Chapter 1 - Introduction to

Operations
Management

Operations Management
by

R. Dan Reid & Nada R. Sanders

2nd Edition © Wiley 2005

PowerPoint Presentation by R.B. Clough - UNH

© Wiley 2005 1
 Learning Objectives
 Define OM
 Role of OM in business
 Decisions that operations managers make
 OM differences between service and mfg.
 Major historical developments in OM
 Identify current trends in OM
 Define information flow between OM and
other business functions
© Wiley 2005 2
What is Operations Management?

The business function responsible for

planning, coordinating, and
controlling the resources needed to
produce a company’s products and
services

© Wiley 2005 3
 Operations Management
Definition - POSDC

OM can be defined as the planning,

organizing, staffing, directing,

and controlling the 6p’s that create the

firm’s primary products and services ....
© Wiley 2005 4
 Why Dell?

Why have customers around the world

chosen Dell ahead of the rest as their
preferred partner and supplier of computing
equipment?
Because Dell makes it easy.


When you buy from Dell you deal direct. No

unnecessary people or processes to get
between you and your supplier.
© Wiley 2005 5
 Why Dell?

You can get quotes over the phone or via the

web and place orders on the spot. Your
hardware is built next day and shipped direct,
arriving usually within 7 to 15 business days.

© Wiley 2005 6
 Why Dell?

Every Dell system is built to your specification

with your preferred software or standard image
pre-installed. You get a better quality product
with fewer set-up hassles. And our direct
relationship keeps you informed of product
enhancements and upgrades so you can plan
for your future needs.

© Wiley 2005 7
 Why Dell?

We fix more than 75% of technical problems

over the phone and have engineers all around
the country to provide field service when
required.
Whether it's desktops, notebooks, servers,
storage, workstations, software, peripherals or
services, all it takes is a single call to Dell.
Easy.
© Wiley 2005 8
Similarities-Service/Manufacturers
 All use technology
 Both have quality, productivity, & response
issues
 All must forecast demand
 Each will have capacity, layout, and location
issues
 All have customers and suppliers
 All have scheduling and staffing issues

© Wiley 2005 9
 Why OM?

 “In business today, the emphasis is not so

much on what you make, but on how
you do business.
 Example: Dell makes computers just like
every other PC manufacturer

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 Mission: Dell Computers-

“to be the most successful computer

company in the world”

© Wiley 2005 11
OM Decisions

© Wiley 2005 12
Typical Organization Chart

© Wiley 2005 13
Differences between Manufacturers
and Service Organizations
 Services:  Manufacturers:
 Intangible product  Tangible product
 Product cannot be  Product can be
inventoried inventoried
 High customer contact  Low customer contact
 Short response time  Longer response time
 Labor intensive  Capital intensive

© Wiley 2005 14
 Strategic Use of OM

Marketplace

Corporate Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations management

Inputs: Outputs:
People Plants Parts Processes
Materials Products
Customers Services
Planning & control systems Productive Technology

Production©System
Wiley 2005 15
....
OM’s Transformation Role

© Wiley 2005 16
 OM Manages Transformations

Transformation
Input Process Output
HIGH PROFIT/ROI
LAND (Value Adding)
LOW COST
LABOR
 People HIGH QUALITY
CAPITAL
 Plants FIRST TO MKT
MANAGEMENT
 Parts FLEXIBILITY
TECHNOLOGY  Processes SERVICE
Transformation using  Planning and Control
The 6 Ps of OM:  Productive
Technology
© Wiley 2005 17
 Transformations

 Physical--manufacturing
 Locational--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational--telecommunications
 Psychological-- Mental Clinic, Restaurant....
© Wiley 2005 18
 Historical Development of OM

 Industrial revolution Late 1700s

 Scientific management Early 1900’s
 Human relations movement 1930s to 1960s
 Management science Mid-1900s
 Computer age 1970s
 Just-in-Time Systems (JIT) 1980s
 Total quality management (TQM) 1980’s
 Reengineering 1990s

© Wiley 2005 19
 Historical Dev.. [Contd..]

