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An Introduction
Prepared By: Gurpreet Singh
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Introduction The consumption of Goods and Services is an Integral part of
our Society.
Production & Operations Management is responsible for
creating those Goods and Services. Organizations exist primarily to provide Services or to create
Goods.
Production & Operations is the Core function of an
organization.
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Production & Operations Management
Production & Operations Management is the management of
that part of an organization that is responsible for producing
goods and/or services.
Definition:
The management of systems or processes that create goods
and/or provide services.
Production & Operations Management affects:
Companies ability to compete
Nations ability to compete internationallyPrepared By: Gurpreet Singh
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Business OrganizationBusiness Organization
The Three Basic Functions
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Organization
Finance Operations Marketing
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Business OrganizationBusiness Organization
Finance:
Responsible for securing financial resources at favorable
prices.
Allocating those resources throughout the organization.
Budgeting.
Analyzing investment proposals.
Providing funds for operations.
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Business OrganizationBusiness Organization
Marketing:
Responsible for assessing customer wants and needs.
Selling and promoting the organization's goods or services.
Operations
Responsible for producing the goods or providing theservices offered by the organization.
It is the core of what organization does.
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ValueValue--Added ProcessAdded ProcessThe operations function involves the conversion of
inputs into outputs
Value added
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npu sLand
Labor
Capital
Transformation/
Conversion
process
OutputsGoods
Services
Control
Feedback
FeedbackFeedback
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Value-Added & Product Packages Value-added is the difference between the cost of inputs and
the value or price of outputs.
The essence of the operations management is to add value
during the transformation process. For non-profit org = Value to Society.
For profit org = Prices that customers are willing to pay for those
goods or services.
Product packages are a combination of goods and services.
Product packages can make a company more competitive.Prepared By: Gurpreet Singh
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GoodsGoods--service Continuumservice Continuum
Goods Service
Surgery, teaching
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Automobile assembly, steel making
Home remodeling, retail sales
Automobile Repair, fast food
Computer repair, restaurant meal
Song writing, software development
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Product ExampleProduct Example
Inputs Processing Outputs
Raw Ve etables Cleanin Canned
Food ProcessorFood Processor
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vegetablesMetal Sheets Making cansWater CuttingEnergy Cooking
Labor PackingBuilding LabelingEquipment
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Service ExampleService Example
Inputs Processing Outputs
Doctors, nurses Examination Health
Hospital ProcessHospital Process
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patientsHospital Surgery Medical Supplies MonitoringEquipment Medication
Laboratories Therapy
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Manufacturing or Service?Manufacturing or Service?
Tangible Act
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Production of Goods Vs. Delivery of Services
Production of goods: Tangible O/P
Delivery of services: An Act
Service job categories:
Government Wholesale/retail
Financial services
Healthcare Personal services
Business services
EducationPrepared By: Gurpreet Singh
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Production of Goods Vs. Delivery of Services
Service job categories:
Government: Federal, State, Local.
Wholesale/retail: Clothing, Stationary, Toys etc.
Financial services: Banking, Stock Brokerage, Insurance etc. Healthcare: Doctors, Dentists, Hospitals etc.
Personal services: Laundry, Dry Cleaning, Hair/Beauty,
Gardening etc.
Business services: Data Processing, e-business, delivery etc.
Education: Schools, Colleges etc.Prepared By: Gurpreet Singh
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Similarity & Difference B/W Goods & Services
Manufacturing and service are often different in terms ofwhat
is done but similar in terms ofhow it is done. E.g.:
Both involve Design and Operating decisions.
Manufacturing must decide what size of Factory is needed. Service organizations must decide what size of building is needed.
Both must take decisions of:
Location
Work Schedules
Capacity
Allocation of Scarce resources.
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Key Differences B/W Goods & Services
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
.
