Chapter 1 - Introduction to Operations Management

Operations Management
6th Edition
R. Dan Reid & Nada R. Sanders

Copyright 2016 John Wiley & Sons, Inc.

 Learning Objectives
2

Define operations management.

Describe difference between manufacturing and service
organizations.
Describe decisions that operations managers make.
Identify major historical developments in operations
management.
Identify current trends in operations management.
Describe the flow of information between operations
management and other business functions.

Copyright 2016 John Wiley & Sons, Inc.

 Operations Management
3

The business function responsible for planning,

coordinating, and controlling the resources needed
to produce products and services for a company

Copyright 2016 John Wiley & Sons, Inc.

Operations Management Characteristics
4

A management function

An organizations core function

In every organization

Small or large

Service or Manufacturing

For-profit or Not-for-profit

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Typical Organization Chart
5

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 What is the Role of OM?
6

OM Transforms inputs to outputs

Inputs are resources such as

People, Facilities and Processes, Material, Technology and
Information

Outputs are finished goods and services

Copyright 2016 John Wiley & Sons, Inc.

OMs Transformation Process
7

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 OMs Transformation Role
8

To add value

Increase product value at each stage

Value added is the net increase between output product value

and input material value

Provide an efficient transformation

Efficiency means performing activities well and at the lowest

possible cost

Copyright 2016 John Wiley & Sons, Inc.

Service Organizations vs. Manufacturers
9

Services: Manufacturers:
Intangible product Physical product
Product cannot be inventoried Product is inventoried
High customer contact Low customer contact
Short response time Longer response time
Labor intensive Capital intensive

Copyright 2016 John Wiley & Sons, Inc.

Similarities for Service/Manufacturers
10

Both use technology

Both have quality, productivity, & response issues
Both must forecast demand
Both can have capacity, layout, and location issues
Both have customers, suppliers, scheduling and
staffing issues

Copyright 2016 John Wiley & Sons, Inc.

 Service vs. Manufacturing
11

Manufacturing can provide services

Services can provide tangible goods
Some companies are a blend of
Service/Manufacturing/Quasi-Manufacturing (QM)
organizations
QM characteristics include
Low customer contact
Capital intensive

Copyright 2016 John Wiley & Sons, Inc.

Growth of the Service Sector
12
 OM Decisions
13

All organizations make decisions and follow a similar

path

Strategic decisions Tactical decisions

Tactical and Strategic decisions must align

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 OM Decisions contd
14

Strategic Decisions Tactical Decisions

Set the direction for the
entire company; they are
broad in scope and long-term
in nature
Less frequent
Focus on specific day-to-day
issues like resource needs,
schedules, & quantities to
produce
More frequent

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OM Decisions contd
15

Copyright 2016 John Wiley & Sons, Inc.

 Historical Development of OM
16

Concept Time Description

Industrial Revolution Late 1700s Machine to human power
Scientific Management Early 1900s Analysis and measurement; assembly
lines and mass production
Human relations 1930s to Human elements i.e.; worker motivation
movement 1960s and job satisfaction
Management science 1940s to Quantitative techniques
1960s
Computer age 1960s Quantitative models and data processing
improvements
Environmental Issues 1970s Waste reduction, recycle, reuse
Just-In-Time (JIT) 1980s High volume production with minimal
inventories
Total Quality 1980S Eliminate causes of production defects
Management (TQM)
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 Historical Development contd
17

Concept Time Description

Reengineering 1980s Redesign processes for greater efficiency
and cost reduction
Global competition 1980s Compete in the global market
Flexibility 1990s Customization on a mass scale
Time-based competition 1990s Speed of delivery
Supply Chain Management 1990s Reduce cost of entire system
(SCM)
Electronic commerce 2000s Use of the Internet for business
Outsourcing and flattening 2000s Technology enabling outsourcing jobs
of the world virtually anywhere
Big data analytics 2010s Math and statistics applied large
volumes of data to gain business
insights.
Copyright 2016 John Wiley & Sons, Inc.
 Scientific Management
18

Scientific management is an approach to management that

focused on improving output by redesigning jobs and
determining acceptable levels of worker output.

Promoted by Frederick W. Taylor

Increase worker productivity and organizational output

Popularized by Henry Ford

Assembly line

Mass production

Copyright 2016 John Wiley & Sons, Inc.

 Human Relations Movement
19

Hawthorne studies are studies responsible for creating the

human relations movement, which focused on giving more
consideration to workers needs.

Human relations movement is a philosophy based on the

recognition that factors other than money can contribute
to worker productivity.
Job enlargement is an approach in which workers are given a larger
portion of the total task to do.
Job enrichment is an approach in which workers are given a greater
role in planning.

Copyright 2016 John Wiley & Sons, Inc.

 Management Science
20

Management science is a field of study that focuses on the

development of quantitative techniques to solve operations
problems.
An example is Linear programing

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 Just-in-time (JIT)
21

Just-in-time (JIT) is An all-inclusive organizational

philosophy designed to achieve high-volume production
through elimination of waste and continuous
improvement.

