The Operations Functions

Operations management, as a field, deals with the

production of goods and services. Every day we come in
contact with an abundant array of goods or services, all of
which are produced under the supervision of operations
managers. Without effective management of operations, a
modern industrialized society cannot exist. The operations
function in any organization is the engine that creates profit
for the enterprise and underpins the global economy.
Operations managers have important positions in every
company. One example is the plant manager who is in
charge of a factory. All the other managers who work in the
factory—including production and inventory control
managers, quality man-agers, and line supervisors—are
also operations managers. Collectively, this group of factory
managers is responsible for producing the supply of
products in a manufacturing business. Carrying this
example one step further, we should also include in the
group of operations managers all manufacturing managers
at the corporate or divisional level. These managers might
include a corporate vice president of operations (or
manufacturing) and a group of corporate staff operations
managers concerned with quality, production and inventory
control, facilities, and equipment.
Our economy has shifted dramatically from the production
of goods to the production of services. It may come as a
surprise that today more than 80 percent of the American
workforce is employed in service industries. Even though
the preponderance of employment is in the service sector,
manufacturing remains important to provide the basic
goods needed for export and internal consumption.
Because of the importance of both service and
manufacturing operations, they are treated on an equal
basis in this text. In the past when the field was related
primarily to manufacturing, operations management was
called production management. Later the name was
expanded to "production and operations management," or,
more simply, "operations man-agement," to include the
service industries as well. The term "operations manage-
ment" as used in this text refers to both manufacturing and
service industries.
Today, individuals who work in operations and supply chain
management can belong to a number of professional
societies. These societies provide opportunities to become
certified, network with other individuals, and learn about
and share best practices (see the Operations Leader box
titled "Professional Societies Affiliated with Operations and
Supply Chain Management)
The purchasing function sources inputs into the
transformation process of the organization from other for-
profit and nonprofit organizations. The logistics func-tion,
in contrast, is typically responsible for the actual movement
of goods and/or services across organizations. Collectively,
the operations, purchasing, and logistics functions within an
organization manage the supply chain for the goods or
services that are consumed by customers. Most
organizations exist as part of a larger supply chain. The
supply chain is the network of manufacturing and service
operations that supply one another from raw materials
through
manufacturing to the ultimate customer. The supply chain
consists of the physical flow of materials, money and
information along the entire chain of purchasing,
production, and distribution. For example, the food supply
chain reaches from the farm to the food processor to the
wholesaler and then the retailer. The supply chain links
together many different
organizations.
In subsequent chapters, we will be discussing the various
decisions and decision aids that help operations and the
supply chain produce value. An example of an operations
leader in producing and delivering goods deemed to be of
value at a price customers are willing to pay is Dell
Computer Corporation (see the Operations Leader box)
Operations managers, however, have important
responsibilities in service industries as well as in
manufacturing companies. In the private sector, operations
managers take leadership roles in hotels, restaurants,
airlines, banks, and retail stores. In each of these
organizations, operations managers are responsible for
producing and delivering the supply of services much as
their counterparts in manufacturing produce and deliver the
supply of goods. In the government, here are operations
managers in the post office, police department, and
housing department, to name only a few.
At first glance, it may appear that service operations do not
have much in common with manufacturing operations.
However, a unifying feature of these operations is that both
can be viewed as transformation processes inside
organizations that are themselves embedded within supply
chains. In manufacturing, inputs of raw materials, energy,
labor, and capital are transformed into finished goods. In
service operations, the same types of inputs are
transformed into service outputs. Managing the
transformation process in an efficient and effective manner
is the task of the operations manager in any type of
organization.
Three points in this definition deserve emphasis:
1. Decisions. The above definition refers to decision making
as an important ele ment of operations management. Since
all managers make decisions, it is natural to focus on
decision making as a central theme in operations. This
decision focus provides a basis for dividing operations into
parts according to major decision types. In this text, we
identify the four major decision responsibilities of
operations management as process, quality, capacity, and
inventory. These decisions provide the framework for
organizing the text and describing what operations
managers do. We will discuss these decisions in greater
detail in subsequent chapters. A hallmark of this book is
treating not only decision making within operations but also
the connection with other functions in the organization and
across the supply chain.
2. Function. Operations is a major function in any
organization, along with marketing and finance. In a
manufacturing company, the operations function typically is
called the manufacturing or production department. In
service organizations, the operations function may be called
the operations department or some name peculiar to the
particular industry (e.g., the policy service department in
insurance companies). In general, the generic term
"operations" refers to the function that produces goods or
services. While separating operations out in this manner is
useful for analyzing decision making and assigning
responsibilities, we must also integrate the business by
considering the cross-functional nature of decision making
in the firm.

3. Process. As was noted above, operations managers plan

and control the transformation process and its interfaces.
This process view not only provides a common ground for
defining service and manufacturing operations as
transformation processes but is also a powerful basis for
the design and analysis of operations in an organization and
across the supply chain. Using the process view, we
consider operations managers as managers of the
conversion process in the firm. But the process view also
provides important insights for the management of
productive processes in functional areas outside the
operations function. For example, a sales office may be
viewed as a production process with inputs, transformation,
and outputs. The same is true for an accounts payable
office and for a loan office in a bank. In terms of the process
view, operations management concepts have applicability
beyond the functional area of operations. The 3M Company,
for example, uses Six Sigma (described in Chapter 9) to
improve processes throughout the firm, including processes
in human resources, accounting, finance, information
systems, and even the legal department. Process
improvement is not restricted to operations.
1.2 DEFINITION OF OPERATIONS MANAGEMENT
AND SUPPLY CHAINS
All organizations (for-profit and nonprofit thrive by
producing and delivering a good or a service deemed to be
of value to customers. Think of value as the tangible and
intangible benefits that customers can derive from
consuming a good or a service at a price they are willing to
pay. For example, value in a pair of shoes may be shoes
that are good-looking and comfortable and will last a long
time at a price you can afford. What is of value to one
customer (or set of customers) may not be of value to
another. Flying in first class may be of value to business
travelers, but for leisure travelers flying in first class may
not be of value because of the price of first-class seats.
Value, thus, is always defined in the eyes of the customer
(or set of customers).
Organizations that are successful strive to identify the value
inherent in the goods or services being offered to
customers. They then deploy this understanding to shape
the decisions that affect the production and delivery of
those goods and services. These decisions have an impact
on the design, execution, and performance of operations
and should be coordinated with decisions made by
managers of the purchasing and the logistics functions.
1.1 WHY STUDY OPERATIONS MANAGEMENT?
All businesses want to hire bright people who can make the
best decision for the business as a whole, not the best
marketing, finance, or operations decision. They want
employees who can see the big picture, not a narrow
perspective. You will severely limit your career if you take a
narrow functional perspective. Every decision is cross-
functional in nature. You will be working with operations
and need to understand operations no matter what career
path you choose. Operations is a major function in every
organization, and the organization where everyone just
works with people from his or her own function does not
exist. That is why we take a crossfunctional perspective in
this text to appeal to all majors.
As you study operations management, you will find that many
of the ideas, techniques, and principles can be applied across
the business, not just in operations. For example, all work is
accomplished through a process (or sequence of steps). The
principles of process thinking found in this course can be
applied to all functions. After they graduate, many students
find that the ideas learned in operations management are
among the most useful in their particular vocational choice.
Finally, operations management is an exciting and
challenging field of study. Even those who are not
quantitatively oriented will find principles and concepts Is not
worthy of study. You are embarking on a journey that is
interesting and useful no matter what career you choose.