Masters program

operations management

lecture 1
Introduction to Operation
management

Year 2023
 Lecture 1 Objectives

After this lecture you should:

 Define the terms operations/production management
 Identify similarities and differences between production
and service operations.
 Explain the importance of learning about operations
management.
 Identify the three major functional areas of organizations
and describe how they interrelate.
 Summarize the historical evolution of operation
management.
1.1 Introduction

Operations is the part of a business organization that

is responsible for producing goods and/or services.
Operations management is the management of
systems or processes that create goods and/or provide
services.
Goods are physical items that include raw materials,
parts, subassemblies, etc.
 Services are activities that provide some
combination of time, location etc.

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Cont…

The three basic functions of business organizations

1. Finance,
2. Marketing, and
3. Operations.
1. Finance is responsible for securing financial resources at
favorable prices and allocating those resources throughout the
organization, as well as budgeting, analyzing investment
proposals, and providing funds for operations.

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Cont…

2. Marketing is responsible for assessing consumer wants and

needs, and selling and promoting the organization’s goods
or services.
3. Operations is responsible for producing the goods or
providing the services offered by the organization.

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Cont…

 Operations and supply chains are basically linked, and no

business organization could exist without both.
 Supply chains are both external and internal to the
organization. The external parts of a supply chain provide raw
materials, parts, equipment, supplies, and/or other inputs to the
organization, and they deliver outputs that are goods to the
organization’s customers.
 The internal parts of a supply chain are part of the operations
function itself, supplying operations with parts and materials,
performing work on products, and/or performing services.

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Figure 1.1 A supply chain for bread

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Cont…

 The creation of goods or services involves transforming or

converting inputs into outputs. Various inputs such as capital,
labor, and information are used to create goods or services
using one or more transformation processes (e.g., storing,
transporting, repairing).
 To ensure that the desired outputs 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). Figure 1.2 below depicts
the conversion system.

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Cont…

Figure 1.2 The operations function involves the conversion of inputs into outputs

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Cont…

 It is important to note that goods and services often occur

jointly. For example, having the oil changed in your car is a
service, but the oil that is delivered is a good. Similarly, house
painting is a service, but the paint is a good.
 Because there are relatively few pure goods or pure services,
companies usually sell product packages, which are a
combination of goods and services.
 There are elements of both goods production and service
delivery in these product packages. This makes managing
operations more interesting, and also more challenging.

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Cont…

 The essence of the operations function is to add value during

the transformation process:
Value-added is the term used to describe the difference between
the cost of inputs and the value or price of outputs.
In nonprofit organizations, the value of outputs (e.g., highway
construction, police and fire protection) is their value to society;
the greater the value-added, the greater the effectiveness of these
operations.
In for-profit organizations, the value of outputs is measured by
the prices that customers are willing to pay for those goods or
services.

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1.2 PRODUCTION OF GOODS Vs PROVIDING
SERVICES
Although goods and services often go hand in hand,
there are some very basic differences between the
two, differences that impact the management of the
goods portion versus management of the service
portion.
There are also many similarities between the two.
Production of goods results in a tangible output, such
as an automobile, eyeglasses, a golf ball, a
refrigerator—anything that we can see or touch. It
may take place in a factory, but it can occur
elsewhere.

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Cont…

 On the other hand, delivery of service generally implies

an act. E.g. A physician’s examination, TV and auto
repair and the projection of a film in a theater, etc.
Some of service jobs fall into these categories:
 Professional services (e.g., financial, health care, legal).
 Mass services (e.g. utilities, Internet, communications).
 Service shops (e.g., tailoring, appliance repair, car wash,
auto repair/maintenance).
 Personal care (e.g., beauty salon, spa, barbershop), etc.

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Cont…

Table 1.3 The differences between production of goods and provision of services

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1.3 WHY LEARN ABOUT OPERATIONS
MANAGEMENT?

