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Principles of Operations Management

Principles of Operations Management

Operations & ProductivityOperations & ProductivityChapter 1Chapter 1

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Learning ObjectivesLearning Objectives

Describe some important historical Describe some important historical figures in operations managementfigures in operations management

Explain productivityExplain productivity Define operations managementDefine operations management Identify OM decisionsIdentify OM decisions Distinguish goods & servicesDistinguish goods & services Describe organization functionsDescribe organization functions

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Frederick W. TaylorFrederick W. Taylor

Born 1856; died 1915Born 1856; died 1915 Known as ‘father of scientific Known as ‘father of scientific

management’management’ In 1881, as chief engineer for In 1881, as chief engineer for

Midvale Steel, studied how Midvale Steel, studied how tasks were donetasks were done Began first time & motion studiesBegan first time & motion studies

Created efficiency Created efficiency principlesprinciples

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Frank & Lillian GilbrethFrank & Lillian Gilbreth

Frank (1868-1924); Frank (1868-1924); Lillian (1878-1972)Lillian (1878-1972)

Husband-and-wife Husband-and-wife engineering teamengineering team

Further developed Further developed work measurement work measurement methodsmethods

Applied efficiency Applied efficiency methods to their methods to their home & 12 children!home & 12 children! © 1995 Corel Corp.

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Henry FordHenry Ford

Born 1863; died 1947Born 1863; died 1947 In 1903, created Ford In 1903, created Ford

Motor CompanyMotor Company In 1911, first used In 1911, first used

moving assembly line moving assembly line to make Model Tto make Model T Unfinished product Unfinished product

moved by conveyor moved by conveyor past work stationpast work station

Paid workers very well for 1911 ($5/day!)Paid workers very well for 1911 ($5/day!)

‘‘Make them all Make them all alikealike!’!’

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W. Edwards DemingW. Edwards Deming

Born 1900; died 1993Born 1900; died 1993 Engineer & physicistEngineer & physicist Credited with teaching Credited with teaching

Japan quality control Japan quality control methods in post-WW2methods in post-WW2

Used statistics to Used statistics to analyze processanalyze process

His methods involve His methods involve workers in decisionsworkers in decisions

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Feedback

Input(Land, labor,capital, mgt.)

ProcessOutput

(Goods,services)

Feedback

Input(Land, labor,capital, mgt.)

ProcessOutput

(Goods,services)

Economic SystemEconomic System

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ProductivityProductivity

Measure of process improvementMeasure of process improvement Represents output relative to inputRepresents output relative to input

Productivity increases improve Productivity increases improve standard of living standard of living

Since 1889, U.S. productivity has Since 1889, U.S. productivity has increased at 2.5% annual rateincreased at 2.5% annual rate

ProductivityProductivity Units producedUnits producedInput usedInput used

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Productivity VariablesProductivity Variables

LaborLabor Education, diet, Education, diet,

& sanitation& sanitation CapitalCapital

Equipment Equipment BuildingBuilding

ManagementManagement TechnologyTechnology KnowledgeKnowledge

0.5

0.4

1.6

0.0

0.5

1.0

1.5

2.0

2.5

0.5

0.4

1.6

0.0

0.5

1.0

1.5

2.0

2.5%%

CapitalCapital

LaborLabor

MgmtMgmt

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Thinking ChallengeThinking Challenge

Employment (Emp) in Employment (Emp) in services (Svc) is services (Svc) is greater than in greater than in manufacturing (Mfg). manufacturing (Mfg). Yet, the contribution of Yet, the contribution of services to the gross services to the gross domestic product domestic product (GDP) is proportionally (GDP) is proportionally less. Why is service less. Why is service productivity lower?productivity lower?

76.4 64.1

16.225.0

0

20

40

60

80

100

Emp GDP

Svc Mfg Con Agr

76.4 64.1

16.225.0

0

20

40

60

80

100

Emp GDP

Svc Mfg Con Agr

%%

AloneAlone GroupGroup Class Class

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Definition of Operations Management

Definition of Operations Management

Management of an organization's Management of an organization's production systemproduction system Production system converts inputs into Production system converts inputs into

goods & servicesgoods & services

© 1984-1994 T/Maker Co.

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Management ActivitiesManagement Activities

PlanningPlanning OrganizingOrganizing StaffingStaffing Leading Leading

(Directing)(Directing) ControllingControlling

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Typical Operations Management Decisions

Typical Operations Management Decisions

How much will we sell?How much will we sell? How do we measure quality?How do we measure quality? Which product do we offer?Which product do we offer? How to produce good / provide service?How to produce good / provide service? Where do we locate our facility?Where do we locate our facility? Is subcontracting a good idea?Is subcontracting a good idea? How much inventory should we keep?How much inventory should we keep?

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Characteristics of Goods

Characteristics of Goods

Tangible productTangible product Consistent product Consistent product

definitiondefinition Production usually Production usually

separate from separate from consumptionconsumption

Can be inventoriedCan be inventoried Low customer Low customer

interactioninteraction © 1995 Corel Corp.

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Characteristics of Services

Characteristics of Services

Intangible productIntangible product Inconsistent product Inconsistent product

definitiondefinition Produced & consumed Produced & consumed

at same timeat same time Cannot be inventoriedCannot be inventoried High customer High customer

interactioninteraction© 1995 Corel Corp.

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7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||

AutomobileAutomobile

100%100%

Thinking ChallengeThinking Challenge

The distinction between goods & services is The distinction between goods & services is seldom clear. Almost all goods have some seldom clear. Almost all goods have some service. An automobile requires maintenance. service. An automobile requires maintenance. Classify (1) computer, (2) fast-food restaurant, (3) Classify (1) computer, (2) fast-food restaurant, (3) dentist, (4) counseling on the scale below. dentist, (4) counseling on the scale below.

GoodGood ServiceService

AloneAlone GroupGroup Class Class

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Organization FunctionsOrganization Functions

MarketingMarketing Gets customersGets customers

Production/OperationsProduction/Operations Creates productCreates product

Finance/AccountingFinance/Accounting Obtains fundsObtains funds Tracks moneyTracks money

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ConclusionConclusion

Described some important historical Described some important historical figures in operations management figures in operations management

Explained productivityExplained productivity Defined operations managementDefined operations management Identified OM decisionsIdentified OM decisions Distinguished goods & servicesDistinguished goods & services Described organization functionsDescribed organization functions