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lecture 1 introduction to operations
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management in this lecture we're going
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to define operations management we'll
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talk about the difference between a
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goods or services we'll introduce you to
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the supply chain we'll talk about the
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transformational process will cover the
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evolution of operations management and
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we'll talk about environmental and
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ethical issues and finally we're going
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to talk about supply chain management
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and issues so what is operations so
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operations is really what you do as a
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business it's the part of the business
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organization that's responsible for
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producing goods or services so if you
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are a restaurant it is making and
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serving food if you are a automobile
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manufacturer it is producing a good
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which is the car so how do we define
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operations management it's the
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management of systems or processes that
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creates the goods or provides the
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services so here's some examples of
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goods versus services so goods includes
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everything from raw materials to
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partially assemble something to the
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final product so an example is is your
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car your car is a goods the computer so
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the computer that you're using the
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watches video that is a Goods an oven
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where you bake something shampoo those
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are all goods services are activities
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that provide some combination of time
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location form or psychological value so
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for example air travel so the service of
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air travel is to get you from one town
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to another town you're actually using
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goods which is the airplane to get there
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but your purpose isn't you're not buying
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an airplane you're just simply buying
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the air travel education this class is a
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great example of a service you are
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learning something here
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a haircut your hair grows you need to go
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get a haircut your haircut is at a
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specific time and location legal counsel
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you need to go get a lawyer that's a
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service so here's the supply chain it's
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the sequence of activities and
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organizations that produce or deliver a
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goods or services so you start on the
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left with supplier suppliers
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that's someone that your suppliers get
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stuff from and you have direct suppliers
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then the producer you are the producer
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you were making something now that that
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product service whatever it is has to be
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distributed so there's a distributor and
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then you have the final customers so
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that's the supply chain and we'll we'll
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be covering this a lot throughout the
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class well this is the transformational
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process this is where you add value this
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is this is really what you do so on the
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left you have inputs could be land labor
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capital information raw materials
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whatever it is then you go through some
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kind of a transformational process and
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on the output is either a goods or
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services now you have these feedback
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loops where you're always looking to see
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if there's something about your product
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or service that needs to be improved in
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your transfer transformational process
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you
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you also have feedback to your inputs to
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say what is it that we need to do
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different so so an example on an input
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let's say you're a restaurant so your
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input
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are you're building your labor the the
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cook the server's its and then it's your
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food so you might get a delivery of
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lettuce and tomatoes and beans and rice
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those are all inputs so the
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transformational concerted conversion
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process it's where you take those things
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a cook makes that into food and then a
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server serves that to a customer and so
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that's the transformational process in
