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Lesson 1

Introduction to Production and Operations

Learning Objectives
1. Define the term operations management.
2. Identify the three major functional areas of
organizations and describe how they interrelate.
3. Identify similarities and differences between production
and service operations.
4. Describe the operations function and the nature of the
operations manager’s job.
5. Explain the key aspects of operations management
decision making.
6. Briefly describe the historical evolution of operations
7. Characterize current trends in business that impact
operations management.
Hard Rock Cafe
First opened in 1971
Now – 110 restaurants in over 40 countries
Rock music memorabilia
Creates value in the form of good food and
3,500+ custom meals per day
How does an item get on the menu?
Role of the Operations Manager
Operations Management
• Production – is the creation of goods and services

• Operations – a function in the business organization

that is responsible for creating value by producing
goods and/or services

• Operations management, therefore, is the

management of the set of activities, systems, or
processes that create value in the form of goods
and services by transforming inputs into outputs
Fig.1 - Supply chain at Simple Green

Supply chain is the sequence of organizations—their facilities, functions, and activities—that are
involved in producing and delivering a product or service
Organizing to Produce
Goods and Services

Marketing Operations Finance

Responsible Involves the Tracks the

for generating conversion of financial
demand inputs into health of the
outputs company
Production of Goods and
Goods - Physical items produced by business organizations.
Services - Activities that provide some combination of time,
location, form, and psychological value.

Value-added - the difference between the cost of inputs and the value or price of outputs.
Characteristics of Goods
 Tangible product
 Consistent product
 Production usually
separate from
 Can be inventoried
 Low customer
Characteristics of Services
 Intangible product
 Produced and
consumed at same time
 Often unique
 High customer
 Inconsistent product
 Often knowledge-
 Frequently dispersed
Goods Versus Services
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure
Selling is distinct from Selling is part of service
Product is transportable Provider, not product, is
often transportable
Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily
from tangible product from the intangible service
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

Why study OM?
• OM is one of three major functions (marketing,
finance, and operations) of any organization

• We want (and need) to know how goods and

services are produced

• We want to understand what operations managers


• OM is such a costly part of an organization

Functions of an
Operations Manager
Key Aspects in
Operations Management
 Design of goods and services
 What good or service should we offer?
 How should we design these products and services?
 Managing quality
 How do we define quality?
 Who is responsible for quality?

 Process and capacity design

 What process and what capacity will these products require?
 What equipment and technology is necessary for these

 Location strategy
 Where should we put the facility?
 On what criteria should we base the location decision?
Key Aspects in
Operations Management
 Layout strategy
 How should we arrange the facility?
 How large must the facility be to meet our plan?

 Human resources and job design

 How do we provide a reasonable work environment?
 How much can we expect our employees to produce?

 Supply chain management

 Should we make or buy this component?
 Who are our suppliers and who can integrate into our e-commerce

 Inventory, material requirements planning, and JIT

 How much inventory of each item should we have?
 When do we re-order?
Key Aspects in
Operations Management
 Intermediate and short–term scheduling
 Are we better off keeping people on the payroll during slowdowns?
 Which jobs do we perform next?

 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?
New Trends in OM
Local or national focus Reliable worldwide Global focus, moving
communication and production offshore
transportation networks

Batch (large) shipment Short product life cycles and Just-in-time (JIT) performance
cost of capital put pressure on
reducing inventory

Low-bid purchasing Supply chain competition Supply chain partners,

requires that suppliers be collaboration, alliances,
engaged in a focus on the end outsourcing

Lengthy product development Shorter life cycles, Internet, Rapid product development,
rapid international alliances, collaborative designs
communication, computer-
aided design, and international
New Trends in OM
Standardized products Affluence and worldwide Mass customization with added
markets; increasingly flexible emphasis on quality
production processes

Job specialization Changing socio-culture milieu; Empowered employees, teams,

increasingly a knowledge and and lean production
information society

Low-cost focus Environmental issues, ISO Environmentally sensitive

14000, increasing disposal costs production, green
manufacturing, recycled
materials, remanufacturing

Ethics not at forefront Businesses operate more High ethical standards and
openly; public and global social responsibility expected
review of ethics; opposition to
child labor, bribery, pollution