5. Measurement of productivity
6. Production and delivery
7. Quality assurance8. Amount of inventory
9. Evaluation of work
10. Ability to patent designPrepared By: Gurpreet Singh
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Scope of POMScope of POM Production & Operations Management includes:
Forecasting
Capacity planning
Schedulin
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
Supply chain management
And more . . .
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Scope of POMScope of POM Service organization example: Airline Company
Forecasting: Weather, Landing conditions, Seat demand, growth in airtravel etc.
Capacity planning: Planes (Too many or too few, right no. of planes in
wrong places).
Scheduling: Planes (Flights, Maintenance), Pilots, Flight attendants,
Ground Crews, Counter Staff, Baggage handlers etc.
Managing inventories: Foods & Beverages, First Aid Equipment, In-flight-magazines, Pillows, Blankets etc.
Assuring quality: Safety, Customer dealings (Ticket counter, Check-in,
Telephone/Electronic reservation etc).Prepared By: Gurpreet Singh
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Scope of POMScope of POM Service organization example: Airline Company
Motivating employees: All phases of operations.
Deciding where to locate facilities: Decisions on which cities to
provide service, Where to locate maintenance facilities, Where to locatemajor and minor hubs etc.
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Scope of POMScope of POM Production organization example: Bicycle Factory
Forecasting: Manufacturing, Sales, Man power etc.
Capacity planning: Buying Components (Frames, Tires, Wheels, Gears
from suppliers and then assembling bicycles), Fabrication work, Forming
frames, making Gears and Chains, buying Raw Materials, Few Parts (Paint,
Nut/Bolts, Tires) etc.
Scheduling: Which components to buy, Ordering Parts and Material, Styleof Bicycle to produce and how many, Purchasing new equipment etc.
Managing inventories: Raw Materials, Parts, Components etc.
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Scope of POMScope of POM Production organization example: Bicycle Factory
Assuring quality: To meet the quality standards.
Motivating employees: Motivating Workers.
Deciding where to locate facilities: Factory, Worker Houses etc.
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Design and Operation of System System Design:
Involves decisions that relate to: (Strategic Decisions)
System Capacity
eograp ca ocat on o ac t es
Arrangement of Departments
Placement of equipment within Physical Structures
Product and Service Planning Acquisition of Equipment.
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Design and Operation of System System Operation: (Tactical and Operational Decisions)
Involves decisions that relate to:
Management of Personnel
nventory ann ng an ontro
Scheduling
Project Management
Quality Assurance Feedback on these decisions involves Measurement and
Control.
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Other Areas of POM Purchasing
Industrial Engineering
Distribution
Maintenance
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Other Areas of POM Purchasing:
Procurement of Materials, Supplies and Equipment. Close contact with operation is necessary to ensure correct quantities and timing
of purchases.
Acts as an evaluator to vendors for Quality, Reliability, Service, Price, etc. Industrial Engineering:
Concerned with:
Scheduling Performance Standards
Work Methods
Quality Control
Materials Handling
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Other Areas of POM Distribution:
Involves:
Shipping of Goods to Warehouses, Retail Outlets or Final Customers.
It is responsible for:
General Upkeep and Repair of Equipment
Buildings and Grounds
Heating and Air-Conditioning
Removing Toxic Wastes
Parking
Security.Prepared By: Gurpreet Singh
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Decline in Manufacturing Jobs The Service sector now accounts for more than 70% of jobs in US,
and is growing in other countries as well.
The number of people in services are increasing while the number of
.
Productivity:
Increasing productivity allows companies to maintain or increase their
output using fewer workers.
Outsourcing:
Some manufacturing work has been outsourced to more productive
companies.Prepared By: Gurpreet Singh
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A Scenario
Year Mfg. Service45 79 21
50 72 28
55 72 28
U.S. Manufacturing vs. Service Employment
80
90Mfg.
