Chapter 1 Introduction to Operations and Competitiveness Prepared

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Chapter 1 Introduction to Operations and Competitiveness Prepared by Şevkinaz Gümüşoğlu Using different POM references

Production/Operations management (POM) is concerned with the production of goods, services and information. All business enterprises produce goods, services and information. They try to serve in the satisfaction of human need in one way. So production activities are the foundation of a nation’s economic system.

What Operations Managers Do? They plan, organize, staff, direct, coordinate the production/ operations • What is Operations Management? • design operations, and improvement of productive systems • What is Operations? • a function or system that transforms inputs into outputs of greater value • What is a Transformation Process? • a series of activities along a value chain extending from supplier to customer • activities that do not add value are superfluous and should be eliminated 1 -3

WHAT IS PRODUCTION& OPERATIONS SYSTEM • A production/operations system is a configuration of resources combined for the provision of goods or services. • A production/operations system is that part of the organization that exists primarily to generate and produce the organization products, i. e. goods or services. .

Historical Events In POM • • Industrial Revolution Scientific Management Human Relations Management Science Quality Revolution Information Age Globalization Sustainable World © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 7

Summarized; Historical Events In POM Industrial Revolution Steam engine Division of labor Interchangeable parts 1769 James Watt 1776 Adam Smith 1790 Eli Whitney Scientific Management Principles Time / motion study Activity scheduling chart © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e 1911 Frederick W. Taylor 1911 Frank & Lillian Gilbreth 1912 Henry Gant Ch 1 - 8

Human Relations Hawthorne studies Motivation theories 1930 1940 s 1950 s 1960 s Elton Mayo Abraham Maslow Frederick Hertzberg Douglas Mc. Gregor Management Science Linear programming Digital computer Simulation, PERT/CPM, Waiting line theory MRP © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e 1947 George Dantzig 1951 Remington Rand 1960 Research groups 1960 s Joseph Orlicky, IBM Ch 1 - 9

Quality Revolution JIT TQM 1970 s Taiichi Ohno, Toyota 1980 s W. Edwards Deming, Joseph Juran, et. al. 1990 s Hammer, Champy Reengineering Information Age EDI, EFT, CIM Internet, World Wide Web © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e 1970 s 1980 s 1990 s Numerous individuals and companies Tim Berners-Lee Ch 1 - 10

Historical Events in Operations Management Era Events/Concepts Dates Originator Internet Revolution IERP, supply chain management 1990 s ARPANET, SAP, i 2 Technologies, ORACLE, Dell E-commerce 2000 s WTO, European Union, Global supply chains, Outsourcing, Service Science 1990 s 2000 s Amazon, Yahoo, e. Bay, Google, and others China, India, emerging economies Globalization Copyright 2011 John Wiley & Sons, Inc. 1 -9

Historical Events in Operations Management Era Events/Concepts Dates Originator Green Revolution Global warming, An Inconvenient Truth, Kyoto Today Copyright 2011 John Wiley & Sons, Inc. Numerous scientists, statesmen and governments 1 -10

Adam Smith, 18. century

Division of Labor, 21. century

What is the labor of division? • The division of labour is the specialisation of cooperating individuals who perform specific tasks and roles. Historically, an increasingly complex division of labour is associated with the growth of total output and trade, the rise of capitalism, and of the complexity of industrialised processes. The concept and

• Mesopotamian) culture, where assignment of jobs in some cities coincided with an increase in trade and economic interdependence. • In addition to trade and economic interdependence, division of labour generally increases both producer and individual worker productivity.

• In contrast to division of labour, division of work refers to the division of a large task, contract, or project into smaller tasks — each with a separate schedule within the overall project schedule. Division of labour, instead, refers to the allocation of tasks to individuals or organisations according to the skills and/or equipment those people or organisations possess. Often division of labour and division of

Competitive Market Rules http: //www. youtube. com/watch? v =3 p 1 s. W 9 a. IQ-Y

James Watt was the most important person especially beginning the industrial revolution. Job shop production was organized in Whitney’s gun factory as the method of manufacturing in batches. Charles Babbage provided us too much contribution for management. Frederic Taylor is the father of management

Henry Ford begun job flow production in manufacturing which are called serialized production systems. http: //www. youtube. com/swf/l. swf? video_id =S 4 Kr. IMZpw. CY

