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Lecture 1 Course Introduction. In this chapter, the learning objectives are: How is this course organized? what is inventory and material management management? A historical perspective.
Principle of Inventory and Material Management LSM736 Lecture 1 Course Introduction What Will We Do Today? • • • How is this course organized? What is Inventory and Material Management Management? A Historical Perspective What is Operations Management? • Business strategy – selecting market(s) to compete – level of investment – allocation of resources – functional area strategy • • • marketing finance production and operations What is Operations Management? Operations Management = Strategy Execution Time Quality Flexibility Cost OM = Designing, operating, and improving the systems that deliver the firm’s primary products and services Strategy Execution 1. What is our strategy? 2. How do we design our operations to support it? Product / Service Development Process Design and Management Supply Chain Management What types of problems does OM address ? Example #1: Manufacturing Supply Chain Management T3 T2 T3 T1 W T3 T3 C com C R C OEM T2 T1 T3 T2 C W R C What types of problems does OM address ? Example #2: Bank Services Loans Deposits Credit Cards What types of problems does OM address ? Example #3: R&D – New Product Development Phase Planning Phase Concept Development Phase System-level Design Phase Detail Design Phase Testing and Refinement Phase Production Ramp-Up Adapted from U&E 2002 Types of Decisions in OM … • Strategic decisions (longterm impact) • Tactical decisions (midterm impact) • Operational decisions (shortterm impact) Value Added of Operations Management • Reasons: – – – • 31% internal (equipment breakdown, manufacturing problems, quality problems, inaccurate inventory records, poor forecasting, capacity or labor shortages) 14.5% supplier failures 12.8% customers Part shortages: • • Underperformance by 25% Median decrease in operating income of 31% Hendricks and Singhal, “The Effect of Supply Chain Disruptions on Longterm Shareholder Value, Profitability, and Share Price Volatility What are Operations Management Jobs Like? You can get an interesting job!! Supply Chain Manager Quality Manager Project Manager Operations Consultant Plant Manager Procurement Manager The OM Area at Tech is ranked in the top 10 in the US and employers take it seriously! A Historical Perspective The First Industrial Revolution (c. 1850) • Textile manufacturing innovations “Flying shuttle” and “Spinning Jenny” J. Watt: The steam engine Substituting labor with machines • • small scale production A. Smith: Free markets – division of labor Free markets would enhance “quest” for profit Specialization could increase productivity The American System of Manufacturing Vertical Integration Consolidating different operations under one roof • Interchangeable parts Massproduce parts to tight tolerance & assemble • 1801 contract for 10,000 muskets for the government • Unskilled workers The Second Industrial Revolution (c. 1910) 1832: 36 enterprises in 10 states with > 250 workers Reliance on water power & local distribution system • • • • Transportation innovations Railroads are built in western world large scale production Communication innovations The telegraph is established Big retailers come to power Sears & Roebuck’s sales soar to $38M in 10 years Mass Production: the first vehicles arrive… Henry Ford starts producing Model T • 19101920: The Scientific Method (Taylorism) • • • • Principles of Scientific Management Book published in 1911 by Fredrick Taylor Time and Motion studies How much time do workers need to do a task? Incentive systems What is the best payment scheme? Efficiency is the key! Study how systems can be efficient Developed a set of principles that serve efficiency Planning versus doing 1920’s 1930’s: Taylorism Spreads • Application of Taylor’s methods The DuPont Powder company More importance to the human element Studies at the Western Electric Hawthorne plant to understand ergonomics: the human element in manufacturing • • Investment in management education Between 1914 and 1940 Bschools grew a lot 1940’s 1960’s: The Golden Era in the U.S • • Operations Research tools are “born” G.B. Dantzig devises simplex algorithm Effort to study complex systems The importance of teamwork is introduced Mathematical analysis becomes the norm Scientific methods are applied throughout the organization • Mathematics solidify the scientific method Simulation based models, computer usage, scheduling • 1970’s: Computers and MRP take over Production Schedule Bill of materials Inventory status Forecasted Demand MRP (Materials Requirement Planning) MRP automated production… But, someone has to tell the computers what to analyze! 1980’s: The Japanese Challenge American manufacturing led until the late 70’s, but then… TQC: Total Quality Control Higher quality Less cost JIT: JustInTime The methods introduced by Japanese manufacturing firms outperformed the US … 1990’s: The U.S. rises to the challenge Entrepreneurship and the ability to change and reinvent themselves allowed American firms to move into new areas • U.S. firms improve productivity and quality • U.S. firms focus on emerging technologies, R&D • Growth of the service industry • Examples in OM… Conclusion and Summary … Operations Management is about executing the firm’s strategy Operations is a core function in every business – manufacturing or service oriented Key Components of OM: Products, Processes, SCM OM is important to everybody in the organization OM involves strategic, tactical, and operational decisions The efficiency–effectiveness–value tradeoff Flow of the Course Setting the direction Corporate strategy Operations strategy Efficiency (managing internal processes well) Product design Process management • process analysis (no variability) • waiting line mgt (variability) Quality management & Statistical process control Lean operations Effectiveness (meeting the demand) Forecasting & inventory management Aggregate planning Material requirements planning Supply chain management End of Lecture 1 .. .Lecture? ?1 Course? ?Introduction What Will We Do Today? • • • How is this? ?course? ?organized? What is? ?Inventory? ?and? ?Material? ?Management? ? Management? A Historical Perspective What is Operations? ?Management? ... Product / Service Development Process Design? ?and? ? Management Supply Chain Management What types? ?of? ?problems does OM address ? Example #1:? ?Manufacturing Supply Chain? ?Management T3 T2 T3 T1 W T3 T3 C com... Median decrease in operating income? ?of? ?31% Hendricks? ?and? ?Singhal, “The Effect? ?of? ?Supply Chain Disruptions on Longterm Shareholder Value, Profitability,? ?and? ?Share Price Volatility What are Operations? ?Management? ?Jobs Like?