OPERATIONS MANAGEMENT What is operations? The part of a business organization that is responsible for producing goods or services How can we define operations management? The design, operation and improvement of the systems or processes that create goods and/or provide services
Supply Demand Wasteful Costly > Opportunity Loss Customer Dissatisfaction Supply Demand < Supply Demand = Ideal SUPPLY & DEMAND Operations & Supply Chains Sales & Marketing
THE OPERATIONS FUNCTION • Operations as atransformation process • Operations as abasic function • Operations as the technical core
Value-Added • Inputs • Land • Materials • Labor • Management • Capital • Information Transformation/ Conversion Process • Outputs • Goods • Services Feedback Control Feedback Feedback 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.
WHAT IS VALUE ADDED? The essence of operations function is to add value during the transformation process Value added is the difference between the cost of intputs and the value or price of outputs.
FIRMS USE THE MONEY GENERATED BY VALUE ADDED FOR: R&D Investment in new facilities and equipment Paying workers Paying for materials Paying for general expenses Profits
Cleaning Canned vegetables • Making cans • Cutting • Cooking • Packing • Labeling TRANSFORMATION PROCESS OF A CANNED FOOD PROCESSOR Inputs Processing Outputs Metal sheets Raw vegetables Water Energy Labor Building Equipment
Doctors, nurses Examination Healthy patients Hospital Surgery Medical Supplies Monitoring Equipment Medication Laboratories Therapy TRANSFORMATION PROCESS OF A HOSPITAL Processing Inputs Outputs
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 EXAMPLES OF VARIOUS OPERATIONS
TYPES OF TRANSFORMATION PROCESSES • Physical- manufacturing • Locational- transportation • Exchange- retailing • Storage- warehousing • Physiological- health care • Informational- telecommunications • Psychological- entertainment
OPERATIONS AS A BASIC FUNCTION • Marketing • Generates demand gets customers • Operations • creates product or service • Finance/Accounting • Obtains funds • Tracks organizational performance
Organization Marketing Finance Operations BASIC FUNCTIONS OF THE BUSINESS ORGANIZATION
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
IMPORTANCE OF OM (WHY STUDY OM?) (1 of 2) • Operations is one of the three major functions of an organization • Offers a major opportunity for an organization to improve its productivity and profitability • OM affects 1) the companies’ ability to compete and 2) the nation’s ability to compete internationally • Nearly half of the employed people over the world have jobs in operations
IMPORTANCE OF OM (WHY STUDY OM?) (2 of 2) • The OM function is responsible for a major portion of the assets of most organizations • OM is a costly part of an organization • The concepts, tools and techniques of OM are widely used in managing other functions. • Presents career opportunities
TYPES OF PRODUCTION PROCESSES(PROCESS FLOW STRUCTURES) • INTERMITTENT • Job shop • Batch production • CONTINOUS • Mass production • Continuous flow production • PROJECT
E.R.Triage room Patient A - broken leg E.R. Admissions Surgery Patient B - erratic pacemaker Hallway Radiology Billing/exit E.R. beds Pharmacy EMERGENCY ROOM
AUTOMOBILE PLANT sequential Raw materials or customer Station 2 Station 3 Station 4 Station 1 F G Material and/or labor Material and/or labor Material and/or labor Material and/or labor Used for Repetitive or Continuous Processing
Goods Services Tangible Act-Oriented MANUFACTURING vs. SERVICE Manufacturing and Service Organizations differ chiefly because manufacturing is goods-oriented and service is act-oriented.
