Chapter 1

Introduction to Operations and Competitiveness

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The Operations Function

Operations as a transformation process Operations as a basic function Operations as the technical core
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Operations as a Transformation Process

INPUT Material Machines Labor Management Capital

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Operations as a Transformation Process

INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS

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Operations as a Transformation Process

INPUT Material Machines Labor Management Capital TRANSFORMATION PROCESS OUTPUT Goods Services

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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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Transformation Processes
Physical Locational (manufacturing) (transportation/ warehouse) Exchange (retail) Physiological (health care) Psychological (entertainment) Informational (communications)
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Operations as the Technical Core

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Operations as the Technical Core

Finance/Accounting
Production and Inventory data Capital budgeting requests Capacity expansion and Orders for materials Technology plans Production and delivery Schedules Quality Requirements Design/ Performance specs Budgets Cost analysis Capital investments Stockholder requirements

Suppliers

Product/Service Availability Lead-time estimates Status of order Delivery schedules

Marketing

Operations
Material availability Quality data Delivery schedules Designs Personnel needs Skill sets Performance evaluations Job design/work measurement Hiring/firing Training Legal requirements Union contract negotiations Sales forecasts Customer orders Customer feedback Promotions

Human Resources
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Historical Events in OM
Industrial Revolution Scientific Management Human Relations Management Science Quality Revolution Globalization Information Age/Internet Revolution
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Historical Events in OM
Industrial Revolution
Steam engine Division of labor Interchangeable parts 1769 James Watt 1776 Adam Smith 1790 Eli Whitney

Scientific Management
Principles Time and motion studies Activity scheduling chart Moving assembly line 1911 1911 1912 1913 Frederick W. Taylor Frank & Lillian Gilbreth Henry Gant Henry Ford

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Historical Events in OM
Human Relations
Hawthorne studies Motivation theories 1930 1940s 1950s 1960s Elton Mayo Abraham Maslow Frederick Hertzberg Douglas McGregor

Management Science
Linear programming Digital computer Simulation, PERT/CPM, Waiting line theory MRP 1947 George Dantzig 1951 Remington Rand 1950s Operations research groups 1960s Joseph Orlicky, IBM
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Historical Events in OM
Quality Revolution
JIT TQM 1970s Taiichi Ohno, Toyota 1980s W. Edwards Deming, Joseph Juran, et. al. Strategy and operations Skinner, Hayes Reengineering 1990s Hammer, Champy World Trade Organization 1990s Numerous countries and companies

Globalization
European Union and other trade agreements EDI, EFT, CIM 1970s IBM and others 1980s
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Historical Events in OM
Information Age/ Internet Revolution
Internet, WWW, ERP Supply chain management, E-commerce 1990s ARPANET, Tim Berners-Lee, SAP, i2 Technologies, ORACLE, PeopleSoft, Amazon, Yahoo, eBay, and others

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Categories of E-Commerce

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Categories of E-Commerce
Business Consumer Business

B2B Commerceone.com

B2C Amazon.com

Consumer

C2B Priceline.com

C2C eBay.com

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A New Value Chain

(a) Traditional Value Chain
Manufacturer

Wholesaler/ distributor

Retailer

Consumer

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A New Value Chain

(a) Traditional Value Chain
Manufacturer

Wholesaler/ distributor

Retailer

Consumer

(b) Intermediaries Eliminated (Deintermediation)

Manufacturer Wholesaler/ distributor Retailer Consumer

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A New Value Chain

(a) Traditional Value Chain
Manufacturer

Wholesaler/ distributor

Retailer

Consumer

(b) Intermediaries Eliminated (Deintermediation)

Manufacturer Wholesaler/ distributor Retailer Consumer

(b) New Intermediaries Introduced (Reintermediation)

Manufacturer Infomediary E-Retailer Aggregator Portal Consumer

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An Integrated Value Chain

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An Integrated Value Chain

Customer Manufacturer Supplier

Flow of information (customer order)