• Harris gave us some important information about inventory control. • Shewhart used the statistical theory for Quality Control (QC). Computer and Operations Research (OR) are used for business. • Deeming and Juran presented us Total Quality Management (TQM). • Toyota used pull system instead of push system (Just-in-Time JIT). • Motorola developed Six Sigma Method for Quality Manegement • Boeing devoloped & the other firms World

WHY STUDY PRODUCTION/OPERATIONS MANAGEMENT (POM)? We study POM for four reasons: a. POM is one of the three major functions of any organisations, and it is integrally related to all the other business functions. All organisations market (sell), finance (account), and produce (operate), and it is important to know how the POM segment functions. Therefore, we study how people organise themselves for productive enterprise. b. We study POM because we want to know how goods and services are produced. The production

c. We study POM to understand what production/ operations managers do. By understanding what these managers do, you can develop the skills necessary to become such a manager. This will help you explore the numerous and lucrative career opportunities in POM. d. We study POM because it is such a costly part of an organisation. A large percentage of the revenue of most firms is spent in the POM function. Indeed, POM provides a major opportunity for an organisation to improve its profitability and enhance its service to society.

• The production and operations management is also used to denote the wide scope of application. Production operations management or, more simply, operations management include the service industries as well.

The Operations Function & The Field of Operations management • Operations as a transformation process • Operations as a basic function • Operations as the technical core OM is defined as the design, operation, & improvement of the production systems that create the firm’s primary products or services. OM is fuctional fields of business with clear line manegement responsibilities. Ch 1 - 2

• This point is important because operations management is fruquently confused with Operations Research(OR) & Management Science(MS) and Industrial Engineering(IE). This sitiuation is need to support the application of QM to decision making in all fields.

Operations Function • Operations • Marketing • Finance and Accounting • Human Resources • Outside Suppliers 1 -26

Production&Operations As The Technical Core Operations Workers Finance Personnel Purchasing Suppliers Capital Markets, Stockholders Marketing Customers © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 6

• OM is related with other business function like Management, Finance, & Accounting and etc. • Because; – Accountants need to understand the basic of Investment Management, Capital Uti. &labor standarts to develop accurate cost data, perform audits & prepare financial reports. Cost Accountants in particular must be aware of how JIT and CIM work. – Finance managers can use investment& capital. Concepts to judge the need for capital investment, to forecast cash flow, & to

– Marketing specialists need to understand what operations can do relative to meeting customer due dates, product customization, & new product introduction. So Marketing & Operations Management have overlapping interests. – Human Resource Managers must know how jobs are designed, relationship between standart & incentive plans, & the types of production skills required of the direct workforce. – Management Information System (MIS) specialist often install OI systems that they themselves design or that are developed as off-the-shelf software by computer companies. As a major business application of computers in POQC.

– Everybody know that entrepreneurs often fail because they run out of working capital due to poor production planning and inventory management. Because of all these reason The firm’s Corporate Strategy is based on the corporate mission and in essence reflects how the firm will plans to use all its resources and functions to gain competitive advantage. The Operation Strategy specifies how the firm employ its production capabilities to support its corporate strategy. Within the operations function, management decisions can be divided into three broad areas: • Strategic (long term) decisions : • Tactical (intermediate decisions) ,

• We have omitted in the notes theoretical treatments and have concentrated on providing an easy-to-read, easy-to-understand treatment of the basic POM knowledge. In other words, our aim was to give students a solid understanding of the analytical tools necessary to solve production/operations problems. • Finaly the purpose of production/operations is to satisfy people’s wants. • And then we can define; PO System.

Operations as a Transformation Process INPUT • Material • Machines • Labor • Management • Capital TRANSFORMATION PROCESS OUTPUT • Goods • Services Feedback & Requirements Copyright 2011 John Wiley & Sons, Inc. 1 -32

To produce goods and services various form of inputs are brought together in a transformatio system.

• RESOURCES IN PRODUCTION/OPERATIONS SYSTEMS • Managers in production and operations functions practice production/operations management. They do not practice behavioural science, quantitative methods or systems analysis, although they utilise these underlying disciplines. Likewise doctors do not practice biology, although they know how to use biological methods. While methodologies are certainly important, they are not essence of POM.