Flexibility 1990s
Time-Based Competition 1990s
Supply chain Management 1990’s
Global Competition 1990s
Environmental Issues 1990s
Electronic Commerce Late 1990s

© Wiley 2005 20
 Historical Development
of OM
 Scientific Management
 Frederick W. Taylor (early 1900s)
 Scientific laws govern how much a worker can produce.
 Only Management Understands These Scientific Laws?

 Labor is too Ill Prepared to Understand & Develop

These!
 Frank and Lillien Gilbreth
 Time and motion studies
 Moving Assembly Line
 Henry Ford (1913) ....
© Wiley 2005 21
 ASSEMBLY LINE

 Henry Ford (1863-1947) used the first

conveyor belt-based assembly-line in his car
factory in 1913-14 in Ford's Highland Park,
Michigan plant. This type of production greatly
reduced the amount of time taken to put each
car together (93 minutes for a Model T) from
its parts, reducing production costs. Assembly
lines are now used in many manufacturing
processes.
© Wiley 2005 22
Historical Development (continued)
 Activity Scheduling - Precursor to CPM/PERT
Project Management – GANTT Charts
 Henry L. Gantt (1914)
 Economic Lot Size Model - Scientific Inv. Man.
 F. W. Harris (1917)
 Statistical Quality Control & Sampling
 Walter Shewhart (Bell Labs, 1931)
 Hawthorne Studies - Human Relations School
 Elton Mayo (Western Electric, 1927-1933) ....
© Wiley 2005 23
Historical Development (continued)

 Team Approaches to Complex System Problems

 (England, 1940s) - Integration
 Simplex Method of Linear Programming
 George Dantzig, US, 1947)
 Proliferation of Operations Research
 1950s-1960s ....

© Wiley 2005 24
Historical Development (continued)
 Computer OR Applications
 1970s
 Manufacturing Strategy Paradigm
 HBS, 1980s
 JIT, CAD/CAM, CIM, FMS, TQC, Robots, etc.
 1980s
 Customer Satisfaction, Business Process
Reengineering, MBNQA
 1990s ....
© Wiley 2005 25
Today’s OM Environment
 Customers demand better quality,
faster deliveries, and lower costs
 Increased cross-functional decision
making
 Recognized need to better manage
information using ERP and CRM
systems

© Wiley 2005 26
Trends in OM
 Service sector growing
to 80% of non-farm
jobs
 Global competitiveness
 Demands for higher
quality
 Huge technology
changes
 Time based competition
 Work force diversity

© Wiley 2005 27
 Current Issues in OM
 Fiercely Competitive Global Markets
 Global Outsourcing
 Effectively consolidating the operations resulting
from mergers.
 Developing flexible supply chains to enable
mass customization of products and services.
 Managing global supplier, production and
distribution networks. © Wiley 2005 28
 Current Issues in OM

 Increased “commiditization” of suppliers.

 Achieving the “Service Factory.”
 Achieving good service from service firms.
 Developing Effective e-Operations

© Wiley 2005 29
Business Information Flow

© Wiley 2005 30
Chapter 1 Highlights
 OM is function that manages the resources that add value
 Its role is to transform inputs into products or services
 Decisions are many and vary from daily tactical to strategic
 Key differences between mfg. and service companies are
tangibility of product and degree of customer contact
 Historical milestones range from 1700s Industrial Revolution to
the modern Electronic Commerce age
 OM must understand and implement major process changes like
JIT, TQM, supply chain management, and environmental
changes
 OM works closely with all other business functions

© Wiley 2005 31
 The End
 Copyright © 2005 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United State Copyright Act without
the express written permission of the copyright owner is
unlawful. Request for further information should be addressed
to the Permissions Department, John Wiley & Sons, Inc. The
purchaser may make back-up copies for his/her own use only
and not for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by the
use of these programs or from the use of the information
contained herein.

