Operations Management by William J Stevenson - Chapter One
- 1. 1-1 Introduction to Operations Management William J. Stevenson Operations Management
- 2. 1-2 Introduction to Operations Management CHAPTER 1 Introduction to Operations Management McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
- 3. 1-3 Introduction to Operations Management
- 4. 1-4 Introduction to Operations Management
- 5. 1-5 Introduction to Operations Management This strategy is based on the corporate mission, and in essence reflects how the firm plans to use all its resources and functions (marketing, finance, and operations) to gain competitive advantage. The operations strategy specifies how the firm will employ its production capabilities to support its corporate strategy. (We will discuss the extent to which operations influences corporate strategy in subsequent chapters.) Operations management deals with the direct production resources of the firm. These resources may be thought of as the five P’s of operations management – People, Plants, Parts, Processes, and Planning and control systems. The people are the direct and indirect work force, the plants include the factories or service branches where production is carried out; the parts include the materials (or in the case of services, the supplies) that go through the system: the process include the equipment and the steps by which production is accomplished; and the planning and control systems are the procedures and information used by management to operate the system.
- 6. 1-6 Introduction to Operations Management Operations Management includes many interrelated activities such as: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . . Scope of Operations Management Scope of Operations Management
- 7. 1-7 Introduction to Operations Management THE SCOPE OF OPERATIONS THE SCOPE OF OPERATIONS MANAGEMENT MANAGEMENT The scope of operations management ranges across the organization. Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and quality improvement of the organization’s products or services. We can use an airline company to illustrate a service organization’s operations system. The system consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide territory. The activities include: Forecasting such things as weather and landing conditions, seat demand for flights, and the growth in air travel.
- 8. 1-8 Introduction to Operations Management Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit. (Too few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.) Facilities and layout, important in achieving effective use of workers and equipment. Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers. Managing inventories of such items as foods and beverages, first-aid equipment, in flight magazines, pillows and blankets, and life preservers. Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb service, where the emphasis is on efficiency and courtesy. Motivating and training employees in all phases of operations. Locating facilities according to managers’ decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs. Now consider a bicycle factory. This might be primarily an assembly operation: buying
- 9. 1-9 Introduction to Operations Management Consider a bicycle factory. This might be primarily an assembly operation: buying components such as frames, tires, wheels, gears, and other items from suppliers, and then assembling bicycles. The factory also might do some of the fabrication work itself, forming frames and making the gears and chains, and it might buy mainly raw materials and a few parts and materials such as paint, nuts and bolts, and tires. Among the key management tasks in either case are scheduling production, deciding which components to make and which to buy, ordering parts and materials, deciding on the style of bicycle to produce and how many, purchasing new equipment to replace old or worn-out equipment, maintaining equipment, motivating workers, and ensuring that quality standards are met. Obviously, an airline company and a bicycle factory are completely different types of operations. One is primarily a service operation, the other a producer of goods. Nonetheless, these two operations have much in common. Both involve scheduling activities, motivating employees, ordering and managing supplies, selecting and maintaining equipment, satisfying quality standards, and—above all—satisfying customers. Also, in both businesses, the success of the business depends on
- 10. 1-10 Introduction to Operations Management Why Study Operations Management? Why Study Operations Management? You may be wondering why you need to study operation Management. There are number of very good reasons. 1. Operations Management activities are at the core of all business organizations, regardless of what business they are in. 2.50% or more of all jobs are in operations management related areas such as customer services, quality assurance, production planning, and control scheduling, job design, inventory management, and many more. 3.Activities in all of the other areas of business organizations, such as finance, accounting, human resources, logistics, marketing, purchasing as well as other all interrelated with operation management activities. 4.Also you will learn how to use a range of quantitative tools that enhance managerial decision making So, it is essential for these people to have understanding of operations management
- 11. 1-11 Introduction to Operations Management Business organizations have three basic functional areas, as depicted in Figure 1.1: finance, marketing, and operations. It doesn’t matter whether the business is a retail store, a hospital, a manufacturing firm, a car wash, or some other type of business; all business organizations have these three basic functions. Finance is responsible for securing financial resources at favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment proposals, and providing funds for operations. Marketing is responsible for assessing consumer wants and needs, and selling and promoting the organization’s goods or services. Operations is responsible for producing the goods or providing the services offered by the organization. To put this into perspective, if a business organization were a car, operations would be its engine. And just as the engine is the core of what a car does, in a business organization, operations is the core of what the organization does. Operations management is responsible for managing that core. Hence, operations management is the management of systems or processes that create goods and/or provide services.