Service
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60 68 3265 64 36
70 64 36
75 58 42
80 44 46
85 43 57
90 35 65
95 25 75
00 30 70
02 25 75
0
1020
30
40
5060
45 50 55 60 65 70 75 80 85 90 95 00 02 05
Year
Percent
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Why Manufacturing Matters? Over 18 million workers in manufacturing jobs.
Accounts for over 70% of value of U.S. exports. Average full-time compensation about 20% higher than average of all workers.
Manufacturing workers more likely to have benefits.
Productivity growth in manufacturing in the last 5 years is more than doubleU.S. economy.
More than half of the total R&D performed is in the manufacturing industries.
Manufacturing workers in California earn an average of about $25,000 more a
year than service workers.
In California manufacturing job is lost, an average of 2.5 service jobs are lost.
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Challenges of Managing Services Service jobs are often less structured than manufacturing jobs.
Customer contact is higher.
Worker skill levels are lower.
Services hire many low-skill, entry-level workers. Employee turnover is higher.
Input variability is higher.
Service performance can be affected by workers personal
factors.
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Operations Management Decision Making
It is important to make informeddecisions.
Key Decisions of Operations Managers WhatWhat resources/what amounts
WhenResources needed/scheduled/ordered
WhereWork to be done
HowProduct or Service designed
WhoTo do the work
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General Approaches to Decisions Making
Models
Quantitative approaches
Analysis of trade-offs
Systems approach Establishing priorities
Ethics
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General Approaches to Decisions Making
Models:
An abstraction of reality.
A simplified representation of something.
. . ,
visual features (shape, wheels etc.) that make it suitable for childs learning and
playing.
Other examples include automobile test tracks and crash tests, formulas,
graphs & charts, balance sheets & income statements and financial ratios etc. Common statistical models include descriptive statistics such as mean,
median, mode, range and standard deviation, random sampling, normal
distribution, regression equations etc.Prepared By: Gurpreet Singh
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General Approaches to Decisions Making
Types of models:
Physical
Schematic
Mathematical
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General Approaches to Decisions Making Types of models:
Physical: Look like real-life counterparts.
Visual correspondence to reality.
. . , , , , , - .
Schematic:
Less resemblance to physical reality.
Simple to construct and change.
E.g. Graphs & Charts, Blueprints, Pictures, Drawings etc.
Mathematical:
Abstract i.e. dont look like real-life counterparts.
Easiest to manipulate
E.g. Numbers, Formulas, Symbols etc.Prepared By: Gurpreet Singh
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General Approaches to Decisions Making
Models Are Beneficial:
Easy to use, less expensive.
Require users to organize and quantify information.
.
Enable what if questions.
Consistent tool for evaluation and standardized format.
Power of mathematics.
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General Approaches to Decisions Making
Limitations of Models:
Quantitative information may be emphasized over
qualitative.
Models may be incorrectly applied and resultsmisinterpreted.
Nonqualified users may not comprehend the rules on how
to use the model.
Use of models does not guarantee good decisions.
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General Approaches to Decisions Making
QuantitativeQuantitative ApproachesApproaches::
AnAn attemptattempt toto obtainobtain mathematicallymathematically optimaloptimal solutionssolutions toto
managerialmanagerial problemsproblems..
Linear programming: Allocation of scarce resources.
Queuing Techniques: To analyze waiting lines form.
Inventory models: To control inventories.
Project models: PERT & CPM (planning, coordinating and controlling
large-scale projects).
Statistical models: For decision making.Prepared By: Gurpreet Singh
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General Approaches to Decisions Making
Systems Approach:
System:
A system can be defined as a set of interrelated parts that must
wor toget er.
E.g. Business organization composed of subsystems (Marketing
subsystem, Finance subsystem, Operations subsystem etc) which
in turn composed of lower subsystems.
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General Approaches to Decisions Making SystemsSystems ApproachApproach::
The whole is greater than the sum of the parts.i.e. the O/P and objectives of the organization as a whole takepriority over those of any one subsystem.
