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Operation management

PPT on Operation Management.

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Operation management

  1. 1. IntroductionIntroduction toto OperationsOperations ManagementManagement
  2. 2. ContentsContents 1- What is Operations Management (OM)?1- What is Operations Management (OM)? 2- Importance of OM .2- Importance of OM . 3- OM decisions.3- OM decisions. 4- OM's contributions to society.4- OM's contributions to society. 5- OM of service & manufacturing organizations5- OM of service & manufacturing organizations 6- The ever-changing world of OM6- The ever-changing world of OM 7- Make or buy decision7- Make or buy decision 8- Historical development of OM.8- Historical development of OM.
  3. 3. 1- What is operations management (OM)?1- What is operations management (OM)? OM definitionOM definition Responsibilities of operations managersResponsibilities of operations managers Difference between OM and PMDifference between OM and PM
  4. 4. What is operations management ?What is operations management ? 1-The collection of people, technology, and systems within a company that has primary responsibility forresponsibility for providing the organization’s products or services.providing the organization’s products or services. 2-The management of the direct recourses that are required to produce and deliver an organization's goods and services . 3- A discipline and profession that studies and practices the process of planning, designing, and operating production systems and subsystems to achieve the goals of the organization. 4- The business function responsible for planning,planning, coordinating, and controllingcoordinating, and controlling the resources needed to produce a company’s products and services. 5- The management of the5- The management of the conversion processconversion process thatthat transforms inputs into outputs in the form of finishedtransforms inputs into outputs in the form of finished goods and services.goods and services.
  5. 5. INPUTS •Material •Machines •Labor •Management •Capital - Customer TRANSFORMATION PROCESS OUTPUTS •Goods •Services FeedbacFeedbac kk Operations as a transformation processOperations as a transformation process
  6. 6. Inputs and Outputs of a production systemInputs and Outputs of a production system InputsInputs External:External:  Legal, Economic, Social, Technological Market:Market:  Competition, Customer Desires, Product Info. Primary Resources:Primary Resources:  Materials, Personnel, Capital, Utilities OutputsOutputs DirectDirect  Products  Services IndirectIndirect  Waste  Pollution  Technological Advances
  7. 7. The transformation process withinThe transformation process within OMOM
  8. 8. Input-transformation-output relationships for typical systemsInput-transformation-output relationships for typical systems
  9. 9. What is operations management ?What is operations management ?  Operations management is the set of activities that createcreate valuevalue in the form of goods and services by transforming inputs into outputs  Value addedValue added is theis the net increase between output product value andnet increase between output product value and input material valueinput material value ((The value of the outputs is greater than theoutputs is greater than the value of the inputsvalue of the inputs, resulting in the profitprofit or the benefitbenefit for government or non-profit organizations)  All types of organizationsAll types of organizations, manufacturing or service, large or small, transform inputs into outputstransform inputs into outputs.  Every organization has OM functionEvery organization has OM function, since all organizations provide products or servicesprovide products or services, but the function may be formal orformal or informalinformal (In manyIn many smallersmaller organizations operations managementorganizations operations management may be done by people who perform many other types of taskmay be done by people who perform many other types of task such assuch as marketing and accountingmarketing and accounting))
  10. 10. What's the difference between PM andWhat's the difference between PM and OM?OM?  Some thinks that they are really one and the same by different names.  others think that production management is just a subset of operationssubset of operations management because operationsmanagement because operations involve more than just production.involve more than just production.  ifif servicesservices conceptconcept addedadded to theto the production management it can beproduction management it can be calledcalled operations management.operations management.
  11. 11. What responsibilities do operations managersWhat responsibilities do operations managers have?have?  Direct responsibilitiesDirect responsibilities :  the activities which are directly related to producing and delivering products and services.producing and delivering products and services.  Indirect responsibilitiesIndirect responsibilities :  the activities involved in interfacing with otherinterfacing with other parts of the organisationparts of the organisation.  Broad responsibilitiesBroad responsibilities :  a wider set of tasks that involve scanning thescanning the business, social and political environmentbusiness, social and political environment in which the organisation exists in order to understand its context.