- 12. 1-12 Introduction to Operations Management Functions within the business organizations Functions within the business organizations The management of systems or processes that create goods and/or provide services Organization Finance Operations Marketing Figure 1.1
- 13. 1-13 Introduction to Operations Management Business Operations Overlap Business Operations Overlap Operations Finance Figure 1.2 Marketing
- 14. 1-14 Introduction to Operations Management Value-Added Value-Added The difference between the cost of inputs and the value or price of outputs. Inputs Land Labor Capital Transformation/ Conversion process Outputs Goods Services Control Feedback Feedback Feedback Value added Figure 1.3 Measurement and Feedback Measurement and Feedback
- 15. 1-15 Introduction to Operations Management Food Processor Food Processor Inputs Processing Outputs Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans Water Cutting Energy Cooking Labor Packing Building Labeling Equipment Table 1.1
- 16. 1-16 Introduction to Operations Management Hospital Process Hospital Process Inputs Processing Outputs Doctors, nurses Examination Healthy patients Hospital Surgery Medical Supplies Monitoring Equipment Medication Laboratories Therapy Table 1.2
- 17. 1-17 Introduction to Operations Management Types of Operations Types of Operations Table 1.3 Operations Examples Goods Producing Farming, mining, construction, manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, banking, renting, leasing, library, loans Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and television newscasts, telephone, satellites
- 18. 1-18 Introduction to Operations Management Operations Interface with number of Supporting Functions Operations Interface with number of Supporting Functions Public Relations Accounting Industrial Engineering Operations Maintenance Personnel Purchasing Distribution MIS Legal
- 19. 1-19 Introduction to Operations Management A number of other areas are part of, or A number of other areas are part of, or support, the operations function support, the operations function They include purchasing, industrial engineering, distribution, and maintenance. Purchasing has responsibility for procurement of materials, supplies, and equipment. Close contact with operations is necessary to ensure correct quantities and timing of purchases. The purchasing department is often called on to evaluate vendors for quality, reliability, service, price, and ability to adjust to changing demand. Purchasing is also involved in receiving and inspecting the purchased goods. Industrial engineering is often concerned with scheduling, performance standards, work methods, quality control, and material handling. Distribution involves the shipping of goods to warehouses, retail outlets, or final customers. Maintenance is responsible for general upkeep and repair of equipment, buildings and grounds, heating and air-conditioning; removing toxic wastes; parking; and perhaps security.
- 20. 1-20 Introduction to Operations Management Steel production Automobile fabrication Home remodeling Retail sales Auto Repair Appliance repair Maid Service Manual car wash Teaching Lawn mowing High percentage goods Low percentage service Goods-service Continuum Goods-service Continuum Low percentage goods High percentage service Figure 1.5
- 21. 1-21 Introduction to Operations Management Manufacturing or Service? Manufacturing or Service? Tangible Act
- 22. 1-22 Introduction to Operations Management To understand better about the nature of operations management some features will help- three of following will help to understand fully: Degree of standardization Type of Operations Production of Goods vs. Service Operations Differentiating Features of Production Systems
- 23. 1-23 Introduction to Operations Management Production of Goods vs. Delivery of Services Production of Goods vs. 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
- 24. 1-24 Introduction to Operations Management Manufacturing vs Service, Key Manufacturing vs Service, Key Differences Differences Characteristic Manufacturing Service Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct Tangible Low High Low High Easy High Intangible High Low High Low Difficult Low Inventory Much Little Wages Narrow range Wide range Patentable Usually Not Usually quality problems High
- 25. 1-25 Introduction to Operations Management Heirarchy of Operation Management Heirarchy of Operation Management Decision Decision
- 26. 1-26 Introduction to Operations Management Top Level Management Top Level Management President, CEO, VP, their decisions have broader scope, They are involved in activities: Make long-range plans, Establish policies, Represent the company, product selection, New facility construction, Choice of location and Technology Upper-level managers have most power and who take overall responsibility for the organization. An example is chief executive officer (CEO). Top managers establish the structure for the organization as a whole, and they select the people who fill the upper-level positions. Represent the company to the outside world at official functions and fund-raisers.