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SuboptimizationSuboptimization
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General Approaches to Decisions Making
SystemsSystems ApproachApproach::
E.g. If the upcoming model of an automobile will add antilock brakes, a designer
must take into account how customers will view the chan e instructions for
using the brakes, chance for misuse, the cost of producing the new brakes,
installation procedures, recycling worn-out brakes and repair procedures.
In addition, workers will need training to make and/or assemble the brakes,
production scheduling may change, inventory procedures may have to
change, quality standards will have to be established, advertising must be
informed of the new features and parts suppliers must be selected.
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General Approaches to Decisions Making
EstablishingEstablishing PrioritiesPriorities::
CertainCertain factorsfactors areare moremore importantimportant thanthan othersothers..
EE..gg..
wn ngwn ng anan opera ngopera ng anan au omo eau omo e..
CertainCertain partsparts areare givengiven moremore prioritypriority thanthan othersothers.. EE..gg.. Engine,Engine,
Brakes,Brakes, TiesTies overover SeatSeat covers,covers, Paint,Paint, DentsDents etcetc..
BetweenBetween thesethese twotwo extremesextremes lieslies aa rangerange ofof IntermediateIntermediate
prioritypriority whichwhich shouldshould bebe givengiven attentionattention correspondingcorresponding toto
theirtheir importanceimportance toto thethe overalloverall goalgoal.. EE..gg.. WheelWheel Alignment,Alignment,
HeadlightsHeadlights outout ofof adjustment,adjustment, WeakWeak BatteryBattery etcetc..Prepared By: Gurpreet Singh
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General Approaches to Decisions Making
Ethical Issues: (Managers)
Financial statements Worker safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Workers rights
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General Approaches to Decisions Making
Ethical Issues: (Managers)
Financial statements: Accurately representing the organizations financialcondition.
,
working condition, maintaining a safe working environment.
Product safety: Providing products that minimizes the risk of injury to users
or damage to property or the environment.
Quality: Honoring warranties, avoiding hidden defects.
Environment: Not doing things that will harm environment.
Community: Being a good neighbor.
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General Approaches to Decisions Making
Ethical Issues: (Managers)
Hiring/firing workers: False pretenses (E.g. Promising a long-term job
when that is not what is intended etc).
honoring commitments that have been made.
Workers rights: Respecting workers rights, dealing with workers problems
or members conduct.
Many organization have developed codes of ethics to guide
employees or members conduct.
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Why Study POM? 50% or more of all jobs are in operations management or
related fields.
BusinessBusiness OperationsOperations OverlapOverlap::
F nanceF nance
OperationsOperations
MarketingMarketing
AlthoughAlthough 33 primaryprimary functionsfunctions inin businessbusiness organizationsorganizations performperform
differentdifferent activities,activities, manymany ofof theirtheir decisionsdecisions impactimpact thethe otherother
areasareas ofof thethe organizationorganization..
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Why Study POM?...
O erations
Business Operations Overlap:Business Operations Overlap:
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FinanceMarketing
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Why Study POM?... BusinessBusiness OperationsOperations OverlapOverlap::
Finance: (Finance & Operations management personnel cooperate byexchanging information and expertise)
u ge ng mus e per o ca y prepare o p an nanc a
requirements. Budgets must sometimes be adjusted and performance relative to
a budget must be evaluated.
Economic analysis of investment proposals: Evaluation of
alternative investments in plant and equipment requires I/Ps from both
operations and finance people.
Provision of funds: The necessary funding of operations and the amount
and timing of funding is important, critical when funds are tight.Prepared By: Gurpreet Singh
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Why Study POM?... BusinessBusiness OperationsOperations OverlapOverlap::
Marketing:
Focus on selling and/or promoting the goods or services of an
organization.
Responsible for assessing customer wants and needs and
communicating those to operations people and to design people.
