Lecture Fundamentals of operations management (4/e): Chapter 1 - Davis, Aquilano, Chase

DAVIS
F   O   U   R   T   H       E   D   I   T   I   O   N

AQUILANO
CHASE

chapter 1

Introduction to Operations 
Management

© The McGraw-Hill Companies, Inc., 2003

PowerPoint
Presentation
by
Charlie
Cook


Chapter Objectives
Chapter Objectives
• Introduce and define operations management (OM) in
terms of its contribution and the activities it involves.
• Describe how operations contributes to the overall
betterment of society.
• Present operations as a function that addresses
issues in both manufacturing and services.
• Show how operations management is gaining more
recognition both internally and externally to an
organization.

Fundamentals of Operations 
Management 4e 

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Companies, Inc., 2003
1–2


Chapter Objectives (cont’d)
Chapter Objectives (cont’d)
• Demonstrate how the operations management
function interacts with the other functional areas within
an organization.
• Present a brief history of operations management as a
field and its evolution to its current role in an
organization.

Fundamentals of Operations 
Management 4e 

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Companies, Inc., 2003
1–3


Managerial Issues
Managerial Issues
• Shift in balance of power to consumers
–Globalization of business and markets
–E-commerce

• Achieving higher levels of productivity
–Creating higher quality products
–Delivering better customer service
–Achieving shorter delivery times
–Reducing labor and material costs

Fundamentals of Operations 
Management 4e 

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Companies, Inc., 2003
1–4


What Is Operations Management?
What Is Operations Management?
• Operations Management
–Management of the conversion process which
transforms inputs such as raw material and
labor into outputs in the form of finished goods
and services.
Inputs
(customers
and/or
materials)

Transformation Process
(components)

Fundamentals of Operations 
Management 4e 

Outputs
(goods
and
services)

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Companies, Inc., 2003
1–5


Role of OM within an Organization
Role of OM within an Organization

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.1
1–6


Top­down Approach to OM Strategy
Top­down Approach to OM Strategy
• Operations Strategy Decisions
–Strategic (long-range)
• Needs of customers

(capacity planning)

–Tactical (medium-range)
• Efficient scheduling of
resources

–Operational planning
and control (short-range)
• Immediate tasks and
activities

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
1–7


An Operational­Level OM Perspective
An Operational­Level OM Perspective
• OM’s function focuses on adding value
through the transformation process
(technical core) of converting inputs into
outputs.
–Physical: manufacturing
–Locational: transportation
–Exchange:retailing
–Storage: warehousing
–Physiological: health care

–Informational: telecommunications
© The McGraw­Hill 

Fundamentals of Operations 
Management 4e 

Companies, Inc., 2003
1–8


The Transformation Process within OM
The Transformation Process within OM

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.2
1–9


Input­Transformation­Output
Input­Transformation­Output
Relationships for Typical Systems
Relationships for Typical Systems

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.3
1–10


OM’s Contributions to Society
OM’s Contributions to Society
• Higher Standard of Living
–Ability to increase productivity
–Lower cost of goods and services

• Better Quality Goods and Services
–Competition increases quality

• Concern for the Environment
–Recycling and concern for air and water quality

• Improved Working Conditions
–Better job design and employee participation
© The McGraw­Hill 
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
1–11


Annual Change in Productivity in 
Annual Change in Productivity in 
the United States (1980­2000)

the United States (1980­2000)

Fundamentals of Operations 
Management 4e 

Source: Economic Report of the President, United States
Government Printing Office, Washington, DC. January, 2001.

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.4
1–12


Services as a Percent of Gross Domestic 
Services as a Percent of Gross Domestic 
Product (GDP)  for Different Countries
Product (GDP)  for Different Countries

Fundamentals of Operations 
Management 4e 

Source: The World Factbook 2000, Central
Intelligence Agency, Washington, DC.

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.5
1–13

The Emergence of OM
The Emergence of OM
• Application of OM to Service Operations
–Batch cooking operations at McDonald’s
–Just-in-Time (JIT) at Northern Telecomm, Inc.
–Automatic inventory replenishment at Wal-Mart

Service

Product

Fundamentals of Operations 
Management 4e 

Good

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Companies, Inc., 2003
1–14


Growth in Services in the United States
Growth in Services in the United States
         

1­6

Fundamentals of Operations 
Management 4e 

Source: Handbook of U.S. Labor Statistics, edited by Eva E. Jacobs,
Fifth Edition, Bernan Press, 2001, Table 2-1, pp. 161–164.

        

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.6
1–15


Differences Between 
Differences Between 
Goods and Services
Goods and Services
•          
Goods
–Tangible
–Can be
inventoried
–No interaction
between
customer and
process
1­6

Fundamentals of Operations 
Management 4e 

•        
Services
–Intangible
–Cannot be
inventoried
–Direct interaction
between
customer and
process

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.7
1–16


Most Products Are a “Bundle” 
Most Products Are a “Bundle” 
of Goods and Services
of Goods and Services

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.8
1–17

An Expanded Definition of Quality
An Expanded Definition of Quality
• Quality is important in all functional areas of
an organization.
• Quality is now much more than the technical
requirements for manufactured goods.
• Service quality (customer
relationships) is equally
important.
Quality

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
1–18


A New Paradigm for OM
A New Paradigm for OM
• Post-War U.S. Dominance in Manufacturing
–Available capacity built to support the war effort
–Pent-up demand for consumer goods
–Destruction of overseas production capabilities

• Proactive Operations Function (Skinner)
–Add value to products, increase profit margins.
–Compete on dimensions other than costs:
• Quality

• Speed of delivery
• Process flexibility

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
1–19


The Ever­Changing World of OM
The Ever­Changing World of OM
• Increased Global Competition
–Transformation into a global economy
–Pressure to excel on multiple competitive
dimensions
–Increased emphasis on logistics

• Advances in Technology
–Information technology (IT)
–Internet email and commerce (B2B)
–Automation and robotics
Fundamentals of Operations 
Management 4e 

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Companies, Inc., 2003
1–20

Ford’s Global Network to Support
Ford’s Global Network to Support
the Manufacturing of the Escort
the Manufacturing of the Escort

Fundamentals of Operations 
Management 4e 

Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed.
(New York: W.W. Norton and Company, 1997), p. 58.

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.9
1–21


Linking OM to Customers and Suppliers
Linking OM to Customers and Suppliers
• Benefits of Buffering the Transformation
Process
–The process was not disturbed by
environmental interaction.
–The process was often more efficient than input
and distribution processes.
–Productivity was maximized when processes
operated at continuous rates.
–Process management skills were different from
those of other functional activities.

© The McGraw­Hill 
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
1–22


Linking OM to Customers and Suppliers
Linking OM to Customers and Suppliers
• Disadvantages of Buffering the Transformation
Process
–Information lag in interaction with other
functional activities.
–Lack of communication between customers and
the shop floor for problem solving.

• Value Chain
–Steps an organization requires to produce a
good or a service regardless of where they are
performed.
© The McGraw­Hill 
Fundamentals of Operations 
Companies, Inc., 2003
Management 4e 
1–23


The Value Chain and Its Support Functions
The Value Chain and Its Support Functions

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.10
1–24


Line and Staff Jobs in OM
Line and Staff Jobs in OM

Fundamentals of Operations 
Management 4e 

© The McGraw­Hill 
Companies, Inc., 2003
Exhibit 1.11
1–25