student slides chapter 1

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McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Chapter 1

Introduction to OperationsManagement


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Chapter 1: Learning Objectives

You should be able to:

Define the term operations management

Identify the three major functional areas of organizations and describe

how they interrelate

Compare and contrast service and manufacturing operations

Describe the operations function and the nature of the operations

managers job

Identify the two major aspects of process management

Describe the key aspects of operations management decision making

Briefly describe the historical evolution of operations management

Identify current trends in business that impact operations management


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Operations Management

What is operations?

The part of a business organization that is responsible

for producing goods or services

How can we define operations management? The management of systems or processes that create

goods and/or provide services


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Supply Chain

Suppliers

suppliers

Direct

suppliersProducer Distributor

Final

Customers

Supply Chain a sequence of activities andorganizations involved in producing and delivering

a good or service


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Goods are physical items that include raw materials, parts,subassemblies, and final products.

Automobile

Computer

Oven

Shampoo

Services are activities that provide some combination of time, location,form or psychological value.

Air travel

Education

Haircut

Legal counsel

Good or Service?


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The operations function includes many interrelated

activities such as: Forecasting

Capacity planning

Scheduling

Managing inventories

Assuring quality

Motivating employees

Deciding where to locate facilities

And more . . .

Scope of Operations Management

The scope of operations management ranges across

the organization.


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The Operations Function consists of all activities directlyrelated to producinggoods or providing services.

A primary function of the operations manager is to guide the system by decision

making.

System Design Decisions System Operation Decisions

Role of the Operations Manager


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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 for all workers

Manufacturing workers more likely to have benefits

Productivity growth in manufacturing in the last 5 years is

more than double that of the U.S. economy


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Why Study OM?

Every aspect of business revolves around operations Many service jobs are closely related to operations

Financial services

Marketing services

Accounting services

Information services

There is a significant amount of interaction andcollaboration amongst the functional areas

It provides an excellent vehicle for understanding theworld in which we live


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Career Opportunities in OM

Operations manager

Production analyst

Production manager

Industrial engineer Time study analyst

Inventory manager

Quality analyst

Quality manager


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OM-Related Professional Societies

APICS - The Association for Operations Management

American Society for Quality (ASQ)

Institute for Supply Management (ISM)

Institute for Operations Research and Management Science

(INFORMS) The Production and Operations Management Society (POMS)

The Project Management Institute (PMI)

Council of Supply Chain Management Professionals (CSCMP)


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Decision Making

Most operations decisions involve many alternatives that can havequite different impacts on costs or profits

Typical operations decisions include:

What: What resources are needed, and in what amounts?

When: When will each resource be needed? When should the work bescheduled? When should materials and other supplies be ordered?

Where: Where will the work be done?

How: How will he product or service be designed? How will the work

be done? How will resources be allocated?

Who: Who will do the work?


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Ethics

Ethical issues have gained increasing visibility in recent

years.

Enron

Worldcom

Tyco

Can you think of any positive displays of business

ethics?

Why do people do things that are unethical?

Can ethics be taught? More importantly, will

teaching business ethics make a difference in

peoples behavior?


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Historical Evolution of OM

Industrial Revolution

Scientific Management

Human Relations Movement

Decision Models and Management Science

Influence of Japanese Manufacturers


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Key Trends and Issues in Business

E-Business & E-Commerce

Management of Technology

Globalization

Management of Supply Chains

Outsourcing

Agility

Ethical Behavior


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Chapter 2

Competitiveness, Strategy, and

Productivity


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List and briefly discuss the primary ways that business

organizations compete

List five reasons for the poor competitiveness of some

companies Define the term strategyand explain why strategy is important for

competitiveness

Contrast strategyand tactics

Discuss and compare organization strategy and operations

strategy, and explain why it is important to link the two


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Chapter 2: Learning Objectives (contd.)


Describe and give examples oftime-basedstrategies

Define the termproductivityand explain why it is important to

organizations and to countries

List some of the reasons for poor productivity and some ways ofimproving it


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Competitiveness

Competitiveness: How effectively an organization meets the wants and

needs of customers relative to others that offer similar

goods or services Organizations compete through some combination of

their marketing and operations functions

What do customers want?

How can these customer needs best be satisfied?


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Hierarchical Planning

Mission

Goals

Organizational Strategies

Tactics

Functional Strategies


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Mission, Goals, and Strategy

Mission

The reason for an organizations existence

Goals

Provide detail and the scope of the mission

Goals can be viewed as organizational destinations

StrategyA plan for achieving organizational goals

Serves as a roadmap for reaching the organizationaldestinations


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Tactics and Operations

Tactics

The methods and actions taken to accomplish

strategies

The how to part of the process

Operations

The actual doing part of the process


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Strategy Formulation

Effective strategy formulation requires takinginto account: Core competencies

Environmental scanning

SWOT Successful strategy formulation also requires

taking into account: Order qualifiers

Order winners


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Operations Strategy

Operations strategy

The approach, consistent with organization strategy, that is used to

guide the operations function.

