Chapter 01 - The Operations Function

CHAPTER 1
THE OPERATIONS FUNCTION
Teaching Notes
This chapter is aimed at providing an overall framework for the textbook and the
operations management field. The decision framework serves as a convenient way of
organizing students' thinking about major operations management decisions (process,
quality, capacity, and inventory). The cross-functional view of operations management is
also introduced in this chapter to provide relevance for the course. When operations
management is related to marketing and finance, as a major business function, the students
more easily understand the role of operations in business.
In teaching this chapter, I try to highlight the different approaches to the OM field
and the importance of cross-functional decision making. I also spend some time
discussing the relative importance of services and manufacturing. Finally, I illustrate major
OM decisions in Pizza U.S.A. and other types of businesses. Students may find the typical
jobs in OM from Monster.com interesting.
Some of the references that might be particularly helpful for different perspectives
of the field are the books by Chase, Aquilano and Jacobs (2006), Heizer and Render
(2004), and Stevenson (2005). The book by Wren (1993) provides a historical
background of the evolution of management thought.
Answers to Questions
1.

Operations management is ubiquitous, that is, ever present. Daily we come in

contact with various goods and services produced by the transformation of inputs
to outputs under the control of operations managers. Operations is a basic
function along with marketing and finance. Through the excellent operations,
wealth can be created, productivity improved and standard of living raised.

2.

Operations management is a broader term than production management,

encompassing service organizations as well as manufacturing. Operations
management is also a more recent term replacing the earlier term production
management.

3.

Responsibilities differ among operations, marketing and finance managers. A

marketing manager identifies demand for goods or services and develops the
market, whereas the operations manager assures supply of the product. The
finance manager acquires and allocates the capital resources for the other
functions. Similarities in the three functions include managerial decision making
and shared organizational goals.

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4.

Operations, marketing, and finance are primary functions of the organization.

Human recourses, information systems, and accounting are supporting functions
that provide support for the three primary functions. The operations manager
applies analysis and information provided by supporting functions and integrates
them into an overall framework of management. The focus of the operations
manager, however, is on decision problems rather than on the analytic methods.

5.

a.

The purpose of a college library is to make information available for

research and study to students and faculty. The product is the bundle of
services provided along with facilitating goods:
Internet, books,
microfilms, catalogs and indices.
Process -- facility layout considering book stacks, reference rooms, shelf
access vs. microfilm, computer access from off site, degree of computer
use and procedures for accessing and circulating information; job design
and performance evaluation are handled by senior librarians and supervisors
within departments: circulation, reference, acquisitions, documents.
Quality -- standards of the college library profession are adopted; quality
measures include: consulting staff hours to students ratio, rate of new
book purchases, number of complaints, student satisfaction.
Capacity -- forecasting of library user needs contributes to decisions on
building size, volume of space for study and materials, print acquisitions,
staff hiring and scheduling of shifts.
Inventory -- decisions concerning the number of books, microfilms,
periodicals, etc. to stock.

b.

The purpose of a hotel is to attract and satisfy overnight guests and

conventioneers. The product is the bundle of services and goods provided:
maid service, room service, television, pool, bar, coffee shop.
Process -- a set of processes for booking and payment of rooms,
housekeeping, restaurant, recreation services, and ongoing study of service
methods; the people who implement these processes including
receptionists, accountants, housekeepers, and maintenance workers.
Quality -- hotel industry standards and the market positioning of the hotel
(first class vs. budget) determine standards; quality measures include
number of return visitors, conventions booked, and ratings by industry
evaluators.
Capacity -- number of units and beds; appropriate size for restaurant, bar
and convention halls; staffing for housekeeping, restaurant and office.
Inventory -- dependent demand inventories to meet requirements for room
upkeep, convention catering, restaurant and bar.

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Chapter 01 - The Operations Function

c.
The purpose of a small manufacturing firm is to provide customers with a
quality product at a reasonable price. The product consists of not only the physical good
but also the service package, the utility it provides the consumer and the service it
performs.
Process -- usually job shop; the process of securing the raw materials,
transforming and assembling them into a finished good and packaging the
product; job design and establishment of employee benefits.
Quality -- definition of quality standards, measurement of deviations from
design standards, inspection and control of quality of input materials,
prevention of defects.
Capacity -- number of units the facility is capable of producing per unit
time, size of inventory storage, hiring of workers and scheduling of shifts.
Inventory -- finished goods, work-in-process, and raw materials to smooth
production and meet customer needs.
6.

a.

Operation -- college library

Inputs -- librarians, staff, library facilities and equipment, energy, capital.
Transformation process -- organizing information, arranging materials for
access, interacting with library users.
Outputs -- students and faculty provided with research and study materials.

b.

