Ko University

OPSM 301 Operations Management

Class 1: Introduction: What is operations management? Chapter 1

Zeynep Aksin zaksin@ku.edu.tr

What is the OPSM301 course about?

The role of the operations function may be defined as the design, operation, and improvement of the production system that

creates the firms primary products and

services

We will study how organisations actually do things

Operations as a Competitive Weapon

Dell Computers Innovative Supply Chain Strategy (direct model) Southwest Airlines Leader in lowfare flights, by elimination of all waste Zara Can deliver new styles in 3-6 weeks (compared to 5-12 months for competitors) Tansas Markets (now part of Migros) Inventory Control system cuts stock-outs to 7.2% from 19% Vestel Durable Goods Distribution optimization leads to increased customer satisfaction as well as lower costs

Supply Chain of a Typical Original Equipment Manufacturer

Management Decisions

Strategic (long-term) decisions Tactical (intermediate-term) decisions Operational planning and control (short-term) decisions

A Process Management Perspective

We all manage processes...
Information structure

Process Management Network of Activities and Buffers

Inputs
Flow units
(customers, data, material, cash, etc.)

Outputs
Goods Services

Labor & Capital

Resources

Process Management
A business process is a network of activities performed by resources that transforms inputs into outputs Process Management is a set of managerial policies specifying how a process should be operated over time...

Products
Products are the desired set of process outputs Product Types
Goods versus Services

Product Attributes
Cost Delivery response time Variety Quality

Inputs-Outputs

Tangible Inputs
People Raw material

Intangible Inputs
Information Time

Tangible Outputs
Buildings Cars

Intangible Outputs
Outgoing patient (hospital) Delivered message (advertising company)

Transformations
Physical--manufacturing
Locational--transportation

Exchange--retailing
Storage--warehousing

Physiological--health care
Informational--telecommunications

All Managers are Ops Managers!

All managers must transform inputs into outputs Example: Accounting Manager
Inputs: data, information, labor Transformation: application of accounting principles and knowledge Outputs: accounting reports, knowledge of performance, ...

Therefore, all managers are in some sense Operations managers All managers have an operation to run

Operations Management
Value Proposition Operations Strategy Operation Priorities Cost Quality Delivery Flexibility Innovation Service System Design Product/Service Design Process Selection Planning & Control Aggregate Planning Inventory Systems Project Management Scheduling MRP Statistical Process Control

TQM
Facility location Facility Layout JIT

Characteristics of Goods
Tangible product Consistent product definition Production usually separate from consumption Can be inventoried Low customer interaction
1995 Corel Corp.

Characteristics of Service
Intangible product Produced & consumed at same time Often unique High customer interaction Inconsistent product definition Often knowledge-based Frequently dispersed

1995 Corel Corp.

Goods Contain Services / Services Contain Goods

Automobile Computer Installed Carpeting Fast-food Meal Restaurant Meal Auto Repair Hospital Care Advertising Agency Investment Management Consulting Service Counseling 100
Percent of Product that is a Good

75

50

25

Percent of Product that is a Service

25

50

75

100

Development of the Service Economy

U.S. Employment, % Share

80 %70 60 50 40 30 20

Services as a Percent of GDP United States

U.S. Exports of Services In Billions of Dollars 250 200 150 100 50

Services

Canada
France

Industry

Italy Britain

Farming
10 0 1850 75 1900 25 50 75 2000

Japan W Germany 1970 2000

40 50 60 70 Percent 1970 75 80 85 90 95 2000

Year 2000 data is estimated

Productivity
Measure of process improvement Represents output relative to input

Productivity

Units produced = Input used

Only through productivity increases can our standard of living improve

Multi-Product (Total Factor) Productivity

Productivity

=
Output

Labor + material + energy + capital + miscellaneous

Example 1
Mis Hali cleaned 65 rugs in October, consuming the following resources:
Labor: 520 hours at 13 YTL per hour Solvent: 100 liters at 5 YTL per liter Machine rental: 20 days at 50 YTL per day

a. What is the labor productivity per dollar? (0.0096 ) b. What is the total factor productivity? (0.00787)

Example 2
Because of its excellent location and products, a bakery in Sariyer experienced a 25% increase in demand in the last year. Customers are unable to find the product of their choice on many occasions. Space limitations preclude the possibility of adding another oven. A new process is proposed by an employee which allows several loaves to be baked simultaneously, however requires additional manpower. If the bakery made 1500 loaves this time last year with a labor productivity of 2.344 loaves per labor hour, how many workers will the bakery need to add, assuming each worker works 160 hours per month. (1 worker)

Significant Events in Operations Management