McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

1

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

2

Chapter 1

Introduction to the Field

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

3

Operations Management Why Study Operations Management? Transformation Processes Defined Operations as a Service The Importance of Operations

Management Historical Development of OM Current Issues in OM

OBJECTIVES

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

4

What is Operations Management?Defined

Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

5

Why Study Operations Management?

Business Education

Systematic Approach to Org. Processes

Career Opportunities

Cross-Functional Applications

OperationsManagement

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

6

The consultancy services market

% of world revenues of 40 largest firms

Marketing/sales2

Operations and process management

31

Corporate strategy17

IT strategy17

Benefits/Actuarial16

Organizational design

11

Financial6

Source: Nigel Slack and Michael Lewis 2003

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

7

The Future of Operations– Outsourcing everything– Smart factories– Talking inventory– Industrial army of robots– What’s in the box– Mass customization– Personalized recommendations– Sign here, please

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

8

Progressive Insurance– Grew significantly from 1991 to 2002– Focused on increased operating

efficiency– Started claims in 9 hours versus 7-10

days– Adjuster creates a claim on the spot– Storing or renting ($28/day) reduced.– Faster processing reduces fraud– Higher customer satisfaction

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

9

Efficiency versus Effectiveness

Efficiency – doing something at the lowest possible cost

Effectiveness – doing the right thing to create the most value to the company

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

10

Operations Management Decision Types

Strategic (long-term)

Tactical (intermediate-term)

Operational planning and control (short-term)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

11

What is a Transformation Process?

Defined A transformation process is defined

as a use of resources to transform inputs into some desired outputs

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

12

Transformations

Physical--manufacturing

Locational--transportation

Exchange--retailing

Storage--warehousing

Physiological--health care

Informational--telecommunications

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

13

What is a Service and What is a Good?

“If you drop it on your foot, it won’t hurt you.” (Good or service?)

“Services never include goods and goods never include services.” (True or false?)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

14

OM in the Organization Chart

OperationsOperations

Plant Manager

Plant Manager

OperationsManager

OperationsManager

DirectorDirector

Manufacturing, Production control, Quality assurance, Engineering,

Purchasing, Maintenance, etc

Manufacturing, Production control, Quality assurance, Engineering,

Purchasing, Maintenance, etc

Finance Marketing

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

15

Core services are basic things that customers want from products they purchase

Core ServicesDefined

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

16

Core Services Performance Objectives

OperationsManagement

Flexibility

Quality

Speed

Price (or cost Reduction)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

17

Value-added services differentiate the organization from competitors and build relationships that bind customers to the firm in a positive way

Value-Added ServicesDefined

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

18

Value-Added Service Categories

OperationsManagement

Information

Problem Solving

Sales Support

Field Support

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

19

The Importance of Operations Management

Synergies must exist with other functional areas of the organization

Operations account for 60-80% of the direct expenses that burden a firm’s profit.

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

20

Historical Development of OM JIT and TQC

Manufacturing Strategy Paradigm

Service Quality and Productivity

Total Quality Management and Quality Certification

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

21

Historical Development of OM (cont’d)

Business Process Reengineering

Supply Chain Management

Electronic Commerce

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

22

Current Issues in OM

Coordinate the relationships between mutually supportive but separate organizations.

Optimizing global supplier, production, and distribution networks.

Increased co-production of goods and services

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

23

Current Issues in OM (cont’d)

Managing the customer’s experience during the service encounter

Raising the awareness of operations as a significant competitive weapon

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

24

Question Bowl

A major objective of this book is to show how smart

managers can do which of the following?

a. Improve efficiency by lowering costs

b. Improve effectiveness by creating value

c. Increasing value by reducing prices

d. Serving customers well

e. All of the above

Answer: e. All of the above

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

25

Question BowlIn the Input-Transformation-Output Relationship,

a typical “input” for a Department Store is which of the following?

a. Displaysb. Stocks of goodsc. Sales clerksd. All of the abovee. None of the above

Answer: e. None of the above (The above are considered “Resources” of a department store. The correct answer is “Shoppers”.)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.

26

Question Bowl

In which of the following decades did the concept of quality control originate?

a. 1920’sb. 1930’sc. 1940’sd. 1950’se. 1970’s

Answer: b. 1930’s (Tools such as sampling inspection and statistical tables where first developed by Walter Shewhart, H. F. Dodge, and H. G. Romig.)

©The McGraw-Hill Companies, Inc., 2006

27

End of Chapter 1