Operations Management - An Introduction
the role of operations in business
to the methods used to control products, processes, quality and output
operations problems and approaches for solving those problems
modeling skills with spreadsheets and simulations
What is Operations
"... the systematic direction and control
of the processes that transform inputs into finished goods and services. The
inputs are transformed at operations into outputs."
In other words Operations Management
deals with all activities involved with designing, producing and delivering a
Operations as a Transformation Process
Inputs Þ Transformation Þ Output
Where does it fit
in an organization?
Operations is one functional area, supporting corporate strategy and
exchanging information with the marketing, finance and human resources areas.
Porter's Value Chain model
Operations handles inbound logistics, operations, outbound
logistics and service as well as procurement and aspects of technology
Management is all about providing customers with products and services.
survive by giving customers with what they want
Product or Service is really a bundle of different attributes.
place, price, performance, quality, timing, service, etc.
are looking for a bundle of characteristics
provides the level of value customers deem appropriate
products with the attributes they want at the lowest price possible
Place – distribution
Time – delivery, availability
How do you
decide which product to produce?
How do you
find out what attributes your product should have?
How do you
get those attributes into your product?
– What process?
– What resources do you need?
– Where do you get those resources?
Customer Satisfaction - the key to organizational success
To be successful an organization
1. give its customers what they want or more
– meet or exceed customer expectations
2. must also do this at a price which will provide profit for
shareholders and continued investment
managers must make decisions on three levels
- Longer term decisions
- Usually made at the senior
Product and service strategy
Long term partnerships
Quality system and overall approach to quality
- Medium term decisions
- Tactical in nature
- Made by middle and senior managers
Job design and workforce management
- Shorter term decisions
- Made at middle and lower
Master production scheduling
Operations Management Decisions -
global sports shoe manufacturer has just decided to enter the market in a new
What decisions does
the operations manager in charge have to make?
- 1 year
before market launch?
- 6 months
- 1 month
before and after launch?
Who does he or she
have to work with and where and when will she have input?
A Brief History of Operations
OM - Early Developments
replaced people with machines
water and mule power instead of human power
nature of production changed from cottage to factory
steam engine - in use by 1785
1794 - built first cotton gin to separate
cotton seeds from cotton fibers.
1799 - began mass production of muskets
introduced concept of standard interchangeable parts to
allow the use of less skilled labour to produce muskets.
Development of the machine tool industry - metal tools and
machines now possible (late 1700's).
Developments this Century
Principles of scientific management - 1911
1. Scientific laws govern work so scientific methods can be
used to analyze work
2. Workers are different so match workers to their job and
then train them thoroughly
3. Use employee self-interest to motivate
4. Separate the responsibilities of workers and managers.
Taylor - Systems approach to
equipment, workers and tasks are part of a manufacturing system whose
performance should be maximized
1900s - introduced assembly line manufacturing to produce Model T cars
supply and production was really the first Just In Time production
Ford Model T
Alfred P. Sloan.,
of General Motors - 1923-1946
with Ford through innovation
strategy of marketing different cars with different features and prices
Installment selling (GMAC), used car trade-ins, automotive styling, annual
Human Resources Movement
psychological factors in manufacturing
- 1927 – to examine the effect of light on work
the role of treatment of employees in production
WWII - Operations research
- Many management
science techniques were developed in the war as a means of controlling and
allocating the resources required to fight the war.
- The most
difficult problems ever to challenge managers
- Problems ranged
from resource allocation and logistics to rapid calculation of artillery
Computers and Operations
capacity increased dramatically
- Computers are
now involved in design and production
- Development of
models for solving operations problems
improvements increased capability
Combination of computer and communication advances are reshaping the way we do
business and service activities
AOL/Time Warner Merger
Computing – 1981 - 2001
of 1981 cost
Communication - examples
Operating by remote control
Not your usual book store
Recent Trends in Operations
What has been happening that affects the way products and services are
How has the food you eat changed from the food you ate five years ago?
What about your clothes?
The things you buy and the way you buy them?
I. Market Focus
- Awareness that market controls
- Old view
– a market exists to get rid of products produced
– products are commodities
- New view
– products are produced to meet market needs
– products should be differentiated and targeted at
distinct niches to capture maximum value from products
of major companies
interest in products from around the world - new opportunities for variety
models – example
For Many the Scope
Companies are expanding in both directions
Vertically to control supply chains and
also horizontally to extend business capabilities or the ability to meet
Blurring of traditional lines
Retail in particular is branching out
May mean that competition will come from
III. Japanese Production System
- Many aspects
introduced by the U.S. after the war
- Three Principles:
1. Quality comes first.
2. Continual Improvement of product and process.
3. Elimination of waste.
IV. Quality Management Systems
of quality management has finally been recognized
versus external quality systems
l Total Quality Management
l ISO 9000/QS 9000
l ISO 14000
l Government regulations
Process Analysis, Improvement or Reengineering
processes can be optimized by ignoring the way things were done in the past
on what has to be done
used to disguise downsizing
Supply Chain Management
importance of considering entire supply chains rather than single firms
relationships with suppliers
and decision making spread through the chain
l Electronic Data Exchange - EDI
l Efficient Consumer Response - ECR
rise in service employment since 1960's.
service jobs outnumber manufacturing jobs.
measuring performance is much more
productivity increases much more difficult
By 2005 only 20% of the population will be
involved in industrial production
Example - Service
Operations at IBM
Does everything from Web design and
e-commerce to installing networks
Manage AT&T’s IT dept.
37% of total revenue - $ 32.3 B for 1999
45% of profits - $3.5B
IBM generates $4 in revenue for every $1 in
Environmental and Social
Consumer awareness social issues
impact on global organizations
Outsourcing production to 3rd world plants
Wal-Mart/Kathie Lee Gifford case
like purses produced in sweatshops
Minimizing the environmental impact of products – EU has regulations that force
product design to include consideration of the ultimate disposal of the
Computer controlled manufacturing
Global positioning systems
power of information, communication and analysis technologies are transforming
way we work
way companies interact
values in the economy
Information Technologies on Productivity
Productivity – Outputs/Inputs
per worker ($ or units)
Measures how efficient a process is
by what resources are needed to produce the output.
Annual Rate of Increase in
1975 – 1995 – 1.4%
1995 – 1999 – 2.5%
Information Technologies on Productivity During the late 1990’s
Week, Nov. 5, 2001
Ideas – The
Currency of the Future
The true value in corporations in the
future will be knowledge
At one point in the technology bubble Yahoo
was worth as much as the entire US steel industry.
U.S. Patents in 1999 – 170,000
The Web is
revolutionizing the way we do business, seek knowledge and entertain ourselves