© Wiley 2005 32
Chapter 2 - Operations
Strategy and Competitiveness

Operations Management
by
R. Dan Reid & Nada R. Sanders
2nd Edition © Wiley 2005

PowerPoint Presentation by R.B. Clough - UNH

© Wiley 2005 33
Learning Objectives
 Define the role of Business Strategy
 Explain how a Business strategy is developed
 Explain the role of Operations Strategy
 Explain the relationship between Business and
Operations strategy
 Describe how an Operations strategy is developed
 Identify competitive priorities for Operations function
 Explain the strategic role of technology
 Define and compute productivity measures

© Wiley 2005 34
The Role of Business Strategy
 Defines the long-range plan to compete
in the marketplace
 Helps to differentiate the firm from
competitors
 Game plan upon which functional
strategies are developed
 Focuses on doing the “right tasks”

© Wiley 2005 35
Business/Functional Strategy

© Wiley 2005 36
Three Inputs to a Business Strategy

© Wiley 2005 37
Examples from Strategies
 Mission: Dell Computer- “to be the most
successful computer company in the world”
 Environmental Scanning: political trends,
social trends, economic trends, market place
trends, global trends
 Core Competencies: strength of workers,
modern facilities, market understanding, best
technologies, financial know-how, logistics

© Wiley 2005 38
Operations Strategy – Designing
the Operations Function

© Wiley 2005 39
Competitive Priorities- The Edge
 Four Important Operations Questions:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
 All of the above? Some? Tradeoffs?
© Wiley 2005 40
Competing on Cost?
 Typically high volume products
 Often limit product range & offer little customization
 May invest in automation to reduce unit costs
 Can use lower skill labor
 Probably use product focused layouts

© Wiley 2005 41
Competing on Quality?
 High performance design:
 Superior features, high durability, & excellent customer
service

 Product & service consistency:

 Meets design specifications
 Close tolerances
 Error free delivery

© Wiley 2005 42
Competing on Time?
 Fast delivery:
 Focused on shorter time between order placement and
delivery
 On-time delivery:
 Deliver product exactly when needed every time
 Rapid development speed
 Using concurrent processes to shorten product development
time

© Wiley 2005 43
Competing on Flexibility?
 Product flexibility:
 Easily switch production from one item to another
 Easily customize product/service to meet specific
requirements of a customer

 Volume flexibility:
 Ability to ramp production up and down to match market
demands

© Wiley 2005 44
 Are There Priority Tradeoffs?
 Which priorities are “Order Qualifiers”?
e.g. Must have excellent quality since everyone expects it

 Which priorities are “Order Winners”?

e.g. Dell competes on all four priorities
Southwest Airlines competes on cost
McDonald’s competes on consistency
FedEx competes on speed
Custom tailors compete on flexibility

 Can you have both high quality and low cost?

e.g. Yes, Coke and Pepsi are good examples

 Can you offer design flexibility and short delivery?

e.g. Yes, modular housing manufacturers do it

© Wiley 2005 45
Translating to Production Requirements
 Dell Computer example – structure & infrastructure

They focus on customer service, cost, and speed
 ERP system developed to allow customers to order
directly from Dell
 Product design and assembly line allow a “make
to order” strategy – lowers costs, increases turns
 Suppliers ship components to a warehouse within
15 minutes of the assembly plant - VMI
 Dell set up a shipping arrangement with UPS

© Wiley 2005 46
Strategic Role of Technology
 Technology should support competitive
priorities
 Three Applications: New product technology,
process technology, and information technology
 Products - Teflon, CD’s, fiber optic cable
 Processes – flexible automation, CAD
 Information Technology – POS, EDI, ERP, B2B

© Wiley 2005 47
Productivity, Competitiveness, and
the Service Sector
 A nation’s Productivity effects its
standard of living
 Productivity is a measure of
how effectively resources are
used
 US productivity growth
averaged 2.8% from
1948-1973
 Productivity growth slowed for
the next 25 years to 1.1%
 Productivity growth in service
industries has been less than in
manufacturing