Decision Area What the Decisions Affect

Product and service design Costs, quality, liability, and environmental issues

Capacity Cost, structure, flexibility

Process selection and

layout

Costs, flexibility, skill level needed, capacity

Work design Quality of work life, employee safety, productivity

Location Costs, visibility

Quality Ability to meet or exceed customer expectations

Inventory Costs, shortages

Maintenance Costs, equipment reliability, productivity

Scheduling Flexibility, efficiency

Supply chains Costs, quality, agility, shortages, vendor relations

Projects Costs, new products, services, or operating systems


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Time- and Quality-Based Strategies

Time-based strategies

Strategies that focus on the reduction of time needed to

accomplish tasks

It is believed that by reducing time, costs are lower, quality is

higher, productivity is higher, time-to-market is faster, andcustomer service is improved

Quality-based strategy

Strategy that focuses on quality in all phases of an organization

Pursuit of such a strategy is rooted in a number of factors:

Trying to overcome a poor quality reputation

Desire to maintain a quality image

A part of a cost reduction strategy


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Agile Operations

Agile operations

A strategic approach for competitive advantage that

emphasizes the use of flexibility to adapt and prosper

in an environment of change

Involves the blending of several core competencies:

Cost

Quality

Reliability

Flexibility


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The Balanced Scorecard Approach

A top-down management system that organizations can use to

clarify their vision and strategy and transform them into action

Develop objectives

Develop metrics and targets for each objective

Develop initiatives to achieve objectives Identify links among the various perspectives

Finance

Customer

Internal business processes

Learning and growth

Monitor results


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Productivity

Productivity

A measure of the effective use of resources, usually

expressed as the ratio of output to input

Productivity measures are useful for Tracking an operating units performance over time

Judging the performance of an entire industry or

country


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Productivity Measures

Partial MeasuresOutput

Single Input;

Ouput

Labor;

Output

Capital

Multifactor MeasuresOutput

Multiple Inputs;

Ouput

Labor +Machine;

Output

Labor +Capital +Energy

Total MeasureGoods or services produced

All inputs used to produce the

Productivity= OutputInput


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Improving Productivity

1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations

3. Develop methods for productivity improvements

4. Establish reasonable goals5. Make it clear that management supports and encourages

productivity improvement

6. Measure and publicize improvements

Dont confuseproductivitywith efficiency


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Chapter 3

Forecasting


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You should be able to: List the elements of a good forecast

Outline the steps in the forecasting process

Describe qualitative forecasting techniques and their

advantages and disadvantages Compare and contrast qualitative and quantitative

approaches to forecasting

Briefly describe averaging techniques, trend and seasonal

techniques, and regression analysis, and solve typical

problems Describe three measures of forecast accuracy

Describe two ways of evaluating and controlling forecasts

Identify the major factors to consider when choosing a

forecasting technique


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Forecast

Forecast a statement about the future valueof a variable of interest

We make forecasts about such things as weather,

demand, and resource availability

Forecasts are an important element in making

informed decisions


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An Important Input to Decision Making

The primary goal operations and supply chainmanagement is to match supply to demand

A demand forecast is essential for determining how

much supply will be needed to match demand:

Budget preparation

Capacity decisions (e.g., staff and equipment)

Purchasing decisions


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Forecast Uses

Plan the system Generally involves long-range plans related to:

Types of products and services to offer

Facility and equipment levels

Facility location

Plan the use of the system Generally involves short- and medium-range plans related to:

Inventory management

Workforce levels

Purchasing

Budgeting


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Elements of a Good Forecast

The forecast

should be timely

should be accurate

should be reliable

should be expressed in meaningful units

should be in writing

technique should be simple to understand and use

should be cost effective


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Steps in the Forecasting Process

1. Determine the purpose of the forecast

2. Establish a time horizon

3. Select a forecasting technique

4. Obtain, clean, and analyze appropriate data

5. Make the forecast

6. Monitor the forecast


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Forecasting Approaches

Qualitative Forecasting Qualitative techniques permit the inclusion ofsoftinformation such as:

Human factors

Personal opinions

Hunches

These factors are difficult, or impossible, to quantify

Quantitative Forecasting

Quantitative techniques involve either the projection of historical data or

the development of associative methods that attempt to use causal

variables to make a forecast

These techniques rely on harddata


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Time-Series Behaviors


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Time-Series Forecasting - Averaging

These Techniques work best when a seriestends to vary about an averageAveraging techniques smooth variations in the data

