Chapter

Chapter 11

Introduction to Operations Management

1
 Overview


Introduction

Historical Milestones in OM

Factors Affecting OM Today

Different Ways of Studying OM

Wrap-Up: What World-Class Producers Do

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 Introduction


Operations management is the management of an
organization’s productive resources or its production
system.

A production system takes inputs and converts them
into outputs.

The conversion process is the predominant activity of
a production system.

The primary concern of an operations manager is the
activities of the conversion process.

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 Organizational Model

Finance
Sales HRM

OM
QA
Marketing

MIS Accounting
Engineering

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 Entry-Level Jobs in OM


Purchasing planner/buyer

Production (or operations) supervisor

Production (or operations) scheduler/controller

Production (or operations) analyst

Inventory analyst

Quality specialist

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 Historical Milestones in OM


The Industrial Revolution

Post-Civil War Period

Scientific Management

Human Relations and Behaviorism

Operations Research

The Service Revolution

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 The Industrial Revolution


The industrial revolution developed in England in the
1700s.

The steam engine, invented by James Watt in 1764,
largely replaced human and water power for factories.

Adam Smith’s The Wealth of Nations in 1776 touted
the economic benefits of the specialization of labor.

Thus the late-1700s factories had not only machine
power but also ways of planning and controlling the
tasks of workers.

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 The Industrial Revolution


The industrial revolution spread from England to
other European countries and to the United Sates.

In 1790 an American, Eli Whitney, developed the
concept of interchangeable parts.

The first great industry in the US was the textile
industry.

In the 1800s the development of the gasoline engine
and electricity further advanced the revolution.

By the mid-1800s, the old cottage system of
production had been replaced by the factory system.

. . . more 8
 Post-Civil War Period


During the post-Civil War period great expansion of
production capacity occurred.

By post-Civil War the following developments set the
stage for the great production explosion of the 20th
century:

increased capital and production capacity

the expanded urban workforce

new Western US markets

an effective national transportation system

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 Scientific Management


Frederick Taylor is known as the father of scientific
management – popularised the concept of efficiency.

His shop system employed these steps:

Each worker’s skill, strength, and learning ability
were determined.

Stopwatch studies were conducted to precisely set
standard output per worker on each task.

Material specifications, work methods, and routing
sequences were used to organize the shop.

Supervisors were carefully selected and trained.

Incentive pay systems were initiated.
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 Scientific Management

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


Eg. Ford’s Model T car
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 Scientific Management


Scientific management’s thrust was at the lower
levels of the organisations heirarchy – the shop floor,
workers, foremen, superintendents


Mass production and efficiency were the main focus

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 Human Relations and Behavioralism


In the 1927-1932 period, researchers in the
Hawthorne Studies realized that human factors were
affecting production.

Researchers and managers alike were recognizing
that psychological and sociological factors affected
production.

From the work of behavioralists came a gradual
change in the way managers thought about and
treated workers.

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 Operations Research


During World War II, enormous quantities of
resources (personnel, supplies, equipment, …) had to
be deployed.

Military operations research (OR) teams were formed
to deal with the complexity of the deployment.

After the war, operations researchers found their way
back to universities, industry, government, and
consulting firms.

OR helps operations managers make decisions when
problems are complex and wrong decisions are
costly.
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 The Service Revolution


The creation of services organizations accelerated
sharply after World War II.

Today, more than two-thirds of the US workforce is
employed in services.

About two-thirds of the US GDP is from services.

There is a huge trade surplus in services.

Investment per office worker now exceeds the
investment per factory worker.

Thus there is a growing need for service operations
management.
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 The Computer Revolution


Explosive growth of computer and communication
technologies

Easy access to information and the availability of
more information

Advances in software applications such as Enterprise
Resource Planning (ERP) software

Widespread use of email

More and more firms becoming involved in E-
Business using the Internet

Result: faster, better decisions over greater distances
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 Computer revolution


Robotics and numerical control

Computer aided design

Statistical process control for quality (TQM)

JIT manufacturing

Benchmarking

ISO standards

Time based competition

Process reengineering

Outsourcing

Supply chain management

Virtual organisations
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 Today's Factors Affecting OM


Global Competition

Quality, Customer Service, and Cost Challenges

Rapid Expansion of Advanced Technologies

Continued Growth of the Service Sector

Scarcity of Operations Resources

Social-Responsibility Issues

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 Today's Factors Affecting OM


“To succeed in global competition, companies must
make a commitment to customer responsiveness and
continuous improvement toward the goal of quickly
developing innovative products and services that have
the best combination of exceptional quality, fast and
on-time delivery, and low prices and costs.”

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 Studying Operations Management


Operations as a System

Decision Making in OM

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 Operations as a System

Production System

Conversion
Inputs Outputs
Subsystem

Control
Subsystem

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 Inputs of an Operations System


External

Legal, Economic, Social, Technological

Market

Competition, Customer Desires, Product Info.

Primary Resources

Materials, Personnel, Capital, Utilities

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 Conversion Subsystem


Physical (Manufacturing)

Locational Services (Transportation)

Exchange Services (Retailing)

Storage Services (Warehousing)

Other Private Services (Insurance)

Government Services (Federal)

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 Outputs of an Operations System


Direct

Products

Services

Indirect

Waste

Pollution

Technological Advances

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 Production as an Organization Function


US companies cannot compete with marketing,
finance, accounting, and engineering alone.

We focus on OM as we think of global
competitiveness, because that is where the vast
majority of a firm’s workers, capital assets, and
expenses reside.

To succeed, a firm must have a strong operations
function teaming with the other organization
functions.

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 Decision Making in OM


Strategic Decisions

Operating Decisions

Control Decisions

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 Strategic Decisions


These decisions are of strategic importance and have
long-term significance for the organization.

Examples include deciding:

the design for a new product’s production process

where to locate a new factory

whether to launch a new-product development plan

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 Operating Decisions


These decisions are necessary if the ongoing
production of goods and services is to satisfy market
demands and provide profits.

Examples include deciding:

how much finished-goods inventory to carry

the amount of overtime to use next week

the details for purchasing raw material next month

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 Control Decisions


These decisions concern the day-to-day activities of
workers, quality of products and services, production
and overhead costs, and machine maintenance.

Examples include deciding:

labor cost standards for a new product

frequency of preventive maintenance

new quality control acceptance criteria

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 What Controls the Operations System?


Information about the outputs, the conversions, and
the inputs is fed back to management.

This information is matched with management’s
expectations

When there is a difference, management must take
corrective action to maintain control of the system

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 Wrap-Up: World Class Practice


OM important in any organization

Global competition forces rapid evolution of OM

Decision based framework focus of course

Strategic, Operating, and Control

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End of Chapter 1

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