: Chapter 13

How much to order and when to orderHow much to order and when to order


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Supply Chain ManagementSupply Chain Management(cont.)(cont.) Resource Planning: Chapter 14Resource Planning: Chapter 14

Planning capacity and other resourcesPlanning capacity and other resources

Lean Production: Chapter 15Lean Production: Chapter 15 Designing efficient production linesDesigning efficient production lines

Scheduling: Chapter 16Scheduling: Chapter 16 Job and task assignmentsJob and task assignments

Waiting Lines: Chapter 17Waiting Lines: Chapter 17 Minimizing waiting time of customers andMinimizing waiting time of customers and

productsproducts


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Learning Objectives of thisLearning Objectives of thisCourseCourse Gain an appreciation of strategic importance ofGain an appreciation of strategic importance of

operations in a global business environmentoperations in a global business environment

Understand how operations relates to otherUnderstand how operations relates to other

business functionsbusiness functions Develop a working knowledge of concepts andDevelop a working knowledge of concepts and

methods related to designing and managingmethods related to designing and managing

operationsoperations Develop a skill set for quality and processDevelop a skill set for quality and process

improvementimprovement

Documents

Operations Management 797