MAN5501 — Chapter 1 Study Guide

Using Operations to Create Value

Exam 1 Prep | Summer 2026

📖 Review Guide Note: "Read the whole chapter." Key Calculation:

Productivity

📋 Table of Contents

1. What is Operations Management?

2. How Processes Work

3. Service vs. Manufacturing Processes

4. Supply Chain Management

5. Corporate & Operations Strategy

6. Competitive Priorities & Capabilities

7. Strategy vs. Productivity

8. Trends & Challenges (Industry 4.0)

9. 🔢 Productivity Calculations

10. Key Terms Glossary

1. What is Operations Management?

Operations Management — The systematic design, direction, and control

of processes that transform inputs into services and products for internal and
external customers.

There are two key parts to this definition:

 Management = Design, direct, and control the processes

 Operations = The set of processes that transform inputs into outputs

(goods/services)

Process — Any activity or group of activities that takes one or more inputs,
transforms them, and provides one or more outputs for its customers.
Operation — A group of resources performing all or part of one or more
processes. Think of it as a bigger collection of processes working together.

Where Does Operations Fit in an Organization?

The three core functional areas of any organization are:

1. Operations — Creates the product or service

2. Marketing — Sells the product; interacts with the customer; brings in

revenue

3. Finance — Provides the capital needed to make the product

Everything else (HR, IT, Accounting, etc.) is considered a support function.

💡 Operations is arguably the most important function — without it, there is

nothing to sell.

2. How Processes Work

Every process follows this basic model:

INPUTS → [TRANSFORMATION PROCESS] → OUTPUTS

Inputs can include:

 People (managers, workers)

 Equipment & facilities

 Raw materials

 Land & energy

Outputs are:

 Goods and/or services that customers will buy

Internal vs. External Customers & Suppliers

 External customers — People/organizations outside the firm who buy

the product or service

 Internal customers — People or workstations within the same

organization who receive output from a prior step

o Example: On an assembly line, the next workstation is your

internal customer; the prior workstation is your internal supplier
💡 Every process and every person in the organization has both customers
AND suppliers — they don't have to be external.

3. Service vs. Manufacturing Processes

One of the key distinctions in Chapter 1 is understanding how service and

manufacturing processes differ.

Manufacturing
Dimension Service Process
Process

Intangible,
Output Physical, durable
perishable

Cannot be
Inventory Can be inventoried
inventoried

Customer
High Low
Contact

Response Time Short Long

Labor Intensity Labor intensive Capital intensive

Quality Difficult
Easier (measurable)
Measurement (subjective)

The Customer as Input AND Output (Services)

In service operations, the customer is part of the process:

 Input side: A customer who has an unmet need

 Output side: A customer whose need has been satisfied

💡 Classic example: A barber cannot create a haircut, box it up, and put it on
a shelf. The customer must be present. This is why services cannot be
inventoried — and why managing capacity in services is so challenging.

Why Customer Involvement Matters

 Challenge: Customers in the process can be disruptive and reduce

efficiency

 Opportunity: Direct customer interaction creates stronger

relationships and marketing opportunities
  Quality: In services, quality is largely defined by the customer —
harder to standardize than in manufacturing

4. Supply Chain Management

Supply Chain — An interrelated series of processes within and across firms

that produces a service or product to the satisfaction of customers.

Supply Chain Management (SCM) — The synchronization of a firm's

processes with those of its suppliers and customers to match the flow of
materials, services, and information with customer demand.

💡 The key word is "match" — matching your capacity and flow to actual
customer demand is one of the most important jobs in operations and supply
chain management.

The 5 Core Supply Chain Processes

Process Description

Supplier Selects suppliers; manages inflow of materials/services.

Relationship (Formerly called "purchasing" — now viewed as a
Process partnership, not an adversarial relationship)

New
Designs new offerings using input from customers,
Service/Product
suppliers, and operations
Development

Order Fulfillment Produces and delivers the product/service to the

Process external customer (the manufacturing/operations side)

Customer
Identifies, attracts, and builds relationships with
Relationship
customers (CRM/marketing)
Process

Support Accounting, Finance, HR, MIS, Marketing — provide vital

Processes resources to core processes (often outsourced)

Key Shift in Supply Chain Thinking

 Old approach: Treat suppliers at arm's length; try to get the lowest
price; view them as adversaries

 New approach: Treat suppliers as partners; collaborate closely; share

information
  Competition today is often between supply chains, not just
individual companies

5. Corporate & Operations Strategy

Corporate Strategy — Provides the overall direction that serves as the

framework for carrying out all of the organization's functions. It drives all
decisions throughout the organization.

