1 OVERVIEW OF OPERATIONS MANAGEMENT

Intended Learning Outcomes

By the end of the learning experience, students must be able to:
1. Define Operation Management.
2. Identify the three major functional areas of organizations and describe how they
interrelate.
3. Differentiate between design and operation of production systems.
4. Compare and contrast service and manufacturing operations.
5. Describe the operations function and the nature of the operations manager’s job.
6. Describe the key aspects of operations management decision making.
7. Briefly describe the historical evolution of Operations Management.
8. Identify some of the current trends in business that impact operations management.

OPERATIONS MANAGEMENT

Stevenson (2002, 2012) highlighted that Operations Management involves in managing

the processes and systems in creating goods and providing services. This covers forecasting,
capacity planning, scheduling, managing inventories, assuring quality, motivating employees,
deciding where to locate facilities, and the like.
Skripak (2016) emphasized that Operations Management (OM) as activities involving
the transformation of product idea into products. The activities particularly cover planning and
controlling of the systems of producing goods and services.
Porter (2011) cited the definition of Slack et al. (2010) that “Operations Management is
the activity of managing which produce and deliver goods and services”. Operations in the
organization involve different functions such as marketing, finance, and personnel.

Why Study Operations Management?

1. Core of all business organizations, regardless of what business they are in.
2. More the 50% of the jobs in the organization is related to operations management.
3. Activities in all of the other areas of business organizations are all interrelated with
operations management activities.

The Scope of Operations Management

The scope of operations management ranges across the organization. Operations
management people are involved in product and service design, process selection, selection
and management of technology, design of work systems, location planning, facilities planning,
and quality improvement of the organization’s products or services. The operations function
includes many interrelated activities, such as forecasting, capacity planning, scheduling,
managing inventories, assuring quality, motivating employees, deciding where to locate
facilities, and more.

FUNCTIONS WITHIN BUSINESS ORGANIZATIONS

a. Operations: This entails all the activities related to producing or providing services.
Specifically, operations involve the transformation of input to output. Inputs include
people, facilities, technologies and materials while outputs are the goods and services.
The creation of goods and services involves transforming or converting inputs into
outputs. To ensure that the desired output are obtained, an organization takes
measurements at various points in the transformation process (feedback) and then
compares them with previously established standards to determine whether corrective
action is needed (control). The transformation process is illustrated in the diagram
below:

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 Figure 1. The operations function involves the conversion of inputs into outputs
(Stevenson, 2012).
b. Finance: This is the function that involves activities related to obtaining and allocating
of resources within the organization at favourable cost. The operations and finance
personnel cooperate in terms of exchanging information and expertise in:
 Budgeting. Activities that requires planning financial requirements.
 Economic analysis of investment proposal. Analysis on the investment
alternatives related to plant and equipment.
 Provision of funds. Planning on the amount and timing of funds necessary in the
operations to avoid cash-flow problems.
c. Marketing:
 Focus on selling and/or promoting the goods or services of an organization.
 Responsible for assessing customer wants and needs, and for communicating
those to operations people (short term) and to design people (long term).
 Provide valuable insight on what competitors are doing.
 Supply information on consumer preferences so that design people will know
the kinds of products and features needed, and in return, marketing people
needs the information related to the manufacturing or service lead time in
order to give customers realistic estimates of how long it will take to fill their
orders.
 Thus, marketing, operations, and finance must interface on product and
process design, forecasting, setting realistic schedules, quality and quantity
decisions, and keeping each other informed on the other's strengths and
weaknesses.
Therefore, the figure below illustrated the three basic functional areas of business
organization:

Figure 2. The three basic functions of business organizations (Stevenson,2012).

d. Other Functions:
 Accounting - supplies information to management on costs of labor, materials,
and overhead, and may provide reports on items such as scrap, downtime, and
inventories.
 Management Information Systems (MIS) - concerned with providing
management with the information it needs to effectively manage. This occurs
mainly through designing systems to capture relevant information and
designing reports.

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  Purchasing - has responsibility for procurement of materials, supplies, and
equipment.
 Personnel or Human Resources - concerned with recruitment and training of
personnel, labor relations, contract negotiations, wage and salary
administration, assisting in manpower projections, and ensuring the health and
safety of employees.
 Public Relations – responsibility for building and maintaining a positive public
image of the organization.
 Industrial Engineering - often concerned with scheduling, performance
standards, work methods, quality control, and material handling.
 Distribution - involves the shipping of goods to warehouses, retail outlets, or
final customers.
 Maintenance - responsible for general upkeep and repair of equipment,
buildings and grounds, heating and air-conditioning; removing toxic wastes;
parking; and perhaps security.