They can handle step changes or gradual changes in

the level of a series Techniques

Moving average

Weighted moving average

Exponential smoothing


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Simple Linear Regression

Regression - a technique for fitting a line to aset of data points

Simple linear regression - the simplest form of

regression that involves a linear relationship between

two variables

The object of simple linear regression is to obtain an

equation of a straight line that minimizes the sum of

squared vertical deviations from the line (i.e., the least

squares criterion)


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Monitoring the Forecast

Tracking forecast errors and analyzing them can provide usefulinsight into whether forecasts are performing satisfactorily

Sources of forecast errors

The model may be inadequate

Irregular variations may have occurred

The forecasting technique has been incorrectly applied

Random error

Control charts are useful for identifying the presence of non-

random error in forecasts

Tracking signals can be used to detect forecast bias


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Choosing a Forecasting Technique

Factors to consider

Cost

Accuracy

Availability of historical dataAvailability of forecasting software

Time needed to gather and analyze data and prepare

a forecast

Forecast horizon


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Using Forecast Information

Reactive approach View forecasts as probable future demand

React to meet that demand

Proactive approach

Seeks to actively influence demand Advertising

Pricing

Product/service modifications

Generally requires either and explanatory model or a subjective

assessment of the influence on demand


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Operations Strategy

The better forecasts are, the more able organizationswill be to take advantage of future opportunities and

reduce potential risks

A worthwhile strategy is to work to improve short-term forecasts

Accurate up-to-date information can have a significant effecton forecast accuracy:

Prices

Demand

Other important variables

Reduce the time horizon forecasts have to cover Sharing forecasts or demand data through the

supply chain can improve forecast quality


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Chapter 4

Product & Service Design


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You should be able to: Explain the strategic importance of product and service design

List some key reasons for design or redesign

Identify the key questions of product and service design

Discuss the importance of standardization Discuss the importance of legal, ethical, and sustainability

considerations in product and service design

Explain the purpose and goal of life cycle assessment

Explain the phrase the 3 Rs

Briefly describe the phases in product design and development


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Strategic Product and Service Design

The essence of an organization is the goods andservices it offers

Every aspect of the organization is structured around

them

Product and service design or redesign should beclosely tied to an organizations strategy


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What Does Product & Service Design Do?

1. Translates customer wants and needs into product and servicerequirements

2. Refines existing products and services

3. Develops new products and services

4. Formulates quality goals

5. Formulates cost targets

6. Constructs and tests prototypes

7. Documents specifications

8. Translates product and service specifications into process

specificationsInvolves Inter-functional Collaboration


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Ethical Considerations

Designers are often under pressure to Speed up the design process

Cut costs

These pressures force trade-off decisions What if a product has bugs?

Release the product and risk damage to your reputation

Work out the bugs and forego revenue


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Product or service life stages


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Life Stage Strategies

Introduction Weigh trade-offs between eliminating bugs and getting the product or

service to the market at an advantageous time

Accurate demand forecasts are important to ensuring adequate capacityavailability

Growth Demand forecasts are important to ensuring a continued adequate capacity

availability Design improvements

Emphasis on improved product or service reliability and lower cost

Maturity Relatively few design changes

Emphasis is on high productivity and low cost

Decline Continue or discontinue product or service

Identify alternative uses for product or service

Continued emphasis on high productivity and low cost


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Reliability

Reliability The ability of a product, part, or system to perform its

intended function under a prescribed set of conditions

Failure

Situation in which a product, part, or system does notperform as intended

Normal operating conditions

The set of conditions under which an items reliability isspecified


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Phases in Design & Development

1. Idea generation2. Feasibility analysis

3. Product specifications

4. Process specifications

5. Prototype development6. Design review

7. Market test

8. Product introduction

9. Follow-up evaluation


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Designing for Production

Concurrent engineering

Computer-assisted design

Designing for assembly and disassembly

Component commonality


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Quality Function Deployment (QFD)

QFDAn approach that integrates the voice of the

customer into both product and service development

Also known as the house of quality because of its

appearance


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Service Blueprint


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The Well-Designed Service System

Characteristics Being consistent with the organization mission

Being user-friendly

Being robust if variability is a factor

Being easy to sustain

Being cost-effective Having value that is obvious to the customer

Having effective linkages between back- and front-of-the-houseoperations

Having a single, unifying theme

Having design features and checks that will ensure service that

is reliable and of high quality


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Operations Strategy

Effective product and service design can help theorganization achieve competitive advantage:

Increasing emphasis on component commonality

Packaging products and ancillary services to increase sales

Using multiple-use platforms Implementing tactics that will achieve the benefits of high volume

while satisfying customer needs for variety

Continually monitoring products and services for small

improvement opportunities

Reducing the time it takes to get a new or redesigned product orservice to the market