Operations needs information about demand so it can planaccordingly (e.g. purchase material, schedule work etc.), while
design people need information that relates to improving current
products and services and designing new ones.Prepared By: Gurpreet Singh
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Why Study POM?... BusinessBusiness OperationsOperations OverlapOverlap::
Marketing: Marketing, design and production must work closely together to
products.
Finance people should be included in these exchanges in order to provide
information on what funds might be available and what might be needed
for new products or services.
Marketing also needs one important information from operations is the
manufacturing or service Lead Time: Time between ordering a good or
service and receiving it.Prepared By: Gurpreet Singh
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Why Study POM?... Operations also interacts with other functional areas of
the organization:
Legal
Management Information Systems (MIS)
Accounting
Personnel/Human Resources
Public Relations
Etc.
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Operations InterfacesOperations InterfacesIndustrial
Engineering
MaintenanceDistribution
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Public
Relations
Accounting
Operations
Personnel
Purchasing
MIS
Legal
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Why Study POM?... Other functional areas:
Legal: This department is consultant on contracts with employees,
customers, suppliers and transporters and also liability on environment
ssues.
Accounting: Supplies information to management on costs of labor,
materials and overhead, may provide reports on items such as scarp,
downtime and inventories.
MIS: Concerned with providing management with the information it
needs to effectively manage.
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Why Study POM?... Other functional areas:
Personnel/Human Resources: This department is concerned with
recruitment and training of personnel, labor relations, contract
nego a ons, wage an sa ary a m n s ra on, ass s ng n manpower
projections and ensuring the health and safety of employees.
Public Relations: Responsible for building and maintaining a
positive public image of the organization for customers and employees.
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Career Opportunities Operations Manager
Production Analyst
Production Manager
Supply Chain Manager
Quality Analyst
Quality Manager
Industrial Engineer
Time Study Analyst
Inventory Manager
Purchasing Manager
Schedule Coordinator
Distribution ManagerPrepared By: Gurpreet Singh
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People who work in operations field should have a skill set
that include both People Skills and Knowledge Skills.
People skills include :
Political Awareness
Knowledge skills include:
Good Decision Making
Career Opportunities
Mentoring Ability Collaboration
Negotiation
Communication Skills Etc.
Product and/or Serviceknowledge
Process knowledge
Industry & Global knowledge Financial & Accounting skills
Etc.
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Historical Evolution of Operations Management
Industrial revolution
Scientific management
Mass production
Interchangeable parts Division of labor
Human relations movement
Decision models
Influence of Japanese manufacturers
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Historical Evolution of Operations Management
Industrial evolution: (1770s)
Began in 1770s in England and spread to the rest of Europe and to theUnited States during 19th Century. Prior to this time, goods were
roduced in small sho s b Craftsmen an their a rentices.
In 18th
Century face of production was changed by substituting machinepower for human power (e.g. Steam Engine, etc.), New machines made
of Iron were much stronger than wooden machines.
Craft Production: System in which highly skilled workers use simple, flexible tools to
produce small quantities of customized goods. (Slow & Costly, No
Economies of Scale.)Prepared By: Gurpreet Singh
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Historical Evolution of Operations Management
Scientific Management: (1911)
Frederick Winslow Taylor = Father of Scientific Management
believed that management should be responsible for planning, carefully
selecting and training workers, finding the best way to perform each job,
achieving cooperation between management and workers, and separating
management activities from work activities.
Frank Gilbreth (Industrial Engg.)= Father of Motion Study
Henry Gantt: Developed Gantt Charts
Henry Ford: Developed concept of Moving Assembly Lines.
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Historical Evolution of Operations Management
Scientific management: (1911)
Mass Production: (Fords Contribution)
System in which low-skilled workers use specialized machinery to
produce high volumes of standardized goods.
Interchangeable Parts: (Eli Whitney = American Inventor)
Parts of a product made to such a precision that they do not have to be
custom fitted i.e. standardized parts.
