Chapter 1

Introduction to Operations Management

McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
 Chapter 1: Learning Objectives
 You should be able to:
1. Define the term operations management
2. Identify the three major functional areas of organizations and describe how
they interrelate
3. Identify similarities and differences between production and service
operations
4. Describe the operations function and the nature of the operations manager’s
job
5. Summarize the two major aspects of process management
6. Explain the key aspects of operations management decision making
7. Briefly describe the historical evolution of operations management
8. Characterize current trends in business that impact operations management

Instructor Slides 1-2

 Good or Service?
Goods are physical items that include raw materials, parts,
subassemblies, and final products.
• Automobile
• Computer
• Oven
• Shampoo

Services are activities that provide some combination of time, location,

form or psychological value.
• Air travel
• Education
• Haircut
• Legal counsel

Instructor Slides 1-3

Historical Evolution of OM
 Supply Chain
Supply Chain – a sequence of activities and
organizations involved in producing and delivering
a good or service

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers Customers

Instructor Slides 1-5

 Supply Chain for Bread

Instructor Slides 1-6

 Basic Functions of the Business Organization

Organization

Marketing Operations Finance

Instructor Slides 1-7

 The Transformation Process
Value-Added

Inputs Transformation/ Outputs

• Land Conversion • Goods
• Labor • Services
• Capital
Process
• Information

Measurement
and Feedback
Measurement Measurement
and Feedback and Feedback
Control

Feedback = measurements taken at various points in the transformation process

Control = The comparison of feedback against previously established

standards to determine if corrective action is needed.
Instructor Slides 1-8
 Manufacturing vs. Service?
Manufacturing and Service Organizations differ chiefly because
manufacturing is goods-oriented and service is act-oriented.

Goods Services

Tangible Act-Oriented

Instructor Slides 1-9

 Goods-service Continuum
Products are typically neither purely service- or purely goods-
based.
Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

Instructor Slides 1-10

 Manufacturing vs. Service
1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Wages
11. Patent
Instructor Slides 1-11
 Manufacturing vs. Service
• Forecasting
• Capacity planning
• Process Management
• Monitoring cost
• Supply Chain
• Location planning
• Inventory management
• Quality control
• Scheduling
Instructor Slides
12
 Similarities
• Forecasting and capacity planning to match supply and
demand.
• Process management.
• Managing variations.
• Monitoring and controlling costs and productivity.
• Supply chain management.
• Location planning, inventory management, quality control, and
scheduling.
Instructor Slides
13
 Managing Services is Challenging
1. Jobs in services are often less structured than in manufacturing
2. Customer contact is generally much higher in services compared to manufacturing
3. In many services, worker skill levels are low compared to those of manufacturing
employees
4. Services are adding many new workers in low-skill, entry-level positions
5. Employee turnover is high in services, especially in low-skill jobs
6. Input variability tends to be higher in many service environments than in manufacturing
7. Service performance can be adversely affected by many factors outside of the manager’s
control (e.g., employee and customer attitudes)

1-14
Instructor Slides
 Process Management

Process - one or more actions that transform inputs into outputs

Three Categories of Business Processes:

Upper-management processes These govern the operation of the entire
organization.
Operational processes These are core processes that make up the
value stream.
Supporting processes These support the core processes.

Instructor Slides 1-15

 Supply & Demand
Operations &
Supply Chains Sales & Marketing

Wasteful
Supply
> Demand Costly

Opportunity Loss

<
Supply Demand Customer
Dissatisfaction

Supply
= Demand Ideal

Instructor Slides 1-16

 Process Variation
Four Sources of Variation:
Variety of goods or services The greater the variety of goods and services
being offered offered, the greater the variation in production
or service requirements.
Structural variation in demand These are generally predictable. They are
important for capacity planning.
Random variation Natural variation that is present in all
processes. Generally, it cannot be influenced
by managers.
Assignable variation Variation that has identifiable sources. This
type of variation can be reduced, or
eliminated, by analysis and corrective action.

Variations can be disruptive to operations and supply chain processes.

They may result in additional costs, delays and shortages, poor
quality, and inefficient work systems.

Instructor Slides 1-17

 Scope of Operations Management
The scope of operations management ranges across
the organization.

The operations function includes many interrelated activities

such as:
 Forecasting
 Capacity planning
 Facilities and layout
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 And more . . .
Instructor Slides 1-18
 Role of the Operations Manager
The Operations Function consists of all activities directly related to producing goods or
providing services.

A primary function of the operations manager is to guide the system by decision

making.
– System Design Decisions
– System Operation Decisions

Instructor Slides 1-19

 System Design Decisions
• System Design
– Capacity
– Facility location
– Facility layout
– Product and service planning
– Acquisition and placement of equipment
• These are typically strategic decisions that
• usually require long-term commitment of resources
• determine parameters of system operation

Instructor Slides 1-20

 System Operation Decisions
• System Operation
• These are generally tactical and operational decisions
– Management of personnel
– Inventory management and control
– Scheduling
– Project management
– Quality assurance
• Operations managers spend more time on system operation
decision than any other decision area
• They still have a vital stake in system design

Instructor Slides 1-21

 Why Study OM?
• Every aspect of business affects or is affected by operations
• Many service jobs are closely related to operations
– Financial services
– Marketing services
– Accounting services
– Information services
• There is a significant amount of interaction and collaboration amongst the
functional areas
• It provides an excellent vehicle for understanding the world in which we live

1-22
Instructor Slides
 Decision Making
• Most operations decisions involve many alternatives that can have quite different impacts on costs or
profits
• Typical operations decisions include:
– What: What resources are 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?
– Where: Where will the work be done?
– How: How will he product or service be designed? How will the work be done? How will resources be
allocated?
– Who: Who will do the work?
Questions/comments

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