McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-1
INTRODUCTION
PART ONE
UNM Management 300
Operations Management
Monday/Wednesday
8:00 9:15 am

McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-2
Introduction
to
Operations
Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-3
Operations Management
Organization
Finance Operations Marketing
The management of systems or processes that
create goods and/or provide services


Text Book Definition
Operations management is the set of activities that creates value
in the form of goods and services by transforming inputs into
outputs

McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-4


The Heritage of Operations Management

Division of labor (Adam Smith 1776 and Charles Babbage 1852)
Standardized parts (Whitney 1800)
Scientific Management (Taylor 1881)
Coordinated assembly line (Ford/Sorenson/Avery 1913)
Gantt charts (Gantt 1916)
Motion study (Frank and Lillian Gilbreth 1922
Quality control (Shewhart 1924; Deming 1950)
Computer (Atanasoff 1938)
CPM/PERT (DuPont 1957)
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-5


The Heritage of Operations Management Cont
Material requirements planning (Orlicky 1960)
Computer aided design (CAD 1970)
Flexible manufacturing system (FMS 1975)
Baldrige Quality Awards (1980)
Computer integrated manufacturing (1990)
Globalization(1992)
Internet (1995)

For 25 Extra Credit points Find at least three significant innovations that have happened in OM since 1995. Due Next Monday 8/30
For 25 Extra Credit Points: Find at least 3 significant
changes/innovations in OM that have occurred since 1995.
Due Monday 8/30/04
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-6 MY CHOICE FOR THE BIG GUNS OF OPERATIONS MANAGEMENT

Eli Whitney
Born 1765; died 1825
In 1798, received
government contract to make
10,000 muskets
Showed that machine tools
could make standardized
parts to exact specifications
Musket parts could be used in
any musket
1995 Corel Corp.
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-7 My Chocie For the Big Guns of Operations Research

Frederick W. Taylor
Born 1856; died 1915
Known as father of scientific
management
In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
Began first motion & time studies
Created efficiency principles
1995 Corel Corp.
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-8 My Choice For The Big Guns Of Operations Management
Frank & Lillian Gilbreth
Frank (1868-1924); Lillian
(1878-1972)
Husband-and-wife
engineering team
Further developed work
measurement methods
Applied efficiency methods
to their home & 12
children!
(Book & Movie: Cheaper
by the Dozen, book:
Bells on Their Toes)
1995 Corel Corp.
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-9 My Choice For The Big Guns Of Operations Management
Henry Ford
In 1903, created Ford
Motor Company
Born 1863; died 1947
In 1913, first used
moving assembly line
to make Model T
Unfinished product
moved by conveyor
past work station
Paid workers very well for 1911 ($5/day!)
Make them all
alike!
1995 Corel
Corp.
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-10 My Choice For The Big Guns of Operations Management
W. Edward Deming
Born 1900; died 1993
Engineer & physicist
Credited with teaching
Japan quality control
methods in post-WW2
Used statistics to analyze
process
His methods involve
workers in decisions
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-11
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
And more . . .
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-12
Business Operations Overlap
Marketing
Operations
Finance
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-13
Operations Management Enables
You To Be Competitive On:

Cost
Quality
Flexibility
Speed To Market

McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-14
Steel production
Automobile fabrication
House building
Road construction
Dressmaking
Farming
Auto Repair
Appliance repair
Maid Service
Manual car wash
Teaching
Lawn mowing
Low service content
High goods content
High service content
Low goods content
Increasing
goods content
Increasing
service content
Goods-service continuum
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-15
Stage of Production
Value
Added
Value of
Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
Introduction to Operations Management
Ops Management Is All About Value Added
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-16
Value-Added
The difference between the cost of inputs
and the value or price of outputs.
Inputs
Land
Labor
Capital
Transformation/
Conversion
process
Outputs
Goods
Services
Management
Feedback
Feedback Feedback
Value added
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-17
Operations Management Interfaces
Public Relations
Accounting
Industrial
Engineering
Operations
Maintenance
Personnel
Purchasing
Distribution
MIS
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-18
OM Strategy/Decision Making Determines:
System Design

