chapter 1 introduction. learning objectives describe and explain concepts, functions and nature of...
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CHAPTER 1CHAPTER 1
INTRODUCTIONINTRODUCTION
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LEARNING OBJECTIVESLEARNING OBJECTIVES
Describe and Explain concepts, functions and nature of OM
Identify current OM problems, issues and trends.
Describe and Explain approaches used by OM
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What Is OM?What Is OM?
FeedbackFeedback looploop
OutputsOutputs
Goods and
services
ProcessesProcesses
Transformation/ conversion process
InputsInputs
Labor,capital,Land,
Information
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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.
Operations management (OM) is the management of systems or processes that create goods and/or provide services.
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Organizing to Produce Organizing to Produce Goods and ServicesGoods 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
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Organizational ChartsOrganizational Charts
OperationsGround support equipmentMaintenanceGround Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications DispatchingManagement science
Finance/ accountingAccounting Payables Receivables General LedgerFinance Cash control International exchange
Airline
MarketingTraffic administration Reservations Schedules Tariffs (pricing)SalesAdvertising
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GOODS- SERVICES CONTINUUMGOODS- SERVICES CONTINUUM
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/investment management
Consulting service/teaching
Counseling
Percent of Product that is a GoodPercent of Product that is a Good Percent of Product that is a ServicePercent of Product that is a Service
100%100% 7575 5050 2525 00 2525 5050 7575 100%100%|| || || || || || || || ||
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GOODS vs SERVICEGOODS vs SERVICE
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual
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WHY STUDY OM ?WHY STUDY OM ?
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.
a costly part of an organization
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WHAT OPERATIONS MANAGERS DO?WHAT OPERATIONS MANAGERS DO?
PlanningOrganizingStaffingLeadingControlling
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Where are the OM Jobs?Where are the OM Jobs?
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Significant Events in OMSignificant Events in OM
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Current Trend in OMCurrent Trend in OM
Coordinate the relationships between mutually supportive but separate organizations.
Optimizing global supplier, production, and distribution networks.
Increased co-production of goods and services.
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Current Issues in OM (cont’d)Current Issues in OM (cont’d)
Managing the customer’s experience during the service encounter.
Raising the awareness of operations as a significant competitive weapon.
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New Trends in OMNew Trends in OM
Local or national focus
Reliable worldwide communication and transportation networks
Global focus, moving production offshore
Batch (large) shipments
Short product life cycles and cost of capital put pressure on reducing inventory
Just-in-time performance
Low-bid purchasing
Supply chain competition requires that suppliers be engaged in a focus on the end customer
Supply chain partners, collaboration, alliances, outsourcing
PastPast CausesCauses FutureFuture
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New Trends in OM (cont’d)New Trends in OM (cont’d)
Lengthy product development
Shorter life cycles, Internet, rapid international communication, computer-aided design, and international collaboration
Rapid product development, alliances, collaborative designs
Standardized products
Affluence and worldwide markets; increasingly flexible production processes
Mass customization with added emphasis on quality
Job specialization
Changing socioculture milieu; increasingly a knowledge and information society
Empowered employees, teams, and lean production
PastPast CausesCauses FutureFuture
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New Trends in OM (cont’d)New Trends in OM (cont’d)
Low-cost focus
Environmental issues, ISO 14000, increasing disposal costs
Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing
Ethics not at forefront
Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution
High ethical standards and social responsibility expected
PastPast CausesCauses FutureFuture
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Productivity ChallengeProductivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital)
The objective is to improve productivity!The objective is to improve productivity!
Note: Production is a measure of output only and not a measure of efficiency
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ProductivityProductivity
measure of process improvement.represents output relative to input
Productivity =Productivity =Units producedUnits produced
Input usedInput used
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Productivity CalculationsProductivity Calculations
Labor productivity:
Productivity =Productivity =Units producedUnits produced
Labor-hours usedLabor-hours used
= = = = 44 units/labor-hour units/labor-hour1,0001,000
250250
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Productivity Calculations (cont’d)Productivity Calculations (cont’d)
Multi-factors productivity:
OutputOutput
Labor + Material + Energy Labor + Material + Energy + Capital + Miscellaneous+ Capital + Miscellaneous
Productivity =Productivity =
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Productivity VariablesProductivity 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
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Global View of OperationsGlobal View of Operations
