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Chapter 14: Operations Management

Section 14.1 - The Importance of Operations Management

Key Terms
Operations management
Transformation process
Manufacturing organization
Service organization
The term operation management refers to the design, operation and control of the
transformation process that converts such resources as labor and raw materials into goods
and services that are sold to customers. The system takes inputspeople, technology,
equipment, materials and informationand transforms them through various processes,
procedures and work activities into finished goods and services.
Operations management is important to organizations and managers for three reasons.
First, it encompasses processes in all organizationsservices as well as manufacturing.
Second, its important in effectively and efficiently managing productivity. And third, it
lays a strategic role in an organizations competitive success.
Every organization has an operations system that creates value by transforming inputs
into finished goods and service outputs (transformation process). Manufacturing
organizations produce physical goods while service organizations produce nonphysical
outputs in the form of services.
How do we improve productivity? Productivity is closely tied into the transformation
process and improving productivity has become a major goal in virtually every
organization. Productivity is the overall output of goods and services produced divided
by the inputs needed to generate that output. High productivity can lead to economic
growth and development and increased productivity lowers costs and allows firms to
offer more competitive prices. Productivity is composite of people and operations
variables. The truly effective organization will maximize productivity by successfully
integrating people into the overall operations system.
Increasing productivity is critical to global competitiveness. Organizations that hope to
succeed globally are looking for ways to improve productivity. In the late 1970s, U.S.
executives heavily invested in improving manufacturing technology, increased the
corporate authority and visibility of manufacturing executives, and began incorporating
existing and future production requirements into the organizations overall strategic plan.
Today, successful manufacturers recognize the crucial role that operations management

plays as part of the overall organizational strategy to establish and maintain global
leadership. The strategic role that operations management plays in successful
organizational performance can be seen clearly, as more organizations move toward
managing their operations from a value chain perspective.
Section Outline
The Importance of Operations Management
How Do Service and Manufacturing Firms Differ?
A. How do we improve productivity?
B. What strategic role does operations management play?