What is operations?
The part of a business organization that is responsible for producing goods or services.
Operations Management
The management of systems or processes that create goods and/or provide services.
*) Convert RM, and Lapro (input) to product either goods or services.
Goods
*) are physical items that include raw materials, parts, subassemblies, and final products.
Example:
1. Automobile
2. Computer
3. Oven
4. Shampoo
Services
*) Activities that provide some combination of time, location, from, and psychological value.
*) Example: Every book you read, every video you watch, every e-mail you send, every telephone conversation you have, and every medical treatment you receive.
1.
Supply and Demand
1. The ideal situation for a business organization is to achieve a match of supply and demand.
2. Supply > Demand is wasteful and means lost opportunity.
3. Supply < Demand is costly and possible customer dissatisfaction.
Business organizations have three basic functional areas
*) 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 and Operations
are the primary, or "line," functions.
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.
*) Operations management is responsible for managing that core.
Supply Chain
A sequence of activities and organizations involved in producing and delivering a good or service.
Supply chain sequences
1. The sequence begins with basic suppliers of raw materials and extends all the way to the final customer.
2. Facilities might include warehouses, factories, processing centers, offices, distribution centers, and retail outlets.
3. Functions and activiti
Supply chains are both external and internal to the organization.
*) The external parts of a supply chain provide raw materials, parts, equipment, supplies, and/or other inputs to the organization, and they deliver outputs that are goods to the organization's customers.
*) The internal parts of a supply chain are part o
Input such as
Capital, labor, and information are used to create goods or services
Transformation processes
Converting inputs into outputs.
*) it could be storing, transporting, repairing
Output
Goods or Services
Feedback
To ensure that the desired outputs are obtained, an organization takes measurements at various points in
the transformation process.
Control
compares them with previously established standards to determine whether corrective action is needed.
Conversion system
The operations function involves the conversion of inputs into outputs
It is important to note that goods and services often occur jointly.
For example, having the oil changed in your car is a
service, but the oil that is delivered is a good. Similarly, house painting is a service, but the paint is a good.
The goods-service combination is a continuum.
It can range from primarily goods, with little service, to primarily service, with few goods.
*) companies usually sell product packages, which are a combination of goods and services which makes operations more interesting, and also more challenging.
Value Added
The difference between the cost of inputs and the value or price of outputs.
*) the greater the value-added, the greater the
effectiveness of these operations.
*) The greater the degree of customer involvement,
the more challenging it can be to design and
In profit organizations, the value of outputs is measured
by
the prices that customers are willing to pay for those goods or services.
In non-profit organizations, the value of outputs is measured by
is their value to society
Production of Goods versus Delivery of Services
"Goods
1. Production of goods results in a tangible output, such as an automobile, eyeglasses, a golf ball, a refrigerator�anything that we can see or touch.
Production of Goods versus Delivery of Services
"Services
1. intangible output.
Manufacturing vs. Service
1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5.Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
Degree of customer contact
*) Many services involve a high degree of customer contact, although services such as Internet providers, utilities, and mail service do not.
*) When there is a high degree of contact, the interaction between server and customer becomes a "moment of truth
Uniformity of input
*) Service operations are often subject to a higher degree of variability of inputs.
*) Each client, patient, customer, repair job, and so on presents a somewhat unique situation that requires assessment and flexibility.
*) Conversely, manufacturing opera
Labor content of jobs
*) Services often have a higher degree of labor content than manufacturing jobs do, although automated services are an exception.
Uniformity of output
*) Service are often subject to a higher degree of variability of output.
*) Manufacturing operation have a greater ability to control the variability of output.
Measurement of productivity
*) Measurement of productivity can be more difficult
for service jobs due largely to the high variations of inputs.
*) Thus, one doctor might have a higher level of routine cases to deal with, while another might have more difficult
cases.
*) Unless a car
Production and delivery
*) Services deliver and consume at the same time.
*) Unlike manufacturing
Quality assurance
*) Quality assurance is usually more challenging for services due to the higher variation in input, and
because delivery and consumption occur at the
same time.
*) Unlike manufacturing, which typically occurs away from
the customer and allows mistakes tha
Amount of inventory
*) Many services tend to involve less use of inventory than manufacturing operations, so the costs of having inventory on hand are lower than they are for manufacturing.