 Whether operations management is your major or not, the

skill set you gain studying operations management will
serve you well in your career.
 There are many career-related reasons for wanting to learn
about operations management, whether you plan to work in
the field of operations or not. This is because every aspect of
business affects or is affected by operations.
 Operations and sales are the two line functions in a business
organization. All other functions—accounting, finance,
marketing, IT, and so on—support the two line functions.

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Cont…

 A common complaint from employers is that college

graduates come to them very focused, when employers
would prefer them to have more of a general knowledge
of how business organizations operate.
 Apart from the career-related reasons is a not so obvious
one: Through learning about operations and supply
chains, you will have a much better understanding of the
world you live in, the global dependencies of companies
and nations, some of the reasons that companies succeed
or fail, and the importance of working with others.

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1.3 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.

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Cont…

 We can use an airline company to illustrate a service

organization’s operations system. The activities include:
 Forecasting such things as weather and landing conditions,
seat demand for flights, and the growth in air travel.
 Capacity planning: Too few or too many planes, or even the
right number of planes.
 Locating facilities according to managers’ decisions on which
cities to provide service for, where to locate maintenance
facilities, and where to locate major and minor hubs.
 Facilities and layout, important in achieving effective use of
workers and equipment.

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Cont…

 Scheduling of planes for flights and for routine maintenance;

scheduling of pilots and flight attendants; and scheduling of
ground crews, counter staff, and baggage handlers.
 Managing inventories of such items as foods and beverages,
first-aid equipment, inflight magazines, and life preservers.
 Assuring quality, essential in flying and maintenance
operations, where the emphasis is on safety, check-in,
telephone and electronic reservations, etc.
 Motivating and training employees in all phases of
operations.

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1.4 OPERATIONS MANAGEMENT & DECISION
MAKING

The chief role of an operations manager is that of

planner/decision maker. In this capacity, the operations
manager exerts considerable influence over the degree to
which the goals and objectives of the organization are
realized. Most decisions involve many possible alternatives
that can have quite different impacts on costs or profits.
Consequently, it is important to make informed decisions.
Operations management professionals make a number of
key decisions that affect the entire organization. These
include the following:

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 What: What resources will be needed, and in what amounts?

 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?
 Where: Where will the work be done?
 How: How will the product or service be designed? How will
the work be done (organization, methods, equipment)? How
will resources be allocated?
 Who: Who will do the work? An operations manager’s daily
concerns include costs (budget), quality, and schedules (time).

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1.5 THE HISTORICAL EVOLUTION OF OM

The Industrial Revolution

 The Industrial Revolution began in the 1770s in England
and spread to the rest of Europe and to the United States
during the 19th century. Prior to that time, goods were
produced in small shops by craftsmen and their
apprentices.
 Under that system, it was common for one person to be
responsible for making a product, such as a horse-drawn
wagon or a piece of furniture, from start to finish. Only
simple tools were available; the machines in use today
had not been invented.
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Cont…

Scientific Management
 The scientific management era brought widespread
changes to the management of factories.
 The movement was directed 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. He studied work
methods in great detail to identify the best method for
doing each job.
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Cont…
 A number of other pioneers also contributed heavily to this
movement, including the following:
 Frank Gilbreth was an industrial engineer who is often
referred to as the father of motion study.
 Henry Gantt recognized the value of nonmonetary rewards to
motivate workers, and developed a widely used system for
scheduling, called Gantt charts.
 Harrington Emerson applied Taylor’s ideas to organization
structure and encouraged the use of experts to improve
organizational efficiency.
 Henry Ford, employed scientific management techniques in
his factories. The introduction of mass production

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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 job design.
 Lillian Gilbreth, a psychologist and the wife of Frank Gilbreth,
worked with her husband, focusing on the human factor in
work. (The Gilbreths were the subject of a classic film,
Cheaper by the Dozen. ) Many of her studies dealt with
worker fatigue. In the following decades, there was much
emphasis on motivation. Elton Mayo conducted studies at the
Hawthorne division of Western Electric.
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Cont…

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End of lecture 1

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