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Operations Management An Introduction

Learning objectives: -define operations management -define the role and function of operations management -list components of operations management -describe past/current/future challenges of operations management

Organizational Model
Operations management is only one function of any Sales organization. The overall success of an organization depends on the Marketing integration of its various functions. Many times Engineering OM issues overlap with HR, finance, marketing issues, etc.

Finance

HRM

OM R&D

MIS

Accounting

Operations and Supply Strategy

Setting broad policies and plans for using the recourses of a firm to best support its long-term competitive strategy

Organization Chart-Major Elements


Manufacturing Organization
Operations Finance/Accounting Disbursements & Credits Funds Management Capital Requirements Marketing Sales Promotion Advertising Sales Market Research

Facilities Production & Inventory ontrol Quality Assurance & Control Procurement Engineering Design Industrial Engineering Process Engineering

A snapshot of the various components of functions in an organization.

Historical Milestones in OM (operations management)


The Industrial Revolution Post-Civil War Period Scientific Management Human Relations and Behaviorism Operations Research The Service Revolution The service revolution
changed approaches to OM

Today's Factors Affecting OM

Global Competition U.S. Quality, Customer Service, and Cost Challenges Computers and Advanced Production Technology Growth of U.S. Service Sector http://www.census.gov/econ/www/servmenu.html Scarcity of Production Resources

Issues of Social Responsibility http://www.bsr.org/ ; http://vcr.csrwire.com/

The notion of tradeoffs and how to deal with them


For example, if we reduce costs by reducing product quality inspections, we might reduce product quality. For example, if we improve customer service problem solving by crosstraining personnel to deal with a wider-range of problems, they may become less efficient at dealing with commonly occurring problems.

Cost

Flexibility
Quality

Delivery

Today's Factors Affecting OM- some examples


Volkswagen is setting out to build a plant in Chattanooga, Tennessee, where vehicle production will be due to commence in early 2011. The supervisory board of Volkswagen AG approved the plans and an investment volume of up to 1 billion USD (around 620 million euro). The Groups management board had previously pinpointed Chattanooga as the site for its new plant. The USA market, said Prof Martin Winterkorn, CEO of Volkswagen AG, is an important part of our volume strategy and we are now very resolutely accessing that market. Volkswagen will be extremely active there. http://www.automobilesreview.com/auto-news/volkswagen-builds-factory-in-tennessee-usa/3065/ In a 2008 survey of 100 senior manufacturing executives commissioned by Advanced Technology Services and conducted by Nielsen, 81 percent said they would be affected by the serious lack of skilled labor, costing an average $52 million each over the next five years. This figure reflects more than just the cost of recruiting, training, and retaining workers; it includes the high price of lost production as well. http://www.qualitydigest.com/inside/metrology-article/the-cost-poor-calibration-andquality.html Cleaning products giant JohnsonDiversey has joined the U.S. EPA's Climate Savers program, pledging $19 million toward emissions reduction efforts that the company expects will save $31 million over the next five years. http://vcr.csrwire.com/node/10389

Ops challenges : quality

Eight key forces are considered to influence quality:

Partnering Learning systems Adaptability and speed of change Environmental sustainability Globalization Knowledge focus Customization and differentiation Shifting demographics

Partnering Experience Frank Galliers Ltd defines "partnering" as working collaboratively with clients and suppliers bringing together all requisite expertise in order to fulfil the contract requirements achieving best value for money against the Key Performance Indicators: Cost - achieving or improving budgeted contract costs Timing - meeting the contract programme on time Quality - meeting or improving pre-determined client quality standards Defects - achieving zero defects at 12 months

Components of OM
Procurement Product Design

These are the topics of our course

Location

Quality Management Schedule

OM Mission and Strategy

Layout Process Design

Reliability & Maintenance

Inventory

Human Resources & Job Design

U.S. Cost Challenges


There is continuing pressure to reduce direct costs (of producing and selling) and overhead costs. Cost-cutting measures being used include: see next Moving production to low-labor-cost countries slides for Negotiating lower labor rates with union/workers Automating processes to reduce the amount of labor needed more Reducing health care and retirement benefits

Washington, D.C. (AHN) - Soaring fuel price, the weak greenback and inflation are cutting the China price of U.S. manufacturers that had outsourced their production to Asia. The price advantage was 40 to 50 percent off. China and other Asian countries' export model, which worked for over 30 years, may no longer be viable if fuel prices continue to soar as cost of shipping finished product made in Asia eats up profit, according to Morgan Stanley. Because the Chinese model was premised on an oil price of $20 per barrel, some U.S. companies which outsourced production in China are mulling transferring operations to Mexico, while others are planning to return to the U.S. As a result steel exports from China to the U.S. dipped 38 percent from January to July, while production of steel in the U.S. went up 10 percent. Other sectors which had returned to the U.S. include furniture, electronic appliances and textiles. One of the most prominent is Thomasville Furniture, which announced in June it was bringing back the production of upholstered and wood furniture to the U.S. and in the process create 100 jobs in North Carolina. But not everyone will return to the U.S. Notwithstanding the high shipping bill, raw material and labor is considerably cheaper in China than in the U.S.

Advanced Production Technology

Computer-aided design (CAD) - allows engineers to design products directly on computer terminals Computer-aided manufacturing (CAM) - translates CAD information into machinery instructions Flexible manufacturing systems (FMS) - clusters of automated machinery produce a variety of products Automated storage & retrieval systems (ASRS) - computercontrolled warehouses Automatic identification systems (AIS) - data is read into computers using bar coding and the like

Scarcity of Production Resources

Raw materials like titanium, nickel, coal, natural gas, water, and petroleum products are periodically unavailable or in short supply.

Southwest has locked in 80 percent of its fuel costs, equivalent to $24 per barrel for all of 2004. The remaining 20 percent will be bought at market value. Ray Neidl, an analyst at Manhattan-based Blaylock & Partners, said Southwest is in a good position by hedging its fuel costs, unlike most other airlines that are now paying market prices for fuel.
http://www.allbusiness.com/marketing-advertising/strategic-marketing/1053930-1.html

Conclusions: Operations Strategy defined

Operations strategy is a long-range game plan for the production of a companys products/services, and provides a road map for the production function in helping to achieve the business strategy.

Challenges posed to operations management by the "new economy"

1. The organizational unit of analysis is an operating unit (e.g., a factory, a company, or a division/business unit within a company). 2. Operations management is concerned primarily with stable, well-specified "products" and "processes." 3. A major concern of operations managers is reducing the variable cost of production. 4. Your competitors are your enemies, and the key to prevailing against them lies in differentiation (e.g., through lower cost, superior performance, etc.).

The new approach to operations management

Project management is at least as important as process management Critical mass versus process efficiency The "network effect

these last two slides show approaches to OM today and the foundations of OM decisions these can be used in the analysis/decisions for applications/cases/examples throughout the course