Course Notes Operations Management Introduction

1: Introduction to Operations Management

Charles E. Oyibo

Operations Management

Operations Management is the management of processes or systems that create goods and/or provide services.

A typical organization has three basic functions: finance, marketing, and operations.

Operations

The operations function consists of all activities directly related to producing goods and providing services. Operations involve the following steps:

• Input: land, labor, capital, raw materials, information, and time

• The transformation/conversion processes

• Output of goods and services

• Feedback: taking measurements at various points of the transformation process to ensure that the desired output is obtained

• Control: comparing output with previously established standards to determine whether corrective action is needed

The essence of the operations function is to add value during the transformation process. Value-added describes the difference between the cost of inputs and the value or price of outputs.

One way that businesses attempt to become more productive is to critically examine whether operations performed by their workers add value. Businesses consider those that do not add value wasteful, and task themselves with eliminating or improving such operations.

Finance

The finance function comprises activities related to securing resources at favorable prices and allocating those resources throughout the organization.

Marketing

Marketing focuses on selling and/or promoting the goods and services of the organization. Marketing is also responsible for assessing customer’s wants and needs, and for communicating those to operations people (short-term) and to design people (long-term). That is, operations needs information about demand over the short-term so that it can plan accordingly (purchase materials, schedule work, etc.), while design people need information that relates to improving current product and services and designing new ones.

Other Functions

• Accounting
• Management Information Systems
• Product Design and Development
• Purchasing
• Personnel/Human Resources
• Public Relations
• Industrial Engineering
• Distribution
• Maintenance

The Scope of Operations Mangement

Introduction to Operations Management

• Definition of Operations Management

• Relationship of Operations to other business functions
  • Finance
  • Marketing
  • Accounting
  • MIS/IT

• Differentiating features of Operations Systems
  • Degree of standardization
    • Systems with standardized output can take advantage of standardized methods, less-skilled workers, materials, and machanization, all of which contribute to higher volumes and lower unit costs.
  • Type of operation
    • Single, large scale product or service (lauching a space shuttle, building a skyscraper)
    • Customized, individual units of output (custom-made furniture, special-purpose machines, autorepair)
    • Batches (paint, food products)
    • Mass production (automobiles, personal computers, appliances)
    • Continuous process (oil refining)
  • Production of goods versus service operations
    • Customer contact
    • Uniformity of input
    • Labor content of jobs
    • Uniformity of output
    • Measurement of productivity
    • Simultaneous production and delivery
    • Quality Assurance issues

• Operations Managers and Decision Making
  • Models
    • Physical models (scale-model buildings)
    • Schematic models (graphs, charts, blueprints)
    • Mathematical models (formulas, theorems)
  • Quantitative Approaches
    • Linear programming
    • Queuing techniques
    • Inventory models
    • Project models (like program evaluation and review technique, PERT, and critical path method, CPM)
    • Forecasting techniques
    • Statistical models
  • Analysis of Trade-offs
  • A Systems Approach
  • Establishing Priorities
  • Ethics

• History of Operations Management
  • The Industrial Revolution
    • Craft production
    • c. 1764, Steam Engine "made practical" by James Watt
    • 1770, James Hargreaves, the Spinning Jinny & 1785, Edmund Cartwright, power loom (Textile)
    • Major boost to IR: Development of standard guaging system
  • Scientific Management
    • Spearheaded by "efficiency engineer" and inventor, Frederick Winslow Taylor (the "Father of Scientific Management"). Emphasized maximizing output
    • Industrial engineer, Frank Gilbreth ("Father of Motion Study").
    • Henry Gantt, recognized value of nonmonetary rewards to motivate workers; developed Gantt Charts
    • Harrington Emerson
    • Henry Ford; Mass production
      • Interchangeable parts (attributed to Eli Whitney, who applied to concept to assembling musket in the late 1700s)
      • Division of Labor (Adam Smith, The Wealth of Nations (1776)
  • The Human Relations Movement
    • Lillian Gilbreth (with Frank Gilbreth) studied the human factor in work
    • Elton Mayo, conducted studies in the Hawthorne division of Western Electric
    • Abraham Maslow, Motivational Theories (1940s); refined by Frederick Hertzberg (1950s)
    • Douglas McGregor, Theory X and Theory Y (1960s)
    • William Ouchi, Theory Z
  • Decision Models
    • FW Harris, A Mathematical Model for Inventory Management, 1915
    • HF Dodge, HG Romig, W Shewhart (all at Bell Telephone Labs), developed statistical procedures for sampling and quality control, 1930s
    • 1935, LHC Tippett, laid groundwork for statistical-sampling theory
  • Influence of Japanese Manufacturing
    • Emphasized quality, continual improvement, worker teams and empowerment, and achieving customer satisfaction
    • Time-base management (just-in-time production)
• Trends in Business
  • Recent Trends
    • The Internet and e-business
    • Supply chain
  • Continuing Trends
    • Quality and proces improvements
    • Technology
    • Globalization
    • Environmental issues
    • Corporate downsizing
    • Lean production

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