© Wiley 2005 48
Chapter 2 Highlights
 Business Strategy is a long  Competitive priorities are cost,
range plan. Functions develop quality, time, and flexibility
supporting plans  Companies must consider which
 Strategy must address mission, product, process, and
environment, and core information technologies to use
competencies  Productivity measures how
 Business strategy provides a effectively a firm is using
guide for designing operations resources
strategy  Productivity is computed as a
 Operations strategy must ratio of outputs divided by
consider which competitive inputs
priorities are essential to meet
business objectives

© Wiley 2005 49
 The End
 Copyright © 2005 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United State Copyright Act without
the express written permission of the copyright owner is
unlawful. Request for further information should be addressed
to the Permissions Department, John Wiley & Sons, Inc. The
purchaser may make back-up copies for his/her own use only
and not for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by the
use of these programs or from the use of the information
contained herein.

© Wiley 2005 50
CHASE AQUILANO JACOBS
Operations Management
For Competitive Advantage
Chapter 1

Introduction to2005the Field

© Wiley 51
 Chapter 1 INTRO TO
OPERATIONS MANAGEMENT
 SESSION OUTLINE:
 Definition and overview of operations management
 Goods or service?
 The open systems perspective
 Historical development of the field
 Current challenges ....

© Wiley 2005 52
 McDonald’s?
 Service or Product Organization?

 The Company Produces Tangible Products

 Why IS McDonald’s a service business? ....

© Wiley 2005 53
 Operations -
The Non-Service View!
 Buffer operations from customers
 physical buffers
 organizational buffers
 Benefits
 minimize “disturbance” caused by customers
 de-couple processes from customer “whims”
 maintain efficiencies of continuous flow ....

© Wiley 2005 54
 of Operations
(continued)
 Disadvantages
 Interferes with Good Customer Service
 Buffering reduces flexibility
 “us vs. them” attitude
 Lack of interaction with the customer
 Solution
 Progressive Organizations have adopted an Open
Systems perspective and a Service orientation ....

© Wiley 2005 55
Strategic OM Measures
How we Compete!
 Cost
 Quality

 Speed

 Flexibility

 Service

 Greenness ....
© Wiley 2005 56
Services
(Open Systems View)
 Information

 Problem Solving

 Sales Support

 Field Support

 Field Service © Wiley 2005 57

 (EFFICIENCY)
 OUTPUT Real GDP
 PROD. = ----------------- = ------------------
 INPUT LABOR-HR
 46-68 2.6% 2001 .8%
 70’S 1.1% 2002 1.6%
 80’S 2.0% 2003 2.7%
 90’S 2.5+% 2004 4.2%
 2000 3.7% 2005 4.0%

© Wiley 2005 58
© Wiley 2005 59
 EFFECTIVENESS
 A MEASURE OF GOAL ATTAINMENT
 PROFITS
 ROI
 GROWTH
 EPS
 PSYCHOLOGICAL INCOME
 UTILES – an abstract measure of value or
returns
© Wiley 2005 60
FIRMS CAN POSSESS 1 of 4
COMBINATIONS
 EFFIC. NOT EFFIC.


------------------------------------
 EFFECT. | BEST | |
 |-----------------|----------------- |
 NOT EFFECT. | | WORST |
 ------------------------------------
 FREE ENTERPRISE
 PREDOMINANTLY COMPETITIVE MARKETS

© Wiley 2005 61
 Measuring Productivity
 Productivity is a measure of how efficiently inputs are
converted to outputs
Productivity = output/input

