Chapter 1

Introduction to
Operations
Management

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 Operations Management
What is operations?
 The part of a business organization that is
responsible for producing goods or services
How can we define operations
management?
 The management of systems or processes that
create goods and/or provide services

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LO 1.1
 Good or Service?
Goods are physical items that include raw materials, parts,
subassemblies, and final products.
• Automobile
• Computer
• Oven
• Shampoo

Services are activities that provide some combination of time, location,

form or psychological value.
• Air travel
• Education
• Haircut
• Legal counsel

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LO 1.1
 Supply Chain
Supply Chain – a sequence of activities and
organizations involved in producing and delivering
a good or service

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers Customers

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LO 1.1
 The Transformation Process
Value-Added

Inputs Transformation/ Outputs

• Land Conversion • Goods
• Labor • Services
• Capital
Process
• Information

Measurement
and Feedback
Measurement Measurement
and Feedback and Feedback
Control

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established
standards to determine if corrective action is needed.
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LO 1.1
 Goods-service Continuum
Products are typically neither purely service- or purely goods-
based.
Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

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LO 1.2
 Manufacturing vs. Service
1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
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LO 1.2
 Why Study Operations
Management?
 Every aspect of business affects or is affected
by operations
 Many service jobs are closely related to
operations
 Financial services
 Marketing services
 Accounting services
 Information services
 Through learning about operations and supply
chains you will have a better understanding of:
 The world you live in
 The global dependencies of companies and nations
 Reasons that companies succeed or fail
 The importance of working with others

LO 1.3 1-8
 Basic Functions of the Business
Organization

Organization

Marketing Operations Finance

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LO 1.4
 Function Overlap
 Finance & Operations
 Budgeting
 Economic analysis of
investment proposals
 Provision of funds
 Marketing & Operations
 Demand data
 Product and service design
 Competitor analysis
 Lead time data

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LO 1.4
OM and Supply Chain
Career Opportunities
 Operations manager
 Supply chain manager
 Production analyst
 Schedule coordinator
 Production manager
 Industrial engineer
 Purchasing manager
 Inventory manager
 Quality manager

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OM-Related Professional Societies
 APICS - The Association for Operations Management
 American Society for Quality (ASQ)
 Institute for Supply Management (ISM)
 Institute for Operations Research and Management
Science (INFORMS)
 The Production and Operations Management Society
(POMS)
 The Project Management Institute (PMI)
 Council of Supply Chain Management Professionals
(CSCMP)

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 Process Management

Process - one or more actions that transform inputs into outputs

Three Categories of Business Processes:

Upper-management processes These govern the operation of the entire
organization.
Operational processes These are core processes that make up the
value stream.
Supporting processes These support the core processes.

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LO 1.5
 Supply & Demand

Operations &
Supply Chains Sales & Marketing

Wasteful
Supply
> Demand Costly

Opportunity Loss

<
Supply Demand Customer
Dissatisfaction

Supply
= Demand Ideal

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LO 1.5
 Scope of Operations Management
The scope of operations management ranges across
the organization.

The operations function includes many

interrelated activities such as:
 Forecasting
 Capacity planning
 Facilities and layout
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 And more . . .
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LO 1.6
 Role of the Operations Manager
The Operations Function consists of all
activities directly related to producing goods
or providing services.

A primary function of the operations manager

is to guide the system by decision making.
 System Design Decisions
 System Operation Decisions

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LO 1.6
 System Design Decisions
• System Design
– Capacity
– Facility location
– Facility layout
– Product and service planning
– Acquisition and placement of equipment
• These are typically strategic decisions that
• usually require long-term commitment of resources
• determine parameters of system operation

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LO 1.6
 System Operation Decisions
• System Operation
• These are generally tactical and operational decisions
– Management of personnel
– Inventory management and control
– Scheduling
– Project management
– Quality assurance
• Operations managers spend more time on system operation
decision than any other decision area
• They still have a vital stake in system design

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LO 1.6
 OM Decision Making
 Most operations decisions involve many alternatives
that can have quite different impacts on costs or
profits
 Typical operations decisions include:
 What: What resources are 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?
 Where: Where will the work be done?

