Operations Management: Processes and
Supply Chains
Fourteenth Edition, Global Edition
Chapter 1
Using Operations to Create
Value
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What is Operations Management?
• Operations Management
– The systematic design, direction, and control of
processes that transform inputs into services and
products for internal, as well as external, customers
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Operations Management
• 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
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What is Supply Chain Management?
• Supply Chain Management
– 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
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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
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Role of Operations in an Organization (1 of 2)
Figure 1.1 Integration between Different Functional Areas of a
Business
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Role of Operations in an Organization (2 of 2)
• Historical Evolution and Perspectives
– Early developments (18th and 19th centuries)
– 20th century landmark events
– Recent decades
• Operation Manager’s Roles and Responsibilities
– Involved in all facets of running an organization
– Translate materials and other inputs into
goods/services
– Use available resources to design and manage
processes to achieve that transformation in a cost-
effective way, while also taking care of customers
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How Processes Work (1 of 2)
Figure 1.2 Processes and Operations
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How Processes Work (2 of 2)
• Every process and every person in the organization
has customers
– External customers
– Internal customers
• Every process and every person in the organization
relies on suppliers
– External suppliers
– Internal suppliers
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Nested Processes
• Nested Process
– The concept of a process within a process
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Service and Manufacturing Processes (1 of 2)
Differ Across Nature of Output and Degree of Customer Contact
Figure 1.3 Continuum of Characteristics of Manufacturing and
Service Processes
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Service and Manufacturing Processes (2 of 2)
• Physical, durable output • Intangible, perishable output
• Output can be • Output cannot be
inventoried inventoried
• Low customer contact • High customer contact
• Long response time • Short response time
• Capital intensive • Labor intensive
• Quality easily measured • Quality not easily measured
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A Supply Chain View (1 of 6)
Each activity in a process should add value to the preceding
activities; waste and unnecessary cost should be eliminated.
Core process – set of activities that delivers value to external
customers
Figure 1.4 Supply Chain Linkages Showing Work and
Information Flows
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A Supply Chain View (2 of 6)
Supplier relationship process – A process that selects the
suppliers of services, materials, and information and facilitates
the timely and efficient flow of these items into the firm
Figure 1.4 [continued]
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A Supply Chain View (3 of 6)
New service/product development – A process that designs and
develops new services or products from inputs received from
external customer specifications or from the market in general
through the customer relationship process
Figure 1.4 [continued]
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A Supply Chain View (4 of 6)
Order fulfillment process – A process that includes the activities
required to produce and deliver the service or product to the
external customer
Figure 1.4 [continued]
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A Supply Chain View (5 of 6)
Customer relationship process – A process that identifies,
attracts and builds relationships with external customers and
facilitates the placement of orders by customers (customer
relationship management)
Figure 1.4 [continued]
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A Supply Chain View (6 of 6)
Support Processes - provide vital resources and inputs to the
core processes. Examples include Accounting, Finance, Human
Resources, Management Information Systems and Marketing
Figure 1.4 [continued]
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Supply Chain Process
• Supply Chain Processes
– Business processes that have external customers or
suppliers
– Examples:
▪ Outsourcing
▪ Warehousing
▪ Sourcing
▪ Customer Service
▪ Logistics
▪ Crossdocking
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Trends and Challenges in Operations
Management (1 of 4)
• Productivity Improvement
– Productivity – value of outputs (services and
products) produced divided by the value of input
resources (wages, cost of equipment, etc.) used:
Output
Productivity
Input
– Measuring Productivity
– The Role of Management
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Example: Productivity Calculations (1 of 2)
Calculate the productivity for the following operations:
a. Three employees process 600 insurance policies in a
week. They work 8 hours per day, 5 days per week.
Policies processed
Labor productivity
Employee hours
600 policies
(3 employees)(40 hours employee)
5 policies hour
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Example: Productivity Calculations (2 of 2)
Calculate the productivity for the following operations:
b. A team of workers makes 400 units of a product, which is
sold in the market for $10 each. The accounting
department reports that for this job the actual costs are
$400 for labor, $1,000 for materials, and $300 for
overhead.