FEATURES OF DESIGN AND OPERATIONS OF PRODUCTION SYSTEMS

a. Degree of Standardization.
 Standardized output means that there is a high degree of uniformity in goods or
services. Systems with standardized output can generally take advantage of
standardized methods, less-skilled workers, materials, and mechanization, all
of which contribute to higher volumes and lower unit costs.
 Customized output means that the product or service is designed for a specific
case or individual. In custom systems, each job is sufficiently different so that
workers must be more skilled, the work moves slower, and the work is less
susceptible to mechanization.
b. Type of Operation. The degree of standardization and the volume of output of a
product or service influence the way a firm organizes production.
 Single scale or Large-scale product
 Continuous process
 Customized production and mass production
c. Production of Goods versus service operations.
 Production of goods creates tangible output..
 Service generally implies an act.
 Manufacturing and service are often similar in terms of what is done but
different in terms of how it is done. Both must make decisions on location,
schedule and control operations, and allocation of scarce resources.

DIFFERENCES INVOLVED BETWEEN SERVICE AND MANUFACTURING

Manufacturing and service are often different in terms of what is done but quite similar in terms
of how it is done. Consider these points of comparison:
1. Degree of customer contact. Many services involve a high degree of customer contact,
although services such as Internet providers, utilities, and mail service do not. When
there is a high degree of contact, the interaction between server and customer becomes
a “moment of truth” that will be judged by the customer every time the service occurs.
2. Labor content of jobs. Services often have a higher degree of labor content than
manufacturing jobs do, although automated services are an exception.
3. Uniformity of inputs. Service operations are often subject to a higher degree of
variability of inputs. Each client, patient, customer, repair job, and so on presents a
somewhat unique situation that requires assessment and flexibility. Conversely,
manufacturing operations often have a greater ability to control the variability of inputs,
which leads to more-uniform job requirements.
4. Measurement of productivity. Measurement of productivity can be more difficult for
service jobs due largely to the high variations of inputs. Thus, one doctor might have a
higher level of routine cases to deal with, while another might have more difficult cases.

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 Unless a careful analysis is conducted, it may appear that the doctor with the difficult
cases has a much lower productivity than the one with the routine cases.
5. Quality assurance. Quality assurance is usually more challenging for services due to the
higher variation in input, and because delivery and consumption occur at the same time.
Unlike manufacturing which typically occurs away from the customer and allows
mistakes that are identified to be corrected, services have less opportunity to avoid
exposing the customer to mistakes.
6. Inventory. Many services tend to involve less use of inventory than manufacturing
operations, so the costs of having inventory on hand are lower than they are for
manufacturing. However, unlike manufactured goods, services cannot be stored.
Instead, they must be provided “on demand.”
7. Wages. Manufacturing jobs are often well paid, and have less wage variation than
service jobs, which can range from highly paid professional services to minimum-wage
workers.
8. Ability to patent. Product designs are often easier to patent than service designs, and
some services cannot be patented, making them easier for competitors to copy.
There are also many similarities between managing the production of products and managing
services. In fact, most of the topics in this book pertain to both. When there are important
service considerations, these are highlighted in separate sections. Here are some of the primary
factors for both:
1. Forecasting and capacity planning to match supply and demand.
2. Process management.
3. Managing variations.
4. Monitoring and controlling costs and productivity.
5. Supply chain management.
6. Location planning, inventory management, quality control, and scheduling.

OPERATIONS MANAGEMENT AND DECISION MAKING

Operations Managers is the planner and decision maker and have exerted considerable
influence over the degree of which the goals and objectives of the organization are realized.
Also, operations manager coordinate the use of resources through management process of
planning, organizing, staffing, directing, and controlling.
Operations management professionals make a number of key decisions that affect the
entire organization. These include the following:
o What: What resources will be needed, and in what amounts?
o When: When will each resource be needed? When should the work be scheduled? When
should materials and other supplies be ordered? When is corrective action needed?
o Where: Where will the work be done?
o How: How will the product or service be designed? How will the work be done
(organization, methods, equipment)? How will resources be allocated?
o Who: Who will do the work?

Figure 2. The role of operations managers in the transformation process.

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GENERAL APPROACHES TO DECISION MAKING

a. Model. An abstraction of reality, a simplified version of something. Models are

sometimes classified as physical, schematic, or mathematical.
 Physical models look like their real-life counterparts. Examples include
miniature cars, trucks, airplanes, toy animals and trains, and scale-model
buildings. The advantage of these models is their visual correspondence with
reality.
 Schematic models are more abstract than their physical counterparts; that is,
they have less resemblance to the physical reality. Examples include graphs and
charts, blueprints, pictures, and drawings. The advantage of schematic models
is that they are often relatively simple to construct and change. Moreover, they
have some degree of visual correspondence.
 Mathematical models are the most abstract: they do not look at all like their
real-life counterparts. Examples include numbers, formulas, and symbols.
These models are usually the easiest to manipulate, and they are important
forms of inputs for computers and calculators.

