Course: Production

and Operations
Management: Eleven Edition

Manufacturing and
Services

Chase
Aquilano
Jacobs
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 Chapter 1
Introduction to the Field

 Why Study Operations Management?

 Definition of Operations Management
 Operations Decision Making
 Production Systems
 Service or Good?
 Closed vs. Open System Perspectives
 Development of OM as a Field
 Current Issues
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 The Field of Operations Management

Whether you are a Marketing, Accounting,

Finance or Operation specialist, effectively
serving customers requires this knowledge in
business.
You will become aware of the concepts and tools that are
now being employed by companies around the world as
they craft efficient and effective operations.
What are the differences among Efficiency,
Effectiveness and Value?
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What are the differences among Efficiency,
Effectiveness and Value?
Efficiency means doing something at the lowest
possible cost. The goal of an efficient process is to
produce a good or provide a service by using the
smallest input of resources.
Effectiveness means doing the right things to create
the most value for the company.
Maximizing effectiveness and efficiency at the same
time creates conflict between two goals (Trade-off).
Value, which can be defined as quality divided by
price or Ratio of quality to price paid.
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Why Study Operations Management?
Besides operation management’s importance corporate
competitiveness, reasons for studying OM are follows:
1. A business education is incomplete without an
understanding of modern approaches to managing
operations.
2. Operation Management provides a systematic
way of looking at organizational process.
3. Operations management presents interesting
career opportunities.( material mgt, supply chain mgt,
& quality assurance)
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Cont..
4. The concepts and tools of OM widely used in
managing other functions of business.

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Why Study Operations Management?

Systematic Approach
to Org. Processes

Operations
Business Education Career Opportunities
Management

Cross-Functional
Applications
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 Production/Operation Management
 Operational management is a process of planning,
organizing, directing and controlling the activities of
the production function.
 Operation Management is defined as the design,
operation, and improvement of the production
systems that create the firm’s primary products and
services.
 It combines and transforms various resources used
in the production subsystem of the organization into
value added product in a controlled manner as per
the policies of the organization.
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 Cont.…..

Operation management is frequently confused with

operations research and management science
(OR/MS) and industrial engineering (IE). The
essential difference is that OM is a field management,
whereas OR/MS is the application of quantitative
methods to decision making and IE is an engineering
discipline.
In depth, OM is concerned with the management of
the entire system that produces a good or delivers a
product
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 Production System
Production: is defined as “the step-by-step
conversion of one form of material into another form
through chemical or mechanical process to create or
enhance the utility of the product to the user.
Thus, production is a value addition process. At each
stage of processing, there will be value addition.
Edwood Buffa defines production as ‘a process by
which goods and services are created’.

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 Cont.…..
A system is group of two or more interrelated
components or subsystems that serve a common
purpose.
Elements of a system:
1. Multiple components- A system must contain more
than one part.
2. Relatedness- All parts serve a common objective.
3. Purpose- A system must serve at least one purpose.

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 Cont.…..
 The production system of an organization is that
part, which produces products of an organization.
 whereby resources, flowing within a defined system,
are combined and transformed in a controlled
manner to add value in accordance with the policies
communicated by management.
 The production system uses resources to transform
input into some desired output.
 The production system also is called
transformation process. © The McGraw-Hill Companies, Inc., 1998
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 Cont.….
 The heart of OM is the management of production
system. A production system uses operations
resources to transform inputs into some desired
outputs. An input may be a raw material, a
customer, or a finished product from an other
system.
 Operation resources consist of what we term the five
P’s of operation management.

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 Five P's of Operations Management
Five P's of operations management: people, plants,
parts, processes, and planning and control systems.
People are the direct and indirect workforce. Plants
include the factories or service branches where
production is carried out. Parts include the materials
(or, in the case of services, the supplies) that go
through the system. Processes include the equipment
and steps by which production is accomplished.
Planning and control systems are the procedures and
information management uses to operate the system.
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 OM Involves Managing Transformations
Transformation
Input Process Output
(Value Adding)

Transformation is
 People
enabled by The 5 Ps of OM:
 Plants
 Parts
 Processes
 Planning and Control
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 Input-Transformation-Output
Relationships for Typical Systems

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 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).
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 Characteristics of Production System
1. Production is an organized activity, so every
production system has an objective.
2. The system transforms the various inputs to useful
outputs.
3. It does not operate in isolation from the other
organization system.
4. There exists a feedback about the activities, which
is essential to control and improve system
performance.
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 Operation Decisions
Operation decisions: are made in the context of the
firm as a whole. Starting at the top of Exhibit 1.1 the
marketplace (the firm’s customers for its products or
services) shapes the firm’s Corporate strategy. This
strategy is based on the corporate mission, and in
essence reflects how the firm plans to use all its
resource and functions (marketing, finance, and
operation) to gain competitive advantage.

