Lecture 2.

Operations Management Issues and

Concerns

Introduction
Operations is that part of a business organization that is responsible for
producing goods and/or services. Goods are physical items that include raw
materials, parts, subassemblies such as motherboards that go into computers, and
final products such as cell phones and automobiles. Services are activities that
provide some combination of time, location, form, or psychological value. The
operations function in business can also be viewed from a more far-reaching
perspective. This presents the issues and concerns in managing the operations of the
business.

Student Learning Objectives (SLO)

 Describe current issues in business that impact operations management.
 Explain the need to manage the supply chain.

Managing a Process to Meet Demand

Variation occurs in all business processes. It can be due to variety or variability.
For example, random variability is inherent in every process; it is always present. In
addition, variation can occur as the result of deliberate management choices to offer
customers variety.
There are four basic sources of variation:
1. The variety of goods or services being offered. The greater the variety of goods
and
services, the greater the variation in production or service requirements.
2. Structural variation in demand. These variations, which include trends and
seasonal variations, are generally predictable. They are particularly important for
capacity planning.
3. Random variation. This natural variability is present to some extent in all
processes,
as well as in demand for services and products, and it cannot generally be influenced
by managers.
4. Assignable variation. These variations are caused by defective inputs, incorrect
work
methods, out-of-adjustment equipment, and so on. This type of variation can be
reduced or eliminated by analysis and corrective action.

Operations management is primarily concerned with three kinds of technology:

product and service technology, process technology, and information technology (IT).
All three can have a major impact on costs, productivity, and competitiveness.

Product and service technology refers to the discovery and development of new
products and services. This is done mainly by researchers and engineers, who use
the scientific approach to develop new knowledge and translate that into commercial
applications.
Process technology refers to methods, procedures, and equipment used to produce
goods and provide services. They include not only processes within an organization
but also supply chain processes.
Information technology (IT) refers to the science and use of computers and other
electronic equipment to store, process, and send information. Information technology
is heavily ingrained in today’s business operations. This includes electronic data
processing, the use of bar codes to identify and track goods, obtaining point-of-sale
information, data transmission, the Internet, e-commerce, e-mail, and more.

KEY ISSUES FOR TODAY’S BUSINESS OPERATIONS

Economic conditions. The lingering recession and slow recovery in various sectors of
the economy has made managers cautious about investment and rehiring workers
who had been laid off during the recession.

Innovating. Finding new or improved products or services are only two of the many
possibilities that can provide value to an organization. Innovations can be made in
processes, the use of the Internet, or the supply chain that reduce costs, increase
productivity, expand markets, or improve customer service.

Quality problems. The numerous operations failures mentioned at the beginning of

the
chapter underscore the need to improve the way operations are managed. That
relates to product design and testing, oversight of suppliers, risk assessment, and
timely response to potential problems.

Risk management. The need for managing risk is underscored by recent events that
include financial crises, product recalls, accidents, natural and man-made disasters,
and economic ups and downs. Managing risks starts with identifying risks, assessing
vulnerability and potential damage (liability costs, reputation, demand), and taking
steps
to reduce or share risks.

Cyber-security. The need to guard against intrusions from hackers whose goal is to
steal personal information of employees and customers is becoming increasingly
necessary. Moreover, interconnected systems increase intrusion risks in the form of
industrial espionage.

Competing in a global economy. Low labor costs in third-world countries have

increased pressure to reduce labor costs. Companies must carefully weigh their
options, which include outsourcing some or all of their operations to low-wage areas,
reducing costs internally, changing designs, and working to improve productivity.

ENVIRONMENTAL CONCERNS
Concern about global warming and pollution has had an increasing effect on how
businesses operate. Stricter environmental regulations, particularly in developed
nations, are being imposed. Furthermore, business organizations are coming under
increasing pressure to reduce their carbon footprint (the amount of carbon dioxide
generated by their operations and their supply chains) and to generally operate
sustainable processes.