Copyright 2016 John Wiley & Sons, Inc.

 Total Quality Management (TQM)
22

Total quality management (TQM) is a philosophy that

seeks to improve quality by eliminating causes of product
defects and by making quality the responsibility of
everyone in the organization.

ISO 9000 is a global set of standards, with many companies

requiring their suppliers to meet the standards as a
condition for obtaining contracts.

Copyright 2016 John Wiley & Sons, Inc.

Business Process Reengineering, Flexibility, and Time-
based competition
23

Reengineering is redesigning a companys processes to

make them more efficient.
Flexibility is an organizational strategy in which the
company attempts to offer a greater variety of product
choices to its customers.
Mass customization is the ability of a firm to highly
customize its goods and services at high volumes.
Time-based competition is an organizational strategy
focusing on efforts to develop new products and deliver
them to customers faster than competitors.

Copyright 2016 John Wiley & Sons, Inc.

 Supply Chain Management
24

Supply chain management (SCM) Management of the

flow of materials from suppliers to customers in order to
reduce overall cost and increase responsiveness to
customers.

Copyright 2016 John Wiley & Sons, Inc.

 Global Marketplace
25

Global marketplace is a trend in business focusing on customers,

suppliers, and competitors from a global perspective.
OM decides
Whether to tailor products to different customer needs

Where to locate facilities

How to manage suppliers

How to meet local government standards

Regional trading agreements

North American Free Trade Agreement (NAFTA)

European Union (EU)

World Trade Organization (WTO)

Copyright 2016 John Wiley & Sons, Inc.

 Sustainability and Green Operations
26

Sustainability is a trend in business to consciously reduce

waste, recycle, and reuse products and parts.

ISO 14000 was developed by the International

Organization for Standardization (ISO) to provide
guidelines and a certification program documenting a
companys environmentally responsible actions.

Copyright 2016 John Wiley & Sons, Inc.

 Electronic Commerce
27

Business-to-business (B2B) is Electronic commerce

between businesses.

Business-to-customers (B2C) is Electronic commerce

between businesses and their customers.

Customer-to-customer (C2C) is Electronic commerce

between customers.

Copyright 2016 John Wiley & Sons, Inc.

 Outsourcing and Flattening of the World
28

Outsourcing
is obtaining
goods or
services from
an outside
provider

Copyright 2016 John Wiley & Sons, Inc.

 Big Data Analytics
29

Big data analytics is applying mathematics and statistics to

large volumes of structured and unstructured data to gain
unprecedented business insights.
Data comes in all forms
Point-of-sale (POS)
Radio frequency identification (RFID)
Global positioning systems (GPS) data
Twitter feeds
Facebook
Call centers
Consumer blogs.

Copyright 2016 John Wiley & Sons, Inc.

 Todays OM Environment
30

Customers demand better quality, greater speed, and

lower costs
Companies implementing lean system concepts a
total systems approach to efficient operations
Recognized need to better manage information using
ERP and CRM systems
Increased cross-functional decision making

Copyright 2016 John Wiley & Sons, Inc.

 OM in Practice
31

OM has the most diverse organizational function

Manages the transformation process
OM has many faces and names such as;
V. P. Operations, Director of Supply Chains,
Manufacturing Manager
Plant Manger, Quality Specialists, etc.

All business functions need information from OM

in order to perform their tasks

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Business Information Flow
32

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 OM Across the Organization
33

Most businesses are supported by the functions of:

Operations

Marketing

Finance

Copyright 2016 John Wiley & Sons, Inc.

 OM Across the Organization (contd)
34

Marketing is not fully able to meet customer needs if they do

not understand what operations can produce
Finance cannot judge the need for capital investments if they
do not understand operations concepts and needs
Information systems (IS) enables the information flow
throughout the organization
Human Resources must understand job requirements and
worker skills
Accounting needs to consider inventory management, capacity
information, and labor standards

Copyright 2016 John Wiley & Sons, Inc.

 Chapter 1 Highlights
35

OM is the business function that is responsible for

managing and coordinating the resources needed to produce
a companys products and services.
The role of OM is to transform organizational inputs into
companys products or services outputs
OM is responsible for a wide range of decisions, ranging
from strategic to tactical.
Organizations can be divided into manufacturing and
service organizations, which differ in the tangibility of the
product or service

Copyright 2016 John Wiley & Sons, Inc.

 Chapter 1 Highlights contd
36

Many historical milestones have shaped OM. Some of these

are the Industrial Revolution, scientific management, the
human relations movement, management science, and the
computer age
OM is a highly important function in todays dynamic
business environment. Among the trends with significant
impact are Just-In-Time, TQM, Reengineering, Flexibility,
Time-based Competition, SCM, Global Marketplace, and
Environmental Issues
OM teams with all other business functions

Copyright 2016 John Wiley & Sons, Inc.