Introduction to operation management
- 1. Introduction to Operations Management Presented by – Manisha Kumari Pooja Goyal Pooja Sharma Priyanka Meena 1 Under guidance of Dr. Gurjeet Kaur
- 2. What Is Operations Management? Production is the creation of goods and services Operations management (OM) is the set of activities that create value in the form of goods and services by transforming inputs into outputs
- 3. Historical Development of OM Industrial revolution Late 1700s Scientific management Early 1900s ◦ Hawthorne Effect 1930s Human relations movement 1930s- Management science 1940s- Computer age 1960s- Environmental Issues 1970s- JIT & TQM* 1980s- *JIT= Just in Time, TQM= Total Quality Management 3
- 4. Historical Development Reengineering 1990- Global competition 1980- Flexibility 1990- Time-Based Competition 1990- Supply chain Management 1990- Electronic Commerce 2000- Outsourcing & flattening of world 2000- For long-run success, companies must place much importance on their operations 4
- 5. Significant Events in OM
- 6. The Heritage of OM Division of labor (Adam Smith 1776; Charles Babbage 1852) Standardized parts (Whitney 1800) Scientific Management (Taylor 1881) Assembly line (Ford/ Sorenson 1913) Gantt charts (Gantt 1916) Motion study (Frank and Lillian Gilbreth 1922) Quality control (Shewhart 1924; Deming 1950)
- 7. The Heritage of OM First Digital Computer (Atanasoff 1938) CPM/PERT (DuPont 1957, Navy 1958) Material requirements planning (Orlicky 1960) Computer aided design (CAD 1970) Flexible manufacturing system (FMS 1975) Baldrige Quality Awards (1980) Computer integrated manufacturing (1990) Globalization (1992) Internet (1995) Mass Customization (2000s)
- 8. Today’s OM Environment Customers demand better quality, greater speed, and lower costs Companies implementing lean system concepts – a total systems approach to efficient operations Recognized need to better manage information using ERP and CRM systems Increased cross-functional decision making 8
- 9. OM in Practice OM has the most diverse organizational function Manages the transformation process OM has many faces and names such as; ◦ V. P. operations, Director of supply chains, Manufacturing manager ◦ Plant manger, Quality specialists, etc. All business functions need information from OM in order to perform their tasks 9
- 10. Operations are everywhere ! 10 Operations Examples Goods producing Farming, mining, construction Storage/transportati- on Warehousing, trucking, mail, taxis, buses, hotels Exchange Trade, retailing, wholesaling, renting, leasing, loans Entertainment Radio, movies, TV, concerts, recording Communication Newspapers, journals, radio, TV, telephones, satellite
- 11. OM Decisions All organizations make decisions and follow a similar path ◦ First decisions very broad – Strategic decisions Strategic Decisions – set the direction for the entire company; they are broad in scope and long-term in nature 11
- 12. OM Decisions Following decisions focus on specifics - Tactical decision ◦ Tactical decisions: focus on specific day-to-day issues like resource needs, schedules, & quantities to produce ◦ are frequent Strategic decisions less frequent Tactical and Strategic decisions must align 12
- 13. OM Decisions 13
- 14. Types of OM Decisions 14
- 16. OM at the core of Businesses Three basic functions ◦ Operations/Production Goods oriented (manufacturing and assembly) Service oriented (health care, transportation and retailing) Value-added (the essence of the operations functions) ◦ Finance-Accounting Budgets (plan financial requirements) Provision of funds (the necessary funding of the operations) ◦ Marketing Selling, Promoting Assessing customer wants and needs 16 Organization Finance Operations Marketing
- 18. What is Role of OM? OM Transforms inputs to outputs ◦ Inputs are resources such as People, Material, and Money ◦ Outputs are goods and services 18
- 20. OM’s Transformation Role To add value ◦ Increase product value at each stage ◦ Value added is the net increase between output product value and input material value Provide an efficient transformation ◦ Efficiency – means performing activities well for least possible cost 20
- 22. OM Across the Organization Most businesses are supported by the functions of operations, marketing, and finance The major functional areas must interact to achieve the organization goals
- 23. OM Across the Organization Marketing is not fully able to meet customer needs if they do not understand what operations can produce Finance cannot judge the need for capital investments if they do not understand operations concepts and needs Information systems enables the information flow throughout the organization Human resources must understand job requirements and worker skills Accounting needs to consider inventory management, capacity information, and labor standards
- 24. Manufacturing vs. Service Operations Production of goods ◦ Tangible products Automobiles, Refrigerators, Aircrafts, Coats, Books, Sodas Services ◦ Repairs, Improvements, Transportation, Regulation Regulatory bodies: Government, Judicial system, FAA, FDA Entertainment services: Theaters, Sport activities Exchange services: Wholesale/retail Appraisal services: Valuation, House appraisal Security services: Police force, Army Financial services: Banks Education: Universities, K-12 schools 24
- 25. Characteristics of Goods Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction
- 26. Characteristics of Service Intangible product Produced and consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed
- 27. Manufacturing vs. Services Characteristic Manufacturing Service Output Tangible Intangible Customer contact Low High Uniformity of output High Low Labor content Low High Uniformity of input High Low Measurement of productivity Easy Difficult Opportunity to correct quality problems Easy Difficult 27 Steel production Automobile fabrication Home remodeling Retail sales Auto Repair Appliance repair Maid Service Manual car wash Teaching Lawn mowing High percentage goods Low percentage goods
- 28. Responsibilities of Operations Management Planning ◦ Capacity, utilization ◦ Location ◦ Choosing products or services ◦ Make or buy ◦ Layout ◦ Projects ◦ Scheduling ◦ Market share ◦ Plan for risk reduction, plan B? ◦ Forecasting 28 SUPPLY SIDE DEMAND SIDE Controlling – Inventory – Quality – Costs Organization – Degree of standardization – Subcontracting – Process selection Staffing – Hiring/lay off – Use of overtime – Incentive plans In a nutshell, the challenge is “Matching the Supply with Demand”
- 29. 29 Supply Does Not Naturally Match Demand Inventory results from a mismatch between supply and demand Mismatch can take one of the following two forms – Supply waits for Demand » Inventory = Finished goods and resources – Demand waits for Supply » Inventory is negative or said to be backordered in manufacturing » Inventory = Waiting customers in services Mismatch happens because – the demand varies – the capacity is rigid and finite. » If the capacity is infinite, products (or services) can be provided at an infinite rate and instantaneously as the demand happens. Then there is no mismatch.