For each model, try to learn:

1. Its purpose
2. How it is used to generate results
3. How these results are interpreted and used
4. What assumptions and limitations apply

Managers use models in a variety of ways and for a variety of reasons. Models are
beneficial because they:
1. Are generally easy to use and less expensive than dealing directly with the
actual situation.
2. Require users to organize and sometimes quantify information and, in the
process, often indicate areas where additional information needed.
3. Provide a systematic approach to problem solving.
4. Increase understanding of the problem.
5. Enable managers to analyze "what if?" questions.
6. Require users to be specific about objectives.
7. Serve as a consistent tool for evaluation.
8. Enable users to bring the power of mathematics to bear on a problem.
9. Provide a standardized format for analyzing a problem.

Two most important limitations of models:

1. Quantitative information may be emphasized at the expense of qualitative
information.
2. Models may be incorrectly applied and the results misinterpreted. The
widespread use of computerized models adds to this risk because highly
sophisticated models may be placed in the hands of users who are not
sufficiently grounded in mathematics to appreciate the subtleties of a particular
model; thus, they are unable to fully comprehend the circumstances under
which the model can be successfully employed.

b. Quantitative Methods/Approaches To Problem Solving

 Linear programming and related mathematical techniques are widely used for
optimum allocation of scarce resources.
 Queuing techniques, which originated around 1920 in the telephone industry but
remained dormant until the 1950s and 1960s, are useful for analyzing situations
in which waiting lines form.
 Inventory models, also popular after some early work, went through a long
period of low interest but are now widely used to control inventories.
 Project models such as PERT (program evaluation and review technique) and
CPM (critical path method) are useful for planning, coordinating, and
controlling large-scale projects.

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  Forecasting techniques are widely used in planning and scheduling. Statistical
models are currently used in many areas of decision making.
 The growing availability of software packages covering virtually every
quantitative technique has greatly increased management's use of the
computer. Many heretofore impractical techniques, such as multiple
regression analysis and linear programming, can now be handled with ease.
c. Analysis of Trade-offs. Operations Managers deal with trade-off decisions by weighing
the advantages and disadvantages or pros and cons of certain course of action in order
to understand better the consequences of their decisions.
d. Systems Approach. A system can be defined as a set of interrelated parts that must
work together. Business organization composed of subsystems and in turn composed
of lower subsystems. Thus, the systems approach emphasizes the interrelationships
among subsystems, but its main theme is that the whole is greater than the sum of its
individual parts. It is important to take into account the impact of all parts of the
system.

Establishing Priorities
Pareto phenomenon assumes that all things are not equal; some things (a few) will be
very important for achieving an objective or solving a problem and other things (many) will not.
The implication is that a manager should examine each situation, searching for the few factors
that will have the greatest impact, and give them the highest priority.

Ethical Issues Arise In Operations Management

 worker safety: providing adequate training, maintaining equipment in good working
condition, maintaining a safe working environment;
 product safety: providing products that minimize the risk of injury to users or damage to
property or the environment;
 quality: honoring warranties, avoiding hidden defects;
 the environment: not doing things that will harm the environment;
 the community: being a good neighbour;
 hiring and firing workers: don't hire under false pretenses (e.g., promising a long-term
job when that is not what is intended);
 closing facilities: taking into account the impact on a community, and honoring
commitments that have been made;
 workers' rights: respecting workers' rights, dealing with worker problems quickly and
fairly.

THE HISTORICAL EVOLUTION OF OPERATIONS MANAGEMENT

a. The Industrial Revolution. Prior to that time, goods were produced in small shops by
craftsmen and their apprentices. Only simple tools were available; the machines that
we use today had not been invented. A major change occurred that gave the industrial
revolution a boost: the development of standard gauging systems. This greatly reduced
the need for custom-made goods. Factories began to spring up and grow rapidly,
providing jobs for countless people who were attracted in large numbers from rural
areas.
b. Scientific Management. The scientific-management era brought widespread changes
to the management of factories. The movement was spearheaded by the efficiency
engineer and inventor Frederick Winslow Taylor, who is often referred to as the father
of scientific management. Taylor believed in a "science of management" based on
observation, measurement, analysis and improvement of work methods, and economic
incentives. Taylor also believed that management should be responsible for planning,
carefully selecting and training workers finding the best way to perform each job,
achieving cooperation between management and workers, and separating
management activities from work activities.
Among Ford's many contributions:
 Mass production – system in which lower-skilled workers use specialized
machinery to produce high volume of standardized goods.

