1. Copyright 2006 John Wiley & Sons, Inc.
Beni Asllani
University of Tennessee at Chattanooga
Operations and Competitiveness
Operations Management - 5th Edition
Chapter 1
Roberta Russell & Bernard W. Taylor, III
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Lecture Outline
What Do Operations Managers Do?
Operations Function
Evolution of Operations Management
Operations Management and E–business
Globalization and Competitiveness
Primary Topics in Operations Management
Learning Objectives for this Course
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What Do Operations
Managers Do?
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
What is Operations Management?
design, operation, and improvement of productive
systems
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Physical: as in manufacturing operations
Locational: as in transportation operations
Exchange: as in retail operations
Physiological: as in health care
Psychological: as in entertainment
Informational: as in communication
Transformation Process
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INPUT
•Material
•Machines
•Labor
•Management
•Capital
TRANSFORMATION
PROCESS
OUTPUT
•Goods
•Services
Feedback
Operations as a
Transformation Process
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Operations Function
Operations
Marketing
Finance and
Accounting
Human
Resources
Outside
Suppliers
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How is Operations Relevant to my
Major?
Accounting
Information
Technology
Management
“As an auditor you must
understand the fundamentals of
operations management.”
“IT is a tool, and there’s no better
place to apply it than in
operations.”
“We use so many things you
learn in an operations class—
scheduling, lean production,
theory of constraints, and tons of
quality tools.”
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How is Operations Relevant to my
Major?
Economics
Marketing
Finance
“It’s all about processes. I live
by flowcharts and Pareto
analysis.”
“How can you do a good job
marketing a product if you’re
unsure of its quality or delivery
status?”
“Most of our capital budgeting
requests are from operations,
and most of our cost savings,
too.”
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Evolution of Operations
Management
Craft production
process of handcrafting products or
services for individual customers
Division of labor
dividing a job into a series of small tasks
each performed by a different worker
Interchangeable parts
standardization of parts initially as
replacement parts; enabled mass
production
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Scientific management
systematic analysis of work methods
Mass production
high-volume production of a standardized
product for a mass market
Lean production
adaptation of mass production that prizes
quality and flexibility
Evolution of Operations
Management (cont.)
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Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Industrial
Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam Smith
Interchangeable parts 1790 Eli Whitney
Scientific
Management
Principles of scientific
management
1911 Frederick W. Taylor
Time and motion studies 1911
Frank and Lillian
Gilbreth
Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford
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Historical Events in
Operations Management (cont.)
Era Events/Concepts Dates Originator
Human
Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories
1940s Abraham Maslow
1950s Frederick Herzberg
1960s Douglas McGregor
Operations
Research
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
line theory, decision
theory, PERT/CPM
1950s
Operations research
groups
MRP, EDI, EFT, CIM
1960s,
1970s
Joseph Orlicky, IBM
and others
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Historical Events in
Operations Management (cont.)
Era Events/Concepts Dates Originator
Quality
Revolution
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality
management)
1980s
W. Edwards Deming,
Joseph Juran
Strategy and
operations
1990s
Wickham Skinner,
Robert Hayes
Business process
reengineering
1990s
Michael Hammer,
James Champy
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Historical Events in
Operations Management (cont.)
Era Events/Concepts Dates Originator
Globalization WTO, European Union,
and other trade
agreements
1990s
2000s
Numerous countries
and companies
Internet
Revolution
Internet, WWW, ERP,
supply chain
management
1990s ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE,
PeopleSoft
E-commerce 2000s Amazon, Yahoo,
eBay, and others
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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.
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Operations Management
and E-Business
Categories of E-Commerce
Business
Consumer
Business Consumer
B2B
Commerceone.com
B2C
Amazon.com
C2B
Priceline.com
C2C
eBay.com
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An Integrated Value Chain
Value chain: set of activities that create and
deliver products to customer
Manufacturer Supplier
Customer
Flow of information (customer order)
Manufacturer Supplier
Customer
Flow of information (customer order)
Flow of product (order fulfillment)
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Impact of E-Business on
Operations Management
Comparison shopping
by customers
Direct contact with
customers
Business processes
conducted online
Customer expectations escalate;
quality must be maintained and
costs lowered
No more guessing about demand
is necessary; inventory costs go
down; product and service design
improves; build to-order products
and services is made possible
Transaction costs are lower;
customer support costs decrease;
e-procurement saves big bucks
Benefits of E-Business Impact on Operations
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Impact of E-Business on
Operations Management (cont.)
