Chapter 01 Russel & Taylor - Operations Management

Chapter 1 Introduction to Operations and Supply Chain Management Russell and Taylor Operations Management, 8th Edition

Lecture Outline • The Operations Function – Slide 8 • The Evolution of Operations and Supply Chain Management – Slide 13 • Globalization – Slide 21 • Productivity and Competitiveness – Slide 25 • Strategy and Operations – Slide 30 • Organization of the Text – Slide 45 • Learning Objectives of this Course – Slide 47

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Learning Objectives • Describe what the operations function is and how it relates to other business functions. • Discuss the key factors that have contributed to the evolution of operations and supply chain management. • Discuss how and why businesses operate globally, and the importance of globalization in supply chain management. • Calculate and interpret productivity measures used for measuring competitiveness. • Discuss the importance of operations and supply chain management to a firm’s strategy, and the process of developing, aligning and deploying strategy. © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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Operations Management • What is Operations Management? • design, operation, and improvement of productive systems • What is Operations? • a function or system that transforms inputs into outputs of greater value • What is a Value Chain? • a series of activities from supplier to customer that add value to a product or service

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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

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Transformation Process • Physical: as in manufacturing operations • Locational: as in transportation or warehouse operations • Exchange: as in retail operations • Physiological: as in health care • Psychological: as in entertainment • Informational: as in communication

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Operations as a Transformation Process INPUT Material Machines Labor Manageme nt • Capital • • • •

TRANSFORMATION PROCESS

OUTPUT • Goods • Services

Feedback & Requirements

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The Operations Function • • • • • • • • • •

Organizing work Selecting processes Arranging layouts Locating facilities Designing jobs Measuring performance Controlling quality Scheduling work Managing inventory Planning production

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Operations Function • Operations • Marketing • Finance and Accounting • Human Resources • Suppliers

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Sample Organizational Structure CFO Chief Financial Officer

CEO Chief Executive Officer COO Chief Operating Officer

CIO Chief Information Officer VP Human Resources VP Operations

VP Supply Chain Management VP Marketing © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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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 and Supply Chain 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 that enabled mass production

• Scientific management • systematic analysis of work methods

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Evolution of Operations and Supply Chain Management • Mass production • high-volume production of a standardized product for a mass market

• Quality revolution • an emphasis on quality and the strategic role of operations

• Lean production • adaptation of mass production that prizes quality and flexibility

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Historical Events in Operations Management Era Industrial Revolution

Scientific Management

Events/Concepts

Dates

Originator

Steam engine Division of labor Interchangeable parts Principles of scientific

1769 1776 1790

James Watt

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

management

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Adam Smith Eli Whitney

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Historical Events in Operations Management Era Human Relations

Operations Research

Events/Concepts

Dates

Originator

Hawthorne studies

1930 1940s 1950s 1960s 1947 1951

Elton Mayo Abraham Maslow Frederick Herzberg Douglas McGregor George Dantzig Remington Rand

1950s

Operations research groups

Motivation theories Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM MRP, EDI, EFT, CIM

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1960s, 1970s

Joseph Orlicky, IBM and others 1-16

Historical Events in Operations Management Era

Events/Concepts

Dates Originator

JIT (just-in-time) TQM (total quality

1970s

Quality

management) Strategy and

Revolution

operations

1980s 1980s

Reengineering

1990s

Six Sigma

1990s

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Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy GE, Motorola

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Historical Events in Operations Management Era

Events/Concepts

Dates Originator

Internet Revolution

Internet, WWW, ERP, 1990s supply chain management

ARPANET, Tim Berners-Lee SAP, i2 Technologies,

E-commerce

Globalization

WTO, European Union, Global supply chains, Outsourcing, Service Science

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2000s

1990s 2000s

ORACLE, Dell Amazon, Yahoo, eBay, Google, and others China, India, Emerging economies 1-18

Historical Events in Operations Management Era

Events/Concepts

Dates Originator

Sustainability

Global warming

Today

Carbon footprint Green products Corporate social responsibility (CSR) UN Global Compact

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Numerous companies, statesmen, governments, United Nations, World Economic Forum

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Evolution of Operations and Supply Chain Management • Supply chain management – management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners

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Globalization • Why “go global”? – – – – –

favorable cost access to international markets response to changes in demand reliable sources of supply latest trends and technologies

• Increased globalization – results from the Internet and falling trade barriers

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Hourly Compensation

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GDP 16.00 14.99

Figure 1.7 - GDP (in trillions $US)

14.00

12.00

10.00

8.00

6.00

4.00

7.32 5.87

3.60 2.77

2.00

2.48

2.44

2.19

1.86

1.85

0.00

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Trade in Goods, % of GDP Figure 1.8 - Trade in Goods as % of GDP 80.0 70.0 60.0

Brazil China

Percent

50.0

Germany India Japan

40.0

Mexico U.S.