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  Interchangeable parts – parts of a product made to such precision that they
do not have to be custom fitted.
 Division of labor – breaking up a production process into small tasks, so that
each worker performs a small portion of the overall job.
c. The Human Relations Movement. Whereas the scientific-management movement
heavily emphasized the technical aspects of work design, the human relations
movement emphasized the importance of the human element in a job design.
d. Decision Models and Management Science. The World War II generated tremendous
pressures on manufacturing output, and specialists from many disciplines combined
efforts to achieve advancements in the military and in manufacturing. After the war,
efforts to develop and refine quantitative tools for decision making continued, resulting
in decision models for forecasting, inventory management, project management, and
other areas of operations management. During the 1960s and 1970s, management
science techniques were highly regarded; in the 1980s, they lost some favor. However,
the widespread use of personal computers and user-friendly software in the workplace
is causing resurgence in the popularity of these techniques.
e. The Influence of Japanese Manufacturers. A number of Japanese manufacturers
developed or refined management practices that increased the productivity of their
operations and the quality of their products. This made them very competitive,
sparking interest in their approaches by companies outside Japan. Their approaches
emphasized quality and continual improvement, worker teams and empowerment, and
achieving customer satisfaction. The Japanese can be credited with spawning the
"quality revolution" that occurred in industrialized countries, and with generating
widespread interest in time-based management (just-in-time production).

TRENDS IN BUSINESS

Two fairly recent trends are having tremendous impact on business operations:
1. The Internet and e-business.
Electronic business or e-business - the use of the Internet to transact business
E-business – new way of transacting business with customers and suppliers.
2. Supply chain management.
A supply chain – sequence of facilities, functions, and activities involved in producing
and delivering a product or service.
Facilities: warehouses, factories, processing centers, offices, distribution centers, and retail
outlets.
Functions and activities: forecasting, purchasing, inventory management, information
management, quality assurance, scheduling, production, distribution, delivery, and
customer service.

Continuing Trends
1. Quality and process improvement.
 "quality revolution" (1980s and 1990s)
 Quality criterion form being an “order winner” to an “order qualifier”
 The use of total quality management (TQM) to describe their quality efforts.
 A quality focus emphasizes customer satisfaction and teamwork.
 Process improvement to improved quality, reduced cost, and time.
2. Technology.
 Technological advances as revolutionized way of operating business.
(product design, product features, processing technology, information
processing, and communication)
 Technological advances in new materials, new methods, and new equipment
have also made their mark on operations.
3. Globalization. Global competition, global markets, global supply chains, and
international operations are having a growing impact on the strategies and operations
of businesses large and small around the world.
4. Operations strategy.
 Neglected to include operations strategy to corporate strategy (1970s & 1980s)

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  Now, more companies recognized the importance of operations strategy to the
overall success of business organizations.
5. Environmental issues.
 Pollution control and waste disposal are key issues managers.
 There is increasing emphasis on reducing waste, using less toxic chemicals,
recycling, making it easier for consumers to recycle products, and designing
products and parts that can be. These policies are known as environmentally
responsible manufacturing.
6. Corporate downsizing. Reducing the labor forces as a respond to the competition,
lagging productivity, and stockholders calling. Therefore, this the act of operations
managers to find ways to produce more with fewer workers.
7. Lean production.
 This new approach to production emerged in the 1990s.
 It incorporates quality, flexibility, time reduction, and teamwork.
 Flattening of the organizational structure, with fewer levels of management.
 Lean production systems use much less of certain resources than mass
production systems use to produce a certain amount of output.
o less space, less inventory, and fewer workers
o use a highly skilled work force and flexible equipment.

References
Stevenson, W.J. 2012. Operations Management. McGraw-Hill Companies Inc. New York, 11th
Edition
Stevenson, W.J. 2002. Operations Management. McGraw-Hill Companies Inc. New York, 7th
Edition
Skripak, S. J. 2016. Fundamentals of Business. E-book adapted from
http://www.saylor.org/site/textbooks/Exploring%20Business.docx
Porter, A. 2011. Operations Management. Albert Porter & Ventus Publishing ApS
Bhat, S.L. 2011. Production and Operations Management. 1st Edition. Himalaya Publishing
House Pvt. Ltd.
Collins, K. 2O12. An Introduction to Business. Retrieved from
https://2012books.lardbucket.org/books/an-introduction-to-business-v2.0/s01-about-
the-author.html

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