*) However, unlike manufactured goods, services cannot be stored.
Instead, they must
Evaluation of work - Wage
*) Manufacturing jobs are often well paid, and have less wage variation than service jobs, which can range from highly paid professional services to minimum-wage
workers.
Ability to patent design
*) Product designs are often easier to patent than service designs, and some services cannot be patented, making them easier for competitors to copy.
Similarities between managing the production of products and managing services:
a. Forecasting and capacity planning to match supply and demand.
b. Process management.
c. Managing variations.
d. Monitoring and controlling costs and productivity.
e. Supply chain management.
f. Location planning, inventory management, quality control,
Managing Services is Challenging
*) Jobs in services are often less structured than in manufacturing.
*) Customer contact is generally much higher in services compared to manufacturing.
*) In many services, worker skill levels are low compared to those of manufacturing employees.
*) Serv
Process
One or more actions that transform inputs into outputs.
Three categories of business processes:
1. Upper-management processes. These govern the operation of the entire organization.
Examples include organizational governance and organizational strategy.
2. Operational processes. These are the core processes that make up the value stream.
Examples in
Managing a Process to Meet Demand
*) Ideally, the capacity of a process will be such that its output just matches demand.
*) Excess capacity is wasteful and costly; too little capacity means dissatisfied customers and lost revenue.
*) Having the right capacity requires having accurate for
Process Variation
*) Variation occurs in all business processes. It can be due to variety or variability.
1. The variety of goods or services being offered. The greater the variety of goods and services, the greater the variation in production or service requirements.
2. S
Scope of Operations Management
*) 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 o
Forecasting
such things as weather and landing conditions, seat demand for flights, and the growth in air travel.
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.)
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, inflight 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 courtes
Facilities and layout
important in achieving effective use of workers and equipment.
Motivation 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.
Role of the Operations Manager
*) The Operations Function consists of all activities directly related to producing goods or providing services.
*) A primary function of an operations manager is to guide the system by decision making.
*) Certain decisions affect the design of the system
System Design Decisions
*) involves decisions that relate to system capacity, the geographic location of facilities, arrangement of departments and placement of equipment within physical structures, product and service planning, and acquisition of equipment.
*) These are typical
System Operation Decisions
These are generally tactical and operational decisions
*) Management of personnel
*) Inventory management and control
*) Scheduling
*) Project management
*) Quality assurance
# Operations managers spend more time on system operation decision than any othe
A number of other areas are part of, or 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 q
WHY LEARN ABOUT OPERATIONS
MANAGEMENT?
*) This is because every aspect of business affects or is affected by operations.
*) Many service jobs are closely related to operations
Financial services
Marketing services
Accounting services
Information services
*) Working together successfully means
Finance and operations management personnel cooperate by exchanging information and expertise in such activities as the following:
1. Budgeting. Budgets must be periodically prepared to plan financial requirements.
Budgets must sometimes be adjusted, and performance relative to a budget must be evaluated.
2. Economic analysis of investment proposals. Evaluation of alternative investm
Marketing's focus is on
on selling and/or promoting the goods or services of an organization. Marketing is also responsible for assessing customer wants and needs, and for communicating
those to operations people (short term) and to design people (long term).
lead time
in order to give customers realistic estimates of how long it will take to fill their orders.
OPERATIONS MANAGEMENT
AND DECISION MAKING
*) The chief role of an operations manager is that of planner/decision maker.
*) Most decisions involve many possible alternatives
that can have quite different impacts on costs or profits.
*) Consequently, it is important to make informed decisions.
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
Model
is an abstraction of reality, a simplified representation of something. For example, a child's toy car is a model of a real automobile.
*) Other examples of models include automobile test tracks and crash tests; formulas, graphs and charts; balance sheets
Common features of models:
1. They are simplifications of real-life phenomena
2. They omit unimportant details of the real-life systems they mimic so that attention can be focused on the most important aspects of the real-life system
Models are sometimes classified as physical, schematic, or mathematical:
*) Physical models look like their real-life counterparts. Examples include miniature cars, trucks, airplanes, toy animals and trains, and scale-model buildings.
@ The advantage of these models is their visual correspondence with reality.
