Introduction to Operations Management

1. Introduction to Operations Management Chapter 1 MIS 373: Basic Operations Management

2. Learning Objectives • After this lecture, students will be able to • Define the terms operations management and supply chain • Identify the three major functional areas of organizations and describe how they interrelated • Identify similarities and differences between production and service operations • Explain the key aspects of operations management decision making • Explain the need to manage the supply chain MIS 373: Basic Operations Management

3. What comes to mind when you hear “operations management”?

4. Amazon’s Warehouse in Phoenix (facility size: 1.2 million-square-foot) Image Credit: bizbeatblog.dallasnews.com

5. ABC News: Inside Amazon: Secrets of an Online Mega-Giant

6. P&G’s Products Image Credit: pgbeautyscience.com

7. Hilton Hotels Image Credit: pgbeautyscience.com

8. Starbucks Image Credit: Wikipedia

9. Operations Management • What is operations? • The part of a business organization that is responsible for producing goods or services • What is operations management? • The management of systems or processes that create goods and/or provide services • Operations management affects: • Companies’ ability to compete MIS 373: Basic Operations Management

10. Basic Functions of the Business Organization MIS 373: Basic Operations Management

11. Business Functions are Interconnected MIS 373: Basic Operations Management

12. The Transformation Process • Feedback = measurements taken at various points in the transformation process • Control = The comparison of feedback against previously established standards to determine if corrective action is needed. Value-Added = value/price of output - cost of input • Inputs • Land • Labor • Capital • Information Transformation/ Conversion Process • Outputs • Goods • Services Measurement and Feedback Measurement and Feedback Measurement and Feedback Control MIS 373: Basic Operations Management

13. Good or Service? • Goods: physical items that include raw materials, parts, subassemblies, and final products. • Services: activities that provide some combination of time, location, form or psychological value. Goods-service Continuum Goods Services Surgery, Teaching Songwriting, Software Development Computer Repair, Restaurant Meal Home Remodeling, Retail Sales Automobile Assembly, Steelmaking MIS 373: Basic Operations Management

14. Key Differences MIS 373: Basic Operations Management

15. Key Differences • Prompt questions: • Q1: We have seen the differences between production of goods and delivery of services. What are the implications of these differences to operations managers? MIS 373: Basic Operations Management

16. Process Management • Three Categories of Business Processes: • Upper-management processes • These govern the operation of the entire organization. • Operational processes • These are core processes that make up the value stream. • Supporting processes • These support the core processes. • Managing a Process to Meet Demand • Ideally, the capacity of a process will be such that its output just matches demand. MIS 373: Basic Operations Management

17. Supply & Demand Sales & Marketing Operations & Supply Chains Wasteful Costly Supply Demand > Opportunity Loss Customer Dissatisfaction Supply Demand < Ideal Supply Demand = MIS 373: Basic Operations Management

18. Supply & Demand Sales & Marketing Operations & Supply Chains Wasteful Costly • Prompt questions: • Q2: Why is it difficult to match supply and demand? • Q3: What actions could a manager take to better match supply and demand? • Supply & Demand – VA Hospital (CNN AC360, 2:14 to 3:00) Supply Demand > Opportunity Loss Customer Dissatisfaction Supply Demand < Ideal Supply Demand = MIS 373: Basic Operations Management

19. Discussions • Prompt questions: • Q1: What are the implications of these differences between goods and services to operations managers? • Q2: Why is it difficult to match supply and demand? • Q3: What actions can a manager take to better match supply and demand? • Directions: • Form groups of two with a peer from a different department • Discuss the three prompt questions (15 minutes) • In the discussion, try to bring in domain expertise from you major • Briefly summarize your answer to each question on paper

20. Process Variation Four Sources of Variation: • Variety of goods or services being offered • The greater the variety of goods and services offered, the greater the variation in production or service requirements. • Structural variation in demand • These are generally predictable (seasonal variation or seasonality, e.g., swimwear, warm clothes, Christmas, tourist seasons, school supplies). • They are important for capacity planning • Random variation • Natural variation that is present in all processes (e.g., random demand etc.). Generally, it cannot be influenced by managers. • Assignable variation • Variation that has identifiable sources. (e.g., defective inputs, incorrect work methods, equipment etc.) • This type of variation can be reduced, or eliminated, by analysis and corrective action. MIS 373: Basic Operations Management

21. Role of the Operations Manager • Recap: • 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 • A primary function of the operations manager is to guide the system by decision making. • System Design Decisions • System Operation Decisions MIS 373: Basic Operations Management

22. System Design Decisions • System Design • Capacity • Facility location • Facility layout • Product and service planning • These are typically strategic decisions that • usually require long-term commitment of resources • determine parameters of system operation MIS 373: Basic Operations Management

23. System Operation Decisions • System Operation • 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 other decision area • They still have a vital stake in system design MIS 373: Basic Operations Management

24. Decision Making • Most operations decisions involve many alternatives that can have quite different impacts on costs or profits • Typical operations decisions include: • What: What resources are 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? • Where: Where will the work be done? • Who: Who will do the work? • How: How will the product or service be designed? How will the work be done? How will resources be allocated? MIS 373: Basic Operations Management

25. Quantitative Methods • A decision making approach that frequently seeks to obtain a mathematically optimal solution • Linear programming • Queuing techniques • Forecasting techniques • Inventory models • Project models • Statistical models • Modeling is a key tool used by all decision makers • Model: an abstraction of reality; a simplification • Common features of models: • They are simplifications of real-life phenomena • They omit unimportant details of the systems they mimic so that attention can be focused on the most important aspects of the real-life system MIS 373: Basic Operations Management

