Operations Management For Competitive Advantage ninth edition 1

CHASE AQUILANO JACOBS

Operations Management
For Competitive Advantage
Chapter 1

Introduction to the Field

Hassan
CHASE Hussein
AQUILANO Abdi
JACOBS ninth edition
©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 2
Chapter 1
Introduction to the Field
 The Field of Operation Management
 What is Operation Management?
 Differences between Service and Goods
 OM in the Organization Chart
 Operation as Service
 Historical Development of OM
 Current Issues in Operation Management
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 3

Why Study Operations Management?

 A business education is incomplete without
an understanding of modern approaches to
managing operations.
 Operation Management provides a
systematic way of looking at organizational
process.
 Operations management presents
interesting career opportunities.( material
mgt & quality assurance)
 The concepts and tools of OM widely used
in managing other functions of business.
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 4

Why Study Operations Management?

Systematic Approach
to Org. Processes

Operations
Business Education Career Opportunities
Management

Cross-Functional
Applications
3
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 5

What is Operation Management?

 Operation Management (OM) is defined as
the design, operation, and improvement of the
production systems that create the firm’s
primary products and services.
 The management of systems or processes
that create goods and/or provide services
 OM is a field of management, while OR/MS is
the application of quantitative methods to
decision making in all fields, and IE is an
engineering discipline.
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 6

Comparison
 Like marketing and finance, OM is a
functional field of business with clear line of
management responsibility
 OM: a field of management
 Operations Research (OR)/Management
Science: the application of quantitative
methods to decision making in all fields
 Industrial Engineering (IE): an engineering
discipline

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 7

Operation Management Decisions

 Within the operations function, management
decisions can be divided into three broad
areas:
1. Strategic (long-term) decisions: The
strategic issues are usually broad,
addressing such questions as these: How will
we make the product? Where do we locate
the facility or facilities? How much capacity
do we need? When should we add more
capacity?
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 8

Operation Management Decisions cont…

1. Tactical (intermediate-term) decisions:
How many workers do we need ? When do
we need them? Should we work overtime or
put on a second shift? When should we
have material delivered? Should we have a
finished goods inventory?
2. Operational planning and control (short-
term) decision: What jobs do we work on
today or this week? Whom do we assign to
what tasks? What jobs have priority?
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 9

Production Systems
 Production systems are used in all types of
business. A production system uses
resources to transform inputs into some
desired outputs. Inputs may be a raw
material, a customer, or a finished product
from another system.

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 10

Transformations that take place include:

 Physical--manufacturing
 Location--transportation
 Exchange--retailing
 Storage--warehousing
 Physiological--health care
 Informational—telecommunications
 These transformations, of course, are not mutually
exclusive. For example, a department store can (1)
allow shoppers to compare prices and quality
(informational), (2) hold items in inventory until
needed (storage), and (3) sell goods (exchange).
7
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 11

Input-Transformation-Output
Relationships for Typical Systems

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 12

Service or Good?

 “If you drop it on your foot, it won’t hurt you.”

(Good or service?)

 “Services never include goods and goods

never include services.” (True or false?)

8
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 13

What about McDonald’s?

 Service or Manufacturing?

 The company certainly manufactures

tangible products

 Why then would we consider McDonald’s a

service business?
9
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 14

Differences Between Goods and Services

 Goods  Services
– Tangible – Intangible
– Can be – Cannot be
inventoried inventoried
– No interaction – Direct
between interaction
customer and between
process customer and
process
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 16

Operation As Service
 The emerging model in industry is that every
organisation is in the service business. Core
services are basic things that customers want
from products they purchase
 The Core Service customers want are
products that are made correctly, are
customized to their needs, are delivered on
time, and are priced competitively. These are
commonly summarized as the classic
performance objectives of the operations
function: quality, flexibility, speed and price (or
cost of production).
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 17

Core Services Performance Objectives

Quality

Operations
Flexibility Speed
Management

Price (or cost

Reduction)