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the output now the the feedback is the
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cook on the right hand side the customer
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says this something's wrong with this
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food it doesn't taste right or I don't
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like it that's feedback goes back in and
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they may say okay I'll make you
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something different
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I'll make you something better or try
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again that would be feedback now you if
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you've got a box of lettuce and the
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entire box of lettuces rotten now that's
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that goes back to feed back to your
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lettuce supplier of your input so that's
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sort of how the whole thing works this
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transformational process so here's the
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goods and services continuum a lot of
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products are not purely a service or
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goods they're they're sort of a
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combination so for example automobile
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assembly and steelmaking those are
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mostly goods but there is a small amount
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of service in there home remodeling
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retail sales have a little bit more
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service computer repair a restaurant
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needle so in a restaurant meal it's
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really half of it is the food you're
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eating food which is a goods but you
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have a server there they're transforming
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this food for you there it's a certain
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time that you're eating it which is it
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which is the service side of it a
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songwriting software development starts
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getting into more
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to services surgery teaching you start
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getting into mostly services with just a
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small amount of goods so why study
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operations management so every aspect of
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business affects or is affected by
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operations so many service jobs are
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closely related to operations so
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financial services marketing services
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accounting services information all
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those are very closely related to
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operations and so when you learn about
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operations and supply chain you will
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have a better understanding of where we
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live the whole world global dependencies
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of companies and nations you also
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understand why companies succeed or fail
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and the importance of working with
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others so there's three basic functions
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of any organization and that is
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marketing operations and finance so
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marketing is is the part that goes and
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identifies customers brings customers in
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operations is the part that actually
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makes something or does something and
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Finance is is collecting the money
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managing the money all of those now
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there's overlap between these three
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areas for example under finance and
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operation finance is responsible for
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budgeting the operations they they
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provide the economic analysis of an
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investment proposal let's say that you
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say well we should we should have a new
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restaurant okay so that new restaurant
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what how much is it going to cost what's
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the return on investment those kinds of
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things and then they provide the funds
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so finance is responsible for providing
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the funds to pay for your servers or
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your cook pay for the food all of those
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and then marketing has an impact with
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operation
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so marketing is responsible for
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providing demand data so we're gonna
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have this restaurant marketing us
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responsible to analyze how many people
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we think will come to that restaurant at
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what time product and service design so
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marketing is responsible to tell
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operations the kinds of things that are
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important to the customer marketing does
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the competitive analysis so we look at a
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restaurant we want to put a restaurant
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over on Main Street
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well marketing will go over there and
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look and say well you know there's
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there's another restaurant that does the
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same thing as us and we'll have to