Capacity/based on Forecasts

Location/based on customers

Arrangement of departments/based on productivity

Product and service planning/based on customer demands


Acquisition and placement of
equipment/based on productivity

Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-19
OM Strategy/Decision Making Determines:
System operation
personnel
inventory
scheduling
project
management
quality assurance
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-20
Type of Operations We Will Cover

Project
Aircraft carrier
Batch production
Printers
Mass production
Automobiles
Continuous production
Gasoline

Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-21
Key Differences Between
Production & Services
Amount of Customer contact
Uniformity of inputs
Labor content
Uniformity of output
Measurement of productivity
Quality assurance
These differences are beginning to fade
in many cases
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-22
Manufacturing vs Service
Characteristic
Output
Customer contact
Uniformity of input
Labor content
Uniformity of output
Measurement of productivity
Opportunity to correct
Manufacturing
Tangible
Low
High
Low
High
Easy
High
Service
Intangible
High
Low
High
Low
Difficult
Low
quality problems
High
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-23
Type of Models
A model is an abstraction of reality used to
aid management decision making.

Physical/ e.g. Plant Layout

Schematic/Product Blueprint

Mathematical/Forecast Model
What are the pros and cons of models?
Tradeoffs
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-24
Quantitative Modeling
Approaches We Will Study
Linear programming
Queuing Techniques
Inventory models
Project models
Statistical models
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-25
Responsibilities of an Operations Manager
Products & services
Planning

Capacity

Location


Make or buy

Layout

Projects

Scheduling
Controlling

Inventory

Quality

Organizing

Degree of centralization

Subcontracting
Staffing

Hiring/laying off

Use of Overtime
Directing

Incentive plans

Issuance of work orders

Job assignments
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-26
Systems Approach
The whole is greater than the sum of the parts.
But what is the whole system? Peter Checkland has pointed out that there
are no such things as systems in the real world waiting to be identified;
rather we choose to identify a certain collection of people and things as a
system. To talk about systems is to talk about a way of looking at the
world, not the way.

Suboptimization
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-27
Pareto Phenomenon
A vital few things are important for reaching
an objective or solving a problem.
80/20 Rule - 80% of problems are caused by
20% of the activities.
How do we identify the vital few?
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-28 Pareto and Juran
How Pareto got credit proving that you
can get credit even when you dont deserve it.
All you need is to have it sound good.

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe
the unequal distribution of wealth in his country, observing that twenty percent of the
people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran
inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. While it
may be misnamed, Pareto's Principle or Pareto's Law as it is sometimes called, can be
a very effective tool to help you manage effectively.
Where It Came From
After Pareto made his observation and created his formula, many others observed
similar phenomena in their own areas of expertise. Quality Management pioneer, Dr.
Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle
he called the "vital few and trivial many" and reduced it to writing. In an early work, a
lack of precision on Juran's part made it appear that he was applying Pareto's
observations about economics to a broader body of work. The name Pareto's Principle
stuck, probably because it sounded better than Juran's Principle.
As a result, Dr. Juran's observation of the "vital few and trivial many", the principle that
20 percent of something always are responsible for 80 percent of the results, became
known as Pareto's Principle or the 80/20 Rule. You can read his own description of the
events in the Juran Institute article titled Juran's Non-Pareto Principle.
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-29
The Internet
E-Business
Supply Chain Management
Recent Trends (Last 10 Years)
Effecting/Changing
OM Principles

Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-30
Suppliers
Suppliers
Direct
Suppliers
Producer
Distributor
Final
Consumer
Simple Product Supply Chain
(But It Never Really Looks Like This)
Introduction to Operations Management
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-31
The Things In OM That Havent Changed
Quality and process improvement
Technology
Globalization
Operations strategy
Environmental issues
Introduction to Operations Management