 How: How will he product or service be designed? How will

the work be done? How will resources be allocated?

 Who: Who will do the work?

LO 1.7 1-19
 General Approach to Decision Making
Modeling is a key tool used by all
decision makers
 Model - an abstraction of reality; a simplification of
something.
 Common features of models:
 They are simplifications of real-life phenomena
 They omit unimportant details of the real-life systems
they mimic so that attention can be focused on the
most important aspects of the real-life system

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LO 1.7
 Quantitative Approaches
A decision making approach that frequently
seeks to obtain a mathematically optimal
solution
 Linear programming
 Queuing techniques
 Inventory models
 Project models
 Forecasting techniques
 Statistical models

LO 1.7 1-21
 Metrics and Trade-Offs
 Performance Metrics  Analysis of Trade-
 All managers use metrics to Offs
manage and control  A trade-off is giving up
operations one thing in return for
 Profits something else
 Costs  Carrying more
 Quality
inventory (an
 Productivity expense) in order to
 Flexibility achieve a greater
 Inventories level of customer
 Schedules service
 Forecast accuracy

LO 1.7 1-22
 Systems Approach
 System - a set of interrelated parts that must work
together
 The business organization is a system composed of subsystems
 marketing subsystem
 operations subsystem
 finance subsystem

 The systems approach

 Emphasizes interrelationships among subsystems
 Main theme is that the whole is greater than the sum of its
parts
 The output and objectives of the organization take precedence
over those of any one subsystem

LO 1.7 1-23
 Historical Evolution of OM
Industrial Revolution
Scientific Management
Human Relations Movement
Decision Models and Management Science
Influence of Japanese Manufacturers

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LO 1.8
 Industrial Revolution
 Pre-Industrial Revolution
 Craft production - System in which highly skilled workers use
simple, flexible tools to produce small quantities of customized
goods
 Some key elements of the industrial revolution
 Began in England in the 1770s
 Division of labor - Adam Smith, 1776
 Application of the “rotative” steam engine, 1780s
 Interchangeable parts - Eli Whitney, 1792
 Management theory and practice did not advance
appreciably during this period

LO 1.8 1-25
 Scientific Management
 Movement was led by efficiency engineer,
Frederick Winslow Taylor
 Believed in a “science of management” based on
observation, measurement, analysis and improvement of
work methods, and economic incentives
 Management is 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
 Emphasis was on maximizing output

LO 1.8 1-26
 Human Relations Movement
The human relations movement emphasized the
importance of the human element in job design
 Lillian Gilbreth – applications of psychology
 Elton Mayo – Hawthorne studies on worker
motivation, 1930
 Abraham Maslow – motivation theory, 1940s;
hierarchy of needs, 1954-Psychological, safety,
Belongingness, Esteem, self actualisation
 Douglas McGregor – Theory X and Theory Y, 1960s
 William Ouchi – Theory Z, 1981

LO 1.8 1-27
 Decision Models & Management Science
 F.W. Harris – mathematical model for inventory
management, 1915
 Dodge, Romig, and Shewart – statistical procedures for
sampling and quality control, 1930s
 Tippett – statistical sampling theory, 1935
 Operations Research (OR) Groups – OR applications in
warfare
 George Dantzig – linear programming, 1947

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LO 1.8
 Influence of Japanese
Manufacturers
 Refined and developed management
practices that increased productivity
 Credited with fueling the “quality revolution”
 Just-in-Time production

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LO 1.8
 Key Issues for Operations Managers Today
Economic conditions
Innovating
Quality problems
Risk management
Competing in a global economy

LO 1.9 1-30
 Environmental Concerns
Sustainability
 Using resources in ways that do not harm
ecological systems that support human
existence
Sustainability measures often go beyond traditional
environmental and economic measures to include
measures that incorporate social criteria in
decision making
All areas of business will be affected
 Product and service design
 Consumer education programs
 Disaster preparation and response
 Supply chain waste management
 Outsourcing decisions
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LO 1.9
 Ethical Issues in Operations
 Financial statements Ethical issues arise in
 Worker safety many aspects of
 Product safety operations
management:
 Quality
 The environment
 The community
 Hiring and firing
workers
 Closing facilities
 Workers rights

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LO 1.9