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AN 300 Exam 1 Study Guide

Basic Functions of the Business Organization

Marketing and Operations are Line Functions

Finance is a Staff Function
Line Function: Performs core business activities; directly involved
with revenue/profit generation.
Staff Function: Supports a Line Function in what it does.

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

Operations as a Transformation Process

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.
Outputs are directed at Customers. A Customer may be an
External Customer or an Internal Customer. In some circumstances,
a Customer may be part of the Input to and Output from the

Transformation Process. Transformation does not necessarily

imply physical transformation

Process Variation

Variations can be disruptive to operations and supply chain

They may result in additional costs, delays and shortages, poor
quality, and inefficient work systems.

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

Example: supply chain for bread

Manufacturing vs. Service

Manufacturing and Service Operations/Organizations differ chiefly
because manufacturing is goods-oriented and service is actoriented.

Goods vs. Services

Goods are physical items that include raw materials, parts,
subassemblies, and final products. (automobile, computer, oven,
Services are activities that provide some combination of time,
location, form or psychological value. (air travel, education, haircut,
legal counsel)

Managing services is challenging.

Role of the Operations Manager

The Operations Function consists of all activities directly related to
producing goods or providing services.

Primary function of the operations manager -- guide the system by

making decisions: System Design Decisions & System Operation

System Design Decisions

-System design is concerned with: Planning products and services,
Planning capacity, Locating production/service facilities,
Determining layout of production/service facilities, Selecting and
acquiring needed equipment
-these are strategic decisions that usually require long-term
commitment of resources & determine parameters of system
System Operation Decisions
-Managing personnel, Planning and controlling inventory, scheduling
activities, Managing projects, Assuring quality
-These are tactical and operational decisions
-Operations managers spend more time on system operation
decisions than on system design decisions
-Most operations decisions involve many alternatives that can have
quite different impacts on costs or profits
-Typical operations decisions include 4Ws & 1H:
What resources are needed?
In what amounts?
When will each resource be needed?
When should the work be scheduled?
When should materials and other supplies be ordered?
Where will the work be done?
Who will do the work?
How will the product or service be designed?
How will the work be done?
How will resources be allocated?
Types of Models:
-Physical /Iconic Models
Look like their real-life counterparts; may or may not behave like
the real thing.
E.g., some model cars/planes/buildings/busts/statues, some
visuals (some photos/paintings/drawings/videos/simulations)
-Schematic/Analog Models

May not look like real-life counterparts, but capture essential

behavior visually or, even physically.
E.g., measuring devices (scales, gauges, meters), charts/graphs,
-Mathematical Models
Do not look like real-life counterparts, but capture essential
behavior using the language of mathematics.
Often underlie Iconic and Analog models.

Quantitative Methods
A decision making approach that frequently seeks to obtain
optimal or good solutions to a decision problem using
mathematical models of the problem
o Linear programming models
o Queuing models
o Inventory models
o Project management models
o Forecasting models
o Statistical models
o Others

Systems Approach to Decision Making

General Concern: Locally optimal decisions may be globally bad!
System - a set of interrelated parts that must work together
o The business organization is a system composed of
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
The output and objectives of the organization take
precedence over those of any one subsystem

Operations Strategy & Strategy Formulation

Operations Strategy: A plan for realizing operations goals.
A well-formulated Operations Strategy
o Draws upon:
Environmental Scanning, and
o Accounts for:
Order Qualifiers

Order Winners
Core Competencies, and
o Is aligned with Corporate Strategy

Operations Strategy Formulation

1. (Draws Upon) Environmental Scanning
Helps identify
Internal Factors
Strengths and Weaknesses
External Factors
Opportunities and Threats
Environmental Scanning enables SWOT Analysis
2. (Accounts for) Order Qualifiers
Product/Service characteristics that customers perceive as
a minimum requirement for its acceptance
3. (Accounts for) Order Winners
Product/Service characteristics that cause customers to
perceive it as better than the competition
4. (Accounts for) Core Competencies
The special attributes or abilities that give an organization a
competitive edge
Apples Product Design
Walmarts Low-Cost Groceries
Dells Mass Customization
Progressives Claims Processing
Accentures IS Design & Implementation
Often, none-core capabilities are outsourced to third-party
Insurance Risk Assessment (e.g., Actuarial Management
Resources, Inc.)
Travel/Entertainment Ticketing (e.g., Expedia,
Retail Electronic Payment Processing (e.g., PayPal,
Bank Check Processing (e.g., Seamless Chex; Orbograph)
Auto Manufacturing Tires, Sparkplugs, Batteries, etc.

Agile operations
o The use of flexibility to adapt and prosper in an environment
of change
Involves the blending of
Flexibility Design, Volume, Process

with core competencies such as

Cost, Quality, Reliability, etc.

What is Productivity?
o A measure of the Output relative to the Input (recall I-P-O
chart from Chapter 1).
o Expressed as the ratio of Output to Input (i.e., Output / Input)
o Is not the same as Efficiency or Effectiveness.
Effectiveness measures whether or not you are
producing desired Output, regardless of how much Input
is consumed.
Efficiency measures how well given Input is being
utilized to generate (effective) Output the more you
Output with the given Input, the more Efficient you are.
Productivity is a measure of the rate of (effective)
Output relative to Input; how much Output did you
produce per unit of Input? The higher this rate, the more
productive you are.
You may be more Efficient than before but less
Productive than you could be.
You may be more Productive than before but less
Efficient than you could be
See Efficiency vs. Productivity Illustration handout.
Operations Management is a
Improvement/Maintenance tool.

Conclusion: You could Increase Efficiency but yet not be as Productive as you can
be. You could increase Productivity, but not be as Efficient as you could be. Point
C is the only point where you optimize on both Output produced and Input

How is it used?
Tracking an operating units (DMUs) performance over
Judging the performance of a firm, an industry, a state, or a
country over time
Judging performance of a firm or an industry over
geographic regions (counties, cities, states, countries,
Why is it used?
Higher productivity is linked to higher standards of living
As an economy replaces manufacturing jobs with lower
productivity service jobs, it is generally more difficult to
maintain higher standards of living
Higher productivity leads to competitive advantage in the
Pricing and profit effects
For an industry, higher relative productivity makes it less likely
that it will be supplanted by foreign industry
Forecasting Approaches
-Qualitative Forecasting
Qualitative techniques use soft forecast estimates such as:
Consumer Surveys
Sales Force Estimates
Executive Opinion
Expert Judgment (e.g., Delphi Method)
-Quantitative Forecasting (our focus hereafter)
Quantitative techniques rely on hard historical demand
data. Two families of techniques:
project behavior of historical data to the future to
make a forecast (Time Series Forecasting)

use causal variables to make a forecast (Associative

-Often, both Qualitative and Quantitative methods are used in