Operations Strategy — The means by which operations implements the

firm's corporate strategy and helps build a customer-driven firm.

The Strategy Cascade

Corporate Strategy

Operations Strategy (Competitive Priorities)

Process & Supply Chain Decisions

💡 Every operations decision should be driven by the corporate strategy.

When facing a decision, ask: "How are we trying to compete?" — that should
guide the answer.

6. Competitive Priorities & Capabilities

Competitive Priorities — The critical dimensions that a process or supply

chain must possess to satisfy its customers, now and in the future.

Competitive Capabilities — The cost, quality, time, and flexibility

dimensions that a process or supply chain actually possesses and is able to
deliver. (Also called core competencies)

⚠️Your competitive priorities should match your actual capabilities. If they

don't, you need to build those capabilities.

The 11 Competitive Priorities

# Priority Definition Example

1 Low-Cost Deliver at the lowest possible cost; requires Costco

# Priority Definition Example

Operations efficient processes

Outstanding product/service; may require

2 Top Quality Rolex
superior features or high customer contact

Consistent Meet design specs consistently; processes McDonald'

3
Quality designed to reduce errors/defects s

Quickly fill a customer's order; reduce lead

4 Delivery Speed Netflix
time

On-Time Meet delivery-time promises; planning

5 UPS
Delivery processes to ship when promised

Development Quickly introduce new products; cross-

6 Zara
Speed functional integration

Satisfy unique needs of each customer; low Ritz-

7 Customization
volume, close customer contact Carlton

Flexibility/ Handle a wide assortment efficiently; larger

8 Amazon
Variety volumes than customization

Volume Quickly accelerate or decelerate production;

9 USPS
Flexibility requires excess capacity

1 First to market with truly new products;

Innovation Apple
0 requires prototyping capability

1 Aggressively reduce resource use and waste;

Green Subaru
1 engineering expertise required

7. Strategy vs. Productivity

This is a key conceptual distinction emphasized in the lecture:

Strategy Productivity

Questi
Are you doing the right things? Are you doing things right?
on

Focus What activities to perform How efficiently you perform

 Strategy Productivity

them

Concer Choosing the right business Executing those activities

n activities well

💡 You can be very productive (efficient) at doing the wrong things — and still
fail. Strategy and productivity must work together.

8. Trends & Challenges in Operations Management

Global Competition

 Companies now sell products to multiple countries — a huge

opportunity (bigger market) and a huge challenge (complex logistics)

 Raw materials and talent are sourced from all over the world

 Competition is increasingly between supply chains, not just

individual firms

 Whoever has the better supply chain often wins

Ethical, Workforce Diversity & Environmental Issues

 Pressures intensify as globalization advances

 Ethical standards vary around the world

 Global facilities lead to greater workforce diversity

 Climate change impacts every company and supply chain

 Best practice: Develop standards that match the most stringent

requirements you encounter across your supply chain

The Fourth Industrial Revolution (Industry 4.0)

The ongoing automation of traditional manufacturing using modern smart

technology.

Manufacturing Execution Systems (MES)

 Computerized systems that track and document the transformation of

raw materials to finished goods
  Have existed for a long time, but are now far more advanced

Artificial Intelligence (AI)

 A constellation of technologies (machine learning, natural language

processing) that allows machines to sense, comprehend, act, and
learn

 Enables machines to perform work, adapt to new products, and

communicate with humans

Internet of Things (IoT)

 The interconnectivity of objects embedded with software, sensors,

and actuators that enable them to collect and exchange data over a
network without human intervention

OM Applications of IoT:

 Product design, development & manufacturing

 Health care (patient monitoring)

 Preventive maintenance (machines report their own status)

 Inventory management (tags track products through production &

distribution)

 Logistics (trucks with sensors — know where products are at all times)

 City services & management (traffic monitoring, etc.)

Concerns & Barriers:

 Availability and cost of technology (small companies may be shut out)

 Privacy

 Data security

 Organizational roles — Does operations control the data, or does the

data control operations?

Additive Manufacturing (3D Printing)

 Builds 3D objects by adding layers of material (plastic, metal,

concrete)

 Contrast with traditional (subtractive) manufacturing — starting

with a block of material and cutting away what you don't want
Operations & Supply Chain Implications:

Benefit Explanation

No need to build a full manufacturing facility to test a

Faster prototyping
design

Tooling is expensive and inflexible in traditional

Less tooling needed
manufacturing

Fewer setups Production can begin with minimal setup time

More flexible supply

Faster response, smaller production runs
chains

Distributed Smaller facilities spread around the world; less

production transportation needed

9. 🔢 Productivity Calculations

The Formula

$$\text{Productivity} = \frac{\text{Output}}{\text{Input}}$$

The goal is to make this ratio as large as possible — either by increasing

output or decreasing input (or both).

