CHAPTER 1: INTRODUCTION TO OPERATIONS Example of a supply chain:

MANAGEMENT
Supplier’s suppliers, Direct suppliers, Producers,
Operations Distributor, Final Customers.

- Is that part of a business organization that is The creation of goods or services involves transforming or
responsible for producing goods and services. converting inputs into outputs.

Goods Inputs

- Are physical items that include raw materials, parts, - Land, Labor, Capital, Information
subassemblies such as motherboards that go into
Outputs
computers, and final products such as cellphones
and automobiles. - Goods, Services
Services The essence of the operations function is to add value during
the transformation process:
- Are activities that provide some combination of
time, location, form or psychological value. Value Added

- Term used to describe the difference between the

Three Basic Functional Areas in a Business Organization cost of inputs and the value or price of outputs
- Value can also be psychological as in branding
Finance
PRODUCTION OF GOODS VS PROVIDING SERVICES
- Is responsible for securing financial resources at
favorable prices and allocating those resources Production of goods
throughout the organization.
- Budgeting, analyzing investment proposals, and - Result in a tangible output. Anything that we can see
providing funds for operations. or touch.

Marketing Delivery of service

- Is responsible for assessing consumer wants and - Generally, implies an act.

needs and selling and promoting the organization’s
Key Differences
goods and services.
 Degree of customer contact
Operations
 Uniformity of input
- Is responsible for producing the goods or providing  Labor content of jobs
services offered by the organization.  Measurement of productivity
- The core of what the organization does.  Production and delivery
 Quality Assurance
Operations Management  Amount of inventory
- Is the management of systems or processes that
create goods or provide services.
- Responsible for managing the core of what the The scope of Operations Management:
organization does.
 Forecasting
Supply Chain  Capacity Planning
 Scheduling
- A sequence of activities and organizations involved
 Managing Inventories
in producing and delivering a good or service.
 Assuring quality
- Are both external and internal to the organization.
 Motivating Employees
- External parts provide raw materials, parts,
 Deciding where to locate facilities
equipment, supplies, and other inputs to the
organization, and they deliver outputs that are goods
to the organization’s customers.
- Internal parts are part of the operations function
itself.
 Operations Management and Decision Making Inventory models are widely used to control inventories.

Operations Manager Project models such as Program Evaluation and Review

Technique (PERT) and Critical Path Method (CPM) are useful
- Planner or decision maker. for planning, coordinating, and controlling large-scale
- They exert considerable influence over the degree to projects.
which the goals and objectives of the organization
are realized. Forecasting techniques are widely used in planning and
- Their daily concerns include costs, quality, and scheduling.
schedules.
Statistical models are currently used in many areas of
Note: It is important to make informed decisions. decision making.

Key decisions of operations managers:

What: What resources will be needed, and in what amounts? Analysis of Trade-Offs

When: When will each resource be needed? When should the - A situational decision that involves diminishing or
work be scheduled? When should materials and other losing one quality, quantity or property of a set or
supplies be ordered? When is corrective action needed? design in return for gains in other aspects
- Advantages/Disadvantages and Pros/Cons
Where: Where will the work be done?
Example: In deciding the amount of inventory to stock, the
How: How will the product or service be designed? How will decision maker must take into account the trade-off between
the work be done? How will resources be allocated? the increased level of customer service that the additional
Who: Who will do the work? inventory would yield, and the increased costs required to
stock that inventory.

Establishing Priorities
Approaches to decision making:
- Must recognize that certain issues or items are more
Models important than others.
- Recognizing this enables the managers to direct their
- An abstraction of reality, a simplified representation efforts to where they will do the most good.
of something.
A Systems Approach
Sometime classified as:
- A systems viewpoint is always beneficial in decision
Physical models making. Think of it as a “big picture” view.
- Look like their real-life counterparts. - Emphasizes interrelationships among subsystems,
but its main theme is that “the whole is greater than
Schematic models the sum of its individual parts”.
- Essential when something is being designed,
- Are more abstract than their physical counterparts. redesigned, implemented, improved or otherwise
- They have less resemblance to the physical reality. changed.
Mathematical models System – can be defined as a set of interrelated parts that
- Are the most abstract. must work together.
- They do not look at all like their real-life Ethics
counterparts.

