Chapter 1: Introduction to POM

1. Chapter 1: Introduction to POM Department of Business Administration FALL 2010-2011

2. Outline: What You Will Learn . . . • Define the term operations management • Identify the three major functional areas of organizations and describe how they interrelate • Compare and contrast service and manufacturing operations • Describe the operations function and the nature of the operations manager’s job • Differentiate between design and operation of production systems • Describe the key aspects of operations management decision making • Briefly describe the historicalevolution of operations management • Identify current trends that impact operations management

3. Definition of Operations Management • Production/Operations Management is: • The management of that part of an organization that is responsible for producing goods and/or services. • The management of systems or processesthat create goods and/or provide services. i.e. Every book you read, every e-mail you send or every medical treatment you receive involves the operation function of one or more organizations. • The aim of production and operations is to satisfy people’s wants or needs. • Operations Management affects: • The collective success or failure of companies’ POM • Companies’ ability to compete • Nation’s ability to compete internationally

4. Organization Finance Marketing Operations Business Organization • The Three Basic Functions Fig 1.1 All business organizations have these three basic functions so it doesn’t matter the business a hospital, a manifacturing firm, a car wash etc.....

5. Basic Concepts • Finance- is responsible for securing financial resources at favourable prices as well as analysing investment proposal and providing funds for marketing and operations. • Marketing is responsible for assessing consumer needs or wants and selling and promoting the organization’s goods and services. • Operations is responsible for producing the goods or providing the services offered by the organization.

6. Value added Inputs Outputs Transformation/ Land Goods Conversion Labor Services process Capital Feedback Control Feedback Feedback Value-Added Process • The operations function involves the conversion of inputs into outputs Figure 1.2

7. Basic Concepts • Input- Materials, labour, information, technology, equipment, legal constraints, government regulations etc.... • What type of skill do the employees need? • What type of materials does the firm need? • Value-Added Activities- Performed with tools machines, techniques, human skills etc....i.e. Processing. • How will the firm use its resources to produce its products/ how can the firm improve its operations? • Output- Good and services. • what are their needs/what sort of products will be produced?

8. Value-added • Value-added is the difference between the cost of inputs and the value or price of outputs. • In non-profit organization, value-added of output is their value to society. • The greater the value-added, the greater the effectiveness of these operations (i.e. High way construction, state school construction etc...). • In profit organization, value-added of output is measured by prices that customers are willing to pay for those goods and services. • Firms use the money generated by value-added for research and development, worker salaries and profit. • The greater the value-added, The greater the amount of funds available for these purposes.

9. Is Goods-service combinationa Continuum? Goods Service Surgery, teaching Song writing, software development Computer repair, restaurant meal Automobile Repair, fast food Home remodeling, retail sales Figure 1.3 Automobile assembly, steel making

10. Why Product Packages? • Because there are relatively few pure goods and pure services and therefore companies sell Product packages for their own benefit or interest. • Product packages are a combination of goods andservices. • Product packages can make a company more competitive.

11. Raw Vegetables Cleaning Canned vegetables Metal Sheets Making cans Water Cutting Energy Cooking Labor Packing Building Labeling Equipment Example of the transformation for Food Processor Outputs Inputs Processing Table 1.2

12. Doctors, nurses Examination Healthy patients Hospital Surgery Medical Supplies Monitoring Equipment Medication Laboratories Therapy Example of the transformation for Hospital Process Inputs Processing Outputs Table 1.3

13. Tangible Act Manufacturing or Service? • Manufacturing and Service are often different in terms of what is done but quite similar in terms of how it is done. For example, manufacturers decide what size factory needed and service organizations must decide what size building is needed.Manufacturing and Service differ cause manufacturing is goods-oriented and service is act-oriented.

14. Production of Goods vs. Delivery of Services • Production of goods – tangible output • Delivery of services – an act • Service job categories • Government (state, local, etc..) • Wholesale/retail (clothing, food, stationery,etc..) • Financial services (banking, insurance, etc..) • Healthcare (doctors, dentists, hospitals, etc..) • Personal services (laundry, dry cleaning, etc..) • Business services ( data processing, e-business, etc..) • Education (schools, colleges, etc..)

15. Key Differences between manufacturing and Service operations 1. 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

16. Goods vs. Service

17. Goods vs. Service Figure 1.4

18. Why Manufacturing Matters? • Over 18 million workers in manufacturing jobs • Accounts for over 70% of value of U.S. exports • Average full-time compensation about 20% higher than average of all workers • Manufacturing workers more likely to have benefits • Productivity growth in manufacturing in the last 5 years is more than double U.S. economy

19. Why Manufacturing Matters? • More than half of the total R&D performed is in the manufacturing industries • Manufacturing workers in California earn an average of about $25,000 more a year than service workers • When a California manufacturing job is lost, an average of 2.5 service jobs are lost

20. Challenges of Managing Services • Service jobs are often less structured than manufacturing jobs • Customer contact is higher • Worker skill levels are lower • Services hire many low-skill, entry-level workers • Employee turnover is higher • Input variability is higher • Service performance can be affected by worker’s personal factors

21. Key Decisions of Operations Managers • What What resources/what amounts • When Needed/scheduled/ordered • Where Work to be done • How Designed • Who To do the work

