Slides by: K Suresh

OverviewOverview

IntroductionIntroduction Historical Milestones in OMHistorical Milestones in OM Factors Affecting OM TodayFactors Affecting OM Today Different Ways of Studying OMDifferent Ways of Studying OM Wrap-Up: What World-Class Producers Wrap-Up: What World-Class Producers

DoDo

IntroductionIntroduction

Operations managementOperations management is the management is the management of an organization’s productive resources or of an organization’s productive resources or its production system.its production system.

A A production systemproduction system takes inputs and takes inputs and converts them into outputs.converts them into outputs.

The The conversion processconversion process is the predominant is the predominant activity of a production system.activity of a production system.

The primary concern of an The primary concern of an operations operations managermanager is the activities of the conversion is the activities of the conversion process.process.

Typical Organization ModelTypical Organization Model

MarketingMarketing

MISMISEngineeringEngineering

HRMHRM

QAQA

AccountingAccounting

SalesSalesFinanceFinance

OMOM

Entry-Level Jobs in Entry-Level Jobs in OperationsOperations

Planner or buyerPlanner or buyer Production/ operations supervisorProduction/ operations supervisor Production/ operations scheduler/ Production/ operations scheduler/

controllercontroller Production/ operations analystProduction/ operations analyst Inventory analystInventory analyst Quality specialistQuality specialist

Historical Milestones in OMHistorical Milestones in OM

The Industrial RevolutionThe Industrial Revolution Post-Civil War PeriodPost-Civil War Period Scientific ManagementScientific Management Human Relations and BehaviorismHuman Relations and Behaviorism Operations ResearchOperations Research The Service RevolutionThe Service Revolution

The Industrial RevolutionThe Industrial Revolution The The industrial revolutionindustrial revolution developed in developed in

England in the 1700s.England in the 1700s. The steam engine, invented by James Watt The steam engine, invented by James Watt

in 1764, largely replaced human and water in 1764, largely replaced human and water power for factories.power for factories.

Adam Smith’s Adam Smith’s The Wealth of NationsThe Wealth of Nations in in 1776 touted the economic benefits of the 1776 touted the economic benefits of the specialization of laborspecialization of labor..

Thus the late-1700s factories had not only Thus the late-1700s factories had not only machine power but also ways of planning machine power but also ways of planning and controlling the tasks of workers.and controlling the tasks of workers.

The Industrial RevolutionThe Industrial Revolution The industrial revolution spread from England to The industrial revolution spread from England to

other European countries and to the United Sates.other European countries and to the United Sates. In 1790 an American, Eli Whitney, developed the In 1790 an American, Eli Whitney, developed the

concept of concept of interchangeable partsinterchangeable parts.. The first great industry in the US was the textile The first great industry in the US was the textile

industry.industry. In the 1800s the development of the gasoline In the 1800s the development of the gasoline

engine and electricity further advanced the engine and electricity further advanced the revolution.revolution.

By the mid-1800s, the old By the mid-1800s, the old cottage systemcottage system of of production had been replaced by the production had been replaced by the factory factory systemsystem..

more …more …

Post-Civil War PeriodPost-Civil War Period

During the post-Civil War period great During the post-Civil War period great expansion of production capacity expansion of production capacity occurred.occurred.

By post-Civil War the following By post-Civil War the following developments set the stage for the great developments set the stage for the great production explosion of the 20th century:production explosion of the 20th century:– increased capital and production capacityincreased capital and production capacity– the expanded urban workforcethe expanded urban workforce– new Western US marketsnew Western US markets– an effective national transportation systeman effective national transportation system

Scientific ManagementScientific Management Frederick Taylor is known as the father of Frederick Taylor is known as the father of

scientific managementscientific management. His . His shop systemshop system employed these steps:employed these steps:– Each worker’s skill, strength, and learning ability Each worker’s skill, strength, and learning ability

were determined.were determined.– Stopwatch studies were conducted to precisely Stopwatch studies were conducted to precisely

set standard output per worker on each task.set standard output per worker on each task.– Material specifications, work methods, and Material specifications, work methods, and

routing sequences were used to organize the routing sequences were used to organize the shop.shop.

– Supervisors were carefully selected and trained.Supervisors were carefully selected and trained.– Incentive pay systems were initiated.Incentive pay systems were initiated.

Scientific ManagementScientific Management

In the 1920s, Ford Motor Company’s In the 1920s, Ford Motor Company’s operation embodied the key operation embodied the key elements of scientific management:elements of scientific management:– standardized product designsstandardized product designs– mass productionmass production– low manufacturing costslow manufacturing costs– mechanized assembly linesmechanized assembly lines– specialization of laborspecialization of labor– interchangeable partsinterchangeable parts

Human Relations & Human Relations & BehaviourBehaviour

In the 1927-1932 period, researchers in In the 1927-1932 period, researchers in the Hawthorne Studies realized that the Hawthorne Studies realized that human factors were affecting human factors were affecting production.production.

Researchers and managers alike were Researchers and managers alike were recognizing that psychological and recognizing that psychological and sociological factors affected production.sociological factors affected production.

A gradual change came in the way A gradual change came in the way managers thought about and treated managers thought about and treated workers.workers.

Operations ResearchOperations Research During World War II, enormous quantities During World War II, enormous quantities

of resources (personnel, supplies, of resources (personnel, supplies, equipment, …) had to be deployed.equipment, …) had to be deployed.

Military Military operations researchoperations research (OR) teams (OR) teams were formed to deal with the complexity of were formed to deal with the complexity of the deployment.the deployment.