Division of Labor: (Fords Contribution)
Breaking up of a production process into small tasks, so that each
worker performs a small portion of the overall job.Prepared By: Gurpreet Singh
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Historical Evolution of Operations Management..
Human relations movement (1920-60)
Emphasis on importance of the human element in job design. Emphasis on Motivation:
Maslow Theor : (Abraham Maslow in 1 0s,)
Theory X : (Douglas McGregor in 1960s, Adversarial Environment i.e. Rewardand Punishment)
and Theory Y: (Douglas McGregor in 1960s, Empowered Workers)
Theory Z: (William Ouchi in 1970s, Lifetime Employment, Employee
Problem Solving, Consensus building etc.)
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Historical Evolution of Operations Management..
Decision models: (1915, 1960-70s)
Factory movement accompanied by the development of severalquantitative techniques.
Inventor Mana ement: B F.W. Harris in 1 1
Statistical Procedure for Sampling & Quality Control: By H.F. Dodge,H.G. Romig and W. Shewhart in 1930s (3 workers at Bell Telephone Labs).
Statistical-Sampling Theory: By L.H.C. Tippett in 1935.
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Historical Evolution of Operations Management
Influence of Japanese manufacturers: (Quality Revolution)
Emphasis on Quality and Continual Improvement. Worker Teams
Customer Satisfaction
Time based management (JIT e.g. Southwest Airlines less ground time
etc.).
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Trends in Business Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior
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Trends in Business E-Business:
Use ofinternet to transact business.
E-Commerce:
Consumer-business transactions like: Buying online,
requesting information.
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Trends in Business Management Technology:
Technology: The application of scientific discoveries to thedevelopment and improvement of goods and services.
Product and Service technology: Refers to the discovery and
development of new products and services (R&D).
Process technology: Refers to methods, procedures and equipment
used to produce goods and provide service (Supply Chain Process).
Information technology: Refers to science and use of computers and
other electronic equipment to store, process and send information.
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Trends in Business
Suppliers
Su liersDirect
Producer DistributorFinal
Supply Chain:
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Supply Chain: A sequence of activities Andorganizations involved in producing And delivering a
good or service.
A Supply Chain forA Supply Chain for BreadBread
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A Supply Chain for BreadA Supply Chain for BreadStage of Production Value
AddedValue ofProduct
Farmer produces and harvests wheat $0.25 $0.25
Wheat transported to mill $0.08 $0.33
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Mill produces flour $0.15 $0.48
Flour transported to baker $0.08 $0.56
Baker produces bread $0.04 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
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Trends in Business Outsourcing:
Buying goods or services rather than producing goods or performingservices within the organization.
The ability of an organization to respond quickly to demands or
opportunities. It is a strategy that involves maintaining a f lexible system
that can quickly respond to changes in either the volume of demand or
changes in product/service offerings.
Ethical Behavior
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Other Important Trends Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement Increased regulation and product liability
Lean production
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Other Important Trends Operations Strategy:
The approach consistent with the organization strategy that is used to guide
the operations function.
Working with fewer resources:
Due to lay offs, corporate downsizing, cost cutting etc. is forcing managers
to make trade-off decisions on resource allocation and to place increased
emphasis on cost control and productivity improvement.
Revenue management:
Method used by some companies to maximize the revenue they receive from
fixed operating capacity by influencing demand through price
manipulation, also known as yield management.
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Other Important Trends Process analysis and improvement:
Includes cost and time reduction, productivity improvement, process yield
improvement, quality improvement and customer satisfaction (6 Sigma).
E.g. Kodak was able to cut in half the time needed to bring a new camera to
market etc.
Increased regulation and product liability
Lean Production:
System that uses minimal amounts of resources to produce a high volume of high-
quality goods with some variety. Highly skilled workforce and flexible equipment.
An emphasis on quality, flexibility, time reduction and teamwork. Flattening of
organizational structure with fewer management levels.
Prepared By: Gurpreet Singh