Operation -- hotel
Inputs -- facilities, staff, materials for housekeeping and food preparation,
communications equipment, energy, capital.
Transformation process -- taking reservations, check-in and check-out
procedures, providing other services.
Outputs -- customers satisfied with lodging and related services.

c.

Operation -- small manufacturing firm

Inputs -- raw material, workers, supervisors, management, warehouse,
manufacturing facilities and equipment, energy, capital.
Transformation process -- ordering raw materials, transforming and
assembling raw materials into final product, packaging product, taking
supply orders.
Outputs the product and customers satisfied with the way the product
appears and operates.

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7.

The decision-making view of operations management categorizes and defines

decision making for the operations function according to a given framework. The
framework used here, which conforms quite closely to the assignment of
management responsibilities within an operations organization includes the
decision areas of Process, Quality, Capacity, and Inventory.
The process view defines operations management as the management of a
transformation system. This system converts inputs, such as energy, materials,
labor, capital, and information, into outputs, in the form of goods and services, via
the process technology.
Both views are useful as both include services as well as goods and both assign to
management the responsibility for managing the transformation process in the firm.
The difference in the views is one of emphasis: decision making versus process
design.

8.

Answers will depend on the specific sources obtained by students.

9.

Answers will vary depending on the specific WSJ issue or Internet site.

10.

Because the operations system is in constant interaction with its environment,

changes in the environment may necessitate adaptations by the transformation
system. Management may alter the inputs, outputs, controls, or the transformation
system itself.
Demand changes may cause operations managers to hire or lay off staff, initiate or
restrict overtime, change facilities capacity, increase or decrease equipment
capacity, or expand or tighten inventories.
New pollution control laws may cause operations managers to change process
technologies, facilities location decisions, or quality standards.
The changing value of the dollar may cause operations managers to expand or
decrease production of various product lines, change facilities location decisions,
increase or decrease inventories, or change capacity decisions. This is particularly
true of product lines subject to foreign competition or raw materials that are
affected by currency changes.
Price changes may cause operations managers to increase or decrease production
volume, change product mix, increase or decrease inventories, or change quality
levels.

11.

Answers will vary depending on the specific sources used.

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Chapter 01 - The Operations Function

12.

Students are expected to choose one or two themes from contemporary operations
themes: service and manufacturing, customer-directed operations, lean operations,
integration of operations with other functions, environmental concerns,
globalization of operations, or supply chain management. Then they need to
provide some critical characteristics of these trends and to explain what their
impact is on operations. Answers will vary widely among students.

13.

Work of any type typically represents a process and many processes have
similarities. From an operations perspective, these processes are designed to
convert inputs into outputs. There are various elements connected to a process that
make a contribution.
Acquisition of another company: If one contemplates the acquisition of another
company, an assessment of the value and efficiency of the transformation processes
utilized by the company must be conducted. It is imperative that individuals from
any functional background be able to understand the interconnected nature of all
business disciplines within any type of business entity. A process view of a firm to
be acquired will assist this assessment. As an example, in order to visualize how
improvements may be made one must understand the value-added contributions of
all the process elements. In order to eliminate non-value-adding activities, one
must be able to understand customers needs of the firm being acquired.
Closing books at years end: Each year a set of related tasks comprising this
process are performed. Included would be activities such as issuing invoices to
customers, recording and maintaining specific customer accounts receivable,
recording and paying specific accounts payable for process inputs, etc. Regardless
of the nature of the business, these are universally common tasks of this process.
Marketing research for a new product: Regardless of the nature or type of
product, similar tasks comprising the process of bringing a new product to market
are performed. These typically include the generation of the idea, conducting
feasibility studies, approving the funding for the concept, performing market
research, developing a prototype, market testing and prototype testing,
redesigning, etc. Market research may be conducted in a variety of ways, but the
concept of the process of performing the market research is to provide a
prospective customer with a product concept (either physically or conceptually)
and assess the likelihood of market acceptance based upon customer responses to
a variety of questions. This market research can employ a variety of instruments
such as field or phone interviews, in-field testing, etc. Regardless of the tool
employed, market research is simply an example of hypothesis testing which has a
common set of process elements.

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Chapter 01 - The Operations Function

Design of an information system: Similar to market testing, designing of an

information system requires knowledge of customer (internal or external)
requirements. Once customer requirements are understood, a prototype can be
developed, tested, redesigned based upon feedback, and if successful, developed
for implementation. Regardless of the purpose of the information system, a
universal set of process elements is commonly followed.
Hiring of a new employee: Whether this individual will be employed in financial,
accounting, human resources, operations, or some other functional discipline
within a firm, a common process of employment is typically undertaken. It initiates
with an interview(s), followed by possible skill testing, training, monitoring and
possible mentoring of work, and frequent evaluations. It is beneficial to visualize
all work as an interconnected sequence of processes whereby the outputs of one
process are the inputs of a subsequent process, internally and externally for a firm.

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