- 27. 1-27 Introduction to Operations Management Middle Level Management Middle Level Management Controller, Marketing Manager, Sales Manager, Implement goals, Make decisions, Direct first-line managers, Middle managers have similar responsibilities, but usually for just one division or unit. They develop plans for implementing the broad goals set by top managers, and they coordinate the work of first-line managers. In traditional organizations, managers at the middle level are plant managers, division managers, branch managers, and other similar positions. But in more innovative management structures, middle managers often function as team leaders who are expected to supervise and lead small groups of employees in a variety of job functions. Similar to consultants, they must understand every department’s function, not just their own area of expertise. Furthermore, they are granted decision- making authority previously reserved for only high-ranking executives.
- 28. 1-28 Introduction to Operations Management Lower Level Manager Lower Level Manager Have narrow scope, include: •Scheduling personnel, •Adjusting output rates, •Controlling quality, •inventory replenishment, •handling equipment breakdown, •Absenteeism •shortage
- 29. 1-29 Introduction to Operations Management Responsibilities of Operations Management Responsibilities of Operations Management Products & services Planning – Capacity – Location – – Make or buy – Layout – Projects – Scheduling Controlling/Improving – Inventory – Quality Organizing – Degree of centralization – Process selection Staffing – Hiring/laying off – Use of Overtime Directing – Incentive plans – Issuance of work orders – Job assignments – Costs – Productivity
- 30. 1-30 Introduction to Operations Management Key Decisions of Operations Managers Key Decisions of Operations Managers • The chief role of an operations manager is that of planner and decision maker. Operations management professionals make a number of key decisions that affect the entire organization. These include the following: What: What resources will be needed, and in what amounts? When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When is corrective action needed? Where: Where will the work be done? How: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be allocated? Who: Who will do the work? An operations manager’s daily concerns include costs (budget), quality, and schedules (time).
- 31. 1-31 Introduction to Operations Management Next we will discuss general approaches to decision making, including the use of models, quantitative methods, analysis of trade-offs, establishing priorities, ethics, and the systems approach. Models are often a key tool used by all decision makers.
- 32. 1-32 Introduction to Operations Management Models Models A model is an abstraction of reality. – Physical – Schematic – Mathematical What are the pros and cons of models? Tradeoffs
- 33. 1-33 Introduction to Operations Management The model is an abstract of reality. That is to say, a model presents a simplified, incomplete version of something, e.g. a child’s toy car is a model of a real automobile. Models are sometimes classified as PHYSICAL, SCHEMATIC, & MATHEMATICAL: PHYSICAL MODELS look like their real life counter parts. Examples include miniature cars, trucks, airplanes, toy animals and trains & scale model buildings, Adv: their visual correspondence with reality. SCHEMATIC MODELS are more abstract e.g. include graphs & Charts blueprints pictures & drawing. Less physicals features of reality – adv: relatively simple to construct and to change. MATHEMATICAL MODELS are based on physical and chemical laws (mass & energy balances), laws of thermodynamics, chemical reaction kinetic are frequently used in optimization application. They are the most abstract; height of abstraction; they do not look all like their real life counterparts. Examples include numbers, formulas, & certain symbols. They are easiest to manipulate and are in essential forms of inputs for computers & calculators. THE USE OF MODELS
- 34. 1-34 Introduction to Operations Management Managers use models in a variety of ways and for a variety of reasons Models are Beneficial Models are Beneficial Generally easy to use and less expensive than dealing directly with the actual situation. Model requires users to organize and quantify information and, in the process, often indicate areas where additional information is needed. Provide systematic approach to problem solving Increase understanding of the problem Enable manager to ask “what if” questions Require users to be very specific about objectives Serve as a consistent tool for evaluation. Enable users to bring the power of mathematics to bear on a problem Provide a standardized format for analyzing a problem
- 35. 1-35 Introduction to Operations Management Quantitative information may be emphasized at the expense of qualitative information. Models may be incorrectly applied and the results misinterpreted. May be some users are unable to comprehend the circumstances under which the model can be successfully employed. Model building can become an end in itself. LIMITATIONS
- 36. 1-36 Introduction to Operations Management Designing and Operating Production Systems Designing and Operating Production Systems System Design – capacity – location – arrangement of departments – product and service planning – acquisition and placement of equipment The primary function of operation managers is to guide the system by decision making. Certain decisions effect the design of the system, and other effect the operation of the system
- 37. 1-37 Introduction to Operations Management Decision Making Decision Making System operation – personnel – inventory – scheduling – project management – quality assurance