  12. 12. Responsibilities of OM Products & servicesProducts & services PlanningPlanning – CapacityCapacity – LocationLocation – – Make or buyMake or buy – LayoutLayout – ProjectsProjects – SchedulingScheduling Controlling/ImprovingControlling/Improving – InventoryInventory – QualityQuality OrganizingOrganizing – Degree of centralizationDegree of centralization – ProcessProcess selectionselection StaffingStaffing – Hiring/laying offHiring/laying off – Use of OvertimeUse of Overtime DirectingDirecting – Incentive plansIncentive plans – Issuance of work ordersIssuance of work orders – Job assignmentsJob assignments – CostsCosts – ProductivityProductivity
  13. 13. (2) Importance of OM(2) Importance of OM
  14. 14. Importance of OMImportance of OM 1-1- Operations is an importantOperations is an important part ofpart of every organizationevery organization 2- We should2- We should know howknow how goods and services are produced (goods and services are produced (All managersAll managers should have an understanding the main principles and tools of OM)should have an understanding the main principles and tools of OM) 3-3- It is responsible for the customer fulfillment aspects of an organization.It is responsible for the customer fulfillment aspects of an organization. Thus,Thus, it manages customer satisfactionit manages customer satisfaction .. 4- OM is such a4- OM is such a costly part of an organizationcostly part of an organization .. (For most organizations it(For most organizations it absorbs a huge percentage of required capital )absorbs a huge percentage of required capital ) Companies need to haveCompanies need to have efficient operations to surviveefficient operations to survive .. ToTo succeed, a firm must havesucceed, a firm must have a strong operations functiona strong operations function teaming with the other organization functionsteaming with the other organization functions.. 5-5- OMOM responsible to increase productivity and profitabilityresponsible to increase productivity and profitability .. Increasing overall productivity leads to economic growth and a higherIncreasing overall productivity leads to economic growth and a higher standard of living.standard of living. 6- Operational decision-making6- Operational decision-making requires a long-term perspectiverequires a long-term perspective andand requiresrequires inputs from all business functionsinputs from all business functions .. OM Decisions tend to be costly and difficult to reverseOM Decisions tend to be costly and difficult to reverse
  15. 15. Strategic options managers use to gain competitive advantageStrategic options managers use to gain competitive advantage  28% -28% - Operations Management (+quality?)Operations Management (+quality?)  18% - Marketing/distribution18% - Marketing/distribution  17% - Momentum/name recognition17% - Momentum/name recognition  16% - Quality/service16% - Quality/service  14% - Good management14% - Good management  4% - Financial resources4% - Financial resources  3% - Other3% - Other
  16. 16. In briefIn brief…..…..  OM plays an important, although not always obvious, role in societies in which we live.  It is responsible forIt is responsible for the food we eatfood we eat and even the tabletable on eat it; it provides us with the clothinclothing we wear, with vehiclesvehicles we use for transportation, and with the "toys""toys" we use for recreation, from baseballs and bats to computer games.  In other words, operations management affectsIn other words, operations management affects nearly all aspects of our day-to-day activities.nearly all aspects of our day-to-day activities.
  17. 17. Some definitionsSome definitions  Productivity:Productivity:  The ration of what is produced by an operation or process to what is required to produced it, that is ,the output from the operations divided by the input to the input operation (ratio of output to input)  Efficiency:Efficiency:  producing something at theproducing something at the lowest possible costlowest possible cost  Effectiveness:Effectiveness:  doing the right things to create the most value for the firm  ValueValue  quality divided by price  Competitive advantage:Competitive advantage: competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices
  18. 18. 3- OM decisions3- OM decisions StrategicStrategic TacticalTactical operationaloperational
  19. 19.  Where should we locate our facilitylocate our facility  How much capacitycapacity do we need  What should we make,make, what should we buybuy  What technologyechnology should we use  How do we insure appropriate qualityquality  Who should we use as vendorsvendors  How much inventoryinventory do we need  How should we scheduleschedule our resources Main operational decisionsMain operational decisions
  20. 20. Critical decisions of OMCritical decisions of OM  Product & service design.Product & service design.  Quality management.Quality management.  Process design.Process design.  Capacity & location of facilities.Capacity & location of facilities.  Layout of facilities.Layout of facilities.  Human resource & Job design.Human resource & Job design.  Supply-chain management.Supply-chain management.  Inventory management.Inventory management.  Scheduling.Scheduling.  Maintenance.Maintenance.
