1

Introduction to
Operations
Management

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 Operations Management
 ¢



 

e management of systems or processes
t
at Y

 
   

 Y


ese processes involve t
e planning,
coordination, and execution of all activities
t
at create goods and services.

Operations Management affects

 ompanies¶ ability to compete
 Nation¶s ability to compete internationally
!


e Organization
Figure 1.1

e
ree Basic Functions

Organization

Finance ¢
 Marketing

is responsible for is responsible for Is responsible for
securing financial producing t
e goods assessing consumer
resources at or providing t
e wants and needs,
favorable prices and services offered by and selling and
allocating t
ose t
e organization promoting t
e
resources t
roug
out organization's goods
t
e organization or services
!
 Dalue--Added Process
Dalue
Figure 1.2

e operations function involves t
e conversion of
inputs into outputs
D
 



 
  

 
 
  


 





 

 

!
Dalue--Added and Product Packages
Dalue
 Dalue-added elements make t
e difference
between t
e cost of inputs and t
e value or
price of outputs.
 Product packages are a combination of
goods and services.
 Product packages can make a company
more competitive.

!

e Goods±
Goods±Service ontinuum
Figure 1.3

Goods Service

 
 




 

C
 

 
 

=
 








=




 

!
 Food Processor
able 1.2

Inputs Processing Outputs

Raw vegetables leaning anned
Metal s
eets Making cans vegetables
Water utting
Energy ooking
Labor Packing
Building Labeling
Equipment

!
 ›ospital
able 1.2

Inputs Processing Outputs

Doctors, nurses Examination reated
›ospital Surgery patients
Medical supplies Monitoring
Equipment Medication
Laboratories
erapy

!
Manufacturing or Service?

   

!
 Production of Goods
vs. Delivery of Services
 Production of goods ± tangible output
 Delivery of services ± an act
 Service job categories
 Government
 W
olesale/retail
 Financial services
 ›ealt
care
 Personal services
 Business services
 Education

! !






    

 
able 1.3


aracteristic Goods Service

ustomer contact Low ›ig

niformity of input ›ig
Low
Labor content Low ›ig

niformity of output ›ig
Low
Output angible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems ›ig
Low
Inventory Muc
Little
Evaluation Easier Difficult
Patentable sually Not usually
! !!
 Scope of Operations Management
 Operations Management includes
 Forecasting
 apacity planning
 Sc
eduling
 Managing inventories
 Assuring quality
 Motivating and training employees
 Locating facilities
 Supply c
ain management
 And more . . .
! !

 ypes of Operations
able 1.4
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/ ransportation Ware
ousing, trucking, mail
service, moving, taxis, buses,

otels, airlines
Exc
ange Retailing, w
olesaling, financial
advising, renting or leasing
Entertainment Films, radio and television,
concerts, recording
ommunication Newspapers, radio and D
newscasts, telep
one, satellites

! !
F
u 

ü
 
  



   


  
   

   



  
  





  

  
  

  

  

  
            
  
   

Figure 1.4b

Singapore Manufacturing vs. Service Employment

90
Servi ces
80
Ma nufa cturi ng
70
60
50
40
30
20
10
0
97 98 99 00 01 02 03 04 05 06 07

! !
 Decline in Manufacturing Jobs
 Productivity
 Increasing productivity allows companies to
maintain or increase t
eir output using fewer
workers
 Outsourcing
 Some manufacturing work
as been outsourced
to more productive companies

! !
 
allenges of Managing Services
 Service jobs are often less structured t
an
manufacturing jobs
 ustomer contact is
ig
er
 Worker skill levels are lower
 Services
ire many low-skill, entry-level workers
 Employee turnover is
ig
er
 Input variability is
ig
er
 Service performance can be affected by worker¶s
personal factors

! !
·ey Decisions of Operations Managers

 W
at
W
at resources/w
at amounts
 W
en
Needed/sc
eduled/ordered
 W
ere
Work to be done
 ›ow
Designed
 W
o
o do t
e work
! !
 Decision Making
System Design
ë capacity
ë location
ë arrangement of departments
ë product and service planning
ë acquisition and placement of
equipment

! !
 Decision Making
System operation
ë personnel
ë inventory
ë sc
eduling
ë project
management
ë quality assurance

!