- 38. 1-38 Introduction to Operations Management Decision Making Decision Making Models Quantitative approaches Analysis of trade-offs Systems approach
- 39. 1-39 Introduction to Operations Management Quantitative Approaches Quantitative Approaches • Linear programming • Queuing Techniques • Inventory models • Project models • Statistical models
- 40. 1-40 Introduction to Operations Management Systems Approach Systems Approach “The whole is greater than the sum of the parts.” Suboptimization Suboptimization
- 41. 1-41 Introduction to Operations Management A systems viewpoint is almost always beneficial in decision making. A system can be defined as a set of interrelated parts that must work together. In a business organization, the organization can be thought of as a system composed of subsystems (e.g., marketing subsystem, operations subsystem, finance subsystem), which in turn are composed of lower subsystems. The systems approach emphasizes interrelationships among subsystems, but its main theme is that the whole is greater than the sum of its individual parts. Hence, from a systems viewpoint, the output and objectives of the organization as a whole take precedence over those of any one subsystem. An alternative approach is to concentrate on efficiency within subsystems and thereby achieve overall efficiency. But that approach overlooks the facts that organizations must operate in an environment of scarce resources and that subsystems are often in direct competition for those scarce resources, so that an orderly approach to the allocation of resources is called for. A Systems Approach A Systems Approach
- 42. 1-42 Introduction to Operations Management A systems approach is essential whenever something isbeing designed, redesigned, implemented, improved, or other wise changed. It is important to take into account the impact on all parts of the system. For example, if the upcoming model of an automobile will add antilock brakes, a designer must take into account how customers will view the change, instruc tions for using the brakes, chances for misuse, the cost of producing the new brakes, installation procedures, recycling worn-out brakes, and repair procedures. In addition, workers will need training to make and/or assemble the brakes, produc tion scheduling may change, inventory procedures may have to change, quality standards will have to be established, advertis ing must be informed of the new features, and parts suppliers must be selected. Global competition and outsourcing are increasing the length of companies’ supply chains, making it more important than ever for companies to use a systems approach to take the “big picture” into account in their decision making. A Systems Approach A Systems Approach
- 43. 1-43 Introduction to Operations Management Pareto Phenomenon (Establishing Priorities ) • A few factors account for a high percentage of the occurrence of some event(s). • 80/20 Rule - 80% of problems are caused by 20% of the activities. How do we identify the vital few?
- 44. 1-44 Introduction to Operations Management
- 45. 1-45 Introduction to Operations Management Historical Evolution of Operations Management Historical Evolution of Operations Management Industrial revolution (1770’s) The subject Operations management has its own connection with the age-old Industrial Revolution, which has started during the late 17th century in England and later spread to the rest of Europe and to the United States during the 19th century. Prior to that time, goods were manufactured in small quantities in smaller shops / factories by the local craftsmen and their apprentices, who were mostly their family members. Under that system, it was common for one person to be responsible for making a product, such as a horse-drawn wagon or a piece of furniture, from start to finish. Only simple tools were available; the machines that we use today had not been invented. From the late 17th century (1770) to the early years of the 18th century, series of events took place in England which together is called the Industrial Revolution. Later, in the 18th century, many scientific inventions came into existence and changed the face of production / operations by substituting huge machines, which are operated by steam power and electric power. Perhaps the most significant of these inventions, was the steam engine; it had the ability to provide power to operate huge machineries in the factories. For example, the spinning jenny and the power looms revolutionized the textile industry. Ample supplies of coal and iron ore provided materials for generating power and making machinery. The new machines, made of iron, were much stronger and more durable than the simple wooden machines they replaced.
- 46. 1-46 Introduction to Operations Management Historical Evolution of Operations Management Historical Evolution of Operations Management Industrial Revolution resulted in two major developments: widespread substitution of machine power for human power and establishment of the organized production system known as factory system. The events that took place from 1770 to the 1800s are characterized by great inventions. The great inventions were eight in number ,with six of them having been conceived in England, one in France and one in the United States .The eight inventions are—Hargreaves Spinning Jenny, Arkwright’s Water Frame, Crompton’s Mule, Cartwright’s Power Loom, Watt’s steam engine, Berthollet’s Chlorine Bleaching Discovery, Mandslay’s Screw-Cutting Lathe and Eli Whitney’s Interchangeable Manufacture. . The Industrial Revolution advanced further with the development of the gasoline engine and electricity in the 1800s. Other industries emerged and along with them new factories came into being. By the middle of 18th century, the old cottage system of production had been replaced by the large scale factory system.
