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Introduction to
Operations
Management

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
 Operations Management
 Operations Management is:
The management of systems or processes
that create goods and/or provide services
 It revolves around
 Productivity, Quality, E-Business, global
competition and customer services
 OM is an Engine of a car
 Operations Management affects:
 Companies’ ability to compete
 Nation’s ability to compete internationally based on
collective operations management
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 The Organization
Figure 1.1

The Three Basic Functions

Organization

Finance Operations Marketing

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 Value-Added Process
Figure 1.2
The operations function involves the conversion of
inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

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 Value-Added & Product
Packages
 Value-Added is the difference between the cost of inputs
and the value or price of outputs
 Money generated through value addition is used in
R & D, investment in new facilities and equipment,
worker salaries and profits
 Greater the value addition the grater will be money
generated
 Customer involvement and Technology used are the
major factors in managing operations

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 Goods-service Continuum
Figure 1.3

Goods Service

Surgery, teaching

Song writing, software development

Computer repair, restaurant meal

Automobile Repair, fast food

Home remodeling, retail sales

Automobile assembly, steel making

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 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

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 Hospital Process
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

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 Manufacturing or Service?

Tangible Act

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Production of Goods vs. Delivery of
Services
 Production of goods – tangible output
 Delivery of services – an act
 Service job categories
 Government
 Retail
 Financial services
 Hospitality & Tourism
 Shipping and delivery
 Personal care
 Education
 Transportation
 Communication
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 Goods vs Service
Key Differences Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual1-11
 Scope of Operations Management
 Operations Management includes:
 Forecasting
 Capacity planning
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 Supply chain management
 And more . . .
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 Types of Operations
Table 1.4
Operations Examples
Goods/Services Producing Farming, mining, construction,
manufacturing, 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

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Importance of Operations Management
 The operations manager is the key figure in the
system: He/she has the ultimate responsibility
for the creation of goods or provision of services
 Job of operations manager in both
manufacturing and services organizations is
basically Managerial
 The service sector and the manufacturing sector
are both important to the economy but recently
number of workers are instantly increasing in
services sector

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 Challenges of Managing
Services
 Service jobs are often less structured than
manufacturing jobs
 Customer contact is higher
 Worker skill levels are lower
 Services hire many low-skill, entry-level workers
 Employee turnover is higher
 Input variability is higher
 Service performance can be affected by worker’s
personal factors

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 Key Decisions of Operations
Managers
 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designing of products, process and services
 Who
To do the work
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 General Approaches to Decision
Making in Operations Mgt.
1. Models
2. Quantitative approaches
3. Performance Matrices
4. Analysis of trade-offs
5. Systems approach
6. Establishing Priorities
7. Ethical Issues

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 1. Models

 A model is an abstraction of reality

 A simplified representation of something
Types of Models:
1. Physical Models look like their real-life counterparts.
Examples include miniature cars, trucks, airplanes, toy
animals and trains, and scale-model buildings
2. Schematic Models are more abstract than their
physical counterparts; that is, they have less
resemblance to the physical reality. Examples include
graphs and charts, pictures, and drawings
3. Mathematical Models are the most abstract: They do
not look at all like their real-life counterparts. Examples
include numbers, formulas, and symbols
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 Models Are Beneficial
 Easy to use, less expensive
 Require users to organize
 Increase understanding of the problem
 Enable “what/if” questions
 Consistent tool for evaluation and
standardized format
 Power of mathematics is universal

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 2. Quantitative Approaches

 An attempt to obtain mathematically

optimal solutions to managerial problems
a)Linear programming for optimum allocation of
scarce resources
b)Queuing Techniques to form waiting lines
c)Inventory models to control inventories
d)Project Models use of Portfolio mgt., learning
curve and WBS methods
e)Statistical Models
f)Forecasting Techniques
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 3. Performance Metrics
 Many matrics are used to manage and
control operations, these include related to
 Profits
 Cost
 Quality
 Productivity
 Feedback
 Inventories
 Schedules

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 4. Analysis of Trade-Offs
 Decision on the amount of inventory to stock
 Over stocking
VS
 Being Stock Out

 Decision on Scheduling of Overtime

 Higher labor cost, lower productivity, lower
quality and greater risk of accidents

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5. Systems Approach

“The whole is greater than

the sum of the parts.”

Suboptimization

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 5. Systems Approach
 System: A set of interrelated parts that must
work together
 An organization works as a system and is
composed of Subsystems (Marketing, Finance
and Operations)
 A systems approach is essential whenever
something is being designed, redesigned,
implemented, improved, or other-wise changed
 For Example: To conduct a research survey,
Advertising, Budget designing etc

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 6. Establishing Priorities
 Priorities are set and adjusted to take
operational decisions
 For Example, in expanding a business, there
are many priorities ranging from High to Medium
to Low.
 Pareto Phenomenon:
 Priorities may vary from Cost to PR and
Loyalty to customization.
 80/20 Rule - 80% of problems/profits are
caused by 20% of the activities/customers.
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 7. Ethical Issues
 Financial statements
 Worker safety
 Product safety & Quality
 Environment (Interloop)
 Hiring/firing workers
 Social Welfare
 Worker’s rights
 Host Govt. rights
 Home Govt. rights
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 Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS

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 Other Important Trends
 Ethical behavior
 Operations strategy
 Working with fewer resources
 Revenue management
 Process analysis and improvement
 Increased regulation and product liability
 Lean production
 System that uses minimal amounts of resources to
produce a high volume of high quality goods with
some variety

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