Quantitative Approaches
Business Operations Overlap
- Often embody an attempt to obtain mathematical
optimal solutions to managerial problems. Working together successfully means that all members of the
- Have been accepted because of calculators and organization understand not only their own role, but they
computers capable of handling the required also understand the roles of others.
calculations.
Marketing
Linear Programming and related mathematical techniques are
widely used for optimum allocation of scarce resources. - Focuses on selling and/or promoting the goods or
services of an organization
Queuing techniques are useful for analyzing situations in - Also responsible for assessing customer wants and
which waiting lines form. needs.
 - Can provide valuable insights on what competitors Public Relations
are doing.
- Can also provide supply information on consumer - Has responsibility for building and maintaining a
preferences. positive public image of the organization.
- Good public relations provide many potential
Operations benefits. An obvious one is in the marketplace

- Supply information about capacities and judge the The Historical Evolution of Operations Management
manufacturability of designs.
- They need information about demand over the short The Industrial Revolution
to intermediate term so that it can plan accordingly. - Began in 1770s in England and spread to the rest of
- They will also have advance warning if new Europe and to the United States during the 19th
equipment or skills will be needed for new products century.
or services. - Prior to that time, goods were produced in small
Finance shops by craftsmen and their apprentices. Under
that system, it was common for one person to be
- Should be included in these exchanges in order to responsible for making a product, such as a horse-
provide information on what funds might be drawn wagon or a piece of furniture, from start to
available and to learn what funds might be needed finish. (Only simple tools were available; the
for new products or services. machines in use today had not been invented)
- Number of innovations in the 18th century changed
Note: there is significant interfacing and collaboration the face of production by substituting machine
among the various functional areas such as exchange of power for human power.
information and cooperative decision making. - Despite the major changes that were taking place,
Lead Time management theory and practice had not
progressed much from early days. What was needed
- The time between ordering a good or service and was an enlightened and more systematic approach
receiving it. to management.
- An important piece of information marketing needs
from operations in order to give customers realistic Steam Engine
estimates of how long it will take to fill their orders. - It provided a source of power to operate machines in
Operations also interacts with other functional areas of the factories
organization: - Ample supplies of coal and iron ore provided
materials for generating power and making
The Legal Department machinery. The new machines made of iron were
much stronger and more durable than the simple
- Must be consulted on contracts with employees, wooden machines they replaced.
customers, suppliers and transporters, as well as on
liability and environmental issues. Craft Production
Accounting - Earliest days, Manufacturing goods were produced
using this type of production.
- Supplies information to management on costs of - Highly skilled workers using simple, flexible tools
labor, materials, and overhead, and may provide produced goods according to customer
reports on items such as scrap, downtime, and specifications.
inventories. - Had major shortcomings because products were
Management Information Systems (MIS) made by skilled craftsmen who custom-fitted parts
and production was slow and costly. When parts
- Concerned with providing management with the failed, the replacements also had to be custom
information it needs to effectively manage. made, which was also slow and costly.
- Important for managing the control and decision- - Another shortcoming was that production costs did
making tools used in operations management. not decrease as volume increased; there were no
economies of scale, which would have provided a
The Personnel or Human Resources Department major incentive for companies to expand. Instead
- Concerned with recruitment and training of many small companies emerged, each with its own
personnel, labor relations, contract negotiations, set of standards.
wage and salary administration, assisting in
manpower projections and ensuring the health and
safety of employess.
Standard Gauging System Mass Production

- A major change that gave the industrial revolution a - System in which low-skilled workers use specialized
boost. machinery to produce high volumes of standardized
- This greatly reduced the need for custom-made goods.
goods.
- Factories began to spring up and grow rapidly Interchangeable Parts
- Providing jobs for countless people who were - Eli Whitney, an American inventor who applied the
attracted in large numbers from rural areas. concept to assembling muskets in late 1700s.
Scientific Management - To standardize parts so that any part in a batch of
parts would fit any automobile coming down the
Frederick Winslow Taylor assembly line.
- Parts of a product made to such precision that they
- Father of scientific management do not have to be custom fitted.
- He believed in a “science of management” based on
observation, measurement, analysis and Division of Labor
improvement of work methods and economic
incentives. - Adam Smith wrote in The Wealth of Nations (1776).
- He studied work methods in great detail to identify - Works are divided up into a series of many small
the best method for doing each job. tasks, and individual workers are assigned to one of
- He also believed that management should be those tasks.
responsible for planning, carefully selecting and
training workers, finding the best way to perform
each job, achieving cooperation between
management and workers, and separating
management activities from work activities.
- His methods emphasized maximizing outputs.
- The Principles of Scientific Management

Other pioneers who also contributed heavily to this

movement:

Frank Gilbreth

- Was an industrial engineer who is often referred to

as the father of motion study.
- He developed principles of motion economy that
could be applied to incredibly small portions of task.