 Total Productivity Measure

Total Productivity = $sales/inputs $

 Partial Productivity Measure

Partial Productivity = cars/employee

 Multifactor Productivity Measure

Multi-factor Productivity = sales/total $costs

© Wiley 2005 62
 PRODUCTIVITY
DRIVERS
 STANDARDIZATION
 SPECIALIZATION
 SIMPLIFICATION
 MOTIVATION
 REWARDS
 RECOGNITION
 RESPONSIBILITY
 ENJOYMENT
 INTELLECTUAL SATISFACTION
© Wiley 2005 63
 U.S. VS. JAPAN QUALITY
AND PRODUCTIVITY!
 CAR 1980 1990 2000
 JAPAN 2.0 1.2 1.15*
 GM 7.4 1.7 1.46
 CHRYSLER 8.1 1.8 1.54
 FORD 6.7 1.5 1.62
 DIFF IN COST $2000 $500
 Problems per 100 vehicles, J.D. Powers and
Associates. * = Toyota, In 2000, Honda = 1.33,
Nissan = 1.45, Volkswagen, 1.59

© Wiley 2005 64
 QUASAR TV PLANT
PRODUCTIVITY
MOTOROLA
MATSUSHITA
 DIRECT EMPLOYEES 1000 1000
 INDIRECT EMPLOYEES 600 300
 TOTAL EMPLOYEES 1600 1300
 OUTPUT (TVs) 1000 2000
 ASSEM. REPAIRS 130%
6%
 ANNUAL WARRANTY $16MIL $2MIL
 2 YEARS LATER, SAME PEOPLE
© Wiley 2005 65
STANDARDIZATION
 UNIFORMITY OF PARTS, MATERIALS, TOOLS,
PROCESSES, AND LABOR
 ALLOWS MASS PRODUCTION AND ASSEMBLY
 1798 ELI WHITNEY - GUN PRODUCTION
 1913 HENRY FORD’S MOVING ASSEMBLY
 1980 IBM PC - PC-DOS
 1988 MS WINDOWS
 ON AND ON - NAME SOME
© Wiley 2005 66
 SPECIALIZATION
 SPECIALIZED , MACHINERY, TOOLS,
MATERIALS (5 P’S, PEOPLE, PLANTS, PARTS,
PROCESSES, PLANNING&CONTROL)
 INDIVIDUALS BECOMES MORE EFFECTIVE AND
EFFICIENT IN FOCUSED TASKS

© Wiley 2005 67
SIMPLIFICATION
 ANALYZE TASK
 DIVIDE TASKS INTO PARTS
 ELIMINATE WASTED MOTION
 STREAMLINE PROCESSES

© Wiley 2005 68
THE WEALTH OF
NATIONS
 ADAM SMITH 1776
 PIN FACTORY A - ONE PERSON OPERATION
 WORK METAL, DRAW WIRE, ... CARD PINS
 OUTPUT = 10 PINS PER DAY
 PIN FACTORY B - TEN PERSON OPERATION
 METAL WORKERS, WIRE DRAWER, ... ,
CHILD CARDER
 OUTPUT = PINS PER DAY

© Wiley 2005 69
PIN FACTORY B VS
A
 FACTORY B
 “INCREASED DEXTERITY”
 “LESS HANDLING”
 “THE INVENTION OF A GREAT NUMBER OF
MACHINES”

 DRAMATIC DECREASE IN TIME & COST /

UNIT
 STD., SPEC., AND SIMP. ARE KEYS IN ALL
INDUSTRIES

© Wiley 2005 70
SCIENTIFIC MANAGEM’T,
1911
 TAYLORISM - IT’S MANAGEMENT’S (THE
I.E.’S) JOB TO SHOW LABOR THE ONE BEST
WAY TO DO A TASK.
 LABOR UNIONS RESULTED - EST. WEBB;S
RULES TO DEFINE RESPONSIBILITIES.
 TAYOR’S CONTEMPORARIES ACCOUNT FOR
MUCH OF OUR STANDARD OF LIVING.
 HOWEVER, ITS NOT 1900’S
 MANAGEMENT AND LABOR MUST CONTINUE
TO CHANGE
© Wiley 2005 71
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