After the war, operations researchers found After the war, operations researchers found their way back to universities, industry, their way back to universities, industry, government, and consulting firms.government, and consulting firms.

or help operations managers make or help operations managers make decisions when problems are complex and decisions when problems are complex and wrong decisions are costly.wrong decisions are costly.

The Service RevolutionThe Service Revolution

The creation of services organizations The creation of services organizations accelerated sharply after World War II.accelerated sharply after World War II.

Today, more than two-thirds of the US Today, more than two-thirds of the US workforce is employed in services.workforce is employed in services.

There is a huge trade surplus in services.There is a huge trade surplus in services. Investment per office worker now Investment per office worker now

exceeds the investment per factory exceeds the investment per factory worker.worker.

Thus there is a growing need for service Thus there is a growing need for service operations management.operations management.

The Computer RevolutionThe Computer Revolution Explosive growth of computer and Explosive growth of computer and

communication technologiescommunication technologies Easy access to information and the Easy access to information and the

availability of more informationavailability of more information Advances in software applications such as Advances in software applications such as

Enterprise Resource Planning (ERP) Enterprise Resource Planning (ERP) softwaresoftware

Widespread use of emailWidespread use of email More and more firms becoming involved in More and more firms becoming involved in

E-Business using the InternetE-Business using the Internet Result:Result: faster, better decisions over faster, better decisions over

greater distancesgreater distances

Factors Affecting OMFactors Affecting OM

Global CompetitionGlobal Competition Quality, Customer Service, and Cost Quality, Customer Service, and Cost

ChallengesChallenges Rapid Expansion of Advanced Rapid Expansion of Advanced

TechnologiesTechnologies Continued Growth of the Service SectorContinued Growth of the Service Sector Scarcity of Operations ResourcesScarcity of Operations Resources Social-Responsibility IssuesSocial-Responsibility Issues

Studying Operations Studying Operations ManagementManagement

Operations as a SystemOperations as a System Decision Making in OMDecision Making in OM

Operations as a SystemOperations as a System

InputsInputsInputsInputs OutputsOutputsOutputsOutputsConversionConversionSubsystemSubsystemConversionConversionSubsystemSubsystem

Production SystemProduction System

ControlControlSubsystemSubsystem

ControlControlSubsystemSubsystem

Inputs of an Operations Inputs of an Operations SystemSystem

ExternalExternal– Legal, Economic, Social, TechnologicalLegal, Economic, Social, Technological

MarketMarket– Competition, Customer Desires, Product Competition, Customer Desires, Product

Info.Info. Primary ResourcesPrimary Resources

– Materials, Personnel, Capital, UtilitiesMaterials, Personnel, Capital, Utilities

Conversion SubsystemConversion Subsystem

Physical Physical (Manufacturing)(Manufacturing) Location based Services Location based Services

(Transportation)(Transportation) Exchange Services Exchange Services (Retailing)(Retailing) Storage Services Storage Services (Warehousing)(Warehousing) Other Private ServicesOther Private Services (Insurance) (Insurance) Government ServicesGovernment Services

Output of an Operations Output of an Operations SystemSystem

DirectDirect– ProductsProducts– ServicesServices

IndirectIndirect– WasteWaste– PollutionPollution– Technological AdvancesTechnological Advances

Production as an Organization Production as an Organization FunctionFunction

We focus on OM as we think of global We focus on OM as we think of global competitiveness, because that is competitiveness, because that is where the vast majority of a firm’s where the vast majority of a firm’s workers, capital assets, and workers, capital assets, and expenses reside.expenses reside.

To succeed, a firm must have a To succeed, a firm must have a strong operations function teaming strong operations function teaming with the other organization functions.with the other organization functions.

Decision Making in OMDecision Making in OM

Strategic DecisionsStrategic Decisions Operating DecisionsOperating Decisions Control DecisionsControl Decisions

Strategic DecisionsStrategic Decisions

These decisions are of strategic These decisions are of strategic importance and have long-term importance and have long-term significance for the organization.significance for the organization.

Examples include deciding:Examples include deciding:– the design for a new product’s the design for a new product’s

production processproduction process– where to locate a new factorywhere to locate a new factory– whether to launch a new-product whether to launch a new-product

development plandevelopment plan

Operating DecisionsOperating Decisions

These decisions are necessary if the These decisions are necessary if the ongoing production of goods and ongoing production of goods and services is to satisfy market demands services is to satisfy market demands and provide profits.and provide profits.

Examples include deciding:Examples include deciding:– how much finished-goods inventory to how much finished-goods inventory to

carrycarry– the amount of overtime to use next weekthe amount of overtime to use next week– the details for purchasing raw material the details for purchasing raw material

next monthnext month

Control DecisionsControl Decisions

These decisions concern the day-to-These decisions concern the day-to-day activities of workers, quality of day activities of workers, quality of products and services, production products and services, production and overhead costs, and machine and overhead costs, and machine maintenance.maintenance.

Examples include deciding:Examples include deciding:– labor cost standards for a new productlabor cost standards for a new product– frequency of preventive maintenancefrequency of preventive maintenance– new quality control acceptance criterianew quality control acceptance criteria

What Controls the Operations What Controls the Operations System?System?

Information about the outputs, the Information about the outputs, the conversions, and the inputs is fed conversions, and the inputs is fed back to management.back to management.

This information is matched with This information is matched with management’s expectationsmanagement’s expectations

When there is a difference, When there is a difference, management must take corrective management must take corrective action to maintain control of the action to maintain control of the systemsystem

Wrap-Up: World Class Wrap-Up: World Class PracticePractice

OM is important in OM is important in anyany organization organization Global competition forces rapid Global competition forces rapid

evolution of OM evolution of OM Decision based framework focus of Decision based framework focus of

coursecourse Strategic, Operating, and ControlStrategic, Operating, and Control