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compete head-to-head that might not be
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the best location they're looking at the
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competitors lead time data so marketing
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is responsible for promising customers
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the product on a certain time but they
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need to work with operations because
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they that this thing it might be
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normally when you place an order will
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provide it in a week but maybe
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operations has a backlog and they need
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to go tell marketing you know the lead
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time for this is really going to be two
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weeks because we have too much to do
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operations management and supply chain
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career opportunities so here are some
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jobs that you could have that are
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directly related to operations
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management can be an Operations Manager
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supply chain manager production analysts
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schedule coordinator production manager
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Industrial Engineer purchasing manager
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inventory manager or call quality
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control all of those are very closely
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related to operations management there's
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some professional suppliers for
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operations management apic s association
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for operations management asq American
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Society for quality Institute for Supply
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Management then you have informs
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Institute for operations research and
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management science palms production and
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operation management
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society a PMI the project management
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institute and then the Council of supply
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chain management professionals so these
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are some of the professional societies
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so let's talk about process management
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so there's three crowd categories of
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business processes there's the other
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upper management process these
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government the govern the entire
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operation of the organization
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operational processes these are like the
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core processes and then supporting
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processes then supply and demand so the
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operations and supply chain are
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responsible for meeting the supply sales
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and marketing is responsible for
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identifying demand creating demand so if
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you have way more supply than you have
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demand that's wasteful and call costly
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if you say well we're gonna have a
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hundred people coming to the restaurant
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we have to make a lot of food and then
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you only have ten and all that all that
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extra food some of it is is not going to
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be able to be used used tomorrow so that
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that becomes wasteful so that's where
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you have way more supply than demand or
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maybe you order a bunch of lettuce and
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then it's rotten before you can serve it
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and then the other one is where supply
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is way less than demand I don't know if
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you've ever walked into a restaurant you
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see something on the menu say I'd like
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to order this burger and there's like oh
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we're sorry we ran out of that and so
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then you go somewhere else on the menu
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like okay I'll take my second choice
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I'll take this as oh sorry we're out of
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that too and and so here and you know so
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the customers dissatisfied and maybe
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they go down to a third item let's get
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this instead it's like no we're out of
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that too
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so at that point the customer may
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actually just leave it's like no I can't
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get anything here so you've lost the
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opportunity to sell anything to that
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customer you have a dissatisfied
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customer they might not come back next
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time so on the bottom is the ideal where
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supply equals demand so you have the
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exact right amount of products or
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services for the demand process
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variation so there's four sources of
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process variation so the first is the
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variety of goods or services being
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offered so when you have a large variety
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that that creates variation in your