22. Operations Examples Goods Producing Farming, mining, construction , manufacturing, power generation Storage/Transportation Warehousing, trucking, mail service, moving, taxis, buses, hotels, airlines Exchange Retailing, wholesaling, banking, renting, leasing, library, loans Entertainment Films, radio and television, concerts, recording Communication Newspapers, radio and television newscasts, telephone, satellites Types of Operations

23. Historical Evolution of Operations Management • System for P & O have existed since ancient times. • The great wall of China • Egyptian pyramids i.e. More than 100000 workers for 20 years. • The ships of Roman empire • The roads and aqueducts of the Roman • These are all examples of the human ability to organize for operation and production • These also show the roots of the Industrial Revolution

24. Historical Evolution of Operations Management • Industrial revolution (1770’s) in England • Scientific management (1911) • Mass production • Interchangeable parts • Division of labor • Human relations movement (1920-60) • A psychologist focusing on human factor in work-tiredness and motivation. • Decision models (Harris 1915-inventory model, 1960-70’s) • The factory movement was accompanied by the development of several quantitative techniques. After ww II-the importance of military and manifucturing sectors, the models of forecasting, inventory management, project management were developed. • Influence of Japanese manufacturers • JIT production, quality revolution, continual improvement etc.

25. The evolution of POM • Production of goods remained at a handicraft level untill the Industrial revolutiontook place. In 1764 (1770s), the Industrial revolution began and James Watt invented the steam engine and advanced the use of mecanical power to increase productivity. • Eli Whitney (1798) found out and introduced the concepts of standardised parts and interchangeable parts. He then developed musket system because the type of muskets were handcrafted-he produced 10000 muskets by using the concept of interchangeable parts. • By using the same concept, he allowed the manifacture of fire-alarms, clocks, watchs, sewing machines etc.. • Soon after, by conducting the concept of steam engine, Richard Trevithick (1802) invented the first train and Richard Fulton (1807) invented the first steam boat.

26. The evolution of POM • The first steam boat and the first train indicate a long stream of application in which human anad animal powers were replaced by engine power. • The Industrial revolution was the transformation of a society from peasant and local occupation into a society with world wide connections in terms of great use of machinery and large-scale commercial operations. This is the first step of factory system. • This system replaced the traditional production system by the concept of mass-production by bringing together large numbers of semi-skilled workers. • Adam Smith’s ‘The wealth of nations’ (1776) pointed out the importances and advantages of the division of labor where the production process was broken down into series of small tasks and each performed by a different worker.

27. The evolution of POM • With aid of the concept of the division of labor: • Workers who continually perfomed the same task, they would gain skill and experience. • Saving time or avoiding lost time due to changing jobs. • Workers’ concentration on the same job increased would lead to the development of special tools and techniques for faster and easier task. • Specialization jobs and division of labor began to take place. A prominent mathematician and engineer Charles babbage (1832) promoted an economic analysis of work and pay on the basis of skill requirement. • In the earliest days of manufacturing, goods were produced using craft production-highly skilled workers conducting simple, flexible tools to produce small quantities customized goods .

28. The evolution of POM • Frederick Taylor (1911) who is often referred to as the father of scientific management, published ‘the priciples of scientific management’. This helped to achieve wide tasks in industry. • Frank Gilber (principles of motion economy), Henry Gantt (schudeling and charts design for system) and Herrington Emerson (organizational efficiency) used Taylor’s ideas to improve the system of operation and production management. • Influence of Japanese manufacturers • JIT production, quality revolution, continual improvement etc. • Using the concept of JIT production, Japanese manufacturers changed the rules of production from Mass Production to Lean Production. • Lean production prizes flexibility rather then efficiency, as well as quality rather than quantity. This indicates the first step of ‘Era of Industrial globalization’.

29. The evolution of POM Figure 1.5

30. School of Management • The process school of management • was developed by Henry Fayol in 1900 • management can be viewed as a continuous process • the function of planning, organizing and controlling • The behavioural school of management • was developed by Elton Mayo in 1920 • human relation movement on production output • Productivity depends not only on the physical environment but also on social norms and personal feelings (i.e. Western Electric’s Hawthorne plant)

31. School of Management • The quantitative school of management • is concerned with decision making, mathematical modeling as well as system theory • represents a productive system • In 1915, Harris developed an Economic Order Quantity model for inventory management • In 1931, Shewhart developed a Quantity decision model for use in Statistical quality control work • In 1947, George Dantzing developed PERT/CPM • In the late 1950s and early 1960s Edward Bowman, Robert Fetter and Elwood Buffa developed the concept called Modern poduction Management • As computers became available in the 1950s, the power of opeartions research was multiplied

32. School of Management • The School of Modern Management • In the late 1960s, MRP and CPR were introduced by Joseph Orlicky and Oliver White • In the late 1970s, MRP II, JIT, TMQ and KANBAN systems were developed • the School of Modern Management includes the system and the contingency approaches. • these are also called new contemporary management approaches • the system approach points out that an organization has interdependent factors as such individuals, status, motives, goals etc and must work together • the contingency approach reveals that organizations are different so different and changing cases need to conduct different approaches and techniques in reaching a solution

33. Trends inIndustrial Globalization • Major trends • The Internet, e-commerce, e-business • Management technology • Globalization • Management of supply chains • Outsourcing • Agility • Ethical behavior

34. Thanks