1-1 Introduction to Operations Management
CHAPTER
1
Introduction to
Operations Management
1-2 Introduction to Operations Management
Chapter 1: Learning Objectives
You should be able to:
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. Summarize the two major aspects of process management
6. Explain the key aspects of operations management decision making
7. Briefly describe the historical evolution of operations management
8. Characterize current trends in business that impact operations
management
1-3 Introduction to Operations Management
Operations Management
Figure 1.1
What is operations?
The part of a business organization that is
responsible for producing goods or services
The management of systems or processes
that create goods and/or provide services
Organization
Finance Operations Marketing
1-4 Introduction to Operations Management
Figure 1.2 Value-Added
TRANSFORMATION AND VALUE ADDING ACTIVITIES
The objective of combining resources under controlled conditions is to transform them
into goods and services having a higher value than the original inputs. The
transformation process applied will be in the form of technology to the inputs. The
effectiveness of the production factors in the transformation process is known as
productivity
The difference between the cost of inputs and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback
1-5 Introduction to Operations Management
Food Processor
Table 1.2
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
1-6 Introduction to Operations Management
Hospital Process
Table 1.2
Inputs Processing Outputs
Doctors, nurses Examination Healthy
Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
1-7 Introduction to Operations Management
Production of Goods vs. Delivery of Services
Production of goods – tangible output
Delivery of services – an act
Service job categories
Government
Wholesale/retail
Financial services
Healthcare
Personal services
Business services
Education
1-8 Introduction to Operations Management
Key Differences
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
1-9 Introduction to Operations Management
Manufacturing vs Service
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
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Scope of Operations Management
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
Location of facilities
Product Design.
Process Design.
Materials Management.
Maintenance Management.
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Cont …
The operations function
Consists of all activities directly related to
producing goods or providing services
1-12 Introduction to Operations Management
Types of Operations
Table 1.4
Operations Examples
Goods Producing Farming, mining, construction ,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
1-13 Introduction to Operations Management
Responsibilities of Operations Management
Table 1.5 Organizing
Planning – Degree of centralization
– Capacity – Process selection/production/
– Location –
operation
– Products & services – Standards
– Make or buy Staffing
– Layout – Hiring/laying off
– Projects – Use of Overtime
– Scheduling
Controlling/Improving Directing
– Inventory – Incentive plans
– Quality – Issuance of work orders
– Costs – Job assignments
– Productivity
1-14 Introduction to Operations Management
Key Decisions of Operations Managers
What
What resources/what amounts
When
Needed/scheduled/ordered
Where
Work to be done
How
Designed
Who
To do the work
1-15 Introduction to Operations Management
Decision Making
System Design
– Capacity
– Location
– Arrangement of departments
– Product and service planning
– Acquisition and placement of
equipment
1-16 Introduction to Operations Management
Decision Making
System operation
– personnel
– inventory
– scheduling
– project management
– quality assurance
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Decision Making
Models
Quantitative approaches
Analysis of trade-offs
Systems approach
1-18 Introduction to Operations Management
Models
A model is an abstraction of reality.
– Physical
– Schematic(diagram, graphic ,plan
– Mathematical
Tradeoffs
1-19 Introduction to Operations Management
Models Are Beneficial
Easy to use, less expensive
Require users to organize
Systematic approach to problem solving
Increase understanding of the problem
Enable “what if” questions
Specific objectives
Consistent tool
Power of mathematics
Standardized format
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Quantitative Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
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Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization
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Business Operations Overlap(join)
Figure 1.6
Operations
Marketing Finance
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Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing Public
Operations Relations
Legal
Personnel
Accounting MIS
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Historical Evolution of Operations Management
Table 1.7
Industrial revolution (1770’s)
Scientific management (1911)
Mass production
Interchangeable parts
Division of labor
Human relations movement (1920-60)
Decision models (1915, 1960-70’s)
Influence of Japanese manufacturers
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Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Agility(the power of moving the limbs quickly and
easily ; quickness of motion)
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Simple Product Supply Chain
Figure 1.8
Suppliers’ Direct Final
Producer Distributor
Suppliers Suppliers Consumer
Supply Chain: A sequence of activities
And organizations involved in producing
And delivering a good or service
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A Supply Chain for Bread
Stage of Production Value Value of
Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
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
Total Value-Added $1.29
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Other Important Trends
Ethical behavior
Operations strategy
Working with fewer resources
Cost control and productivity
Quality and process improvement
Increased regulation and product liability
Lean production