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An Integrated Value Chain

Customer Manufacturer Supplier

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

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The Growth of E-Commerce

8000 Trillions of Dollars 6000 4000 2000 0 | 2000 | 2001 | 2002 Year | 2003 | 2004

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The Growth of E-Commerce

8000 Trillions of Dollars 6000 4000 2000 0 | 2000 | 2001 | 2002 Year | 2003 | 2004 B2B B2C

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Types of B2B Transactions

Buyers Buyer Seller Sellers

(a) Electronic Storefront

Sellers Buyer

(b) Sellers Auction

Buyers Sellers

(c) Buyers Auction

(d) Exchange or E-Marketplace

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E-Business Promotes:
Better customer relations More efficient processes Lower cost of materials Information technology synergy Better and faster decision making

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E-Business Promotes:
New forms of organizations Expanded supply chain Higher customer expectations New ways of doing business Globalization

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An International Comparison of Hourly Wage Rates

$ 35 $ 30 $ 25 $ 20 $ 15 $ 10 $5 $0 | 1975 | 1980 | 1985 | 1990 | 1995 | 2000

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An International Comparison of Hourly Wage Rates

$ 35 $ 30 $ 25 $ 20 $ 15 $ 10 $5 $0 | 1975 | 1980 | 1985 | 1990 | 1995
Asian NIEs Mexico Germany Japan United States EU

| 2000

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Multinational Corporations
Company Nestl Nokia Philips Bayer ABB SAP Exxon Mobil Royal Dutch/Shell IBM McDonalds

Country of Origin
Switzerland Finland Netherlands Germany Germany Germany United States Netherlands United States United States

Foreign Sales as % of Total

98.2 97.6 94.0 89.8 87.2 80.0 79.6 73.3 62.7 61.5

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Competitiveness
The degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens.

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Productivity
Output Productivity = Input

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Productivity
Output Productivity = Input
Productivity improves when firms: Become more efficient Downsize Expand Retrench Achieve breakthroughs
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Productivity in the 90s

7 6 5 4 3 2 1 0 -1 -2 -3 |

90

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Productivity in the 90s

7 6 5 4 3 2 1 0 -1 -2 -3 |
United States Germany Japan

90

| 91

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Measures of Competitiveness
Productivity GDP (Gross domestic product) growth Market capitalization Technological infrastructure Quality of education Efficiency of government
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Competitiveness of Selected Countries

100 80 60 40 20 0

US

Singapore Finland

Ireland

Germany

UK

Japan

Mexico

Russia

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Competitiveness of Selected Countries

100 80 60 40 20 0

US

Singapore Finland

Ireland

Germany

UK

Japan

Mexico

Russia

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Barriers to Entry
Economies of scale Capital investment Access to supply and distribution channels Learning curves

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Competition Within Industries Increases When

Firms are relatively equal in size and resources Products and services are standardized Industry growth is slow or exponential

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Primary Topics in Operations Management

Strategy Products and services Processes and technologies Facilities Project management Managing the supply chain Forecasting demand for products and services Production planning and scheduling Ensuring quality

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Purpose of the Text

To gain an appreciation of the strategic importance of operations and how operations relates to other business functions To develop a working knowledge of the concepts and methods related to designing and managing operations To develop a skill set for organizing activities as a part of a process
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Organization of the Text

The Strategic Importance of Operations
1. Introduction to Operations and Competitiveness 2. Operations Strategy

Designing the Operating System

3. Products and Services 4. Processes and Technologies 5. Facilities 6. Project Management

Managing the Supply Chain

7. 8. 9. Supply Chain Management Forecasting Capacity and Aggregate Planning Inventory Management Just-in-Time and Lean Production Enterprise Resource Planning Scheduling

Ensuring Quality
14. Quality Management 15. Statistical Process Control 16. Waiting Line Models for Service Improvement 17. Human Resources in Operations Management

10. 11. 12.

13.

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