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processes so if if you have louver
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variety if you have like a cook
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that's yours just making burgers and
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they only have one kind of burger one
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kind of topping the process is always
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the same you make a burger by doing this
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it's always the same but then if you if
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you say we we offer everything then the
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process to make the food is different
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depending on whether they're making soup
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or salad or a burger all of those have a
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different process and then there's
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structural variation in demand so these
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are generally predictable variation so
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an example is a restaurant restaurants
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have a structural variation lunchtime
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you have a bunch of people and supper
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you have a bunch of people and there's
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not so many people in between so those
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are very predictable and maybe on Monday
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night you don't have very many customers
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on Friday night and Saturday night you
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may have a whole bunch so those are
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examples of structural variation then
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random variation our natural variation
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and you can't really manage that
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sometimes a bunch of people just show up
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and there's no way to
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predicted no way to influence it it just
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happens and then the the last one is
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assignable variation this is variation
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that has identifiable sources so this
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type of variation can be reduced
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eliminated by analysis and corrective
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action so an example of this might be
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the cook always does something and let's
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see let's say that whenever he's making
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a salad he has to walk to the
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refrigerator get the lettuce bring it
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out and so a salad takes a long time
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well an example might be well let's put
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a little refrigerator right next to the
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preparation area where he can have some
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stuff there so he's getting ready to
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make a salad he just opens the door so
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that's an example of assignable
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variation where you know how long that's
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going to take you you you actually
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correct it so variations can be
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disruptive to the operations supply
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chain process they can cause additional
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cost delays shortages poor quality any
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inefficient work systems so this is the
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scope of operations management
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operations management runs across the
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organization so it it includes a bunch
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of inner elect related activities and
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we're gonna go through all of these in
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detail in this course but forecasting
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capacity planning facilities and layout
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scheduling managing inventories assuring
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quality motivating customers deciding
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where a location is for facilities and
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more and more so it's a very broad topic
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so the role of the operations manager so
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the operations function consists of all
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activities directly related to producing
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goods or providing services so the
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primary functions of an Operations
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Manager is to guide the system by May
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making system design decisions and
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system operation decisions so here's
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some system design decisions so how much
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capacity do we have are we gonna have a
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really large restaurant with a big
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kitchen or we're gonna have a small
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corner restaurant with just a small
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kitchen so that's a capacity example
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facility layout where are we gonna put
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the refrigerator where are we gonna put
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the stove where are we gonna put the
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customers how how is the all of those
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things Facility Location is are we gonna
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put it on Main Street or out in the
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country product and service planning
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what is it that how are we gonna um
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create this product or service
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acquisition placement of equipment
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that's similar to facility layout but
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you know where are we gonna get big
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equipment little equipment and so these
