Chapter 1

Operations and Competitiveness

Operations
Operations Management
Management -- 55thth Edition
Edition
Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc.

Beni Asllani
University of Tennessee at Chattanooga

Lecture Outline

What Do Operations Managers Do?

Operations Function
Evolution of Operations Management
Operations Management and Ebusiness
Globalization and Competitiveness
Primary Topics in Operations Management
Learning Objectives for this Course

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What Do Operations
Managers Do?
What is Operations?

a function or system that transforms inputs into outputs of

greater value

What is a 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

What is Operations Management?

design, operation, and improvement of productive

systems

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..

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Transformation Process

Physical: as in manufacturing operations

Locational: as in transportation 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
Management
Capital

TRANSFORMATION
PROCESS

OUTPUT
Goods
Services

Feedback

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Operations Function
Operations
Marketing
Finance and
Accounting
Human
Resources
Outside
Suppliers

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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 theres no better
place to apply it than in operations.
We use so many things you learn
in an operations classscheduling,
lean production, theory of
constraints, and tons of quality
tools.

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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
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 initially as

replacement parts; enabled mass
production

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handcrafting

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Evolution of Operations
Management (cont.)
Scientific management

systematic analysis of work methods

Mass production

high-volume production of a standardized

product for a mass market

Lean production

adaptation of mass production that prizes

quality and flexibility

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Historical Events in
Operations Management
Era
Industrial
Revolution

Events/Concepts
Steam engine
Division of labor
Interchangeable parts
Principles of scientific

management
Time and motion studies

Scientific
Management Activity scheduling chart
Moving assembly line

Dates
1769
1776
1790

Originator
James Watt

Adam Smith
Eli Whitney

1911

Frederick W. Taylor

1911
1912

Frank and Lillian

Gilbreth
Henry Gantt

1913

Henry Ford

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Historical Events in
Operations Management (cont.)
Era

Events/Concepts

Human
Relations

Motivation theories

Operations
Research

Hawthorne studies

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

Dates

Originator

1950s

Operations research
groups

1930
1940s
1950s
1960s
1947
1951

1960s,
1970s

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

Joseph Orlicky, IBM

and others

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Historical Events in
Operations Management (cont.)
Era
Quality
Revolution

Events/Concepts Dates Originator

JIT (just-in-time)
TQM (total quality
management)
Strategy and
operations
Business process
reengineering

1970s
1980s
1990s
1990s

Taiichi Ohno (Toyota)

W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy

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Historical Events in
Operations Management (cont.)
Era

Globalization
Internet
Revolution

Events/Concepts

WTO, European Union,

and other trade
agreements
Internet, WWW, ERP,
supply chain
management

Dates Originator
1990s

Numerous countries

2000s

and companies

1990s

ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE,

E-commerce

2000s

PeopleSoft
Amazon, Yahoo,
eBay, and others

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Continuum from Goods

to Services

Source: Adapted from Earl W. Sasser, R. P. Olsen, and D. Daryl Wyckoff,

Management of Service Operations (Boston: Allyn Bacon, 1978), p.11.

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Business

Consumer

Business

B2B
Commerceone.com

B2C
Amazon.com

Consumer

Operations Management
and E-Business

C2B
Priceline.com

C2C
eBay.com

Categories of E-Commerce

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An Integrated Value Chain

Value chain: set of activities that create and deliver
products to customer

Customer

Manufacturer

Supplier

Flow
Flow of
of information
information (customer
(customer order)
order)
Flow of product (order fulfillment)

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Impact of E-Business on
Operations Management
Benefits of E-Business
Comparison shopping
by customers
Direct contact with
customers
Business processes
conducted online

Impact on Operations
Customer expectations escalate;
quality must be maintained and
costs lowered
No more guessing about demand
is necessary; inventory costs go
down; product and service design
improves; build to-order products
and services is made possible
Transaction costs are lower;
customer support costs decrease;
e-procurement saves big bucks

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Impact of E-Business on
Operations Management (cont.)
Benefits of E-Business

Impact on Operations

Access to customers Demand increases; order fulfillment

and logistics become major issues;
worldwide
production moves overseas
Middlemen are
eliminated
Access to suppliers
worldwide

Logistics change from delivering to a

store or distribution center to delivering
to individual homes; consumer demand
is more erratic and unpredictable than
business demand
Outsourcing increases; more alliances
and partnerships among firms are
formed; supply is less certain; global
supply chain issues arise

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Impact of E-Business on
Operations Management (cont.)
Benefits of E-Business

Impact on Operations

Online auctions and emarketplaces

Better and faster
decision making

Competitive bidding lowers cost

of materials; supply needs can be
found in one location
More timely information is
available with immediate access
by all stakeholders in decisionmaking process; customer orders
and product designs can be
clarified electronically; electronic
meetings can be held;
collaborative planning is
facilitated