Therefore we shall take a physical view of PO systems and concentrate on the physical resources used by the system which for convenience will be categorized as follows: • Materials, i. e. the physical items consumed or converted by the system, e. g. raw materials, fuel, indirect materials. • Capital, i. e. the physical items equipment and facilities, used by the system, e. g. plant, tools, vehicles, buildings. • Human Resources, i. e. the people, workers and managers, who provide or contribute to the

Transformation Processes • Physical (manufacturing) • Locational (transport/storage) • Exchange (retail) • Physiological (healthcare) • Psychological (entertainment) • Informational (communications) © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 4

Continuum from Goods to Services Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff, Management of Service Operations (Boston: Allyn Bacon, 1978), p. 11. Copyright 2006 John Wiley & Sons, Inc. 1 -37

We know real production problems began to physical production in the industrial revaluation. For this reason the knowledge about the field is known as production management. And then service business came in to our life So it has been seen that production management concepts and tools could be easily applied in all types of enterprises.

In 1940 Operations Research Techniques were developed and computer became economical. Computers come along to give managers up-to-the-minute information about markets costs, production levels and inventories. Machines with linked computers that are responsible for changing them over from one job to another. Manufacturers began installing logic units

Computers are the driving force in the long -wave changeover of manufacturing technology. The grouping of computercontrolled machines and development of industrial robots have now given production systems the flexibility to receive and respond to on line information. With robots, flexible manufacturing can deliver customized products.

Robots and flexible production system are reducing the demand for low skilled direct labor. Offsetting this surplus of untrained workers is the growing need for more technically trained control and maintenance personnel.

Retraining is needed to prepare lowskilled workers for the emerging more sophisticated fields of work. Learning organization is new important concept to manufacturing. Business of the future will be more active involving specialty items (high-tech metals) and advanced information and communications services.

A change in management technology is necessary. Because traditional old approach do not provide appropriate support for new kind of manufacturing systems developed often The mid 1980, New manufacturing technology cannot be used without changes in management technology.

By the year 2020, about 85 -90 percent of workforce will most likely be engaged in nonmanufacturing activities. Now about 70 percent of world workforce are engaged in service activities . High-technology system (e. g. electronic, fiber optics, laser) will play en major role.

• In the 1940 s, nobody have guessed how much manufacturing technology would change by 1990. Using robots, in 1990 factories doubled output-with half as many blue-color workers-to match growth in consumer fueled by sharply lower costs and higher quality. • We can say some new concepts: • Smart Customer • Smart factories • “Smart Customers interact with smart factories to help design the goods and

The idea that the customer can use computer to intent out directly with the production process was suggested by Chrysler Coo. in 1960. Customers in 1990 dial the production process directly on their computerized telephones to set down their design specifications. For the particular varieties of the company’s product that they desire to purchase.

Companies have invented a variety of competing and o-operative trategies c s to fit their own unique situations. Some of the competitive approaches are continuous quality improvement, being first bringing new products to market increasing the firm’s value-added and so on. Competition relentlessly seeks to improve both manufacturing and management.

Technology and telecommunication have been brighten some new approach for business. Now we can write these two points as follows: 1) Changes in manufacturing technology- the use of information networks by people and computer driven equipment. 2) Changes in management technology- the managing of manufacturing technology for example JIT and Kanban, reengineering etc. As in all of these waves of technological change, there are new tactical production concepts and new strategic concepts that must be understood for the strategic

Because of global changes in business there are five main elements that capture the changing in manufacturing that are taking place. 1) There are fewer workers on the line. 2) There are fewer supervisors for the line. 3) More smart machines. 4) More workers engaged in planning systems. 5) More workers designing hardware and software.

So it is necessary a manufacturing system that receives all in formation that exists in the company, on-line and immediately. It has decision making competence based on all relevant information. So we can say that to use Computer Integrated Manufacturing (CIM) will be too important for us.

