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CHAPTER 1 INTRODUCTION CHAPTER 1 INTRODUCTION

LEARNING OBJECTIVES l Describe and Explain concepts, functions and nature of OM l Identify LEARNING OBJECTIVES l Describe and Explain concepts, functions and nature of OM l Identify current OM problems, issues and trends. l Describe and Explain approaches used by OM

What Is OM? Inputs Labor, capital, Land, Information Processes Outputs Transformation/ conversion process Goods What Is OM? Inputs Labor, capital, Land, Information Processes Outputs Transformation/ conversion process Goods and services Feedback loop

l Production is the creation of goods and services. l Operations management (OM) is l Production is the creation of goods and services. l Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs. l Operations management (OM) is the management of systems or processes that create goods and/or provide services.

Organizing to Produce Goods and Services l Essential functions: þ Marketing – generates demand Organizing to Produce Goods and Services l Essential functions: þ Marketing – generates demand þ Production/operations – creates the product þ Finance/accounting – tracks how well the organization is doing, pays bills, collects the money

Organizational Charts Airline Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Organizational Charts Airline Operations Ground support equipment Maintenance Ground Operations Facility maintenance Catering Flight Operations Crew scheduling Flying Communications Dispatching Management science Finance/ accounting Accounting Payables Receivables General Ledger Finance Cash control International exchange Marketing Traffic administration Reservations Schedules Tariffs (pricing) Sales Advertising

GOODS- SERVICES CONTINUUM Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care GOODS- SERVICES CONTINUUM Automobile Computer Installed carpeting Fast-food meal Restaurant meal/auto repair Hospital care Advertising agency/ investment management Consulting service/ teaching Counseling 100% | 75 | 50 | 25 | 50 | 75 | 100% | Percent of Product that is a Good Percent of Product that is a Service

GOODS vs SERVICE Characteristic Customer contact Uniformity of input Labor content Goods Low High GOODS vs SERVICE Characteristic Customer contact Uniformity of input Labor content Goods Low High Low Service High Low High Uniformity of output Output Measurement of productivity Opportunity to correct problems Inventory Evaluation Patentable High Tangible Easy High Much Easier Usually Low Intangible Difficult Low Little Difficult Not usual

WHY STUDY OM ? l one of three major functions (marketing, finance, and operations) WHY STUDY OM ? l one of three major functions (marketing, finance, and operations) of any organization. l we want (and need) to know how goods and services are produced. l we want to understand what operations managers do. l a costly part of an organization

WHAT OPERATIONS MANAGERS DO? l Planning l Organizing l Staffing l Leading l Controlling WHAT OPERATIONS MANAGERS DO? l Planning l Organizing l Staffing l Leading l Controlling

Where are the OM Jobs? Where are the OM Jobs?

Significant Events in OM Significant Events in OM

Current Trend in OM l Coordinate the relationships between mutually supportive but separate organizations. Current Trend in OM l Coordinate the relationships between mutually supportive but separate organizations. l Optimizing global supplier, production, and distribution networks. l Increased co-production of goods and services.

Current Issues in OM (cont’d) l Managing the customer’s experience during the service encounter. Current Issues in OM (cont’d) l Managing the customer’s experience during the service encounter. l Raising the awareness of operations as a significant competitive weapon.

New Trends in OM Past Causes Future Local or national focus Reliable worldwide communication New Trends in OM Past Causes Future Local or national focus Reliable worldwide communication and transportation networks Global focus, moving production offshore Batch (large) shipments Short product life cycles and cost of capital put pressure on reducing inventory Just-in-time performance Low-bid purchasing Supply chain competition requires that suppliers be engaged in a focus on the end customer Supply chain partners, collaboration, alliances, outsourcing

New Trends in OM (cont’d) Past Causes Future Lengthy product development Shorter life cycles, New Trends in OM (cont’d) Past Causes Future Lengthy product development Shorter life cycles, Internet, rapid international communication, computeraided design, and international collaboration Rapid product development, alliances, collaborative designs Standardized products Affluence and worldwide markets; increasingly flexible production processes Mass customization with added emphasis on quality Job specialization Changing socioculture milieu; increasingly a knowledge and information society Empowered employees, teams, and lean production

New Trends in OM (cont’d) Past Causes Future Low-cost focus Environmental issues, ISO 14000, New Trends in OM (cont’d) Past Causes Future Low-cost focus Environmental issues, ISO 14000, increasing disposal costs Environmentally sensitive production, green manufacturing, recycled materials, remanufacturing Ethics not at forefront Businesses operate more openly; public and global review of ethics; opposition to child labor, bribery, pollution High ethical standards and social responsibility expected

Productivity Challenge l Productivity is the ratio of outputs (goods and services) divided by Productivity Challenge l Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labour and capital) The objective is to improve productivity! l Note: Production is a measure of output only and not a measure of efficiency

Productivity Units produced Productivity = Input used l measure of process improvement. l represents Productivity Units produced Productivity = Input used l measure of process improvement. l represents output relative to input

Productivity Calculations l Labor productivity: Productivity = Units produced Labor-hours used 1, 000 = Productivity Calculations l Labor productivity: Productivity = Units produced Labor-hours used 1, 000 = = 4 units/labor-hour 250

Productivity Calculations (cont’d) l Multi-factors productivity: Output Productivity = Labor + Material + Energy Productivity Calculations (cont’d) l Multi-factors productivity: Output Productivity = Labor + Material + Energy + Capital + Miscellaneous

Productivity Variables l Labor - contributes about 10% of the annual increase. l Capital Productivity Variables l Labor - contributes about 10% of the annual increase. l Capital - contributes about 38% of the annual increase l Management - contributes about 52% of the annual increase