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 18

Value-Added Factory Services

 Value-added services differentiate the
organization from competitors and build
relationships that bind customers to the firm in
a positive way
 Value-added services are services that simply
make the external customer's life easier or, in the
case of internal customers, help them to better
carry out their particular function. Chase and
Garvin (1992) suggest that value-added factory
services can be classified into four broad
categories: information, problem solving, sales
support, and field support.
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 19

Value-Added Factory Services Cont…

 Information is the ability to furnish critical data on
product performance, process parameters, and
cost to internal groups (such as R&D) and to
external customers, who then use the data to
improve their own operations or products.
 Problem solving is the ability to help internal and
external groups to solve problems, especially in
quality.
 Sales support is the ability to enhance sales and
marketing efforts by demonstrating the technology,
equipment, or production systems the company is
trying to sell.
 Field support is the ability to replace defective
parts quickly.
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 20

Value-Added Service Categories

Problem Solving

Operations Sales Support

Information
Management

Field Support

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 21

Value-Added Factory Services Cont…

 Value-added services provided to external
customers yields two benefits
 First , they differentiate the organisation from
the competition. Indeed, in many cases it is
easier to copy a firm’s product than it is to
create the value-added service infrastructure
to support it.
 Second, these services build relationship that
bind customers to the organisation in positive
way.
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 22

Historical Development OF OM
 Scientific Management (Frederick W. Taylor)
– Systematic approach to increasing worker
productivity through time study, standardization
of work, and incentives.
– Viewed workers as an interchangeable asset.
 Other Management Pioneers
– Frank and Lillian Gilbreth
» Motion study and industrial psychology
– Henry L. Gantt (1914)
» Scheduling and the Gantt chart

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 23

Historical Development OF OM
 Moving Assembly Line (1913)
– Labor specialization reduced assembly time.
 Hawthorne Studies
– Yielded unexpected results in the productivity of
Western Electric plant workers after changes in
their production environment.
– Led to recognition of the importance of work
design and employee motivation.

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 24

Historical Development OF OM
 Operations Research (Management
Science)
– Outgrowth of WWII needs for logistics control
and weapons-systems design.
– Seeks to obtain mathematically optimal
(quantitative) solutions to complex problems.
 OM Emerges as a Field
– 1950–1960, OM moved beyond industrial
engineering and operations research to the view
of the production operation as a system.
CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001
Operations Management For Competitive Advantage ninth edition 25

Historical Development OF OM
 JIT and TQC: In 1980s saw revolution in Just in
Time (JIT) production and Total Quality
Management.
 Manufacturing Strategy Paradigm: The late
1970s and early 1980s saw the development of
the manufacturing strategy.

 Service Quality and Productivity:

 Total Quality Management and Quality

Certification

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 26

Historical Development OF OM Cont...

 Total Quality Management and Quality
Certification: The ISO 9000 certification
standards, created by the International
Organization.
 Business Process Reengineering: The
need to become lean to remain competitive
in the global economic recession in the
1990s pushed companies to seek
innovations in the processes by which they
run their operations.

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 27

Historical Development OF OM Cont...

 Supply Chain Management: is to apply a
total system approach to managing the flow of
information, material, and services from raw
material suppliers through factories and
warehouses to the end customer.

 Electronic Commerce: refers to the use of

the internet as an essential element of
business activity.

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 28

Typical Supply Chain for a Manufacturer

Supplier

Supplier

Supplier
}
Storage Mfg. Storage Dist. Retailer Customer

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 29

Current Issues In Operations

Management
 Effectively consolidating the operations
resulting from mergers.
 Developing flexible supply chains to enable
mass customization of products and services
 Managing global suppliers, production, and
distribution network
 Increase ‘commoditization’ of suppliers.
 Achieving the service factory

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 30

Current Issues In Operations

Management
 Achieving good service from service firms.

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001

Operations Management For Competitive Advantage ninth edition 31

The End

CHASE AQUILANO JACOBS ©The McGraw-Hill Companies, Inc., 2001