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 Cont.…..
The Operation strategy specifies how the firm will
employ its production capabilities to support its
corporate strategy.
 Within the operations function, management
decisions can be divided into three broad areas:
1. Strategic (long-term) decisions
2. Tactical (intermediate-term) decisions
3. Operational planning and control (short-term)
decision.
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 Operations Decision Making
Marketplace

Corporate Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations Management

People Plants Parts Processes

Materials & Products &
Customers Services
Planning and Control

Input Output
Production System

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 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?)

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 What about McDonald’s?
 Service or Manufacturing?

 The company certainly manufactures tangible

products

 Why then would we consider McDonald’s a service

business?

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 Differences Between Goods and Services
 Goods  Services
– Tangible – Intangible
– Can be – Cannot be
inventoried inventoried
– No interaction – Direct interaction
between between
customer and customer and
process process
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 Objectives of Operation management

The objective of the production/operation

management is ‘to produce goods and services of
 Right quality
 Right quantity
 Right time
 Right manufacturing cost.

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 Distinction between Manufacturing Operations
and Service Operations
Following characteristics can be considered for
distinguishing manufacturing operations with service
operations:
1. Tangible/Intangible nature of output
2. Consumption of output
3. Nature of work (job)
4. Degree of customer contact
5. Customer participation in conversion

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Scope of Production and Operation Management

Production and operations management concern with

the conversion of inputs into outputs, using physical
resources, so as to provide the desired utilities to the
customer while meeting the other organizational
objectives of effectiveness, efficiency and adoptability.

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Cont.……
It distinguishes itself from other functions such as
personnel, marketing, finance, etc., by its primary
concern for ‘conversion by using physical resources.’
Following are the activities which are listed under
production and operations management functions:

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Cont.………
1.Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

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 Closed Systems
 Traditionally, manufacturing managers have sought to protect their
factory operations from outside disturbances through the use of
buffers between the plant and its customers. These buffer can be
physical (such as inventories) or organizational (such as the other
functions shown surrounding the ‘factory’.
 This closed system view, with its reliance on buffering, has been
perceived as desirable for three reasons. (1) Interaction with
customers, vendors, and salespeople can be a disturbing influence on
production. (2) The production transformation process is often more
efficient than the processes for obtaining inputs and disposing of
finished goods. (3) With certain processes (for example, auto
assembly lines and continuous flow processes such as petroleum
refining), productivity can be maximized only by operating at a
continuous rate which is often different from the market-demanded
rate.
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 Cont.…..…
The inherent drawbacks of the closed system model are now
becoming readily apparent, however.
 One drawback is lack of flexibility due to information lags
between the factory and the so-called boundary functions.
 Another is an "us versus them" attitude (for example,
"People in the factory don't understand the business,"
"People in marketing don't know our problems."). Finally,
lack of interaction with the customer loses some
competitive opportunities for the business.

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 Open System
 The open system model of factory operations is
obviously quite different. Here, the factory is open
to communication and interaction with its customers
and suppliers, and it develops means to eliminate
procedural and personal barriers between itself and
other functions.
 This calls for a service orientation on the part of
manufacturing operations.

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 Manufacturing Operations As Services
The emerging model in industry is that every
organization is in the service business.
Services can be divided into core services and value-
added services that are provided to internal and
external customers of the factory
1. Core services are basic things that customers want from
products they purchase.
The core services customers want from the factory are
products that are made correctly, are customized to their needs,
are delivered on time, and are priced competitively. Quality,
Flexibility, Speed, and Price (or cost of production).

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Cont.….
2. 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.
Value-added services provided on external customers yield
two benefits
1. Differentiate the organization from competitors.
2. build relationships that bind customers to the firm in a
positive way.
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.
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 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.

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 Current Issues
 Speeding up the time it takes to get new products
into production.
 Developing flexible production systems to enable
mass customization of products and services.
 Managing global production networks.
 Developing and integrating new production
technologies into existing production systems.

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 Cont.……
 Achieving high quality quickly and keeping it up in
the face of restructuring.

 Managing a diverse workforce.

 Conforming to environmental constraints, ethical

standards, and government regulations.

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 END of Presentation

 Thank You for Your Listening

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