Product Technology • Computer-aided design (CAD) – Creates and communicates designs electronically • Group technology (GT) – Classifies designs into families for easy retrieval and modification • Computer-aided engineering (CAE) – Tests functionality of CAD designs electronically • Collaborative product commerce (CPC) – Facilitates electronic communication and exchange of information among designers and suppliers – Nano Tecnology • Low cost & high competence

Product Technology • Product data management (PDM) • Keeps track of design specs and revisions for the life of the product • Product life cycle management (PLM) • Integrates decisions of those involved in product development, manufacturing, sales, customer service, recycling, and disposal • Product configuration • Defines products “configured” by customers who have selected among various options, usually from a Web site Copyright 2011 John Wiley & Sons, Inc. 6 -53

Process Technology • Standard for exchange of product model data (STEP) • Set standards for communication among different CAD vendors; translates CAD data into requirements for automated inspection and manufacture • Computer-aided design and manufacture (CAD/CAM) • Electronic link between automated design (CAD) and automated manufacture (CAM) • Computer aided process (CAPP) • Generates process plans based on database of similar requirements • E-procurement • Electronic purchasing of items from e-marketplaces, auctions, or company websites Copyright 2011 John Wiley & Sons, Inc. 6 -54

Manufacturing Technology • Automatic guided vehicle (AGV) • Driverless trucks that move material along a specified path; directed by wire or tape embedded in floor or by radio frequencies • Automated storage and retrieval system (ASRS) • An automated warehouse; items placed in a storage system and retrieved by fast-moving stacker cranes; controlled by computer • Process Control • Continuous monitoring of automated equipment; makes real-time decisions on ongoing operation, maintenance, and quality • Computer-integrated manufacturing (CIM) • Automated manufacturing systems integrated through computer technology; also called e-manufacturing • Machine – to - Machine

Information Technology • Business – to –Business (B 2 B) • E-transactions between businesses usually via the Internet • Business – to –Consumer (B 2 C) • E-transactions between businesses and their customers usually via the Internet • Internet • A global information system of computer networks that facilitates communication and data transfer • Cloud computing • Intranet • Communication networks internal to an organization; can also be password (i. e. , firewall) protected sites on the Internet Copyright 2011 John Wiley & Sons, Inc. 6 -56

Information Technology • Extranet • Intranets connected to the Internet for shared access with select suppliers, customers, and trading partners • Bar Codes • Series of vertical lines printed on packages that identify item and other information • Radio Frequency Identification tags (RFID) • Integrated circuit embedded in a tag; can send and receive information; a “twenty-first century bar code” with read/write capabilities • Electronic data interchange (EDI) • Computer-to-computer exchange of business documents over a proprietary network; very expensive and inflexible Copyright 2011 John Wiley & Sons, Inc. 6 -57

Information Technology • Extensible markup language (XML) • A markup language that facilitates computer–to–computer communication over the Internet by tagging data before its is sent • Enterprise resource planning (ERP) • Software for managing key functions of an enterprise, including sales, marketing, finance, accounting, production, materials management & human resources • Supply chain management (SCM) • Software to manage flow of goods and information among a network of suppliers, manufacturers and distributors • Customer relationship management (CRM) • Software to manage interactions with customers; compiling and analyzing customer data TODAY; • Procumer relationship management (PRM)( producer&consumer) • Sustainable & green aproaches (low inputs & high utility)

Information Technology • Decision support systems (DSS) • Information system to help managers make decisions; includes quantitative modeling components and interactive components for what-if analysis • Expert systems (ES) • A computer system that uses the knowledge of experts to diagnose or solve a problem • Artificial intelligence (AI) • Field of study replicating elements of human thought and natural processes in software; includes expert systems, genetic algorithms, neural networks, and fuzzy logic Copyright 2011 John Wiley & Sons, Inc. 6 -59

Globalization Worldwide markets Numerous individuals and operations and companies Supply chain management Electronic commerce Agile production, reaction production Simplicity& Complexity - google For The 21. Century ; World Class Manufacturing Mass customization Sutainability Green SCM Green Logistic Carbon Foot Print World Class Manufacturing in Crysler Video http: //www. youtube. com/watch? v=BNHT 3 k. St. Yy. M&feature=re Ch 1 - 11 lated © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e

In this case we can define Competitiveness ; The degree to which a nation, can, under demanding and rapidly changing market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens. © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 21

Quality Of Room Air Conditioners Fabrication defects <0. 1% Assembly line defects 0. 9% Service calls 0. 6% Warranty cost (% of sales) © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e U. S. Japan 4. 4% 63. 5% 10. 5% 2. 2% 0. 6% Ch 1 - 14