  21. 21. OM decisionsOM decisions Operations managers must make decisions on three levels:Operations managers must make decisions on three levels:
  22. 22. Strategic decisionsStrategic decisions  senior management responsibilitysenior management responsibility  MoreMore broadbroad in naturein nature  Determine the success of an organization's strategyDetermine the success of an organization's strategy,,  Very risky and hard toVery risky and hard to reversereverse  Have significantHave significant long - termlong - term impact, ,andimpact, ,and  less frequent.less frequent.  Examples:Examples:  How will we make the product?  Where do we locate the facility?  How much capacity do we need?  When should we add more capacity?
  23. 23. Tactical decisionsTactical decisions  Medium-Medium- range decisions focus on resource needs,range decisions focus on resource needs, schedules, & quantities to produceschedules, & quantities to produce  Tactical decisions areTactical decisions are frequentfrequent, must align with, must align with strategic decisions.strategic decisions.  Involves resource allocation and utilization.Involves resource allocation and utilization.  Involves aInvolves a moderate degree of uncertainty and riskmoderate degree of uncertainty and risk....  They are the link between lower and high levelThey are the link between lower and high level managementmanagement  Examples:Examples:  How many workers do we need?How many workers do we need?  When do we need them?When do we need them?  Should we work overtime or put on a second sift?Should we work overtime or put on a second sift?  When should we have material delivered?When should we have material delivered?  Should we have a finished goods inventory?Should we have a finished goods inventory?
  24. 24. Operational decisionsOperational decisions  Involves a short time horizonshort time horizon.  Involves very little uncertainty and risk.  Examples :Examples :  What jobs do we work on today or this week?  To whom do we assign what task?  What jobs have priority?
  25. 25. OM decisionsOM decisions Strategic Tactical Operating Characteristics Longer term decisions Medium term decisions Shorter term decisions Responsibility of the senior management Responsibility of middle and senior managers Responsibility of middle and lower management levels High capital investment Broad in nature Narrow in scope These decisions concern the day-to- day activities of workers
  26. 26. 4- OM's contributions to society4- OM's contributions to society Higher Standard of LivingHigher Standard of Living Better Quality Goods and ServicesBetter Quality Goods and Services Concern for the EnvironmentConcern for the Environment Improved Working ConditionsImproved Working Conditions
  27. 27. Operations management's contributions to societyOperations management's contributions to society OM's contributions to society:-OM's contributions to society:- ((A)- Higher Standard of LivingA)- Higher Standard of Living (B) - Better Quality Goods and Services(B) - Better Quality Goods and Services (C)- Concern for the Environment(C)- Concern for the Environment (D)- Improved Working Conditions(D)- Improved Working Conditions
  28. 28. (A)- Higher standard of living  A major factor in raising the standard of living in a society is the ability to increase its productivityability to increase its productivity.  Higher productivity is the result of increased efficiency inHigher productivity is the result of increased efficiency in operationsoperations, which in turn translates into lower cost goodswhich in turn translates into lower cost goods and servicesand services.  Thus, higher productivity providesThus, higher productivity provides consumers with more discretionaryconsumers with more discretionary income, which contributes to theirincome, which contributes to their higher standard of living.higher standard of living.
  29. 29. 1-Improve productivity1-Improve productivity 3- Lower cost of goods & services3- Lower cost of goods & services 5-Higher standard of living5-Higher standard of living Higher standard of livingHigher standard of living 2- Result of increased2- Result of increased efficiency in operationsefficiency in operations 4- More income4- More income
  30. 30. (B) - Better quality of goods and services(B) - Better quality of goods and services  One of the manyOne of the many consumer benefitsconsumer benefits of increasedof increased competition is the higher-quality products that arecompetition is the higher-quality products that are available today.available today.  Quality standards are continually increasingQuality standards are continually increasing..  Many companies today have establishedMany companies today have established Six-SigmaSix-Sigma quality standardsquality standards (pioneered by Motorola in the late(pioneered by Motorola in the late 1980s), resulting in no more than1980s), resulting in no more than 3.4 defects per3.4 defects per millionmillion opportunities.opportunities.  Such high quality standards wereSuch high quality standards were onceonce considered notconsidered not only prohibitively expensive but also virtuallyonly prohibitively expensive but also virtually impossible to achieve even if cost wasn't aimpossible to achieve even if cost wasn't a consideration.consideration.  Today we know that such high quality is not only veryToday we know that such high quality is not only very possible, but also results in lower costs, becausepossible, but also results in lower costs, because firms can reduce their waste and rework.firms can reduce their waste and rework.
