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Transcript of Chapter 1
Chapter 1
Introduction to Operations Management
Three Functions in a Business
• Marketing– to “sell” products
• Operations– to “make” products
• Finance and Accounting– to use money effectively and keep
track business activities in terms of dollar.
Role of “Operation”
• Role of operation in a business is to transform a company’s input into the finished goods or services.
• Value of the product is added in the process of operation.
Business Operation as a Value Added Process
Inputs in $$Transformation
ProcessOutputs in $$$
Value Added by Process
Operations Management
• The business function responsible for planning, coordinating, and controlling the process and resources needed to produce a company’s products and services.
Essential Pursuit of OM
• The essential pursuit of operations management is EFFICIENCY (or productivity, or effectiveness).
Manufacturing vs. Service
Manufacturing:• Tangible product• Product can be
inventoried• Low customer contact• Capital intensive• Long response time
Services:• Intangible product• Product cannot be
inventoried• High customer contact• Labor intensive• Short response time
OM Decisions
• Strategic decisions:– Decisions that set the direction for the entire
company.– Broad in scope & long-term in nature
• Tactical decisions:– Short-term & specific in nature– Bound by the strategic decisions
Spectrum of OM Decisions
Milestones of OM DevelopmentIndustrial Revolution Late 1700sScientific Management Early 1900sHuman Relations Movement 1930s to 1960sManagement Science Mid-1900sComputer Age 1970sJust-In-Time Systems 1980sTotal Quality Management (TQM) 1980sReengineering 1980sFlexibility 1990sTime-based Competition 1990sSupply Chain Management 1990sGlobal Competition 1990sEnvironmental Issues 1990sElectronic Commerce Late 1990s – Early 21st Century
Industrial Revolution(late 1700s)
• Replaced traditional craft methods• Substituted machine power for labor
(James Watt’s steam engine, …)• Major contributions:
– Adam Smith (1776): division of labor– Eli Whitney (1790): interchangeable parts
Scientific Management(early 1900s)
• Separated ‘planning’ from ‘doing’• Management’s job was to discover
worker’s physical limits through measurement, analysis & observation
• Major contributors:– Fredrick Taylor: stopwatch time studies– Henry Ford: moving assembly line
Human Relations Movement (1930s-1960s)
• Recognition that factors other than money contribute to worker productivity
• Major contributions:– Understanding of the Hawthorn effect:
Study of Western Electric plant in Hawthorn, Illinois intended to study impact of environmental factors (light & heat) on productivity, but found workers responded to management’s attention regardless of environmental changes
– Job enlargement– Job enrichment
Management Science (mid-1900s)
• Developed new quantitative techniques for common OM problems:– Major contributions include: inventory modeling,
linear programming, project management, forecasting, statistical sampling, & quality control techniques
– Played a large role in supporting American military operations during World War II
Computer Age (1970s)
• Computer provided the tool necessary to support the widespread use of Management Science’s quantitative techniques – the ability to process huge amounts of data quickly & relatively cheaply
• Major contributions include the development of Material Requirements Planning (MRP) systems for production control
Development in 1980s
• Just-In-Time (JIT):– Techniques designed to achieve high-volume production
using coordinated material flows, continuous improvement, & elimination of waste. “Lean system”
• Total Quality Management (TQM):– Techniques designed to achieve high levels of product
quality through shared responsibility & by eliminating the root causes of product defects
• Business Process Reengineering:– ‘Clean sheet’ redesign of work processes to increase
efficiency, improve quality & reduce costs
Development since 1990s (1)
• Flexibility:– Offer a greater variety of product choices on a mass scale
(mass customization)
• Time-based competition:– Developing new product designs & delivering customer
orders more quickly than competitors
• Supply Chain Management:– Cooperating with suppliers & customers to reduce overall
costs of the supply chain & increase responsiveness to customers
Development since 1990s (2)
• Global competition:– International trade agreements open new markets for
expansion & lower barriers to the entry of foreign competitors (e.g.: NAFTA & GATT)
– Creates the need for decision-making tools for facility location, compliance with local regulations, tailoring product offerings to local tastes, managing distribution networks, …
• Environmental issues:– Pressure from consumers & regulators to reduce, reuse &
recycle solid wastes & discharges to air & water
Electronic Commerce(since late 1990’s)
• Internet & related technologies enable new methods of business transactions:– E-retailing creates a new outlet for selling goods & services
with global access and 24-7 availability. B2C.– Internet provides a cheap network for coordinating supply
chain management information. B2B
• Developing influence of broadband & wireless