Globalization will offer us : • • Take advantage of favorable costs Gain access to foreign markets Reduced trade barriers Changing markets © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 16

Hourly Wage Rates Germany: $26. 18 USA: $21. 33 Taiwan: $5. 41 Mexico: $2. 38 Hourly Wage Rates for Selected Countries Source: “International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing, ” Bureau of Labor Statistics, U. S. Department of Labor, Updated September 30, 2003. Copyright 2006 John Wiley & Sons, Inc. © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e China: $0. 50 1 -67 Ch 1 - 17

Growth in Volume of World Trade Compared to World GDP Source: “Real GDP and Trade Growth of OECD Countries, 2001– 03, ” International Trade Statistics 2003, World Trade Organization, www. wto. org © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 18

Globalization and Competitiveness (cont. ) Trade with China: Percent of each country‘s trade Source: “Share of China in Exports and Imports of Major Traders, 2000 and 2002, ” International Trade Statistics 2003, World Trade Organization, www. wto. org Copyright 2006 John Wiley & Sons, Inc. 1 -70

Risks of Globalization • Cultural differences • Supply chain logistics • Safety, security, and stability • Quality problems • Corporate image • Loss of capabilities Copyright 2006 John Wiley & Sons, Inc. 1 -71

Risks In Globalization • Weak infrastructure • Distinct languages, customs, trade barriers • Inefficient distribution channels • Instability of governments • Poor economic conditions © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 20

Productivity Rates Internet-enabled productivity - Dot com bust - 9/11 terrorist attacks Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, ” Bureau of Labor Statistics, U. S. Department of Labor, September 2003. U. S. figures for 2002– 2003 from “Major Sector Productivity and Costs Index, ” Bureau of Labor Statistics, U. S. Department of Labor, March 2004 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 2/e Ch 1 - 24

Changes In Input and Output Breakthrough Performance More Efficient . . Retrench Productivity as a Function of Inputs and Outputs, 2001– 2002 Source: “International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, ” Bureau of Labor Statistics, U. S. Department of Labor, September 2003 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 25

• It seems that flexible manufacturing or World Class Manufacturing (WCM) created the need for top management that was oriented towards putting it all together with the systems viewpoint. We know, some enterprises is related with one or two or more business activities.

On the other hand production activities are related with all of them. Finally production/operations management is the study of the principles and quantitative and qualitative tools of decision making in periodic tasks of selecting, designing and updating a productive system and continual tasks of operating controlling and maintaining it.

Issues & Trends In Operations 1. Intense competition 2. Global markets, global sourcing, and global financing 3. Importance of strategy 4. Product variety and mass customization 5. More services © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 29

Issues & Trends In Operations 6. Emphasis on quality 7. Flexibility 8. Advances in technology 9. Worker involvement 10. Environmental and ethical concerns © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 30

Primary Topics In Operations Management • • • Deploying strategy Assuring quality Designing products & services Planning the production process Laying out the facility © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 31

Primary Topics In Operations Management • • Designing jobs & work Managing the supply chain Forecasting demand for products & services Production planning & scheduling © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 32

Strategy Of Productive Systems (Some topics for Term Research Project) 1. Introduction to Operations & competitiveness 2. Operations strategy 3. Forecasting 4. Product & Services Design © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 2/e Ch 1 - 34

Designing Productive Systems 5. Stratrgic Capacity Plannig- Decision Theory 6. Process planning, analysis and reengineering 7. Facility layout- Lineer programming, Assignment Models 8. Location Planning & Controll- Transportation Models 9. Supply chain management © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 35

Operating Productive Systems 10. Inventory management 11. Materials requirements planning 12. Quality Control- Total Quality Management 13. Just-in-time systems 14. Statistical Quality Control 15. Project management © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 36

Purpose Of Text • Gain an appreciation of the strategic importance of operations and how operations can provide a competitive advantage in the marketplace • Understand the relationship between operations and other business functions • Develop a working knowledge of the concepts and methods related to designing and managing operations © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 1 - 37

http: //www. youtube. com/wat ch? v=s. ITy 14 z. Cv. I 8 • Nano technology • http: //www. youtube. com/watch? v=xr. Tta 9 b 5 smw • Future Computer Technology • http: //www. youtube. com/watch? v=q. Zg. Yl Mfiyb. E • Future product