Introduction to Production &

Operations Management
Management Science

is the study and development of

techniques for the formulation and
analysis of management and related
business problems. Operations research
models are often helpful in this process.
Operations Research

is the application of techniques

developed in mathematics, statistics,
engineering and the physical sciences to
the solution of problems in business,
government, industry, economics and the
social sciences.
Quantitative Methods

employ mathematical models to reach a wide

variety of business decisions.
They give modern managers a competitive edge
Managers do not need to have great mathematical
skills
Familiarity allows one to:
Ask the right questions
Recognize when additional analysis is necessary
Evaluate potential solutions
Make informed decisions
Qualitative Methods

like more traditional methods, however,

qualitative methods come in many
varieties. Different researchers focus on
different sources of data:
One's own immediate experience
Others' experiences, which we might seek to
understand through:
their speech or writing,
their other behaviors,
their products - technology, artwork, footprints, etc.
What is POM?

Production is the creation of goods and

services
Production and/or Operations
Management are the activities that
transform resources into goods and
services
Why Study POM?
It is one of the 3 critical parts of any
organization:
Marketing generates demand
Operations creates the product
Finance/accounting tracks organizational
performance, pays bills, collects money
It shows us how goods and services are
produced
It shows us what POM managers do
It is the most costly part of any organization
Cost as a Percentage of Sales
Meat Furniture Restaurant Heavy

Packing Manufacturing Equipment

POM
Materials 79% 40% 38% 42%
Labor 8 15 20 12
Fringes 3 22 16 23
Total 90 77 74 77

S, G & A 9 15 22 20
Int., Taxes,
Profits, etc. 1 8 4 3
Jobs in the U.S.

Education, Health, etc.

6% 5% 5%
6% 3% Manufacturing
1%
Retail Trade

State & Local Gov't

14%
Finance, Insurance
26%
aaaaaaaa
Wholesale Trade

Transport, Public Util.

16% Construction

Federal Government
18%
Mining
Jobs in POM

Less than 20% of all jobs are in

manufacturing (and they are declining)
Almost 80% of jobs are in the service
sector (and they are increasing)
Nearly half of all jobs are in POM
Most POM jobs are professional and/or
managerial
Chapters Covered in Text
Forecasting Ch. 4
Service, product design.. Ch. 5
Quality management Ch. 6, 6S
Process, capacity design... Ch. 7, 7S
Location ... Ch. 8
Layout design . Ch. 9
Human resources, job design.. Ch. 10, 10S
Supply-chain management Ch. 11, 11s
Inventory management . Ch. 12, 14, 16
Scheduling .. Ch. 3, 13, 15
Maintenance ... Ch. 17
The Critical Decisions

Quality management
Who is responsible for quality?
How do we define quality?

Service and product design

What product or service should we offer?
How should we design these products and
services?
The Critical Decisions - Continued
Process and capacity design
What processes will these products require
and in what order?
What equipment and technology is
necessary for these processes?
Location
Where should we put the facility
On what criteria should we base this
location decision?
The Critical Decisions - Continued
Layout design
How should we arrange the facility?
How large a facility is required?

Human resources and job design

How do we provide a reasonable work
environment?
How much can we expect our employees to
produce?
The Critical Decisions - Continued

Supply chain management

Should we make or buy this item?
Who are our good suppliers and how many
should we have?
Inventory, material requirements
planning,
How much inventory of each item should
we have?
When do we re-order?
The Critical Decisions - Continued
Intermediate, short term, and project
scheduling
Is subcontracting production a good idea?
Are we better off keeping people on the
payroll during slowdowns?
Maintenance
Who is responsible for maintenance?
When do we do maintenance?
Significant Events in POM

Division of labor (Adam Smith, The Wealth of

Nations, 1776)
Industrial Revolution
Standardization of parts (Eli Whitney, 1765 -
1825)
Cotton Gin (1792)
Contract with U.S. for muskets (1798)
Some doubt about true interchangeability
Simeon North (Middletown)
John Hall (Harpers Ferry)
Significant Events in POM (cont.)

Scientific management (Frederick

Taylor 1865 - 1915)
The Principles of Scientific Management,
1911
Match employees to jobs
Provide the proper training
Provide the proper methods and tools
Establish legitimate incentives
Significant Events in POM (cont.)
Taylors 4 Principles of Scientific
Management:
Replace rule-of-thumb work methods with methods based
on a scientific study of the tasks
Scientifically select, train, and develop each worker rather
than passively leaving them to train themselves
Cooperate with the workers to ensure that the scientifically
developed methods are being followed
Divide work nearly equally between managers and workers,
so that the managers apply scientific management
principles to planning the work and the workers actually
perform the tasks
Significant Events in POM (cont.)
Coordinated assembly line (Henry Ford 1863 -
1947)
Gantt charts (Henry Gantt 1861-1919)
Motion studies (Frank and Lillian Gilbreth,
1922)
Quality control (Shewhart, Juran, Feigenbaum,
Deming, Taguchi, etc.)
CAD
Flexible manufacturing systems (FMS)
Computer integrated manufacturing (CIM)
New Challenges in OM
From To
Global focus
Local or national focus Just-in-time
Batch shipments Supply chain
Low bid purchasing
partnering
Lengthy product Rapid product
development cycles development
Standardized products Strategic alliances
Job specialization Mass customization
Empowered
employees
Teams
Goods vs. Services
Characteristics of Goods

Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction 1995 Corel Corp.
Characteristics of Services
Intangible product
Produced & consumed at
same time
Often unique
High customer interaction
Inconsistent product
definition
Often knowledge-based
Frequently dispersed
1995 Corel Corp.
Goods vs. Services
Goods Service
Can be resold Reselling unusual
Can be Difficult to
inventoried inventory
Some aspects of Quality difficult to
quality measure
measurable
Selling is distinct Selling is part of
from production service
Goods vs. Services - Continued
Goods Service
Product is Provider, not product
transportable is transportable
Site of facility Site of facility
important for cost important for
customer contact
Often easy to Often difficult to
automate automate
Revenue generated Revenue generated
primarily from primarily from
tangible product intangible service
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 75 50 25 0 25 50 75 100
Percent of Product that is a Good Percent of Product that is a Service
New Challenges in Operations
Management
Changing Challenges for the
Operations Manager
Past Causes Future
Local or Low-cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just-in-time
shipments reducing investment in shipments
inventory
Low-bid Quality emphasis requires that Supply-chain
purchasing suppliers be engaged in product partners
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
Changing Challenges for the
Operations Manager
Past Causes Future
Standardized Affluence and worldwide markets; Mass
products increasingly flexible production customization
processes
Job Changing sociocultural milieu. Empowered
specialization Increasingly a knowledge and employees,
information society. teams, and lean
production
Low cost Environmental issues, ISO 14000, Environmentally
focus increasing disposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing
The Productivity Challenge
The Economic System
Transforms Inputs to Outputs
Inputs Process Outputs
Land, Labor, The economic system Goods and
Capital, transforms inputs to outputs Services
Management at about an annual 2.5%
increase in productivity
(capital 38% of 2.5%), labor
(10% of 2.5%), management
(52% of 2.5%)

Feedback loop
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
Adam Smith on Productivity

He asserted that ten workers could

produce 48,000 pins per day if each of
eighteen specialized tasks was assigned
to particular workers. Average
productivity: 4,800 pins per worker per
day. But absent the division of labor, a
worker would be lucky to produce even
one pin per day.
Henry Ford on Productivity
In 1907, Henry Ford announced his goal for the
Ford Motor Company: to create "a motor car for
the great multitude." At that time, automobiles
were expensive, custom-made machines.
Ford realized he'd need a more efficient way to
produce the Model T in order to lower the price.
He and his team looked at other industries and
found four principles that would further their goal:
Interchangeable parts
Continuous flow
Division of labor
Reducing wasted effort
Frank Gilbreth on Productivity

improved a five-thousand-year-old job

and had enabled bricklayers to lay brick
faster with less effort and fatigue. On one
particularly difficult type of wall, where
the previous record had been 120 bricks
per hour, his methods allowed them to
lay 350 bricks, an increase in productivity
of over 190%.
Walter Shewhart on Productivity

the original notions of Total Quality

Management and continuous improvement
trace back to a former Bell Telephone
employee named Walter Shewhart. One of W.
Edwards Deming's teachers, he preached the
importance of adapting management
processes to create profitable situations for
both businesses and consumers, promoting
the utilization of his own creation: the SPC
chart.
Impact of Quality Improvement
Productivity improved Costs were pared Wages increased

Parts per man hour Cost per unit decreased Average worker's annual cash
compensation increased
$2.25
115

110 $2.00 27000

105 26000
$1.75
100 25000

95 $1.50 24000
Year A Year B Year C Year A Year B Year C Year A Year B Year C
Measurement Problems

Quality may change while the quantity of

inputs and outputs remains constant
External elements may cause an
increase or decrease in productivity
Precise units of measure may be lacking
Productivity Increase

Labor - contributes about 10% of the

annual increase
Capital - contributes about 32% of the
annual increase
Management - contributes about 52% of
the annual increase
Key Variables for Improved
Labor Productivity
Basic education appropriate for the labor
force
Diet of the labor force
Social overhead that makes labor
available
Maintaining and enhancing skills in the
midst of rapidly changing technology and
knowledge
Comparison of Productivity
Service Productivity

Typically labor intensive

Frequently individually processed
Often an intellectual task performed by
professionals
Often difficult to mechanize
Often difficult to evaluate for quality
Current Trends

U.S. is becoming more of a knowledge

intensive service economy
Globalization
Total Quality Control
Need for flexibility and innovation