Reasons to GlobalizeReasons to Globalize
1.1. Reduce costs (labor, taxes, tariffs, etc.)Reduce costs (labor, taxes, tariffs, etc.)
2.2. Improve supply chainImprove supply chain
3.3. Provide better goods and servicesProvide better goods and services
4.4. Understand marketsUnderstand markets
5.5. Learn to improve operationsLearn to improve operations
6.6. Attract and retain global talentAttract and retain global talent
Tangible Tangible ReasonsReasons
Intangible Intangible ReasonsReasons
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Developing Missions and StrategiesDeveloping Missions and Strategies
MissionMission
statements tell an organization where it statements tell an organization where it is going.is going.
The The Strategy Strategy
tells the organization how to get theretells the organization how to get there
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Strategies for Competitive AdvantageStrategies for Competitive Advantage
Differentiationbetter, or at least different.
Cost leadershipcheaper, achieving maximum value
ResponeRapid, flexible and reliable performance
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10 Strategic OM Decisions10 Strategic OM Decisions
6. Human resources and job design
7. Supply chain management
8. Inventory
9. Scheduling
10. Maintenance
1. Goods and service design
2. Quality 3. Process and
capacity design4. Location
selection5. Layout design
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OM’s Contribution to StrategyOM’s Contribution to Strategy
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Scheduling
Maintenance
FLEXIBILITY:Sony’s constant innovation of new products………………………………....Design HP’s ability to lead the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
DELIVERY: Pizza Hut’s 5-minute guarantee at lunchtime…………………..…..………………….Speed Federal Express’s “absolutely, positively on time”………………………..….Dependability
QUALITY: Motorola’s HDTV converters….……........Conformance Motorola’s pagers………………………..….Performance
Caterpillar’s after-sale service on heavy equipment……………....AFTER-SALE SERVICE
Fidelity Security’s broad line of mutual funds………….BROAD PRODUCT LINE
OperationsOperations SpecificSpecific CompetitiveCompetitiveDecisionsDecisions ExamplesExamples Strategy UsedStrategy Used AdvantageAdvantage
Response(Faster)
Cost leadership(Cheaper)
Differentiation(Better)
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Strategy Development and ImplementationStrategy Development and Implementation
SWOT analysis
Strategy
Analysis
Internal Strengths
Internal Weaknesses
External Opportunities
External Threats
Mission
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Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
International Strategy
Four International Operations StrategiesFour International Operations StrategiesC
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
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International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Four International Operations StrategiesFour International Operations Strategies
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International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product
Economies of scale Cross-cultural
learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
Four International Operations StrategiesFour International Operations Strategies
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Four International Operations StrategiesFour International Operations Strategies
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Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Use existing domestic model globally
Franchise, joint ventures, subsidiaries
ExamplesHeinzMcDonald’sThe Body ShopHard Rock Cafe
Multidomestic Strategy
Four International Operations StrategiesFour International Operations Strategies
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HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic Strategy Use existing
domestic model globally Franchise, joint ventures,
subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
Four International Operations StrategiesFour International Operations Strategies
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International StrategyInternational Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic Strategy Use existing
domestic model globally Franchise, joint ventures,
subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global StrategyGlobal Strategy
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LowLow
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Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Move material, people, ideas across national boundaries
Economies of scale Cross-cultural
learning
ExamplesCoca-ColaNestlé
Transnational Strategy
Four International Operations StrategiesFour International Operations Strategies
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LowLow
HighHighLowLow
Local Responsiveness ConsiderationsLocal Responsiveness Considerations(Quick Response and/or Differentiation)(Quick Response and/or Differentiation)
Standardized product Economies of scale Cross-cultural learning
ExamplesTexas InstrumentsCaterpillarOtis Elevator
Global Strategy Transnational Strategy
Move material, people, ideas across national boundaries
Economies of scale Cross-cultural learning
ExamplesCoca-ColaNestlé
International Strategy
Import/export or license existing product
ExamplesU.S. SteelHarley Davidson
Multidomestic Strategy Use existing
domestic model globally Franchise, joint ventures,
subsidiaries
ExamplesHeinz The Body ShopMcDonald’s Hard Rock Cafe
Four International Operations StrategiesFour International Operations Strategies