26. Benefits / Limitationsof Models • Benefits • Models are generally easier to use and less expensive than dealing with the real system • Require users to organize and sometimes quantify information • Increase understanding of the problem • Enable managers to analyze “What if?” questions • Limitations • Quantitative information may be emphasized at the expense of qualitative information • Models may be incorrectly applied and the results misinterpreted • This is a real risk with the widespread availability of sophisticated, computerized models are placed in the hands of uninformed users. • The use of models does not guarantee good decisions. MIS 373: Basic Operations Management

27. Key Issues for Today’s Business Operations • Economic conditions • Management of technology • The Internet, e-commerce, e-business • Competing in a global economy • Globalization, outsourcing • Supply chain management (more in the following slides) • Environmental concerns and sustainability • Global warming, carbon footprint • Ethical conduct • Worker safety, product safety, the community, hiring/firing workers, … • CNN 4/23/14: A fatal wait: Veterans languish and die on a VA hospital's secret list • “We're making our appointments within 10 days, within the 14-day frame, when in reality it had been six, nine, in some cases 21 months” MIS 373: Basic Operations Management

28. US Carbon Footprint • The United States has been one of the few bright spots for climate-change policy in recent years. Thanks to the recession, improved efficiency measures and the shale-gas boom, the nation's carbon-dioxide emissions from energy fell 12 percent between 2005 and 2012. • Strategies • Energy Efficiency • Energy Conservation • Fuel Switching • Carbon Capture and Sequestration Source: US Environmental Protection Agency Source: The Washington Post 1/13/14

29. Worker Safety • WSJ 4/21/14 • http://online.wsj.com/news/articles/SB10001424052702303873604579493502231397942 • Inside Nike's Struggle to Balance Cost and Worker Safety in Bangladesh • Nike, which first used a factory in Bangladesh in 1991, had kept its footprint there small, never working with more than 10 factories. The rest of the industry moved more aggressively into Bangladesh. • The decision came not long before another garment-manufacturing hub known asRana Plaza collapsed, killing 1,100 people in a suburb of Dhaka, in the worst industrial disaster in Bangladesh's history. The tragedy, which happened a year ago this month, has forced Western apparel sellers to re-examine their world-wide search for cheap labor, which has turned Bangladesh into an exporter of $20 billion of clothing a year.

30. Suppliers’ suppliers Direct suppliers Producer Distributor Final Customers Supply Chain • Supply Chain • A sequence of activities and organizations involved in producing and delivering a good or service MIS 373: Basic Operations Management

31. 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 MIS 373: Basic Operations Management

32. Supply Chain Issues • The need to improve operations • The need to manage inventories • Increasing transportation costs • Increasing levels of outsourcing • Increasing importance of e-business • Competitive pressures • Increasing globalization • The complexity of supply chains MIS 373: Basic Operations Management

33. Supply Chain Issues 1. The need to improve operations • Sustainability • Productivity (more in chapter 2) • Efficiency (more in chapter 5) • Quality (more in chapters 9 & 10) MIS 373: Basic Operations Management

34. Supply Chain Issues 2. The need to manage inventories • Just in time (JIT) • Vendor Managed Inventory (VMI) • Logistics MIS 373: Basic Operations Management

35. Supply Chain Issues 3. Increasing transportation costs MIS 373: Basic Operations Management

36. Supply Chain Issues 4. Increasing levels of outsourcing • Law of Comparative Advantage • Benefits of Outsourcing • Allow a company to focus on strategic, core competencies • Cost savings or cost avoidance • Flexibility for using services as needed • Changes fixed costs into variable costs • Types of Business Activities Outsourced • Information Technology (IT) • Human Resources (HR) • Learning Function (Corporate Training) • Customer Service (Call centers) • Finance and Accounting MIS 373: Basic Operations Management

37. Supply Chain Issues 5. Increasing importance of e-business • E-business: The use of internet to network and empower business processes, electronic commerce, organizational communication and collaboration with in a company and with its customers, suppliers, and other stakeholders. (Combe, 2006) MIS 373: Basic Operations Management

38. Supply Chain Issues 6. Competitive pressures 7. Increasing globalization 8. The complexity of supply chains Serdarasan, Seyda. "A review of supply chain complexity drivers." Proceedings of the 41st International Conference on Computers & Industrial Engineering, pp792-797 MIS 373: Basic Operations Management

39. OM and Supply Chain Career Opportunities • Operations manager • Supply chain manager • Production analyst • Schedule coordinator • Production manager • Industrial engineer • Purchasing manager • Inventory manager • Quality manager MIS 373: Basic Operations Management

40. Key Points • The operations function is that part of every business organization that produces products and/or delivers services. • Operations consists of processes that convert inputs into outputs. Failure to manage those processes effectively will have a negative impact on the organization. • A key goal of business organizations is to achieve an economic matching of supply and demand. The operations function is responsible for providing the supply or service capacity for expected demand. • All processes exhibit variation that must be managed. MIS 373: Basic Operations Management

41. Key Points • Although there are some basic differences between services and products that must be taken into account from a managerial standpoint, there are also many similarities between the two. • Environmental issues will increasingly impact operations decision making. • Ethical behavior is an integral part of good management practice. • All business organizations have, and are part of, a supply chain that must be managed. MIS 373: Basic Operations Management