*) Schematic mod
Benefits of Models
1. Are generally easy to use and less expensive than dealing directly with the actual situation.
2. Require users to organize and sometimes quantify information and, in the process, often indicate areas where additional information is needed.
3. Increase
The following are three of the more important limitations:
1. Quantitative information may be emphasized at the expense of qualitative information.
2. Models may be incorrectly applied and the results misinterpreted. The widespread use of computerized models adds to this risk because highly sophisticated models m
Quantitative Methods
*) A decision making approach that frequently seeks to obtain a mathematically optimal solution
Linear programming
and related mathematical
techniques are widely used for optimum allocation of scarce resources.
Queuing techniques
are useful for analyzing
Performance Metrics
*) All managers use metrics to manage and control operations.
*) There are many metrics in use, including those related to profits, costs, quality, productivity, flexibility, assets, inventories, schedules, and forecast accuracy.
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.
*) the output and objectives of the organization as a whole take precedence over those of any one subsystem.
*) A sy
Historical Evolution of OM
1. Industrial Revolution
2. Scientific Management
3. Human Relations Movement
4. Decision Models and Management Science
5. Influence of Japanese Manufacturers
The Industrial Revolution
In the earliest days of manufacturing, goods were produced using @ craft production:
highly skilled workers using simple, flexible tools produced goods according to customer specifications
*) Craft production had major shortcomings. Because products were
Scientific Management
Movement was led by efficiency engineer, Frederick Winslow Taylor
*) Believed in a "science of management" based on observation, measurement, analysis and improvement of work methods, and economic incentives
*) Management should be responsible for plannin
Scientific Management - contributors
*) Frank Gilbreth was an industrial engineer who is often referred to as the father of motion study. He developed principles of motion economy that could be applied to incredibly small portions of a task.
*) Henry Gantt recognized the value of nonmonetary
Henry Ford also introduced
*) the moving assembly line: which had a tremendous impact on production methods in many industries.
*) mass production: to the automotive industry, a system of production in which large volumes of standardized goods are produced by low-skilled or semiski
Interchangeable parts
Parts of a product made to such precision that they do not have to be custom fitted.
Division of labor
The breaking up of a production process into small tasks, so that each worker performs a small portion of the overall job.
The Human Relations Movement
*) The human relations movement emphasized the importance of the human element in job design.
*) Lillian Gilbreth, a psychologist and the wife of Frank Gilbreth, worked with her husband, focusing on the human factor in work. Many of her studies in the 192
Decision Models & Management Science
*) The factory movement was accompanied by the development of several quantitative techniques.
*) F. W. Harris developed one of the first models in 1915: a mathematical model for inventory order size.
*) In the 1930s, three coworkers at Bell Telephone Lab
Influence of Japanese Manufacturers
*) A number of Japanese manufacturers developed or refined management practices that increased
the productivity of their operations and the quality of their products, due in part to the influence
of Americans W. Edwards Deming and Joseph Juran.
*) Their a
Key Issues for Operations Managers Today
- Economic conditions
- Innovating
- Quality problems
- Risk management
- Competing in a global economy
Economic conditions
The lingering recession and slow recovery in various sectors of the economy has made managers cautious about investment and rehiring workers that had
been laid off during the recession.
Innovating
*) Finding new or improved products or services are only two of the many possibilities that can provide value to an organization.
*) Innovations can be made in processes,
the use of the Internet, or the supply chain that reduce costs, increase productivit
Quality problems
*) The numerous operations failures mentioned at the beginning of the chapter underscore the need to improve the way operations are managed.
*) That relates to product design and testing, oversight of suppliers, risk assessment, and timely response to pot
Risk management.
*) The need for managing risk is underscored by recent events that include the crisis in housing, product recalls, oil spills, and natural and man-made disasters, and economic ups and downs.
*) Managing risks starts with identifying risks, assessing vulne
Competing in a global economy
*) Low labor costs in third-world countries have increased
pressure to reduce labor costs.
*) Companies must carefully weigh their options, which include outsourcing some or all of their operations to low-wage areas, reducing costs internally, changing de
E-business
Use of the Internet to transact business.
E-commerce
Consumer-to business transactions.
Technology
The application of scientific discoveries to the development and improvement of goods and services.
Product and service technology
*) Refers to the discovery and development of new products and services.