Henry Grantt

- Recognized the value of nonmonetary rewards to

motivate workers and developed a widely used
system for scheduling, called Grantt charts

Harrington Emerson

- Applied Taylor’s ideas to organization structure and

encouraged the use of experts to improve
organizational efficiency.
- He testified in a congressional hearing that railroads
could save a million dollars a day by applying
principles of scientific management.

Henry Ford

- The great industrialist

- He employed scientific management techniques in
his factories.
 CHAPTER 2: COMPETITIVENESS, STRATEGY, AND Quality
PRODUCTIVITY
- Refers to materials, workmanship, design, and
Competitiveness service.
- Customers judge quality in terms of how well they
- How effectively an organization meets the wants and think a product or service will satisfy its intended
needs of customers relative to other that offer purpose.
similar goods or services. - Customers are generally willing to pay more for a
- An important factor in determining whether a product or service if they perceive the product or
company prospers, barely gets by, or fails service has a higher quality than that of a
- Organizations compete through some combination competitor.
of price, delivery time, and product or service
differentiation. Quick response

Businesses compete using marketing: - Can be a competitive advantage, one way is quickly
bringing new or improved products or services to the
Identifying consumer wants and/or needs market.
- Is a basic input in an organization’s decision-making - Another is being able to quickly deliver existing
process, and central to competitiveness. products and services to a customer after they are
- The ideal is to achieve a perfect match between ordered, and still another is quickly handling
those wants and needs and the organization’s goods customer complaints.
and/or services. Flexibility
Price and quality - Ability to respond to changes.
- Are key factors in consumer buying decisions. - An advantage in a changeable environment.
- It is important to understand the trade-off decision Inventory Management
consumers make between price and quality.
- Can be a competitive advantage by effectively
Advertising and Promotion matching supplies of goods with demand.
- Are ways organizations can inform potential Supply chain management
customers about features of their products or
services and attract buyers. - Involves coordinating internal and external
operations to achieve timely and cost-effective
Businesses compete using operations: delivery of goods throughout the system.
Product and service design Service
- Special characteristics or features of a product or - Might involve after-sale activities customers perceive
service can be a key factor in consumer buying as value-added, such as delivery, setup, warranty
decisions. work, and technical support.
- Other key factors include innovation and the time- - It might involve extra attention while work is in
to-market for new products and services. progress, such as courtesy, keeping the customer
Cost informed, and attention to details.
- Service quality can be a key differentiator; and it is
- Is a key variable that affects pricing decisions and one that is often sustainable.
profits.
- Cost-reduction efforts are generally ongoing in Managers and workers
business organizations. - Are the people at the heart and soul of an
- Productivity is an important determinant of costs. organization, and if they are competent and
- Organization with higher productivity rates than motivated, they can provide a distinct competitive
their competitors have a competitive cost advantage edge by their skills and the ideas they create.
Location Why Some Organizations Fail
- Important in terms of cost and convenience for Organizations fail or perform poorly for a variety of reasons.
customers. Among the chief reasons are the following:
- Location near inputs can result in lower input costs.
- Location near markets can result in lower  Neglecting operations strategy
transportation costs and quicker delivery times
  Failing to take advantage of strengths, and Examples of different strategies an organization might
opportunities, and/or failing to recognize choose from:
competitive threats.
 Putting too much emphasis on short-term financial Low cost
performance at the expense of research and - Outsource operations to third-world countries that
development. have low labor costs.
 Placing too much emphasis on product and service
design and not enough on process design and Scale-based strategies
improvement.
- Use capital-intensive methods to achieve high
 Neglecting investments in capital and human
output volume and low unit costs.
resources.
 Failing to establish good internal communications Specialization
and cooperation among different functional areas.
 Failing to consider customer wants and needs. - Focus on narrow product lines or limited service to
achieve higher quality.
Note: The key to successfully competing is to determine
what customers want and then directing efforts toward Newness
meeting or even exceeding customer expectations.
- Focus on innovation to create new products or
Two basic issues must be addressed: services.

First: What do customers want? Flexible operations

Second: What is the best way to satisfy those wants? - Focus on quick response and/or customization.

High quality

Mission - Focus on achieving higher quality than competitors.