30.0 20.0 10.0 0.0 2007

2008

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2009

2010

2011

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Manufacturing Output $2,500.00

$2,000.00

$1,500.00 China Germany Japan $1,000.00

U.S.

$500.00

$0.00 2004

2005

2006

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2007

2008

2009

2010

2011

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Productivity and Competitiveness • 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

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Osborne Industries

B5*B7 B6*B8 B4/B5 B4/B6 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

B4/B14 1-28

Percent Change in Input and Output

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Changes in Productivity

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Strategy and Operations • • • • •

How the mission of a company is accomplished Provides direction for achieving a mission Unites the organization Provides consistency in decisions Keeps organization moving in the right direction

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Strategy Formulation 1. Defining a primary task • What is the firm in the business of doing? 2. Assessing core competencies • What does the firm do better than anyone else? 3. Determining order winners and order qualifiers • What qualifies an item to be considered for purchase? • What wins the order? 4. Positioning the firm • How will the firm compete? 5. Deploying the strategy

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Strategic Planning Mission and Vision Voice o f the Busines s

Corporate Strategy

Marketing Strategy

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Operations Strategy

e h t f o e c i Vo r Custome

Financial Strategy

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Order Winners and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47

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Positioning the Firm • • • •

Cost Speed Quality Flexibility

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Positioning the Firm: Cost • Waste elimination

• relentlessly pursuing the removal of all waste

• Examination of cost structure

• looking at the entire cost structure for reduction potential

• Lean production

• providing low costs through disciplined operations

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Positioning the Firm: Speed • Fast moves, Fast adaptations, Tight linkages • Internet • Customers expect immediate responses

• Service organizations • always competed on speed (McDonald’s, LensCrafters, and Federal Express)

• Manufacturers • time-based competition: build-to-order production and efficient supply chains

• Fashion industry • two-week design-to-rack lead time of Spanish retailer, Zara

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Positioning the Firm: Quality • Minimizing defect rates or conforming to design specifications • Ritz-Carlton - one customer at a time • Service system designed to “move heaven and earth” to satisfy customer • Employees empowered to satisfy a guest’s wish • Teams set objectives and devise quality action plans • Each hotel has a quality leader

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Positioning the Firm: Flexibility • Ability to adjust to changes in product mix, production volume, or design

• Mass customization • mass production of customized parts

• National Bicycle Industrial Company • offers 11,231,862 variations • delivers within two weeks at costs only 10% above standard models

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Policy Deployment • Policy deployment • translates corporate strategy into measurable objectives

• Hoshins • action plans generated from the policy deployment process

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Policy Deployment

Derivation of an Action Plan Using Policy Deployment © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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Balanced Scorecard • Balanced scorecard • measuring more than financial performance • finances • customers • processes • learning and growing

• Key performance indicators • set of measures to help managers evaluate performance in critical areas

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Balanced Scorecard

Radar Chart

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Dashboard

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Operations Strategy Services Products

Capacity

Facilities

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Human Resources

Sourcing

Process and Technology

Quality

Operating Systems

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Organization of This Text: Part I – Operations Management 1. 2. 3. 4. 5. 6. 7. 8. 9.

Intro. to Operations and Supply Chain Management Quality Management Statistical Quality Control Product Design Service Design Processes and Technology Capacity and Facilities Design Human Resources Project Management

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Organization of This Text: Part II – Supply Chain Management 10. Supply Chain Strategy and Design 11. Global Supply Chain Procurement and Distribution 12. Forecasting 13. Inventory Management 14. Sales and Operations Planning 15. Resource Planning 16. Lean Systems 17. Scheduling

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Learning Objectives of this Course • Gain an appreciation of strategic importance of operations and supply chain management 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 and creating value along the supply chains • Develop a skill set for continuous improvement

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