Types of Productivity

Type Formula Notes

Labor Output ÷ Labor Hours (or

Single input
Productivity labor cost)

Multifactor Value of Output ÷ Total Value Multiple inputs, all

Productivity of All Inputs converted to $

⚠️Always track your units of measure! Cancel units as you multiply

(e.g., employees × hours/employee = hours). A number without units is
meaningless.

Example 1 — Labor Productivity (Single Input)

Problem: Three employees process 600 insurance policies in a week. They

work 8 hours/day, 5 days/week.
Step 1 — Identify Output:

 Output = 600 policies

Step 2 — Calculate Input (labor hours):

 Input = 3 employees × 8 hrs/day × 5 days/week = 3 × 40 = 120

employee-hours

Step 3 — Calculate Productivity: $$\text{Productivity} = \frac{600 \text{

policies}}{120 \text{ hours}} = \textbf{5 policies/hour}$$

Example 2 — Multifactor Productivity (Multiple Inputs)

Problem: A team makes 400 units sold at $10 each. Costs: Labor = $400,
Materials = $1,000, Overhead = $300.

Step 1 — Calculate Output Value:

 Output = 400 units × $10/unit = $4,000

Step 2 — Calculate Total Input Cost:

 Input = $400 + $1,000 + $300 = $1,700

Step 3 — Calculate Productivity: $$\text{Productivity} = \frac{$4,000}

{$1,700} = \textbf{2.35}$$

💡 This means for every $1 spent, $2.35 in revenue is generated. When

output and input are both in dollars, the result is a dimensionless index.

Example 3 — Multifactor Productivity (University Course)

Problem: Tuition = $150/credit hr; State supplement = $100/credit hr; Class

size = 50 students; 3-credit course. Labor = $4,000/class; Materials =
$20/student/class; Overhead = $25,000/class.

Output Value:

 50 students × 3 credit hrs × ($150 + $100) = 50 × 3 × $250 =

$37,500/class

Total Input Cost:

 Labor: $4,000
  Materials: $20 × 50 students = $1,000

 Overhead: $25,000

 Total = $30,000/class

Multifactor Productivity: $$\frac{$37,500}{$30,000} = \textbf{1.25}$$

For every $1 of cost, $1.25 in revenue is generated.

Labor Productivity (same problem):

 Instructors work 14 hrs/week × 16 weeks = 224 hours/class

 Labor Productivity = $37,500 ÷ 224 hrs = $167.41/hour

Example 4 — Labor Productivity with "Seconds" (Flawed Units)

Problem: Workers produce 132 garments in 360 hours. 52 are "seconds"

sold at $90 each; 80 are sold at $200 each.

Output Value:

 Seconds: 52 × $90 = $4,680

 Regular: 80 × $200 = $16,000

 Total Output = $20,680

Labor Productivity: $$\frac{$20,680}{360 \text{ hours}} = \

textbf{$57.44/hour}$$

⚠️Don't forget to account for different selling prices when some units are
flawed!

10. Key Terms Glossary

Term Definition

Operations Systematic design, direction, and control of processes

Management that transform inputs into outputs

Activity or group of activities that transforms inputs into

Process
outputs

Operation A group of resources performing one or more processes

Term Definition

A person or workstation within the organization that

Internal Customer
receives output from a prior step

A person or organization outside the firm that buys the

External Customer
product/service

Interrelated series of processes within and across firms

Supply Chain
that produces a product/service

Supply Chain Synchronizing a firm's processes with suppliers and

Management customers to match flow with demand

Corporate Overall direction and framework for all organizational

Strategy decisions

Operations
How operations implements the corporate strategy
Strategy

Competitive Critical dimensions a process must possess to satisfy

Priorities customers

Competitive Dimensions a process actually possesses and can

Capabilities deliver

Productivity Output ÷ Input; a measure of efficiency

Labor Productivity Output ÷ Labor hours (or cost)

Multifactor
Value of output ÷ total value of all inputs
Productivity

The Fourth Industrial Revolution; automation using

Industry 4.0
smart technology

AI (Artificial Technologies enabling machines to sense, comprehend,

Intelligence) act, and learn

IoT (Internet of Interconnected objects with sensors that exchange data

Things) without human intervention

Additive Building 3D objects by adding layers of material (3D

Manufacturing printing)

MES Manufacturing Execution Systems — track and

Term Definition

document production processes

📌 Up next: Supplement A — Break-Even, Preference Matrix & Decision

Theory Good luck studying! 🎓