GOODS-SERVICE CONTINUUM Products are typically neither purely service- or purely goods-based. Goods Services Surgery, Teaching Songwriting, Software Development Computer Repair, Restaurant Meal Home Remodeling, Retail Sales Automobile Assembly, Steelmaking
MANAGING SERVICES IS CHALLENGING • Jobs in services are often less structured than in manufacturing • Customer contact is generally much higher in services compared to manufacturing • In many services, worker skill levels are low compared to those of manufacturing employees • Services are adding many new workers in low-skill, entry-level positions • Employee turnover is high in services, especially in low-skill jobs • Input variability tends to be higher in many service environments than in manufacturing • Service performance can be adversely affected by many factors outside of the manager’s control (e.g., employee and customer attitudes)
SERVICE JOB CATEGORIES (1 of 2) • Governmental services • Municipal services • Trade services (wholesale/retail) • Finance, insurance, real estate • Medical (healthcare) • Personal services
SERVICE JOB CATEGORIES(2 of 2) • Business services • Education • Food, lodging and entertainment • Utilities and transportation • Legal, consulting • Repair
SERVICES IN MANUFACTURING In manufacturing, services can be divided into two groups: • Core Services • Value-added Services
CORE SERVICES Core servicesare basic things that customers want from products they purchase
Quality Flexibility Speed Price (or cost Reduction) CORE SERVICES PERFORMANCE OBJECTIVES Operations Management
Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way VALUE-ADDED SERVICES
Problem Solving Sales Support Information Field Support VALUE-ADDED SERVICE CATEGORIES Operations Management
PROCESS MANAGEMENT Process - one or more actions that transform inputs into outputs
PROCESS VARIATION Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems.
The Scope of OM: What Do Operations Managers Do? Plan - Organize - Staff - Lead - Control
The operations function includes many interrelated activities such as: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . . SCOPE OF OPERATIONS MANAGEMENT The scope of operations management ranges across the organization.
The Operations Function consists of all activities directly related to producing goods or providing services. A primary function of the operations manager is to guide the system by decision making. System Design Decisions System Operation Decisions ROLE OF THE OPERATIONS MANAGER
SYSTEM DESIGN DECISIONS System Design Decisions • Capacity • Facility location • Facility layout • Product and service planning • Process planning • Technology planning • Acquisition and placement of equipment These are typically strategic decisions that require • long-term commitment of resources • Determine parameters of system operation
SYSTEM OPERATION DECISIONS System Operation Decisions • Management of personnel • Inventory management and control • Scheduling • Project management • Quality assurance Operations managers spend more time on systemoperation decision than any other decision area but they still have a vital stake in system design
U.S. MANUFACTURING vs. SERVICE EMPLOYMENT • Insert Figure 1.7
THE DECLINE IN MANUFACTURING EMPLOYMENT Productivity • Increasing productivity allows companies to maintain or increase their output using fewer workers Outsourcing • Some manufacturing work has been outsourced to more productive companies A Statistical Artifact • Manufacturers are increasingly using contract and temporary labor which no longer show up in the statistics as manufacturing employment
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? • How: How will he product or service be designed? How will the work be done? How will resources be allocated? • Who: Who will do the work? OPERATIONS MANAGEMENT AND DECISION MAKING
OPERATIONS MANAGEMENT AND DECISION MAKING • Models • Quantitative approaches • Analysis of tradeoffs • Systems approach • Establishing priorities
GENERAL APPROACH TO DECISION MAKING Modeling is a key tool used by all decision makers • Model - an abstraction of reality; a simplification of something. • Common features of models: • They are simplifications of real-life phenomena • They omit unimportant details of the real-life systems they mimic so that attention can be focused on the most important aspects of the real-life system
MODELS Types of Models: • Physical Models Look like their real-life counterparts • Schematic Models Look less like their real-lifecounterparts than physical models • Mathematical Models Do not look at all like their real-life counterparts
UNDERSTANDING MODELS Keys to successfully using a model in decision making • What is its purpose? • How is it used to generate results? • How are the results interpreted and used? • What are the model’s assumptions and limitations?
BENEFITS OF MODELS • Models are generally easier to use and less expensive than dealing with the real system • Require users to organize and sometimes quantify information • Provide a systematic approach to problem solving • Increase understanding of the problem • Enable managers to analyze “What if?” questions • Enable managers to specify objectives • Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem • Enable users to bring the power of mathematics to bear on a problem.
MODEL 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.