 Decision Making
 Models
 Quantitative approac
es
 Performance metrics
 Analysis of trade-offs
 Systems approac

 Establis
ing priorities
 Et
ics

!
!
 Models
A model is an abstraction of reality.
ë P
ysical
ë Sc
ematic
ë Mat
ematical 
 

Õ 
 

     

!


 Models Are Beneficial
 Easy to use, less expensive
 Require users to organize
 Increase understanding of t
e problem
 Enable ³w
at if´ questions
 onsistent tool for evaluation and
standardized format
 Power of mat
ematics

!

 Limitations of Models
 Quantitative information may be emp
asized
over qualitative
 Models may be incorrectly applied and
results misinterpreted
 Nonqualified users may not compre
end t
e
rules on
ow to use t
e model
 se of models does not guarantee good
decisions

!

 Quantitative Approac
es
 Linear programming
 Queuing tec
niques
 Inventory models
 Project models
 Statistical models

!

 Analysis of rade-
rade-Offs
 Decision on t
e amount of inventory to stock
 Increased cost of
olding inventory
vs.
 Level of customer service

!

Systems Approac

³j
 
 

  


 .´




!

 Pareto P
enomenon
 A few factors account for a
ig

percentage of t
e occurrence of some
event(s).
 80±20 Rule 80% of problems are caused
by 20% of t
e activities.

›      

!

 Et
ical Issues
 Financial statements
 Worker safety
 Product safety
 Quality
 Environment
 ommunity
 ›iring/firing workers
 losing facilities
 Worker¶s rig
ts

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 Business Operations Overlap
Figure 1.5



 

   !
 

! 
 Operations Interfaces
Figure 1.6










 
¢





 

 



! !
 ›istorical Summary of
Operations Management
 Industrial revolution (1770s)
 Scientific management (1911)
 Mass production
 Interc
angeable parts
 Division of labor
 ›uman relations movement (1920±60)
 Decision models (1915, 1960±¶70s)
 Influence of Japanese manufacturers

! 

 rends in Business
 Major trends

e Internet, e-commerce, e-business
 Management tec
nology
 Globalization
 Management of supply c
ains
 Outsourcing
 Agility
 Et
ical be
avior

! 
 Management ec
nology
 ec
nology
e application of scientific
discoveries to t
e development and
improvement of goods and services
 Product and service tec
nology
 Process tec
nology
 Information tec
nology

! 
 Simple Product Supply 
ain
Figure 1.7



 
 

 
  



 

  


    A sequence of activities

And organizations involved in producing
And delivering a good or service

! 
 A Supply 
ain for Bread

Stage of Production Dalue Dalue of

Added Product
Farmer produces and
arvests w
eat $0.15 $0.25
W
eat transported to mill $0.08 $0.33
Mill produces flour $0.15 $0.48
Flour transported to baker $0.08 $0.56
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
otal Dalue-Added !


! 
 Ot
er Important rends
 Operations strategy
 Working wit
fewer resources
 Revenue management
 Process analysis and improvement
 Increased regulation and product liability
 Lean production

! 
 utorial Questions
 1. Briefly describe t
e term 
  
 


 3. Describe t
e operations function and t
e
nature of t
e operations manager¶s job.
 4. List t
e five important differences between
goods production and service operations.
 Answers
 1.
e term production/operations management relates to t
e
management of systems or processes t
at create goods and/or provide
services.
ese processes involve t
e planning, coordination, and
execution of all activities t
at create goods and services.
 3.
e operations function consists of all activities t
at are directly
related to producing goods or providing services. It is t
e core of most
business organizations because it is responsible for t
e creation of an
organization¶s goods or services. Its essence is to add value during t
e
transformation process (t
e difference between t
e cost of inputs and
value and price of outputs).
 4. Among t
e important differences between manufacturing and
service operations are

e nature and consumption of output.
 niformity of input.
 Labor content of jobs.
 niformity of output.
 Measurement of productivity.