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Impact of E-Business on
Operations Management (cont.)
Benefits of E-Business
IT synergy

Expanded supply
chains

Impact on Operations
Productivity increases as
information can be shared more
efficiently internally and between
trading partners
Order fulfillment, logistics,
warehousing, transportation and
delivery become focus of
operations management; risk is
spread out; trade barriers fall

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Globalization and
Competitiveness

Favorable cost
Access to international
markets
Response to changes in
demand
Reliable sources of
supply
14 major trade
agreements in 1990s
Peak: 26% in 2000
World Trade Compared to World GDP
Source: Real GDP and Trade Growth of OECD Countries, 200103,
International Trade Statistics 2003, World Trade Organization,
www.wto.org

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Globalization and
Competitiveness (cont.)
Germany:
Germany: $26.18
$26.18

USA:
USA: $21.33
$21.33

Taiwan:
Taiwan: $5.41
$5.41

Mexico:
Mexico: $2.38
$2.38
Hourly Wage Rates for Selected Countries
Source: International Comparisons of Hourly Compensation Costs for Production Workers in
Manufacturing, Bureau of Labor Statistics, U.S. Department of Labor, Updated September 30, 2003.

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China:
China: $0.50
$0.50

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Globalization and
Competitiveness (cont.)

Trade with China: Percent of each countrys trade

Source: Share of China in Exports and Imports of Major Traders, 2000 and 2002, International Trade Statistics
2003, World Trade Organization, www.wto.org

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Risks of Globalization
Cultural differences
Supply chain logistics
Safety, security, and
stability
Quality problems
Corporate image
Loss of capabilities

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Competitiveness and
Productivity
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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Competitiveness and
Productivity (cont.)

Measures of Productivity
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Changes in Productivity
for Select Countries
Internet-enabled
Internet-enabled
productivity
productivity

-- Dot
Dot com
com bust
bust
-- 9/11
9/11 terrorist
terrorist attacks
attacks

Source: International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau of Labor
Statistics, U.S. Department of Labor, September 2003. U.S. figures for 20022003 from Major Sector Productivity and
Costs Index, Bureau of Labor Statistics, U.S. Department of Labor, March 2004

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Productivity Increase
Become efficient

output increases with little or no increase in input

Expand

both output and input grow with output growing

more rapidly

Achieve breakthroughs

output increases while input decreases

Downsize

output remains the same and input is reduced

Retrench

both output and input decrease, with input

decreasing at a faster rate

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Competitiveness and
Productivity
Breakthrough
Breakthrough
Performance
Performance

More
More Efficient
Efficient

Retrench
Retrench

Productivity as a Function of Inputs and Outputs, 20012002

Source: International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, 2002, Bureau of
Labor Statistics, U.S. Department of Labor, September 2003

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Global Competitiveness
Ranking
1. Finland
2. United States
3. Sweden
4. Denmark
5. Taiwan
6. Singapore
7. Switzerland
8. Iceland
9. Norway
10. Australia

Source: Global Competitiveness Report

20032004, World Economic Forum,
January 2004, www.weforum.org

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Operationsoriented
Barriers to Entry

Economies of Scale
Capital Investment
Access to Supply and Distribution
Channels
Learning Curve

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Primary Topics in
Operations Management

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Primary Topics in Operations

Management (cont.)

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Operations Strategy
Strategy: Chapter 2

Maintaining an operations strategy to support firms

competitive advantage

Quality: Chapters 3 and 4

Focusing on quality in operational decision making

Product and Services: Chapter 5

Designing quality products and services

Processes, Technologies, and Capacity: Chapter 6

Setting up process so that it works smoothly and

efficiently

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Operations Strategy
(cont.)
Facilities: Chapter 7

Setting up facility so that it works smoothly

and efficiently

Human Resources: Chapter 8

Designing jobs and work to produce

quality products

Project Management: Chapter 9

Managing complex projects

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Supply Chain
Management
Supply Chain: Chapter 10

Managing supply chain

Forecasting: Chapter 11

Predicting customer demand

Aggregate Planning: Chapter 12

How much to produce and when to

produce it

Inventory Management: Chapter 13

How much to order and when to order

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Supply Chain
Management (cont.)
Resource Planning: Chapter 14

Planning capacity and other resources

Lean Production: Chapter 15

Designing efficient production lines

Scheduling: Chapter 16

Job and task assignments

Waiting Lines: Chapter 17

Minimizing waiting time of customers and

products

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Learning Objectives of
this Course
Gain an appreciation of strategic importance of
operations 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
Develop a skill set for quality and process
improvement
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Copyright 2006 John Wiley & Sons, Inc.

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