  31. 31. (C)- Concern for the environment(C)- Concern for the environment Many companies today are taking up theMany companies today are taking up the challenge tochallenge to produce environmentallyproduce environmentally friendly products with environmentallyfriendly products with environmentally friendly processesfriendly processes, all of which falls, all of which falls under the purview of operationsunder the purview of operations management.management.  Recycling and concern for air and waterRecycling and concern for air and water qualityquality
  32. 32. (D)-Improved working conditions  Managers recognize the benefits of providing workers withbenefits of providing workers with better working conditions.better working conditions.  This includes not only the work environmentwork environment but also the design of the jobs themselvesdesign of the jobs themselves.  Workers are now encouraged to participate in improvingparticipate in improving operations through suggestionsoperations through suggestions.  After all, who would know betterwho would know better how to do a particular operation than that person who does it every daythan that person who does it every day.  Managers also have learned that there is a very clearvery clear relationship between satisfied workers and satisfiedrelationship between satisfied workers and satisfied customers, especially in service operations.customers, especially in service operations.  ((EmpowermentEmpowerment :The concept of encouraging and authorizing workers to take the initiative to improve operations, reduce costs, and improve product quality and customer service.)
  33. 33. 5- OM of service and manufacturing organizations5- OM of service and manufacturing organizations Importance of service nowImportance of service now Service natureService nature The affect of service nature on OM activitiesThe affect of service nature on OM activities
  34. 34. OM of service and manufacturing organizationsOM of service and manufacturing organizations  Initially, operations management concepts focused almost entirely on manufacturingfocused almost entirely on manufacturing.  As countries become more developedmore developed, services continue to represent a largerlarger percentage of their economies.percentage of their economies.  Now Less than 20%Now Less than 20% of all jobs are in manufacturing (and they are declining)and they are declining)  Almost 80% of jobs are in the service sector (and they are increasing)  Nearly half of all jobs are in POM
  35. 35. Services as a percent of Gross Domestic Product (GDP) for different countriesServices as a percent of Gross Domestic Product (GDP) for different countries
  36. 36. 1850 Services Industry Farming 80% 40% 0 U.S. Employment, % Share Development of the service economyDevelopment of the service economy 19501900 2000
  37. 37. U.S. manufacturing vs serviceU.S. manufacturing vs service employmentemployment Year Mfg. Service 45 79 21 50 72 28 55 72 28 60 68 32 65 64 36 70 64 36 75 58 42 80 44 46 85 43 57 90 35 65 95 32 68 00 30 70
  38. 38. Growth in services in the United StatesGrowth in services in the United States
  39. 39. Service and manufacturing similaritiesService and manufacturing similarities  All use technology  Both have quality, productivity, & response issues  All must forecast demand  Each will have capacity, layout, and location issues  All have customers and suppliers  All have scheduling and staffing issues
  40. 40. Manufacturing vs. serviceManufacturing vs. service Characteristic Manufacturing Service Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct Tangible Low High Low High Easy High Intangible High Low High Low Difficult Low quality problemsHigh
  41. 41. Manufacturing vs. serviceManufacturing vs. service 1- Customer contact:1- Customer contact: Service, by natureService, by nature, involves a much high degree of customer contactinvolves a much high degree of customer contact thanthan manufacturing.manufacturing. The performance of service often occurs at theThe performance of service often occurs at the point of consumptionpoint of consumption.. Manufacturing allows aManufacturing allows a separation between production and consumptionseparation between production and consumption, so, so that manufacturing can occur away from the consumer.that manufacturing can occur away from the consumer. Customer are sometimes apart of the system (self-service operations-shoppingCustomer are sometimes apart of the system (self-service operations-shopping +gas stations)+gas stations) so tight control on process is impossibleso tight control on process is impossible 2- Uniformity of input:2- Uniformity of input:  Service operations are subject toService operations are subject to greater variability of inputgreater variability of input than typicalthan typical manufacturing operations.manufacturing operations.  Each patient, each client and each auto repairEach patient, each client and each auto repair presents a specificpresents a specific problemproblem that often must be diagnosed before it can be remediedthat often must be diagnosed before it can be remedied  Manufacturing operations oftenManufacturing operations often have the ability to carefully control thehave the ability to carefully control the amount of variability of inputamount of variability of input and thus achieve low variability in outputs.and thus achieve low variability in outputs.  Job requirements for manufacturing are generally more uniform than those forJob requirements for manufacturing are generally more uniform than those for serviceservice
