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- 2. What Is Operations
Management?
© 2008 Prentice Hall, Inc.
Production is the creation of
goods and services
Operations management (OM)
is the set of activities that
creates value in the form of
goods and services by
transforming inputs into
outputs
- 3. Organizing to Produce
Goods and Services
Essential functions:
Marketing – generates demand
Production/operations – creates
the product
Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money
© 2008 Prentice Hall, Inc.
- 5. Marketing
Sales
promotion
Advertising
Sales
Market
research
Organizational Charts
Operations
Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply chain management
Manufacturing
Tooling; fabrication; assembly
Design
Product development and design
Detailed product specifications
Industrial engineering
Efficient use of machines, space,
and personnel
Process analysis
Development and installation of
production tools and equipment
Finance/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds
Management
Money market
International
exchange
Capital requirements
Stock issue
Bond issue
and
recall
Manufacturing
Figure 1.1(C)
© 2008 Prentice Hall, Inc.
- 6. Why Study OM?
OM is one of three major functions
(marketing, finance, and operations)
of any organization
We want (and need) to know how
goods and services are produced
We want to understand what
operations managers do
OM is such a costly part of a
n
organization
© 2008 Prentice Hall, Inc.
- 8. Ten Critical Decisions
design
job design
management
Ten Decision Areas Chapter(s)
Design of goods and services 5
Managing quality 6, Supplement 6
Process and capacity 7, Supplement 7
Location strategy 8
Layout strategy
Human resources and
9
10, Supplement 10
Supply chain 11, Supplement 11
Inventory management 12, 14, 16
Scheduling 13, 15
Maintenance 17
© 2008 Prentice Hall, Inc.
- 9. The Critical Decisions
Design of goods and services
What good or service should w
e
offer?
How should we design these products
and services?
Managing quality
How do we define quality?
Who is responsible for quality?
© 2008 Prentice Hall, Inc.
- 10. The Critical Decisions
Process and capacity design
What process and what capacity will
these products require?
What equipment and technology i
s
necessary for these processes?
Location strategy
Where should we put the facility?
On what criteria should we base t
h
e
location decision?
© 2008 Prentice Hall, Inc.
- 11. The Critical Decisions
Layout strategy
How should we arrange the facility?
How large must the facility be to meet
our plan?
Human resources and job design
How do we provide a reasonable work
environment?
How much can we expect o
u
r
employees to produce?
© 2008 Prentice Hall, Inc.
- 12. The Critical Decisions
Supply chain management
Should we make or buy this component?
Who are our suppliers and who can
integrate into our e-commerce program?
Inventory, material requirements
planning, and JIT
How much inventory of each item should
we have?
When do we re-order?
© 2008 Prentice Hall, Inc.
- 13. New Challenges in OM
To
Global focus
Just-in-time (Time when
need)
Supply chain
partnering (McDonald
and Coca Cola
Rapid product
development,
alliances
Mass
customization
Empowered employees,
From
Local or national focus
Batch shipments
(Economies of scale)
Low bid purchasing
Lengthy product
development
Standard
products
Job
© 2008 Prentice Hall, Inc.
- 14. New Trends in OM
Global focus
Just-in-time performance
Supply chain partnering
Rapid product development
Mass customization
Empowered employees
Environmentally sensitive production
Ethics
© 2008 Prentice Hall, Inc.
- 15. Productivity Challenge
Productivity is the ratio of outputs (goods
and services) divided by the inputs
(resources such as labor and capital)
The objective is to improve productivity!
Important Note!
Production is a measure of output
only and not a measure of efficiency
© 2008 Prentice Hall, Inc.
- 16. Feedback loop
Goods
and
services
The U.S. economic system
transforms inputs to outputs
at about an annual 2.5%
increase in productivity per
year. The productivity
increase is the result of a
mix of capital (38% of 2.5%),
labor (10% of 2.5%), and
management (52% of 2.5%).
The Economic System
Inputs Processes Outputs
Labor,
capital,
management
© 2008 Prentice Hall, Inc.
- 17. Measure of process improvement
Represents output relative to input
Only through productivity increases ca
n
our standard of living improve
Productivity
Productivity =
Units produced
Input used
© 2008 Prentice Hall, Inc.
- 19. Multi-Factor Productivity
Output
Labor + Material + Energy
+ Capital + Miscellaneous
Productivity =
Also known as total factor productivity
Output and inputs are often expressed
in dollars
Multiple resource inputs multi-factor productivity
© 2008 Prentice Hall, Inc.
- 20. Productivity Variables
Labor - contributes
about 10% of the
annual increase
Capital - contributes
about 38% of the
annual increase
Management -
contributes about 52%
of the annual
increase
© 2008 Prentice Hall, Inc.
- 22. Ethics and Social Responsibility
Challenges facing
operations managers:
Developing and producing safe,
quality products
Maintaining a clean
environment
Providing a safe workplace
© 2008 Prentice Hall, Inc.