Value of output
Multifactor productivity =
Labor cost + Materials cost + Overhead cost
(400 units)($10 / unit) $4,000
= = = 2.35
$400 + $1,000 + $300 $1,700
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Application (1 of 2)
This Year Last Year Year Before Last
Blank
Factory unit sales 2,762,103 2,475,738 2,175,447
Employment (hrs) 112,000 113,000 115,000
Sales of manufactured products ($) $49,363 $40,831 —
Total manufacturing cost of sales ($) $39,000 $33,000 —
• Calculate the year-to-date labor productivity:
This Year Last Year Year Before Last
Blank
factory unit sales 2,762,103 divided 2,475,738 divided
2,475,738 2,175,447 divided
2,175,447
factory unit sales 2,762,103
= 21.91/hr
divided by by 112,000= equals
24.66/hr by 113,000 equals by 115,000= equals
$18.91/hr
employment 112,000 113,000 115,000
employment 24.66 per hour 21.91 per hour $18.91 per hour
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Application (2 of 2)
• Calculate the multifactor productivity:
This Year Last Year
Blank
sales of manufacturing $49,363 divided by $39,000 $40,831 divided by $33,000
sales of mfg products $49,363 $40,831
products divided by total equals 1.27 = 1.27 equals 1.24 = 1.24
total mfg
manufacturing cost
cost $39,000 $33,000
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Trends and Challenges in Operations
Management (2 of 4)
• Aftermath of the Covid-19 Pandemic
– Work-at-Home
– Supply Shortages
– Inflation
• Workforce Diversity, Equity, Inclusion, and Ethics
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Trends and Challenges in Operations
Management (3 of 4)
• Sustainability – goal that a corporation’s services,
products, and processes are meeting humanity’s needs
without harming future generations
• Humanitarian logistics – planning, implementing, and
controlling the efficient, cost-effective flow and storage of
goods and materials, as well as related information, from
the point of origin to the point of consumption for the
purpose of alleviating the suffering of vulnerable people
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Trends and Challenges in Operations
Management (4 of 4)
• Sustainability
Figure 1.5 Supply Chains and Sustainability
• Workforce Diversity, Equity, Inclusion, and Ethics
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Fourth Industrial Revolution
(Industry 4.0) (1 of 4)
• Fourth Industrial Revolution (Industry 4.0)
– The ongoing automation of traditional manufacturing
and industrial practices using modern smart
technology
– Examples:
▪ Smart manufacturing technologies
▪ Smart products technologies
▪ Smart supply technologies
▪ Base technologies
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Fourth Industrial Revolution
(Industry 4.0) (2 of 4)
• Manufacturing Execution Systems (MES)
– Computerized systems used in manufacturing to track
and document the transformation of raw materials to
finished goods and optimize their production output
• Artificial Intelligence (AI)
– A constellation of technologies, from machine learning
to natural language processing, that allows machines
to sense, comprehend, act, and learn
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Fourth Industrial Revolution
(Industry 4.0) (3 of 4)
• Internet of Things (IoT)
– The interconnectivity of objects embedded with
software, sensors, and actuators that enable these
objects to collect and exchange data over a network
without requiring human intervention
– OM Applications
– Concerns and Barriers
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Fourth Industrial Revolution
(Industry 4.0) (4 of 4)
• Additive Manufacturing (AM)
– The technologies that build three-dimensional (3D)
objects by adding layers of material such as plastic,
metal, or concrete (also, known as 3D printing)
– Operations and supply chain implications of AM
– Enablers of Adopting AM
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Solved Problem 1 (1 of 3)
Student tuition at Boehring University is $150 per semester
credit hour. The state supplements school revenue by $100
per semester credit hour. Average class size for a typical 3-
credit course is 50 students. Labor costs are $4,000 per
class, material costs are $20 per student per class, and
overhead costs are $25,000 per class.
a. What is the multifactor productivity ratio for this course
process?
b. If instructors work an average of 14 hours per week for
16 weeks for each 3-credit class of 50 students, what is the
labor productivity ratio?
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Solved Problem 1 (2 of 3)
a. Multifactor productivity is the ratio of the value of output to the
value of input resources.
$150 tuition +
50 student 3 credit hours $100 state support
Value of output =
class student credit hour
= $37,500 class
Value of inputs = Labor + Materials + Overhead
= $4,000 + ( $20 student 50 students class ) + $25,000
= $30,000 class
Output $37,500 class
Multifactor productivity = = = 1.25
Input $30,000 class
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Solved Problem 1 (3 of 3)
b. Labor productivity is the ratio of the value of output to
labor hours. The value of output is the same as in part (a), or
$37,500 / class, so
14 hours 16 weeks
Labor hours of input =
week class
= 224 hours class
Output $37,500 class
Labor productivity = =
Input 224 hours class
= $167.41 hour
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