What Is Operations Management?: and Services by Transforming Inputs Into Outputs

What Is Operations Management?
Production is the creation of goods and services

Operations management (OM) is the set of activities that create value in the form of goods
and services by transforming inputs into outputs
Organizing to Produce Goods and Services

Essential functions:
1. Marketing – generates demand
2. Production/operations – creates the product
3. Finance/accounting – tracks how well the organization is doing, pays bills, collects
the money
Organizational Charts
The Supply Chain
▶ A global network of organizations and activities that supply a firm with goods and
services
▶ Members of the supply chain collaborate to achieve high levels of customer
satisfaction, efficiency and competitive advantage
▶
Options for Increasing Contribution
What Operations Managers Do
Basic Management Functions
Ten Strategic Decisions
The Strategic Decisions

1. Design of goods and services
▶ Defines what is required of operations
▶ Product design determines quality, sustainability and human resources
2. Managing quality
▶ Determine the customer’s quality expectations
▶ Establish policies and procedures to identify and achieve that quality
3. Process and capacity design
▶ How is a good or service produced?
▶ Commits management to specific technology, quality, resources, and
investment
4. Location strategy
▶ Nearness to customers, suppliers, and talent
Considering costs, infrastructure, logistics, and government
5. Layout strategy
▶ Integrate capacity needs, personnel levels, technology, and inventory
▶ Determine the efficient flow of materials, people, and information
6. Human resources and job design
▶ Recruit, motivate, and retain personnel with the required talent and skills
▶ Integral and expensive part of the total system design
7. Supply chain management
▶ Integrate supply chain into the firm’s strategy
▶ Determine what is to be purchased, from whom, and under what conditions
8. Inventory management
▶ Inventory ordering and holding decisions
▶ Optimize considering customer satisfaction, supplier capability, and
production schedules
9. Scheduling
▶ Determine and implement intermediate- and short-term schedules
▶ Utilize personnel and facilities while meeting customer demands
10. Maintenance
▶ Consider facility capacity, production demands, and personnel
▶ Maintain a reliable and stable process
Where are the OM Jobs?
▶ Technology/methods
▶ Facilities/space utilization
▶ Strategic issues
▶ Response time
▶ People/team development
▶ Customer service
▶ Quality
▶ Cost reduction
▶ Inventory reduction
▶ Productivity improvement
The Heritage of OM
▶ Division of labor (Adam Smith 1776; Charles Babbage 1852)
▶ Standardized parts (Whitney 1800)
▶ Scientific Management (Taylor 1881)
▶ Coordinated assembly line (Ford/ Sorenson 1913)
▶ Gantt charts (Gantt 1916)
▶ Motion study (Frank and Lillian Gilbreth 1922)
▶ Quality control (Shewhart 1924; Deming 1950)
▶ Computer (Atanasoff 1938)
▶ CPM/PERT (DuPont 1957, Navy 1958)
▶ Material requirements planning (Orlicky 1960)
▶ Computer aided design (CAD 1970)
▶ Flexible manufacturing system (FMS 1975)
▶ Baldrige Quality Awards (1980)
▶ Computer integrated manufacturing (1990)
▶ Globalization (1992)
▶ Internet (1995)
Operations for Goods and Services
Services – Economic activities that typically produce an intangible product (such as
education, entertainment, lodging, government, financial, and health services)
▶ Manufacturers produce tangible product, services often intangible
▶ Operations activities often very similar
▶ Distinction not always clear
▶ Few pure services
Service Pay
▶ Perception that services are low-paying
▶ 42% of service workers receive above average wages
▶ 14 of 33 service industries pay below average
▶ Retail trade pays only 61% of national average
▶ Overall average wage is 96% of the average
Productivity Challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources
such as labor and capital)
Important Note!
Production is a measure of output only and not a measure of efficiency
The Economic System
Productivity
▶ Measure of process improvement

▶ Represents output relative to input
▶ Only through productivity increases can our standard of living improve
Productivity Calculations
Labor Productivity
Measurement Problems
1.Quality may change while the quantity of inputs and outputs remains constant
2.External elements may cause an increase or decrease in productivity
3.Precise units of measure may be lacking
Productivity Variables
1.Labor - contributes about 10% of the annual increase
2.Capital - contributes about 38% of the annual increase
3.Management - contributes about 52% of the annual increase
Current Challenges in OM
▶ Globalization
▶ Supply-chain partnering
▶ Sustainability
▶ Rapid product development
▶ Mass customization
▶ Lean operations
Ethics, Social Responsibility, and Sustainability
Challenges facing operations managers:
▶ Develop and produce safe, high-quality green products
▶ Train, retrain, and motivate employees in a safe workplace
▶ Honor stakeholder commitments
Stakeholders
Those with a vested interest in an organization, including customers, distributors, suppliers,
owners, lenders, employees, and community members.

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What Is Operations Management?

Production is the creation of goods and services

Organizing to Produce Goods and Services

Ten Strategic Decisions

The Strategic Decisions

▶ Measure of process improvement

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