Sustainability refers to service and production processes that use resources in ways
that do not harm ecological systems that support both current and future human
existence. Sustainability measures often go beyond traditional environmental and
economic measures to include measures that incorporate social criteria in decision
making. All areas of business will be affected by this. Areas that will be most affected
include product and service design, consumer education programs, disaster
preparation and response, supply chain waste management, and outsourcing
decisions. Note that outsourcing of goods production increases not only transportation
costs, but also fuel consumption and carbon released into the atmosphere.
Consequently, sustainability thinking may have implications for outsourcing decisions.
Because they all fall within the realm of operations, operations management is central
to dealing with these issues. Sometimes referred to as “green initiatives,” the
possibilities include reducing packaging, materials, water and energy use, and the
environmental impact of the supply chain, including buying locally. Other possibilities
include reconditioning used equipment (e.g., printers and copiers) for resale, and
recycling.

ETHICAL ISSUES
• Financial statements: accurately representing the organization’s financial condition.
• Worker safety: providing adequate training, maintaining equipment in good working
condition, maintaining a safe working environment.
• Product safety: providing products that minimize the risk of injury to users or
damage to property or the environment.
• Quality: honoring warranties, avoiding hidden defects.
• The environment: not doing things that will harm the environment.
• The community: being a good neighbor.
• Hiring and firing workers: avoiding false pretenses (e.g., promising a long-term job
when that is not what is intended).
• Closing facilities: taking into account the impact on a community, and honoring
commitments that have been made.
• Workers’ rights: respecting workers’ rights, dealing with workers’ problems quickly
and fairly.

The other issues include the following:

1. The need to improve operations. Efforts on cost and time reduction, and
productivity and quality improvement, have expanded in recent years to include the
supply chain. Opportunity now lies largely with procurement, distribution, and logistics
—the supply chain.
2. Increasing levels of outsourcing. Organizations are increasing their levels of
outsourcing, buying goods or services instead of producing or providing them
themselves. As outsourcing increases, organizations are spending increasing
amounts on supply-related activities (wrapping, packaging, moving, loading and
unloading, and sorting).
3. Increasing transportation costs. Transportation costs are increasing, and they need
to be more carefully managed.
4. Competitive pressures. Competitive pressures have led to an increasing number of
new products, shorter product development cycles, and increased demand for
customization. And in some industries, most notably consumer electronics, product
life cycles are relatively short. Added to this are adoption of quick-response strategies
and efforts to reduce lead times.
5. Increasing globalization. Increasing globalization has expanded the physical length
of supply chains. A global supply chain increases the challenges of managing a
supply
chain. Having far-flung customers and/or suppliers means longer lead times and
greater opportunities for disruption of deliveries. Often currency differences and
monetary fluctuations are factors, as well as language and cultural differences. Also,
tightened border security in some instances has slowed shipments of goods.
6. Increasing importance of e-business. The increasing importance of e-business has
added new dimensions to business buying and selling and has presented new
challenges
7. The complexity of supply chains. Supply chains are complex; they are dynamic,
and
they have many inherent uncertainties that can adversely affect them, such as
inaccurate forecasts, late deliveries, substandard quality, equipment breakdowns, and
canceled or changed orders.
8. The need to manage inventories. Inventories play a major role in the success or
failure of a supply chain, so it is important to coordinate inventory levels throughout a
supply chain. Shortages can severely disrupt the timely flow of work and have far-
reaching impacts, while excess inventories add unnecessary costs. It would not be
unusual to find inventory shortages in some parts of a supply chain and excess
inventories in other parts of the same supply chain.

Additional Reading:
Chapter 2 of Stevenson, W. (2018). Operations Management. Thirteenth Edition.
New York: McGraw-Hill Education

References
Collier, D., Evans, J. & Lindsay, W. (2020). Operations management and total quality
management. Singapore: Cengage Learning Asia Pte Ltd.

Heizer, J., Render, B., & Munson, C. (2017). Operations Management Sustainability
and Supply Chain Management. Twelfth Edition. US: Pearson Education, Inc.

Stevenson, W. (2018). Operations Management. Thirteenth Edition. New York:

McGraw-Hill Education

Tallyfy (2020). What is Operations Management? Retrieved September 1, 2020 from

https://tallyfy.com/guides/operations-management/
Checked: Approved:
Prepared:
_________________
______________________ ____________________
JANET T. COMETA
Dr. RANDY M. BAJA