Operations Management Introduction - Chapter 1

1. Operations ManagementIntroduction - Chapter 1

2. Outline • What is Operations Management? • Why Study OM? • Production vs. Service Organizations. • Operations Management Decisions. • Heritage of OM. • Recent Developments & Challenges. • Productivity.

3. What Is Operations Management? • Operations management is the management of systems that produce goods and provide services. • It includes planning, designing and operating systems to achieve goals of the organization. • Book definition (not as good): The set of activities that creates goods and services by transforming inputs into outputs.

4. Transforming Inputs to Outputs Process Outputs Inputs Land, Labor, Capital, Materials, Equipment, Management Production or Service System Goods and Services

5. Examples ProductionService • Auto factories (assembly plants) • Job shops (printing) • Fast food restaurants • Hospitals • Airlines • Movie theaters • Grocery stores

6. Why Study OM? • OM is one of three major functions of any organization (Marketing, Finance, and Operations). • We should know how goods and services are produced. • OM is such a costly part of an organization. • Jobs!

7. Organizational Functions • Operations. • Creates product or service. • Marketing. • Generates demand. • Finance/Accounting. • Obtains funds & tracks money.

8. Characteristics of Goods • Tangible product. • Consistent inputs and outputs. • Production separate from consumption. • Can be inventoried. • Low customer interaction.

9. Characteristics of Service • Intangible product. • Variable inputs and outputs (people!). • Production and consumption at same place and time. • No inventories. • High customer interaction.

10. 75 25 50 100 75 0 100 50 25 Goods Contain Services & Services Contain Goods Automobile Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Consulting Service Counseling % of Product that is a Good % of Product that is a Service

11. OM Jobs

12. Finance/ Marketing Operations Accounting Production Quality Manufacturing Purchasing Control Control Operations Management for a Manufacturer

13. Finance/ Marketing Operations Accounting Flight Ground Facility Catering Operations Support Maintenance Operations Management for an Airline

14. Critical Decisions for OM • Product & service design. • Quality management. • Process design. • Capacity & location of facilities. • Layout of facilities. • Human resources & Job design. • Supply-chain management. • Inventory management. • Scheduling. • Maintenance.

15. Skills and Knowledge Needed • Knowledge of production and service processes. • Knowledge of basic OM principles. • Analytical Tools: • Forecasting • Decision-Making • Linear Programming • Break-even analysis • Inventory control • Waiting lines (queueing)

16. Heritage of OM • Prior to 1700’s - Most products custom-made on a small scale with local distribution. • Local craftsmen. • Products were handmade and unique. • Industrial Revolution • Mechanized production and distribution. • Allowed mass production and wider distribution. • Fostered division of labor.

17. Industrial Revolution • Key developments: • Steam engine (1769). • Interchangeable parts (1798). • Machine tools (1798). • Results: • Production increased. • Prices decreased. • Workers replaced by machines. • Need to manage complex production systems.

18. Scientific Management • Study production systems scientifically to improve them (beginning in 1880’s). • There are ‘scientific laws’ for production systems that can be used to improve (optimize) production. • Work smarter, not harder. • Management is responsible for productivity.

19. Related Fields • Operations Management. • Industrial Engineering. • Social and psychological factors. • Operations Research/Management Science (Mathematical modeling). • Logistics.

20. Eli Whitney • Born 1765; died 1825. • Invented cotton ‘gin’. • Received government contract to make 10,000 muskets (1798). • Showed machine tools could make standardized parts.

21. Recent Developments for OM • Information technology: (computers, bar codes, EDI, internet, wireless, etc.) • Just-In-Time systems. • Quality emphasis. • Service economy. • Globalization. • Environmental concerns. • Security.

22. Development of the Service Economy U.S. Employment, % Share 80% 40% 0 Services Industry Farming 1850 1900 1950 2000

23. Most Jobs are in Services Sector % of Jobs Professional Services 24 Retail & Wholesale 21 Utilities & transportation 7 Other Services (finance, real estate, hospitality, etc.) 21 Agriculture 2 Manufacturing, construction and mining 25

24. Productivity • Used to measure of process improvement. • Amount of output relative to input. • Productivity increases improve standard of living. • From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate. Units produced Productivity = Inputs used

25. How Would You Measure Productivity for A Restaurant? • Amount of output (????) per input (????). • Output: • Number of meals served? • Number of tables served? • Number of satisfied customers? • Input: • Lbs. of food? • Number of employees? • Number of tables?

26. Productivity for One Product Units produced Productivity = Inputs used • Output is easy to measure with one product. • Input may have many components. • Parts and subassemblies. • Labor. • Equipment. • Knowledge. • etc.

27. Productivity Variables Output Labor + material + energy + capital + miscellaneous Productivity = • Use a common measure to combine different inputs - usually $.

28. Productivity Measurement Problems • Quality of output should be considered. • If you produce more, but of lower quality, does productivity rise? • External elements may change productivity. • Wireless communication may raise productivity. • Precise units of measure may be lacking.

29. How Would You Measure Productivity for UM - St. Louis? Units produced Productivity = Inputs used • What is output? • How is it measured? • What is input? • How is it measured?

30. How Would You Measure Productivity for: • A builder of new homes? • An automobile mechanic? • A hospital? • A fire department? • A restaurant?