Access to customers
worldwide
Middlemen are
eliminated
Access to suppliers
worldwide
Demand increases; order fulfillment
and logistics become major issues;
production moves overseas
Logistics change from delivering to a
store or distribution center to
delivering to individual homes;
consumer demand is more erratic and
unpredictable than business demand
Outsourcing increases; more alliances
and partnerships among firms are
formed; supply is less certain; global
supply chain issues arise
Benefits of E-Business Impact on Operations
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Impact of E-Business on
Operations Management (cont.)
Online auctions and e-
marketplaces
Better and faster
decision making
Competitive bidding lowers cost
of materials; supply needs can be
found in one location
More timely information is
available with immediate access
by all stakeholders in decision-
making process; customer orders
and product designs can be
clarified electronically; electronic
meetings can be held;
collaborative planning is
facilitated
Benefits of E-Business Impact on Operations
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Impact of E-Business on
Operations Management (cont.)
IT synergy
Expanded supply
chains
Productivity increases as
information can be shared more
efficiently internally and
between trading partners
Order fulfillment, logistics,
warehousing, transportation and
delivery become focus of
operations management; risk is
spread out; trade barriers fall
Benefits of E-Business Impact on Operations
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Globalization and
Competitiveness
Favorable cost
Access to international
markets
Response to changes in
demand
Reliable sources of
supply
14 major trade
agreements in 1990s
Peak: 26% in 2000
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
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Globalization and
Competitiveness (cont.)
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.
Germany: $26.18
USA: $21.33
Taiwan: $5.41
Mexico: $2.38
China: $0.50
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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
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Risks of Globalization
Cultural differences
Supply chain logistics
Safety, security, and
stability
Quality problems
Corporate image
Loss of capabilities
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Competitiveness and
Productivity
Competitiveness
degree to which a nation can produce goods and
services that meet the test of international
markets
Productivity
ratio of output to input
Output
sales made, products produced, customers
served, meals delivered, or calls answered
Input
labor hours, investment in equipment, material
usage, or square footage
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Measures of Productivity
Competitiveness and
Productivity (cont.)
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Changes in Productivity
for Select Countries
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
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Become efficient
output increases with little or no increase in input
Expand
both output and input grow with output growing
more rapidly
Achieve breakthroughs
output increases while input decreases
Downsize
output remains the same and input is reduced
Retrench
both output and input decrease, with input
decreasing at a faster rate
Productivity Increase
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Competitiveness and
Productivity
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
Breakthrough
Performance
More Efficient
Retrench
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Global Competitiveness
Ranking
1. Finland
2. United States
3. Sweden
4. Denmark
5. Taiwan
6. Singapore
7. Switzerland
8. Iceland
9. Norway
10.Australia
Source: Global Competitiveness Report
2003–2004, World Economic Forum,
January 2004, www.weforum.org
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Economies of Scale
Capital Investment
Access to Supply and Distribution
Channels
Learning Curve
Operations–oriented
Barriers to Entry
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Primary Topics in
Operations Management
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Primary Topics in Operations
Management (cont.)
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Operations Strategy
Strategy: Chapter 2
Maintaining an operations strategy to support firm’s
competitive advantage
Quality: Chapters 3 and 4
Focusing on quality in operational decision making
Product and Services: Chapter 5
Designing quality products and services
Processes, Technologies, and Capacity: Chapter 6
Setting up process so that it works smoothly and
efficiently
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Facilities: Chapter 7
Setting up facility so that it works
smoothly and efficiently
Human Resources: Chapter 8
Designing jobs and work to produce
quality products
Project Management: Chapter 9
Managing complex projects
Operations Strategy
(cont.)
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Supply Chain
Management
Supply Chain: Chapter 10
Managing supply chain
Forecasting: Chapter 11
Predicting customer demand
Aggregate Planning: Chapter 12
How much to produce and when to
produce it
Inventory Management: Chapter 13
How much to order and when to order
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Supply Chain
Management (cont.)
Resource Planning: Chapter 14
Planning capacity and other resources
Lean Production: Chapter 15
Designing efficient production lines
Scheduling: Chapter 16
Job and task assignments
Waiting Lines: Chapter 17
Minimizing waiting time of customers and
products
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Learning Objectives of
this Course
Gain an appreciation of strategic importance
of operations in a global business
environment
Understand how operations relates to other
business functions
Develop a working knowledge of concepts
and methods related to designing and
managing operations
Develop a skill set for quality and process
improvement
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Copyright 2006 John Wiley & Sons, Inc.
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