- 47. 1-47 Introduction to Operations Management Historical Evolution of Operations Management Historical Evolution of Operations Management Scientific management (1911) Mass production Interchangeable parts Division of labor As days went by, production capacities expanded, demand for capital grew and labor became highly dependent on jobs and urbanized. At the commencement of the 20th century, the one element that was missing was a management –the ability to develop and use the existing facilities to produce on a large scale to meet massive markets of today.
- 48. 1-48 Introduction to Operations Management Historical Evolution of Operations Management Historical Evolution of Operations Management Human relations movement (1920-60) Decision models (1915, 1960-70’s) Influence of Japanese manufacturers Later, the Scientific Management Era has brought widespread changes to the practices and management of factories. The movement was spearheaded by the efficiency engineer and inventor Frederick Winslow Taylor, who is often referred to as the Father of Scientific Management. Taylor believed in a “science of management” based on observation, measurement, analysis and improvement of work methods, and economic incentives. He studied work methods in great detail to identify the best method for doing each job. Taylor also believed that management should be responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperation between management and workers, and separating management activities from work activities.
- 49. 1-49 Introduction to Operations Management Trends in Business Trends in Business Major trends The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Agility
- 50. 1-50 Introduction to Operations Management Other Important Trends Other Important Trends Global Marketplace Markets and companies are becoming increasingly global in nature. The North American Free Trade Agreement (NAFTA) has opened borders for trade between the United States, Canada, and Mexico. Even more far-reaching is the General Agreement on Tariffs and Trade (GATT). 124 Countries have agreed to open their economies, reduce tariffs and subsidies, and expand protection of intellectual property. Operations strategy At present various companies are recognizing the importance of operations strategy on the overall success of their business, and the necessity for relating it to their overall business strategy.
- 51. 1-51 Introduction to Operations Management Other Important Trends Other Important Trends Total Quality Management Many firms are now adopting a total quality management approach to their business. In this approach organization involved in a never ending quest to improve the quality of goods and services. Key features are; a team approach, finding and eliminating problems, emphasis on serving the customer, and continuously working to improve the system. Flexibility The ability to adopt quickly to changes in volume of demand, in the mix of products demanded, and in product design, has become a major competitive strategy. In manufacturing, the term agile manufacturing is sometimes used to connote flexibility.
- 52. 1-52 Introduction to Operations Management Other Important Trends Other Important Trends Technology Technological advances have led to a vast array of new products and processes. Undoubtedly the computer has had and will continue to have the greatest impact on business organizations. It has truly revolutionized the way companies operate. Technological advances in new materials, new methods, and new equipment have also made their mark on operations. Worker involvement Various companies are pushing the responsibility for decision making and problem solving to lower levels in the organizations. The reasons for this include recognition of the knowledge workers possess about the production process and system. A key to worker involvement is the use of teams of workers who solve problems and make decisions on a consensus basis.
- 53. 1-53 Introduction to Operations Management Other Important Trends Other Important Trends Reengineering Some companies are taking drastic measures to improve their performance. They are conceptually starting from scratch in redesigning their processes. Engineering focuses on significantly improving business processes, such as the steps required to fill a customer’s request or the steps required to bring a new product to market. Environmental Issues. Pollution control and waste disposal are key issues managers must contend with. There is increasing emphasis on reducing waste, using less toxic chemicals (e.g, lawncare services shifting to environmentally friendly approaches) recycling, making it easier for consumers to recycle products (e.g., including s shipping container for returning used laser printer cartridges) and designing products and parts that can be reused (remanufacturing products such as copying machines.)
- 54. 1-54 Introduction to Operations Management Other Important Trends Other Important Trends Supply Chain Management organization are increasing their attention to managing the supply chain, from suppliers and buyers of raw materials all the way to final customers Farm Trucking Trucking Trucking Bakery Supermarket Mill Suppliers : Fuel Repairs Tires Drivers Trucks
- 55. 1-55 Introduction to Operations Management Suppliers’ Suppliers Direct Suppliers Producer Distributor Final Consumer Simple Product Supply Chain Simple Product Supply Chain Supply Chain: A sequence of activities And organizations involved in producing And delivering a good or service
- 56. 1-56 Introduction to Operations Management Other Important Trends Other Important Trends Lean Production This new approach to production emerged in the 1990s. It in corporates a number of the recent trends listed here, with an emphasis on quality flexibility, time reduction, and teamwork. This has led to a flattening of the organizational structure, with fewer levels of management.