- The reason for the existence of an organization. Service

Mission Statement - Focus on various aspects of service

- States the purpose of an organization. Sustainability

- Answers the question “What business are we in?”
- Focus on environmental-friendly and energy-efficient
- Serve as the basis for organizational goals
operations.
Goals
Core competencies
- Provide detail and scope of the mission.
- The special attributes or abilities that give an
- Serve as the foundation for the development of
organization a competitive advantage.
organizational strategies.
Strategy Formulation
Strategies
- Almost always critical to the success of a strategy.
- Plans for achieving organizational goals.
- Can be the main reason for the success or failure of SWOT
an organization.
- Provides focus for decision making - Strengths, Weaknesses, Opportunities, Threats
- Functional strategies support the overall strategies - Determines What competitors are doing, or planning
of the organization. to do, and take into account the core competencies
- Organizational strategies support the goals and of the organization and scan the environment.
mission of the organization. - Often regarded as the link between organizational
strategy and operations strategy.
Tactics - Strengths and weaknesses have an internal focus
and are typically evaluated by operations people.
- The methods and actions taken to accomplish
- Opportunities and threats have an external focus
strategies.
and are typically evaluated by marketing people.
- They are more specific than strategies.
- They provide guidance and direction for carrying out Order qualifiers
actual operations which need the most specific and
detailed plans and decision making in an - Are those characteristics that potential customers
organization. perceive as minimum standards of acceptability to
be considered as a potential purchase.
Order winners  Technology
Existing technology, the ability to integrate new
- Are those characteristics of an organization’s goods technology, and the probable impact of
or services that cause it to be perceived as better technology on current and future operations.
than the competition.  Suppliers
Environmental Scanning Supplier relationships, dependability of
suppliers, quality, flexibility, and service are
- The monitoring of events and trends that present typical considerations.
threats or opportunities for a company.  Others
Other factors include patents, labor relations,
Key factors to consider when developing a strategy
company or product image, distribution
External factors channels, relationships within distributors,
maintenance of facilities and equipment, access
 Economic condition to resources, and access to markets.
General health and direction of the economy
inflation and deflation, interest rates, tax laws, SUPPLY CHAIN STRATEGY
and tariffs.
- Specifies how the supply chain should function to
 Political condition achieve supply chain goals.
Favorable or unfavorable attitudes toward - It establishes how the organization should work with
business, political stability or instability, wars suppliers and policies relating to customer
 Legal environment relationships and sustainability.
Antitrust laws, government regulations, trade
restrictions, minimum wage laws, product SUSTAINABILITY STRATEGY
liability laws and recent court experience, labor
laws and patents. - It supports the transformation to
 Technology a sustainable company from an unsustainable one.
Rate at which product innovations are occurring, Such strategy should establish a pathway likely to
current and future process technology and support and drive the company as a going concern
design technology. over the long term.
 Competition - It requires elevating sustainability to the level of
Number and strength of competitors, the basis organizational governance; formulating goals for
of competition, and the ease of market entry. products and services, for processes, and for the
 Markets entire supply chain; measuring achievements and
Size, location, brand loyalties, ease of entry, striving for improvements; and possibly linking
potential for growth, long-term stability, and executive compensation to the achievement of
demographics. sustainability goals.

Internal factors GLOBAL STRATEGY

- One issue that a company face is that what works in

 Human resources
one country or region might not necessarily work in
Skills and abilities of managers and workers,
another and strategies must be carefully crafted to
special talents, loyalty to the organization,
take these variabilities into account.
expertise, dedication, and experience.
 Facilities and equipment OPERATIONS STRATEGY
Capacities, location, age, and cost to maintain or
replace can have a significant impact on - The approach, consistent with the organization
operations. strategy, that is used to guide the operations
 Financial Resources function.
Cash flows, access to additional funding, existing - It is narrower in scope; it deals primarily with the
debt burden, and cost of capital are important operations aspect of the organization.
considerations. - Relates to products, processes, methods, operating
 Customers resources, quality, costs, lead times, and scheduling.
Loyalty, existing relationships, and - For it to be truly effective, it is important to link it to
understanding of wants and needs are organization strategy. The two should not be
important. formulated independently.
 Products and services - Formulation of organization strategy should take
Existing Products and services, and the potential into account the realities of operations’ strengths
for new products and service. and weaknesses. Similarly, Operations strategy must
 be consistent with the overall strategy of the
organization.

QUALITY AND TIME STRATEGIES

Quality-based strategies

- Focus on maintaining and improving the quality of an

organization’s products or services.

Time-based strategies

- Focus on reducing the time required to accomplish

various activities.