Chapter 1

Introduction to Operations and

Supply Chain Management
Russell and Taylor
Operations Management, 8th Edition

Key points chapter 1

Productivity. What is it? How to calculate it?

Lecture Outline
The Operations Function Slide 8
The Evolution of Operations and Supply Chain
Management Slide 13
Productivity and Competitiveness Slide 25
Strategy and Operations Slide 30

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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Operations as a
Transformation Process
INPUT
Material
Machines
Labor
Management
Capital

TRANSFORMATION
PROCESS

OUTPUT
Goods
Services

Feedback & Requirements

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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

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 Function
Operations
Marketing
Finance and
Accounting
Human
Resources
Suppliers

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Sample Organizational Structure

CEO
Chief Executive Officer
CFO
Chief Financial Officer

COO
Chief Operating Officer

CIO
Chief Information Officer

VP Human Resources
VP Operations
VP Supply Chain
Management
VP Marketing
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How is Operations Relevant

to my Major?
Accounting

As an auditor you must understand the

fundamentals of operations
management.

Information
Technology

IT is a tool, and theres no better place to

apply it than in operations.

Management

We use so many things you learn in an

operations classscheduling, lean
production, theory of constraints, and
tons of quality tools.

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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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

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

How is Operations Relevant

to my Major?
Economics
Marketing

Finance

Its all about processes. I live by

flowcharts and Pareto analysis.
How can you do a good job marketing a
product if youre 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

Division of Labor

Individual customer

Individual worker

Interchangeable
part
Standardized parts

Evolution of Operations and Supply Chain

Management (continued)

Scientific
Mgt

Mass production

Lean Production

Method analyzed

Standardized product

Quality & flexibility

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
management

1769
1776
1790

James Watt

1911

Frederick W. Taylor

Time and motion studies

1911

Activity scheduling chart

Moving assembly line

1912
1913

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Adam Smith
Eli Whitney

Frank and Lillian

Gilbreth
Henry Gantt
Henry Ford

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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

1960s,
1970s

Joseph Orlicky, IBM

and others

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

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Historical Events in
Operations Management
Era

Events/Concepts

JIT (just-in-time)
TQM (total quality
management)
Strategy and
Quality
Revolution operations

Dates Originator
1970s
1980s
1980s

Reengineering

1990s

Six Sigma

1990s

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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

Internet
Revolution

Internet, WWW, ERP,

1990s
supply chain management

Globalization

Dates Originator

E-commerce

2000s

WTO, European Union,

Global supply chains,
Outsourcing, Service
Science

1990s
2000s

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
Amazon, Yahoo,
eBay, Google, and
others
China, India,
Emerging
economies

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Historical Events in
Operations Management
Era

Events/Concepts

Sustainability Global warming

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

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Dates Originator
Today

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

1-20

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

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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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
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B4/B14

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Percent Change in Input and Output and

Productivity

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1.1. tried and True Clothing has opened 4 new stores in

town. Monthly sales volume and labor hours data are
given below. Which store location has highest labor
productivity?
Store

Annandale

Blacksburg

Charlots

Danvile

Sales volume ($)

40.000

12.000

60.000

25.000

Labor hour

250

60

500

200

200

120

125

Productivity

160

1.8. Carpet City recorded this data below. Use it to

calculate average rate (in yards/hour) at which carpet
can be installed. What is your opinion about installation?
Installation

Square yards

1225

1435

2500

No.of worker

No. of hours/worker

Productivity/hour

102.08

95.67

83.33

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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Strategic Planning
Mission
and Vision

Corporate
Strategy

Marketing
Strategy

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Operations
Strategy

Financial
Strategy

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Positioning the Firm

Cost
Speed
Quality
Flexibility
Innovation

KEYWORDS:
1.
2.
3.
4.
5.

Risk taking, failure as part of learning process

Uniform and well defined process to exceed customer expectation
Mass customization
High volume production, automation
Immediate response, rapid shipment

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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 (McDonalds, 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 guests wish

Teams set objectives and devise quality action plans

Each hotel has a quality leader

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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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

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

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

Human
Resources

Sourcing

Process
and
Technology

Quality

Operating
Systems

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Emirates Airline Catering

Transformation
process?
Operation functions
mostly important?
Strategic
positioning?
Productivity
measurement

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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Next week
Weekly group project: 2 groups will choose a company
together for chp. Ensuring Quality
1 group as presenter, 1 group as debater
Others will be given Q&A.

Individual task: Describe Historical events in Operations

To show how Operations evolve.
Take information outside from textbook state your
reference
Describe important people and event of Operation
evolution
Maximum 2 pages of A4 paper size.
EMAIL to novira.dasilva@pmbs.ac.id latest nextweek
Format email in subject: Name, Class

Excercises
Problem 1.2

Problem1.5

2014 John Wiley & Sons, Inc. - Russell and Taylor 8e

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