Global View of Operations Reasons to Globalize Tangible 1. Reduce costs (labor, taxes, tariffs, Global View of Operations Reasons to Globalize Tangible 1. Reduce costs (labor, taxes, tariffs, etc. ) Reasons 2. Improve supply chain 3. Provide better goods and services 4. Understand markets 5. Learn to improve operations 6. Attract and retain global talent Intangible Reasons

Developing Missions and Strategies l Mission statements tell an organization where it is going. Developing Missions and Strategies l Mission statements tell an organization where it is going. l The Strategy tells the organization how to get there

Strategies for Competitive Advantage l Differentiation þ better, or at least different. l Cost Strategies for Competitive Advantage l Differentiation þ better, or at least different. l Cost leadership þ cheaper, achieving maximum value l Respone þ Rapid, flexible and reliable performance

10 Strategic OM Decisions 1. 2. 3. 4. 5. Goods and service design Quality 10 Strategic OM Decisions 1. 2. 3. 4. 5. Goods and service design Quality Process and capacity design Location selection Layout design 6. 7. 8. 9. 10. Human resources and job design Supply chain management Inventory Scheduling Maintenance

OM’s Contribution to Strategy Operations Decisions Product Quality Process Examples Specific Strategy Used Competitive OM’s Contribution to Strategy Operations Decisions Product Quality Process Examples Specific Strategy Used Competitive Advantage FLEXIBILITY: Sony’s constant innovation of new products………………. . Design HP’s ability to lead the printer market………………Volume Southwest Airlines No-frills service……. . LOW COST Location Layout Human resource Supply chain Inventory Scheduling Maintenance DELIVERY: Pizza Hut’s 5 -minute guarantee at lunchtime…………………. Speed Federal Express’s “absolutely, positively on time”……………. . …. Dependability QUALITY: Motorola’s HDTV converters…. ……. . . . Conformance Motorola’s pagers……………. . …. Performance Caterpillar’s after-sale service on heavy equipment……………. . AFTER-SALE SERVICE Fidelity Security’s broad line of mutual funds…………. BROAD PRODUCT LINE Differentiation (Better) Response (Faster) Cost leadership (Cheaper)

Strategy Development and Implementation l SWOT analysis Mission Internal Strengths External Opportunities Analysis Internal Strategy Development and Implementation l SWOT analysis Mission Internal Strengths External Opportunities Analysis Internal Weaknesses External Threats Strategy

Four International Operations Strategies International Strategy Cost Reduction Considerations High þ Import/export or license Four International Operations Strategies International Strategy Cost Reduction Considerations High þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations (Quick Response and/or Differentiation)

Four International Operations Strategies Cost Reduction Considerations High International Strategy þ Import/export or license Four International Operations Strategies Cost Reduction Considerations High International Strategy þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations (Quick Response and/or Differentiation)

Four International Operations Strategies Global Strategy High Cost Reduction Considerations þ Standardized product þ Four International Operations Strategies Global Strategy High Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Examples Caterpillar U. S. Steel Otis Harley Davidson Elevator International Strategy þ Import/export or license existing product Low High Local Responsiveness Considerations (Quick Response and/or Differentiation)

Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy þ Import/export or license existing product Examples U. S. Steel Harley Davidson Low High Local Responsiveness Considerations (Quick Response and/or Differentiation)

Four International Operations Strategies Multidomestic Strategy High þ Use existing þ Standardized product domestic Four International Operations Strategies Multidomestic Strategy High þ Use existing þ Standardized product domestic model þ Economies of scale þ Cross-cultural learning globally Examples Texas þ Franchise, joint Instruments Caterpillar Otis Elevator ventures, subsidiaries Cost Reduction Considerations Global Strategy International Strategy Examples Heinz Examples Mc. Donald’s U. S. Steel Harley Davidson The Body Shop Hard Rock Cafe þ Import/export or license existing product Low Local Responsiveness Considerations (Quick Response and/or Differentiation) High

Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Four International Operations Strategies High Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy þ Import/export or license existing product Multidomestic Strategy þ Use existing domestic model globally þ Franchise, joint ventures, subsidiaries Examples U. S. Steel Harley Davidson Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations (Quick Response and/or Differentiation)

Four International Operations Strategies Transnational Strategy High þ Move material, people, ideas Examples across Four International Operations Strategies Transnational Strategy High þ Move material, people, ideas Examples across national Texas Instruments Caterpillar boundaries Otis Elevator þ Economies of scale þ Cross-cultural International Strategy Multidomestic Strategy þ Use existing learning þ Import/export or domestic model globally Global Strategy Cost Reduction Considerations þ Standardized product þ Economies of scale þ Cross-cultural learning license existing product Examples Coca-Cola Nestlé Examples U. S. Steel Harley Davidson Low þ Franchise, joint ventures, subsidiaries Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations (Quick Response and/or Differentiation)

Four International Operations Strategies High Transnational Strategy þ Standardized product þ Economies of scale Four International Operations Strategies High Transnational Strategy þ Standardized product þ Economies of scale þ Cross-cultural learning Cost Reduction Considerations Global Strategy þ Move material, people, ideas across national boundaries þ Economies of scale þ Cross-cultural learning Examples Texas Instruments Caterpillar Otis Elevator International Strategy Examples Coca-Cola Nestlé þ Import/export or license existing product Multidomestic Strategy þ Use existing domestic model globally þ Franchise, joint ventures, subsidiaries Examples U. S. Steel Harley Davidson Examples Heinz The Body Shop Mc. Donald’s Hard Rock Cafe Low High Local Responsiveness Considerations (Quick Response and/or Differentiation)