Introduction to Operations

Management
Lets Play Silent Protocol
• Operations is that part of a business organization that is responsible
for producing goods and/or services.

• Goods are physical items that include raw materials, parts,

subassemblies such as motherboards that go into computers, and
final products such as cell phones and automobiles.

• Services are activities that provide some combination of time,

location, form, or psychological value.
• Operations management
• The management of systems or processes that create goods and/or provide
services.

• Supply chain
• A sequence of organizations—their facilities, functions, and activities—that
are involved in producing and delivering a product or service
• Value-added .
• The difference between the cost of inputs and
the value or price. of outputs
Why Learn About OM?
• Among the service jobs that are closely related to operations
are financial services (e.g., stock market analyst, broker,
investment banker, and loan officer), marketing services
(e.g., market analyst, marketing researcher, advertising
manager, and product manager), accounting services (e.g.,
corporate accountant, public accountant, and budget
analyst), and information services (e.g., corporate
intelligence, library services, management information
systems design services).
• Finance and operations management personnel cooperate by
exchanging information and expertise in such activities as the
following:
• 1. Budgeting. Budgets must be periodically prepared to plan financial
requirements. Budgets must sometimes be adjusted, and
performance relative to a budget must be evaluated.
• 2. Economic analysis of investment proposals. Evaluation of
alternative investments in plant and equipment requires inputs from
both operations and finance people.
• 3. Provision of funds. The necessary funding of operations and the
amount and timing of funding can be important and even critical
when funds are tight. Careful planning can help avoid cash-flow
problems
The Three Major Functions of Organizations
PRODUCTION OF GOODS
VERSUS PROVIDING
SERVICES
Goods
• Production of goods results in a tangible output, such
as an automobile, eyeglasses, a golf ball, a refrigerator
—anything that we can see or touch. It may take place
in a factory, but it can occur elsewhere. For example,
farming and restaurants produce non-manufactured
goods.
Services
• The majority of service jobs fall into these categories:
• Professional services (e.g., financial, health care, legal)
• Mass services (e.g., utilities, Internet, communications)
• Service shops (e.g., tailoring, appliance repair, car wash, auto repair/maintenance)
• Personal care (e.g., beauty salon, spa, barbershop)
• Government (e.g., Medicare, mail, social services, police, fire)
• Education (e.g., schools, universities)
• Food service (e.g., catering)
• Services within organizations (e.g., payroll, accounting, maintenance, IT, HR, janitorial)
• Retailing and wholesaling Shipping and delivery (e.g., truck, railroad, boat, air)
• Residential services (e.g., lawn care, painting, general repair, remodeling, interior design)
• Transportation (e.g., mass transit, taxi, airlines, ambulance)
• Travel and hospitality (e.g., travel bureaus, hotels, resorts)
• Miscellaneous services (e.g., copy service, temporary help)
• Operations also interacts with other functional areas of the
organization, including legal, management information systems (MIS),
accounting, personnel/human resources, and public relations.
• Lead time .The time between ordering a good or
service and receiving it
 Process Management
• A process consists of one or more actions that transform inputs into
outputs. In essence, the central role of all management is process
management
 Three Categories of Business Processes
1. Upper-management processes. These govern the operation of the
entire organization. Examples include organizational governance and
organizational strategy.
2. Operational processes. These are the core processes that make up
the value stream. Examples include purchasing, production and/or
service, marketing, and sales.
3. Supporting processes. These support the core processes. Examples
include accounting, human resources, and IT (information technology).
 Process Variation
There are four basic sources of variation:
1. The variety of goods or services being offered. The greater the variety of
goods and services, the greater the variation in production or service
requirements.
2. Structural variation in demand. These variations, which include trends and
seasonal variations, are generally predictable. They are particularly important
for capacity planning.
3. Random variation. This natural variability is present to some extent in all
processes, as well as in demand for services and products, and it cannot
generally be influenced by managers.
4. Assignable variation. These variations are caused by defective inputs,
incorrect work methods, out-of-adjustment equipment, and so on. This type of
variation can be reduced or eliminated by analysis and corrective action
THE SCOPE OF OPERATIONS
MANAGEMENT
 Activities involved in OM
• Forecasting such things as weather and landing conditions, seat demand for flights, and the growth in
air travel.
• Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit. (Too
few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.)
• Locating facilities according to managers’ decisions on which cities to provide service for, where to
locate maintenance facilities, and where to locate major and minor hubs.
• Facilities and layout, important in achieving effective use of workers and equipment.
• Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants;
and scheduling of ground crews, counter staff, and baggage handlers.
• Managing inventories of such items as foods and beverages, first-aid equipment, inflight magazines,
pillows and blankets, and life preservers.
• Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety, and
important in dealing with customers at ticket counters, check-in, telephone and electronic reservations,
and curb service, where the emphasis is on efficiency and courtesy.
• Motivating and training employees in all phases of operations.
 OPERATIONS MANAGEMENT AND
DECISION MAKING
• Operations management professionals make a number of key decisions that
affect the entire organization. These include the following:
• What: What resources will be needed, and in what amounts?
• When: When will each resource be needed? When should the work be
scheduled? When should materials and other supplies be ordered? When is
corrective action needed?
• Where: Where will the work be done?
• How: How will the product or service be designed?
• How will the work be done (organization, methods, equipment)? How will
resources be allocated?
• Who: Who will do the work?
 Models

