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 TRANSFORMATION
Labor PROCESS
Management
Capital

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 Operations as a
Transformation Process
INPUT
Material
OUTPUT
Machines TRANSFORMATION Goods
Labor PROCESS Services
Management
Capital

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 Operations as a
Transformation Process
INPUT
Material
OUTPUT
Machines TRANSFORMATION Goods
Labor PROCESS Services
Management
Capital

Feedback

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 Transformation
Processes
 Physical (manufacturing)
 Locational (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 Budgets
Inventory data Cost analysis
Capital budgeting requests Capital investments
Capacity expansion and Stockholder
Orders for materials Technology plans requirements Product/Service
Production and delivery Availability
Schedules Quality Lead-time estimates

Marketing
Suppliers

Requirements Design/ Status of order

Performance specs Delivery schedules

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

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 1769 James Watt
Division of labor 1776 Adam Smith
Interchangeable parts 1790 Eli Whitney

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

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

Management Science
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, PERT/CPM, 1950s Operations research
Waiting line theory groups
MRP 1960s Joseph Orlicky, IBM

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 Historical Events in OM
Quality Revolution
JIT 1970s Taiichi Ohno, Toyota
TQM 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 1970s IBM and others
other trade agreements
EDI, EFT, CIM 1980s

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 Historical Events in OM
Information Age/
Internet Revolution
Internet, WWW, ERP 1990s ARPANET, Tim
Supply chain Berners-Lee, SAP, i2
management, Technologies, ORACLE,
E-commerce PeopleSoft, Amazon,
Yahoo, eBay,
and others

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Categories of
E-Commerce

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 Categories of
E-Commerce
Business Consumer

B2B B2C
Business
Commerceone.com Amazon.com

C2B C2C
Consumer
Priceline.com eBay.com

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 Value Chain
• The set of activities that
create and deliver
products to the customer.

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A New Value Chain
(a) Traditional Value Chain

Manufacturer Wholesaler/ Retailer Consumer

distributor

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A New Value Chain
(a) Traditional Value Chain

Manufacturer Wholesaler/ Retailer Consumer

distributor

(b) Intermediaries Eliminated (Deintermediation)

Manufacturer Wholesaler/ Retailer Consumer

distributor

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 A New Value Chain
(a) Traditional Value Chain

Manufacturer Wholesaler/ Retailer Consumer

distributor

(b) Intermediaries Eliminated (Deintermediation)

Manufacturer Wholesaler/ Retailer Consumer

distributor

(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 2003 2004
Year
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 The Growth of
E-Commerce
8000 –

B2B
Trillions of Dollars

6000 –
B2C

4000 –

2000 –

| | | | |
0–
2000 2001 2002 2003 2004
Year
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Types of B2B Transactions
Buyers
Buyer Seller
Sellers

(a) Electronic Storefront (b) Seller’s Auction

Sellers Buyers Sellers

Buyer

(c) Buyer’s Auction (d) Exchange or E-Marketplace

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

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E-Business Promotes:
 New forms of organizations
Virtual company
 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 – Germany
Japan
$ 20 – United States
$ 15 – EU

$ 10 –
Asian NIEs
$5–
Mexico
| | | | | |
$0–
1975 1980 1985 1990 1995 2000

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 Multinational Corporations
Country Foreign Sales
Company of Origin as % of Total
Nestlé Switzerland 98.2
Nokia Finland 97.6
Philips Netherlands 94.0
Bayer Germany 89.8
ABB Germany 87.2
SAP Germany 80.0
Exxon Mobil United States 79.6
Royal Dutch/Shell Netherlands 73.3
IBM United States 62.7
McDonald’s United States 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 - Goal
 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 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 2001

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Productivity in the ‘90s
–
7– United States
6– Germany
5– Japan

4–
3–
2–
1–
0–
-1 –
-2 –
-3 – | | | | | | | | | | | |
‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 2001

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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 – define….
 Capital investment
 Access to supply and distribution
channels
Name an industry
 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 - Next  Managing the supply
 Products and chain
services  Forecasting demand
 Processes and for products and
technologies services
 Facilities  Production planning
 Project and scheduling
management  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 Designing the
Importance of Operating Managing the Ensuring
Operations System Supply Chain Quality
1. Introduction to 3. Products and 7. Supply Chain 14. Quality
Operations and Services Management Management
Competitiveness 4. Processes and 8. Forecasting 15. Statistical
2. Operations Technologies 9. Capacity and Process
Strategy 5. Facilities Aggregate Control
6. Project Planning 16. Waiting Line
Management 10. Inventory Models for
Management Service
11. Just-in-Time and Improvement
Lean Production 17. Human
12. Enterprise Resources in
Resource Operations
Planning Management
13. Scheduling

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