  42. 42. Manufacturing vs. serviceManufacturing vs. service 3-3- Labor content of jobs:Labor content of jobs: Many services involve a higher labor content than manufacturing operations 4-4- Uniformity of outputUniformity of output Because high mechanization generates products with lowBecause high mechanization generates products with low variability , manufacturing tends to be smooth and efficient ,variability , manufacturing tends to be smooth and efficient , service activities sometimes appear to be slow and awkwardslow and awkward and output is more variable. Automated services are exception to thisAutomated services are exception to this 5-5- Measurement of productivityMeasurement of productivity Measurement of productivity is more straightforwardstraightforward in manufacturing due to the high degree of uniformity of mostuniformity of most manufacturing items.manufacturing items. In service operations , variations in demand intensity and invariations in demand intensity and in requirements from job to job make productivity measurementrequirements from job to job make productivity measurement more difficultmore difficult
  43. 43. Colegio de San Juan de Letran Management/HumanResourceArea •Attributes ofAttributes of GOODSGOODS Tangible productTangible product - Product can be inventoried.inventoried. - Some aspect of qualityquality are measurable. - Selling is distinct from production. - SiteSite of facility is important for cost.cost. - Often easy to automateautomate. - Revenue is generated primarily from the tangibletangible product.product. CapitalCapital intensive Goods vs. servicesGoods vs. services •Attributes of SERVICESAttributes of SERVICES • Intangible ProductsIntangible Products - Many services cannot be inventoried. - Many aspects of quality are difficult to measure. - Selling is often a part of the servicepart of the service. Provider, not product, is often transportable. SiteSite of facility is important for customercustomer contact.contact. Service is often difficult to automateautomate. Revenue is generated primarily from the intangible serviceintangible service. LaborLabor intensiveintensive
  44. 44. 6- The ever - changing world of OM6- The ever - changing world of OM Increased global competitionIncreased global competition Advances in technologyAdvances in technology Linking OM to customers and suppliersLinking OM to customers and suppliers
  45. 45. The ever-changing world of OMThe ever-changing world of OM  Operations management is continuouslyOperations management is continuously changing to meet the new and excitingchanging to meet the new and exciting challenges of today's business world.challenges of today's business world.  This ever-changing world isThis ever-changing world is characterized bycharacterized by increasing global competition and advances inincreasing global competition and advances in technology. Emphasis is also shifting within thetechnology. Emphasis is also shifting within the operations function to link it more closely with bothoperations function to link it more closely with both customers and suppliers.customers and suppliers.  Here we will consider these issuesHere we will consider these issues:
  46. 46. (A)- Increased global competition(A)- Increased global competition  Global (economy, village, and landscape): are terms used to describe how the world is becoming smaller, and countrieshow the world is becoming smaller, and countries are becoming more dependent on each other.are becoming more dependent on each other.  The world is rapidly transforming itself into a single global economy,The world is rapidly transforming itself into a single global economy, which referred to as a global village or global landscape.which referred to as a global village or global landscape.  Markets once dominated by local or national companies are nowMarkets once dominated by local or national companies are now vulnerable tovulnerable to competitioncompetition from literally all corners of the world.from literally all corners of the world. For example, in theFor example, in the 1960s,1960s, only 7only 7 percentpercent of the firms in the Unitedof the firms in the United States exposed to foreign competition; by the lateStates exposed to foreign competition; by the late 1980s,1980s,  This figure exceededThis figure exceeded 70 percent70 percent, and that percentage has, and that percentage has continued to grow.continued to grow.  Consequently, as companiesConsequently, as companies expand their business to includeexpand their business to include foreign markets, so too must the operations managementforeign markets, so too must the operations management functionfunction take a more global perspective in order for companiestake a more global perspective in order for companies to remain competitive.to remain competitive.  To s prosper in such a global marketplace companiesTo s prosper in such a global marketplace companies must excelmust excel in more than one dimensionin more than one dimension, which previously was the norm., which previously was the norm.
  47. 47. Ford’s Global Network to Support the Manufacturing of the EscortFord’s Global Network to Support the Manufacturing of the Escort
  48. 48. ((B)- Advances in technologyB)- Advances in technology  Advance in technology in recent years have had a significant effect on the OM function:  IT+ automation + Internet  Competition  Product life cycle  New jobs  Robots  E-???