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system design decisions there are
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typically strategic decisions and they
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often require a long-term commitment of
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resources if you're gonna buy a all the
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equipment to go in a restaurant you
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might sign a long lease you might build
00:19:16
your own building of equipment and it
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really determines the parameters of the
00:19:22
system operation what kind of restaurant
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those kinds of things so the system
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operation decisions they tend to be
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tactical and operational it's the
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management of people when our people
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come in when are they going how many
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people do we need is do we need to fire
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someone do we need to hire someone
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inventory management and control how
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much lettuce are we gonna buy how many
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tomatoes how much do we have on-hand how
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much did we throw away because it got
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rotten scheduling the scheduling of
00:20:03
people the scheduling of your hours the
00:20:07
scheduling if you're developing a
00:20:09
product the schedule to develop that
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product project management if you're
00:20:15
going to try something new managing that
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product project Quality Assurance making
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sure that whatever it is that you're
00:20:24
providing is quality so operations
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management tend to spend more time on
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system operation decisions than on any
00:20:34
other decision area but they still have
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a vital stake in system design so these
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are the operation management
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decision-making most decisions involve
00:20:49
alternatives and might have quite
00:20:52
different impacts on costs or profits so
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the typical operations decisions include
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what when where how who so the what what
00:21:05
resources are needed and what amounts
00:21:07
when when will each resource be needed
00:21:10
when should the work be scheduled wind
00:21:12
should materials and other supplies be
00:21:14
ordered the where where will the work be
00:21:17
done how will this product or service be
00:21:21
designed how will the work be done
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how will the resources be out allocated
00:21:26
and then who who will do the work so
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those are all decision-making questions
00:21:34
so here's a general approach to decision
00:21:38
making and that is to use a model so a
00:21:42
model is an abstraction of a reality or
00:21:45
a simplification of something let's say
00:21:48
that you you've never had a restaurant
00:21:51
and you want to try different layouts
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you might go into your garage and you
00:21:59
say okay what if we put the server right
00:22:02
here we put the refrigerator over here
00:22:06
and you might practice making some
00:22:08
things that that would be a model if you
00:22:10
made like a cardboard cutout to the
00:22:12
table or maybe some folding tables and
00:22:15
chairs
00:22:16
that's a model it's a simplification of
00:22:18
reality you can have a computer model or
00:22:21
you actually analyze things with a
00:22:26
computer so the the features of models
00:22:30
they're simplifications of real life
00:22:32
they important they omit unimportant
00:22:35
details and they min mimic so that the
00:22:40
attention can be focused on the most
00:22:42
important aspects of the real life
00:22:44
system so that that's conceptually what
00:22:48
a model is so the keys to successfully
00:22:53
using a model is you have to ask these
00:22:56
questions what is its purpose how is it
00:22:59
used to generate real results how are
00:23:02
the results interpreted and used and
00:23:04
what are the models assumptions and
00:23:07
limitations if you don't understand that
00:23:09
if someone comes into a meeting and say
00:23:12
we ran the model and it said we should
00:23:17
not build a store on Main Street it's
00:23:19
like okay what was the purpose of the
00:23:21
model well the purpose of the model was
00:23:23
not location analysis it was something
00:23:25
else or how did you generate the results
00:23:29
so you can actually use a very good
00:23:33
model in the wrong way and get bad data
00:23:35
out of it so the benefits of the model
00:23:39
it's easier to use less expensive than
00:23:41
the real system requires users to
00:23:44
organize and sometimes quantify
00:23:46
information it really increases your
00:23:49
understanding of the problem it enables
00:23:52
managers to analyze what if questions it
00:23:56
serves as a constant tool for evaluation
00:23:58
and provide standardized format for
00:24:00
analyzing a program problem and it
00:24:04
enables users to brings the power of
00:24:06
mathematics so if you have a
00:24:08
mathematical model you can bring a lot
00:24:12
of power with that ok let's talk about
00:24:17
the system's approach so a system is a
00:24:20
set of interrelated parts that must work
00:24:24
together so the the business
00:24:27
organization is a system
00:24:29
of subsystems you have the marketing
00:24:32
subsystems at operation subsystem
00:24:34
finance subsystem so those three
00:24:37
subsystems are all working together the
00:24:39
systems approach emphasizes the
00:24:42
interrelationship among the systems the
00:24:45
main thing is that the whole is greater
00:24:47
than the sum of the parts the output and
00:24:52
objectives and over organization can
00:24:54
take precedence over any one subsystem
00:24:58
so marketing may say hey we got this
00:25:02
great campaign we'll bring in double the
00:25:05
customers and operation says we can't
00:25:10
manage that that number of customers so
00:25:16
let's scale back on the marketing and
00:25:19
marketing is like but we had this great
00:25:21
marketing campaign and it's like well
00:25:24
for us to be able to do that we would
00:25:26
need to increase capacity so then they
00:25:30
go to finance and say can we increase
00:25:32
capacity it's like well we don't have
00:25:34
the money to buy the system to increase
00:25:38
capacity so in this case marketing
00:25:43
cannot do their super marketing they may
00:25:46
do a little bit more maybe you could
00:25:48
operations could handle 50 percent more
00:25:51
so they they tweak that marketing to
00:25:54
bring in 50 percent more customers not a
00:25:56
hundred percent more then establishing
00:26:01
priorities there there's certain issues
00:26:05
or items that are more important than
00:26:06
others
00:26:07
so by recognizing these important
00:26:11
priorities you can focus on the efforts
00:26:15
that will do the most good there's never
00:26:17
enough time so you focus on what is the
00:26:21
most important so there's something
00:26:23
