Operations Management
Introduction - Chapter 1
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Outline
What is Operations Management?
Why Study OM?
Production vs. Service Organizations. Operations Management Decisions. Heritage of OM. Recent Developments & Challenges.
Productivity.
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What Is Operations Management?
Operations management is the management of systems that produce goods and provide services.
It includes planning, designing and operating systems to achieve goals of the organization.
Book definition (not as good): The set of activities that creates goods and services by transforming inputs into outputs.
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Transforming Inputs to Outputs
Inputs
Land, Labor, Capital, Goods
Process
Outputs
Production or Service System
Materials,
Equipment, Management
and Services
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Examples
Production Auto factories (assembly plants) Job shops (printing) Fast food restaurants Service Hospitals Airlines
Movie theaters
Grocery stores
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Why Study OM?
OM is one of three major functions of any organization (Marketing, Finance, and Operations). We should know how goods and services are produced. OM is such a costly part of an organization.
Jobs!
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Organizational Functions
Operations.
Creates product or service.
Marketing.
Generates demand.
Finance/Accounting.
Obtains funds & tracks money.
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Characteristics of Goods
Tangible product. Consistent inputs and outputs. Production separate from consumption. Can be inventoried. Low customer interaction.
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Characteristics of Service
Intangible product. Variable inputs and outputs (people!). Production and consumption at same place and time. No inventories. High customer interaction.
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Goods Contain Services & Services Contain Goods
Automobile Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Consulting Service Counseling
100 75 50 25 0
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25
50
75
100
% of Product that is a Good
% of Product that is a Service
OM Jobs
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Operations Management for a Manufacturer
Marketing
Operations
Finance/ Accounting
Manufacturing
Production Control
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Quality Control
Purchasing
Operations Management for an Airline
Marketing
Operations
Finance/ Accounting
Flight Operations
Ground Support
Facility Maintenance
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Catering
Critical Decisions for OM
Product & service design. Quality management. Process design. Capacity & location of facilities. Layout of facilities. Human resources & Job design. Supply-chain management. Inventory management. Scheduling. Maintenance.
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Skills and Knowledge Needed
Knowledge of production and service processes. Knowledge of basic OM principles.
Analytical Tools:
Forecasting Decision-Making Linear Programming Break-even analysis Inventory control Waiting lines (queueing)
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Heritage of OM
Prior to 1700s - Most products custom-made on a small scale with local distribution.
Local craftsmen. Products were handmade and unique.
Industrial Revolution
Mechanized production and distribution. Allowed mass production and wider distribution. Fostered division of labor.
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Industrial Revolution
Key developments:
Steam engine (1769). Interchangeable parts (1798). Machine tools (1798).
Results:
Production increased. Prices decreased. Workers replaced by machines. Need to manage complex production systems.
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Scientific Management
Study production systems scientifically to improve them (beginning in 1880s).
There are scientific laws for production
systems that can be used to improve (optimize) production.
Work smarter, not harder. Management is responsible for productivity.
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Related Fields
Operations Management.
Industrial Engineering.
Social and psychological factors. Operations Research/Management Science
(Mathematical modeling).
Logistics.
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Eli Whitney
Born 1765; died 1825.
Invented cotton gin.
Received government contract to make 10,000 muskets (1798). Showed machine tools could make standardized parts.
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Recent Developments for OM
Information technology: (computers, bar codes, EDI, internet, wireless, etc.) Just-In-Time systems. Quality emphasis.
Service economy.
Globalization. Environmental concerns. Security.
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Development of the Service Economy
80%
U.S. Employment, % Share
Services
40%
Industry
Farming
0
1850
1900
1950
2000
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Most Jobs are in Services
Sector
Professional Services Retail & Wholesale
Utilities & transportation Other Services (finance, real estate, hospitality, etc.) Agriculture Manufacturing, construction and mining
% of Jobs
24 21
7 21 2 25
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Productivity
Used to measure of process improvement. Amount of output relative to input. Productivity = Units produced
Inputs used
Productivity increases improve standard of living.
From 1889 to 1973, U.S. productivity increased at a 2.5% annual rate.
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How Would You Measure Productivity for A Restaurant?
Amount of output (????) per input (????). Output:
Number of meals served? Number of tables served? Number of satisfied customers?
Input:
Lbs. of food? Number of employees? Number of tables?
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Productivity for One Product
Productivity =
Units produced Inputs used
Output is easy to measure with one product. Input may have many components.
Parts and subassemblies. Labor. Equipment. Knowledge. etc.
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Productivity Variables
Productivity =
Output Labor + material + energy + capital + miscellaneous
Use a common measure to combine different inputs - usually $.
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Productivity Measurement Problems
Quality of output should be considered.
If you produce more, but of lower quality, does productivity rise?
External elements may change productivity.
Wireless communication may raise productivity.
Precise units of measure may be lacking.
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How Would You Measure Productivity for UM - St. Louis?
Productivity =
What is output?
Units produced Inputs used
How is it measured?
What is input?
How is it measured?
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How Would You Measure Productivity for:
A builder of new homes?
An automobile mechanic?
A hospital?
A fire department?
A restaurant?
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