  49. 49. (C )- Linking OM to customers and suppliers(C )- Linking OM to customers and suppliers  In the pastIn the past, most manufacturing organizations viewed operations strictly as an internal function that hadinternal function that had to be buffered from the external environment by otherbuffered from the external environment by other organizational functions.organizational functions.  Orders were generated by the marketing functionmarketing function; supplies and raw materials were obtained through the purchasing functionpurchasing function; capital for equipment purchases came from the finance function; the labor force was obtained through the humanhuman resources functionresources function; and the product was delivered by the distribution functiondistribution function  Now more and more firms are recognizing the competitive advantage achieved when the transformation process is notis not isolatedisolated, as when customers are invited to view theiras when customers are invited to view their operating facilities firsthandoperating facilities firsthand
  50. 50. (C )- Linking OM to customers and suppliers(C )- Linking OM to customers and suppliers companies are workingcompanies are working more closely with suppliersmore closely with suppliers..  Firms like Toyota, have suppliersFirms like Toyota, have suppliers deliver product directly todeliver product directly to the factory floor, eliminating need for a stockroom.the factory floor, eliminating need for a stockroom.  The relationship between the transformation processes of suppliersThe relationship between the transformation processes of suppliers and customer often referred to as aand customer often referred to as a product's value chain.product's value chain.  ( steps an organization requires to produce a good or service, regardless of( steps an organization requires to produce a good or service, regardless of where the are performed)where the are performed)  A value chain consists of all the stepsA value chain consists of all the steps actually add value toactually add value to the productthe product. This concept helps managers to eliminate all non. This concept helps managers to eliminate all non added steps (suchadded steps (such as inspections and inventoryas inspections and inventory ) and) and consequently results in a higher of dependence among the value-consequently results in a higher of dependence among the value- added functions within the chain.added functions within the chain.  This integration of both suppliers and customers into theThis integration of both suppliers and customers into the transformation process to blur the boundaries between what weretransformation process to blur the boundaries between what were previously totally independent organizations (previously totally independent organizations (Virtual enterprises)Virtual enterprises)  (company whose boundaries are not clearly defined due to the integration of(company whose boundaries are not clearly defined due to the integration of customers and suppliers)customers and suppliers)
  51. 51. 7- Make or buy?7- Make or buy? CapacityCapacity ExpertiseExpertise QualityQuality DemandDemand CostCost RiskRisk
  52. 52. Make or buy?Make or buy?  Many organizations buy parts or contract out services,Many organizations buy parts or contract out services, for a variety of reasons. Among those factors are:for a variety of reasons. Among those factors are: 1- Available capacity:1- Available capacity:  If an organization has available the equipment,equipment, necessary skills, and timenecessary skills, and time, it often make sense to produce an item or perform a service in-house.  The additional costs would be relatively small compared with required to buy items or subcontract services. 2- Expertise:2- Expertise:  If a firm lacks the expertiselacks the expertise to do a job satisfactorily, buyingbuying might be a reasonable alternative.
  53. 53. Make or buy?Make or buy? 3- Quality consideration:3- Quality consideration: Firms that specialize can usually offer high qualityspecialize can usually offer high quality than an organization can attain itself. Conversely, unique quality requirements or the desire to closelyclosely monitormonitor quality may cause an organization to perform a job itself. 4- The nature of demand:4- The nature of demand: When demand for an item is high and steadyhigh and steady, the organization is often better off doing the work itselfdoing the work itself. However, wide fluctuations in demand or small ordersfluctuations in demand or small orders are usually better handled by specializations who are able to combinecombine orders from multiple sources, which results in a higherorders from multiple sources, which results in a higher volumevolume and tends to offset individual buyer fluctuations.