- 30. 30 Consequences of the Mismatch are Severe Air travel Emergency room Retailing Iron ore plant Pacemakers Supply Seats on specific flight Medical service Consumer electronics Iron ore Medical equipment Demand Travel for specific time and destination Urgent need for medical service Consumers buying a new video system Steel mills Heart surgeon requires pacemaker at exact time and location Supply exceeds demand Empty seat Doctors, nurses, and infrastructure are under-utilized High inventory costs; few inventory turns Prices fall Pacemaker sits in inventory Demand exceeds supply Overbooking; customer has to take different flight (profit loss) Crowding and delays in the ER, potential diversion of ambulances Foregone profit opportunity; consumer dissatisfaction Prices rise Foregone profit (typically not associated with medical risk) Actions to match supply and demand Dynamic pricing; booking policies Staffing to predicted demand; priorities Forecasting; quick response If prices fall too low, production facility is shut down Distribution system holding pacemakers at various locations Managerial importance About 30% of all seats fly empty; a 1- 2% increase in seat utilization makes difference between profits and losses Delays in treatment or transfer have been linked to death; Per unit inventory costs for consumer electronics retailing commonly exceed net profits. Prices are so competitive that the primary emphasis is on reducing the cost of supply Most products (valued $20k) spend 4-5 months waiting in a trunk of a sales person before being used
- 31. Particular Examples of Demand-Supply Mismatch Compaq estimated that it lost $0.5 B to $1 B in sales in 1995 because laptops were not available when and where needed In 02-03 flu season, 12 M of 95 M doses of flu vaccines were not used in the US. For 03-04 season, 83=95-12 M doses were produced. In 03-04 season, there were widespread vaccine shortages causing flu-related deaths. British Airways had seat utilization of 70.3% in the early 2000s. If it could increase utilization by 0.33% (by flying one more person on a 300 seat aircraft), it would create additional revenues equal to quarter 2 profits of 2001, which was $65 M. In 2000, Playstation 2 of Sony were backordered by several weeks due to high demand. But X-Box of Microsoft did not sell well and was discounted by $100 per unit. ◦ Discounting is a symptom of a problem in operations rather than being a usual practice. 31
- 32. Changing Challenges Traditional Approach Reasons for Change Current Challenge Ethics and regulations not at the forefront Public concern over pollution, corruption, child labor, etc. High ethical and social responsibility; increased legal and professional standards Local or national focus Growth of reliable, low cost communication and transportation Global focus, international collaboration Lengthy product development Shorter life cycles; growth of global communication; CAD, Internet Rapid product development; design collaboration
- 33. Changing Challenges Traditional Approach Reasons for Change Current Challenge Low cost production, with little concern for environment; free resources (air, water) ignored Public sensitivity to environment; ISO 14000 standard; increasing disposal costs Environmentally sensitive production; green manufacturing; sustainability Low-cost standardized products Rise of consumerism; increased affluence; individualism Mass customization
- 34. Changing Challenges Traditional Approach Reasons for Change Current Challenge Emphasis on specialized, often manual tasks Recognition of the employee's total contribution; knowledge society Empowered employees; enriched jobs “In-house” production; low-bid purchasing Rapid technological change; increasing competitive forces Supply-chain partnering; joint ventures, alliances Large lot production Shorter product life cycles; increasing need to reduce inventory Just-In-Time performance; lean; continuous improvement
- 35. Highlights OM is the business function that is responsible for managing and coordinating the resources needed to produce a company’s products and services. The role of OM is to transform organizational inputs into company’s products or services outputs OM is responsible for a wide range of decisions, ranging from strategic to tactical. Organizations can be divided into manufacturing and service organizations, which differ in the tangibility of the product or service 35
- 36. Highlights Many historical milestones have shaped OM. Some of these are the Industrial Revolution, scientific management, the human relations movement, management science, and the computer age OM is highly important function in today’s dynamic business environment. Among the trends with significant impact are just-in-time, TQM, reengineering, flexibility, time-based competition, SCM, global marketplace, and environmental issues OM works closely with all other business functions 36
- 37. Thank you