called the Pareto phenomenon some people
00:26:28
call it the 80/20 rule what it is is 80%
00:26:32
of your problems or offense comes from
00:26:37
20% of the sources so if you have ten
00:26:42
employees
00:26:44
80% of your problems with those
00:26:48
employees will come from two of those
00:26:51
employees so 20% of the problem of the
00:26:55
problems will come from now 80% of the
00:26:59
problems will come from 20% of the
00:27:01
employees so the critical few factors
00:27:05
should receive the highest priority this
00:27:08
is the concept that is appropriately
00:27:10
applied across all areas and levels of
00:27:13
management so here's the historical
00:27:17
evolution of operations management there
00:27:19
was the Industrial Revolution scientific
00:27:21
management human relations management
00:27:24
decision models and management science
00:27:26
and the influence of Japanese
00:27:28
manufacturers so the Industrial
00:27:32
Revolution we talked about this before
00:27:35
the Industrial Revolution it was really
00:27:38
a craft production systems you had a
00:27:41
blacksmith and that blacksmith would
00:27:43
make everything in his blacksmith shop
00:27:47
you had a dress maker who would make the
00:27:51
entire dress so then the Industrial
00:27:55
Revolution some key elements really in
00:28:02
the 1770 1776 1787 96 so it really
00:28:10
started in England he had division of
00:28:13
labor by Adam Smith
00:28:15
you had the rotative steam engine in the
00:28:19
19th 1780s then you had the cotton gin
00:28:24
and interchangeable parts by Eli Whitney
00:28:27
on the management theory and practice
00:28:31
did not really advance during this
00:28:33
period but there was this Industrial
00:28:36
Revolution then we got to this
00:28:39
scientific management and there was this
00:28:43
in efficiency engineer Frederick Winslow
00:28:46
Taylor he believed in a science of
00:28:50
management based on observation
00:28:52
measurement analysis improvement of work
00:28:54
methods and
00:28:56
economic incentives so management is
00:28:59
responsible for planning selecting
00:29:02
training workers and the find the best
00:29:06
way to perform each job so you have to
00:29:09
have the cooperation between management
00:29:11
and the workers and you separate
00:29:14
management activities from work
00:29:15
activities and the emphasis was to
00:29:18
manage or maximize output and we got to
00:29:23
that human relations movement this it
00:29:27
started with Gilbreth with the
00:29:32
application of psychology and then you
00:29:36
have Mayo who did the Hawthorne studies
00:29:39
on worker motivation this this was an
00:29:44
interesting one where they studied
00:29:47
productivity and lighting and they
00:29:52
increase the lighting and and
00:29:58
productivity went up and then they
00:30:00
decreased the lighting and productivity
00:30:03
went up even more and and it didn't make
00:30:07
sense but what they realized was it was
00:30:09
because management was paying attention
00:30:12
to workers that the productivity was
00:30:15
going up so that's the Hawthorne study
00:30:18
Maslow's you may have heard about
00:30:21
motivation theory his hierarchy of needs
00:30:25
and then the two-factor theory and then
00:30:29
Theory X Theory Y and then that in 1981
00:30:34
you had Theory Z now you have decision
00:30:41
models and management science so this is
00:30:44
where you start really modeling
00:30:46
mathematics so Harris in 1915 a
00:30:50
mathematical model for inventory
00:30:52
management and then you started having
00:30:55
statistical procedures for sampling and
00:30:58
Quality Control and 30s
00:31:00
Tippett had statistical sampling theory
00:31:05
1935 you have operations research
00:31:10
groups and then that operations research
00:31:14
got applied to warfare and then the last
00:31:19
one is linear programming in 1947 the
00:31:26
Japanese had a huge influence on quality
00:31:31
and they are credited with the quality
00:31:35
revolution and they also really started
00:31:40
this concept of just-in-time production
00:31:44
so some of the key issues for operations
00:31:47
managers today our economic conditions
00:31:51
is the economy going up is it going down
00:31:53
how do I use that to predict there's
00:31:56
innovating what's happening how are you
00:32:00
going to make something new quality
00:32:02
problems how do you make sure you have
00:32:04
good enough quality how do you manage
00:32:07
risk and then competing a global economy
00:32:11
you hear about that a lot where a my job
00:32:14
got exported to China or something that
00:32:18
is really the global economy how do you
00:32:21
how do you manage competition in that
00:32:24
environment environmental concerns so
00:32:29
sustainability and this is using
00:32:32
resources in a way that does not harm
00:32:34
that ecological systems that support
00:32:36
human existence and it can go way beyond
00:32:41
traditional environmental and economic
00:32:44
measures really to incorporate social
00:32:49
criteria and decision making in all
00:32:52
areas of the business can be affected in
00:32:55
this product or service design customer
00:32:58
education programs disaster preparedness
00:33:00
and response supply chain waste
00:33:02
management outsourcing decisions all of
00:33:05
those have sustainability implications
00:33:09
then ethical issue issues financial
00:33:13
statements you hear about CEOs going to
00:33:18
jail for lying about the finance
00:33:20
finances worker safety
00:33:23
maybe someone gets hurt and you have a
00:33:28
class-action lawsuit or you know how do
00:33:33
you how do you face a family member when
00:33:37
you intentionally ignored some safety
00:33:41
item in that that worker was killed or
00:33:44
hurt product safety what if you sell a
00:33:49
product and and someone gets hurt
00:33:52
hear a lot about airbags where there's
00:33:55
defective airbags that hurt people
00:33:58
quality is it is it ethical to sell
00:34:05
things that are low quality when you
00:34:06
know that it's low quality and you
00:34:09
pretend that it's high quality the
00:34:12
environment are you dumping things into
00:34:15
that that pollutes rivers that would if
00:34:19
you were caught would send you to jail
00:34:23
community maybe the how are you dealing
00:34:28
with the community hiring firing workers
00:34:30
are you Ethel they're closing facilities
00:34:35
closing a facility in one town and
00:34:38
moving it to another town what does that
00:34:41
do ethically worker rights all of those
00:34:44
are ethical issue issues so this the
00:34:50
supply chain management early on there
00:34:53
was little effort to manage this supply
00:34:57
chain beyond your own operations and
00:34:59
immediate suppliers which leads to
00:35:02
numerous problems you have oscillating
00:35:04
inventory levels inventory stock outs
00:35:07
late deliveries and quality problems so
00:35:12
the issues you need to improve
00:35:14
operations we have increasing levels of
00:35:19
outsourcing increasing transportation
00:35:23
cost you have competitive pressures
00:35:26
increasing globalization the importance
00:35:29
of e-business
00:35:30
so if you have a store and you're
00:35:34
selling a product you are directly
00:35:36
competing
00:35:37
against Amazon if Amazon can give that
00:35:40
customer that product in two days for a
00:35:46
cheaper price you're competing if unless
00:35:50
that customer needs it today you know
00:35:54
you're competing with ebusiness the
00:35:58
complexity of supply chains your
00:35:59
supplier may also be serving your
00:36:02
competitors excuse me the need to manage
00:36:08
inventories so there's different
00:36:14
strategies and we'll talk about this in
00:36:16
more detail where you might have your
00:36:17
supplier manager inventory and work
00:36:21
together with your supplier so a summary
00:36:25
we've talked about the definition of
00:36:28
operations management define the
00:36:30
difference between a goods or services
00:36:32
the supply chain the transformational
00:36:36
process historical evolution of
00:36:38
operations management