  54. 54. Make or buy?Make or buy? 5- Cost:5- Cost: any cost savings achieved from buying or making must be weightedany cost savings achieved from buying or making must be weighted against the preceding factorsagainst the preceding factors. Cost saving might come from the item itself or from transportation cost savings. If there are fixed costs associated with making an item that cannot be reallocated if thecannot be reallocated if the service or product is outsourcedservice or product is outsourced , that has to be recognized in the analysis. Conversely, outsourcing may help a firm avoid incurring fixed costs. 6- Risk:6- Risk: Outsourcing may involve certain risks. one isOutsourcing may involve certain risks. one is loss of control operations.loss of control operations. Another is the need to disclose propriety information.Another is the need to disclose propriety information. In some cases , a firm might choose to performIn some cases , a firm might choose to perform part of the jobpart of the job itselfitself and let others handle the rest in order to maintain flexibilityand let others handle the rest in order to maintain flexibility and to hedge againstand to hedge against loss of a subcontractorloss of a subcontractor .. If part or all the work will be done “ in-house”, capacity alternativesIf part or all the work will be done “ in-house”, capacity alternatives will need to developedwill need to developed
  55. 55. 8- Historical development of OM8- Historical development of OM Prior to 1900Prior to 1900 Scientific ManagementScientific Management Other Management Pioneers (Gilbreth + Gantt)Other Management Pioneers (Gilbreth + Gantt) Moving Assembly LineMoving Assembly Line Hawthorne StudiesHawthorne Studies Operations ResearchOperations Research OM Emerges as a FieldOM Emerges as a Field The Marriage of OM and ITThe Marriage of OM and IT OM in ServicesOM in Services Integration of Manufacturing and ServicesIntegration of Manufacturing and Services
  56. 56. Historical development of OMHistorical development of OM Prior to 1900:Prior to 1900:  Cottage industry produced custom-made goods.  Watt’s steam engine in 1785.  Whitney’s standardized gun parts in 1801.  Industrial Revolution began at mid-century. Scientific Management (Frederick W. Taylor):Scientific Management (Frederick W. Taylor):  Systematic approach to increasing worker productivity through time study, standardization of work, and incentives.  Viewed workers as an interchangeable asset. Other Management Pioneers:Other Management Pioneers:  Frank and Lillian Gilbreth  Motion study and industrial psychology  Henry L. Gantt  Scheduling and the Gantt chart
  57. 57. Historical development of OMHistorical development of OM Moving Assembly Line (1913):Moving Assembly Line (1913):  Labor specialization reduced assembly time. Hawthorne Studies:Hawthorne Studies:  Yielded unexpected results in the productivity of Western Electric plant workers after changes in their production environment.  Led to recognition of the importance of work design and employee motivation. Operations Research (Management Science):Operations Research (Management Science):  Outgrowth of WWII needs for logistics control and weapons-systems design.  Seeks to obtain mathematically optimal (quantitative) solutions to complex problems. OM Emerges as a Field:OM Emerges as a Field:  1950–1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system.  1950–1960, OM moved beyond industrial engineering and operations research to the view of the production operation as a system
  58. 58. Historical development of OMHistorical development of OM The Marriage of OM and IT:The Marriage of OM and IT:  Integrated solutions approaches  Business process reengineering  Supply chain management  Systems integration (SAP) Operations Management in Services:Operations Management in Services:  OM concepts can apply to both manufacturing and service operations. Integration of Manufacturing and Services:Integration of Manufacturing and Services:  Conducting world class operations requires compatible manufacturing and service operations
  59. 59. Last wordLast word  Shifts from cost and efficiencycost and efficiency to valuevalue, from mass production to leanlean productionproduction, from manufacturing technology to informationinformation technologytechnology, and from national economy to world economyworld economy have made OM critically important in modern businessOM critically important in modern business.  Workers are differentWorkers are different; they demand increasing levels of empowerment and more meaningful work.  Customers are differentCustomers are different, their demands and expectations are much higher.  Technology is differentTechnology is different; computers & automation have dramatically changed the nature of work, requiring constant learning and more abstract thinking.  Finally the environment is differentenvironment is different, we live in a global business environment without boundaries .  Such changes in business are occurring at an increasingly rapid pace, and we can expect them to continue in the future. OperationsOperations managers clearly face important challenges in preparing for thismanagers clearly face important challenges in preparing for this century.century.
  60. 60. Last word?Last word?  “Paying attention to customers and knowing what they want is a fundamental and important beginning.fundamental and important beginning.  However, given that several competing companies pay attention to what customers want, the key tothe key to competitiveness then becomescompetitiveness then becomes productionproduction capabilitycapability. What differentiates winners from losers is that winners are better able to consistently provide products and services that areprovide products and services that are competitive with regard to quality,competitive with regard to quality, price, time and agilityprice, time and agility

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