*) This is done mainly by researchers and engineers, who use the scientific approach to develop new knowledge and translate that into commercial applications.
Process technology
*) Refers to methods, procedures, and equipment used to produce goods and provide services.
*) They include not only processes within an organization but also supply chain processes.
Information technology (IT)
*) Refers to the science and use of computers and other electronic equipment to store, process, and send information.
*) Information technology is heavily ingrained in today's business operations.
*) This includes electronic data processing, the use of ba
Six sigma
A process for reducing costs, improving quality, and
increasing customer satisfaction.
Agility
The ability of an organization to respond quickly to demands or opportunities.
Lean system
System that uses minimal amounts of resources to
produce a high volume of high quality goods with some variety.
Sustainability
*) Refers to service and production processes that use resources in ways that do not harm ecological systems that support both current and future human existence.
*) Sustainability measures often go beyond traditional environmental and economic measures t
All areas of business will be affected
1. Product and service design
2. Consumer education programs
3. Disaster preparation and response
4. Supply chain waste management
5. Outsourcing decisions
Ethics
A standard of behavior that guides how one should act
in various situations.
Operations managers, like all managers, have the responsibility to make ethical decisions.
Ethical issues arise in many aspects of operations management, including:
� Financial statements: accurately representing the organization's financial condition.
� Worker safety: providing adequate training, maintaining equipment in good working condition, maintaining a safe working environment.
� Product safety: providing prod
Five principles for thinking ethically:
� The Utilitarian Principle is that the good done by an action or inaction should outweigh any harm it causes or might cause. An example is not allowing a person who has had too much to drink to drive.
� The Rights Principle is that actions should respect
Ethical framework
A sequence of steps intended to guide thinking and subsequent decision or action.
Here is the one developed by the Markula Center for Applied Ethics:
1. Recognize an ethical issue by asking if an action could be damaging to a group or an individual. Is there more to it than just what is legal?
2. Make sure the pertinent facts are known, such as who will be impacted, and what options are available.
3. E
The Need for Supply Chain Management
In the past, organizations did little to manage the supply chain beyond their own operations and
Immediate suppliers which led to numerous problems:
- Oscillating inventory levels
- Inventory stockouts
- Late deliveries
- Quality problems
Supply Chain Issues
1. The need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-business
7. The complexity of supply chains
8. The need to manage i
1. The need to improve operations.
*) During the last decade, many organizations adopted
practices such as lean operation and total quality management (TQM).
*) As a result, they were able to achieve improved quality while wringing much of the excess costs out of their systems.
*) Although
2. Increasing levels of outsourcing.
*) Organizations are increasing their levels of outsourcing,
buying goods or services instead of producing or providing them themselves.
*) As outsourcing increases, organizations are spending increasing amounts on supply-related activities
(wrapping, pac
Outsourcing
Buying goods or services instead of producing or
providing them in-house.
3. Increasing transportation costs.
Transportation costs are increasing, and they need to
be more carefully managed.
4. Competitive pressures.
*) Competitive pressures have led to an increasing number of new products, shorter product development cycles, and increased demand for customization.
*) And in some industries, most notably consumer electronics, product life cycles are relatively short.
5. Increasing globalization.
*) Increasing globalization has expanded the physical length of supply chains.
*) A global supply chain increases the challenges of managing a supply chain.
*) Having far-flung customers and/or suppliers means longer lead times and greater opportunities
f
6. Increasing importance of e-business.
The increasing importance of e-business has added new dimensions to business buying and selling and has presented new challenges
7. The complexity of supply chains.
Supply chains are complex; they are dynamic, and they
have many inherent uncertainties that can adversely affect them, such as inaccurate forecasts,
late deliveries, substandard quality, equipment breakdowns, and canceled or changed orders.
8. The need to manage inventories.
*) Inventories play a major role in the success or failure
of a supply chain, so it is important to coordinate inventory levels throughout a supply chain.
*) Shortages can severely disrupt the timely flow of work and have far-reaching impacts, while exces
Elements of Supply Chain Management
1. Customers - what products/services do customers want
2. Forecasting - predicting timing and volume of customer demand
3. Design - incorporating customer wants, manufacturability, and time to market
4. Capacity planning - matching supply and demand
5. P