• Model. An abstraction of reality; a simplified representation of

something.
• Models are sometimes classified as physical, schematic, or
mathematical.
• Physical models look like their real-life counterparts.
• Examples include miniature cars, trucks, airplanes, toy animals and trains, and
scale-model buildings. The advantage of these models is their visual
correspondence with reality.
• Schematic models are more abstract than their physical counterparts;
that is, they have less resemblance to the physical reality.
• Examples include graphs and charts, blueprints, pictures, and drawings. The
advantage of schematic models is that they are often relatively simple to
construct and change. Moreover, they have some degree of visual
correspondence.
• Mathematical models are the most abstract: They do not look at all
like their real-life counterparts.
• Examples include numbers, formulas, and symbols. These models are usually
the easiest to manipulate, and they are important forms of inputs for
computers and calculators.
 A Systems Approach
• A system can be defined as a set of interrelated parts that must work
together
 Establishing Priorities
• Pareto phenomenon . A few factors account for a high percentage of
the occurrence of some event(s)
 The Operations Today
• E-business -The use of electronic technology to facilitate business
transactions.
• E-commerce- Consumer-to business transactions.
• Technology -The application of scientific knowledge to the
development and improvement of products and services and
operations processes.
• Revenue management is a method used by some companies to
maximize the revenue they receive from fixed operating capacity by
influencing demand through price manipulation.
• Process analysis and improvement includes cost and time reduction,
productivity improvement, process yield improvement, and quality
improvement and increasing customer satisfaction. This is sometimes
referred to as a Six Sigma process.
• Six Sigma . A process for reducing costs, improving quality, and
increasing customer satisfaction.
• Agility The ability of an organization to respond quickly to demands
or opportunities.

• Lean system. System that uses minimal amounts of resources to

produce a high volume of high-quality goods with some variety
• Product and service technology refers to the discovery and
development of new products and services.
• Process technology refers to methods, procedures, and equipment
used to produce goods and provide services.
• Information technology (IT) refers to the science and use of
computers and other electronic equipment to store, process, and
send information.
 KEY ISSUES FOR TODAY’S BUSINESS
OPERATIONS
• Economic conditions. The lingering recession and slow recovery in various
sectors of the economy has made managers cautious about investment
and rehiring workers who had been laid off during the recession.
• Innovations can be made in processes, the use of the Internet, or the
supply chain that reduce costs, increase productivity, expand markets, or
improve customer service.
• Quality problems. The numerous operations failures mentioned at the
beginning of the chapter underscore the need to improve the way
operations are managed.
• Risk management. The need for managing risk is underscored by
recent events that include financial crises, product recalls, accidents,
natural and man-made disasters, and economic ups and downs.
• Cyber-security. The need to guard against intrusions from hackers
whose goal is to steal personal information of employees and
customers is becoming increasingly necessary.
• Competing in a global economy. Low labor costs in third-world
countries have increased pressure to reduce labor costs.
 Environmental Concerns
• Sustainability .Using resources in ways that do not harm ecological
systems that support human existence
 Ethical Conduct
• Ethics. A standard of behavior that guides how one should act in
various situations.
• The Utilitarian Principle:  The good done by an action or inaction should
outweigh any harm it causes or might cause. An example is not allowing a
person who has had too much to drink to drive.
• The Rights Principle:  Actions should respect and protect the moral rights of
others. An example is not taking advantage of a vulnerable person.
• The Fairness Principle:  Equals should be held to, or evaluated by, the same
standards. An example is equal pay for equal work. •
• The Common Good Principle : Actions should contribute to the common good
of the community. An example is an ordinance on noise abatement.
• The Virtue Principle: Actions should be consistent with certain ideal virtues.
Examples include honesty, compassion, generosity, tolerance, fidelity,
integrity, and self-control
 Ethical framework
• A sequence of steps intended to guide thinking and subsequent decision or
action.
• Here is the one developed by the Markula Center for Applied Ethics:
1. Recognize an ethical issue by asking if an action could be damaging to a group
or an individual. Is there more to it than just what is legal?
2. Make sure the pertinent facts are known, such as who will be impacted, and
what options are available.
3. Evaluate the options by referring to the appropriate preceding ethical principle.
4. Identify the “best” option and then further examine it by asking how someone
you respect would view it.
5. In retrospect, consider the effect your decision had and what you can learn
from it
• The Ethisphere Institute recognizes companies worldwide for their ethical
leadership. Here are some samples from their list:
• Apparel: Gap
• Automotive: Ford Motor Company
• Business services: Paychex
• Café: Starbucks
• Computer hardware: Intel
• Computer software: Adobe Systems, Microsoft
• Consumer electronics: Texas Instruments, Xerox
• E-commerce: eBay
• General retail: Costco, Target
• Groceries: Safeway, Wegmans, Whole Foods
• Health and beauty: L’Oreal
• Logistics: UPS
 The Need to Manage the Supply Chain
• The need to improve operations.
• Increasing levels of outsourcing.
• Increasing transportation costs.
• Competitive pressures.
• Increasing globalization.
• Increasing importance of e-business
• The complexity of supply chains.
• The need to manage inventories.
 Elements of Supply Chain Management
• Customers .Determining what products and/or services customers want
• Forecasting. Predicting the quantity and timing of customer demand
• Design .Incorporating customers, wants, manufacturability, and time to market
• Capacity planning .Matching supply and demand
• Processing. Controlling quality, scheduling work
• Inventory .Meeting demand requirements while managing the costs of holding
inventory
• Purchasing. Evaluating potential suppliers, supporting the needs of operations on
purchased goods and services
• Suppliers. Monitoring supplier quality, on-time delivery, and flexibility; maintaining
supplier relations
• Location. Determining the location of facilities
• Logistics .Deciding how to best move information and materials