Chapter 1 Rapid Review:

1. WHAT IS OPERATIONS MANAGEMENT?

2. ORGANIZING TO PRODUCE GOODS AND SERVICES
3. THE SUPPLY CHAIN
4. WHY STUDY OM
5. WHAT OPERATIONS MANAGERS DO
6. THE HERITAGE OF OPERATIONS MANAGEMENT
7. OPERATIONS FOR GOODS AND SERVICES
8. THE PRODUCTIVITY CHALLENGE
9. CURRENT CHALLENGES IN OPERATIONS MANAGEMENT
10. ETHICS, SOCIAL RESPONSIBILITY, AND SUSTAINABIUTY

What Is Operations Management?

Operations management (OM) is a discipline that applies to restaurants like Hard Rock
Cafe as well as to factories like Ford and Whirlpool. The techniques of OM apply
throughout the world to virtually all productive enterprises. lt doesn't matter if the
application is in an office, a hospital, a restaurant, a department store, or a factory-the
production of goods and services requires operations management . And the efficient
production of goods and services requires effective applications of the concepts, tools,
and techniques of OM that we introduce in this book.
As we progress through this text, we will discover how to manage operations in an
economy in which both customers and suppliers are located throughout the world. An
array of informative examples, charts, text discussions, and pictures illustrates concepts
and provides information. We will see how operations managers create the goods and
services that enrich our lives.
In this chapter, we first define operations management, explaining its heritage and
exploring the exciting role operations managers play in a huge variety of organizations.
Then we discuss production and productivity in both goods- and service- producing firms.
This is followed by a discussion of operations in the service sector and the challenge of
managing an effective and efficient production system.
Production is the creation of goods and services. Operations management (OM) is the
set of activities that creates value in the form of goods and services by transforming
inputs into outputs. Activities creating goods and services take place in all organizations.
In manufacturing firms, the production activities that create goods are usually quite
obvious. In them, we can see the creation of a tangible product such as a Sony TV or a
Harley-Davidson motorcycle.
In an organization that does not create a tangible good or product, the production
function may be less obvious. We often call these activities services. The services may be
"hidden" from the public and even from the customer. The product may take such forms
as the transfer of funds from a savings account to a checking account, the transplant of a
liver, the filling of an empty seat on an airplane, or the education of a student.
Regardless of whether the end product is a good or service, the production activities that
go on in the organization are often referred to as operations, or operations
management.
Organizing to Produce Goods and Services
To create goods and services, all organizations perform three functions. These functions
are the necessary ingredients not only for production but also for an organization's
survival. They are:
a, Marketing, which generates the demand, or at least takes the order for a product or
service (nothing happens until there is a sale).
2, Production/operations, which creates, produces, and delivers the product.
3, Finance/accounting, which tracks how well the organization is doing, pays the bills,
and collects the money.
Universities, churches or synagogues, and businesses all perform these functions. Even a
volunteer group such as the Boy Scouts of America is organized to perform these three
basics.

The Supply Chain

Through the three functions---marketing, operations, and finance-value for the customer
is created. However, firms seldom create this value by themselves. Instead, they rely on
a variety of suppliers who provide everything from raw materials to accounting services.
These suppliers, when taken together, can be thought of as a supply chain. A supply
chain (see Figure 1.2) is a global network of organizations and activities that supply a firm
with goods and services.
As our society becomes more technologically oriented, we see increasing specialization.
Specialized expert knowledge, instant conmunication, and cheaper transportation also
foster specialization and worldwide supply chains. lt just does not pay for a firm to try to
do everything itself. The expertise that comes with specialization exists up and down the
supply chain, adding value at each step. When members of the supply chain collaborate
to achieve high Ievels of customer satisfaction, we have a tremendous force for
efficiency and competitive advantage. Competition in the 21 st century is not between
companies; it is between supply chains.

Why Study OM?

We study OM for four reasons:
1. OM is one of the three major functions of any organization, and it is integrally related
to all the other business functions. All organizations market (sell), finance (account), and
produce (operate), and it is important to know how the OM activity functions.
Therefore,we study how people organize themselves for productive enterprise.
2. We study OM because we want to know how goods and services are produced. The
produc­tion function is the segment of our society that creates the products and services
we use.
3. We study OM to understand what operations managers do. Regardless of your job in
an organization, you can perform better if you understand what operations managers
do. In addition, understanding OM will help you explore the numerous and lucrative
career opportunities in the field.
4. We study OM because it is such a costly part of an organization. A large percentage
of the revenue of most firms is spent in the OM function. Indeed, OM provides a major
opportunity for an organization to improve its profitability and enhance its service to
society.

The Heritage of Operations Management

The field of OM is relatively young, but its history is rich and interesting. Our lives and
the OM discipline have been enhanced by the innovations and contributions of
numerous individuals. We now introduce a few of these people:
Eli Whitney (1800) is credited for the early popularization of interchangeable parts,
which was achieved through standardization and quality control. Through a contract he
signed with the U.S. government for 10,000 muskets, he was able to command a
premium price because of their interchangeable parts.
Frederick W. Taylor (1881), known as the father of scientific management, contributed to
personnel selection, planning and scheduling, motion study, and the now popular field of
ergonomics. One of his major contributions was his belief that management should be
much more resourceful and aggressive in the improvement of work methods. Taylor and
his colleagues, Henry L. Gantt and Frank and Lillian Gilbreth, were among the first to
systematically seek the best way to produce.
Another of Taylor's contributions was the belief that management should assume more
responsibility for:
1. Matching employees to the right job.
2. Providing the proper training.
3. Providing proper work methods and tools.
4. Establishing legitimate incentives for work to be accomplished.
By 1913, Henry Ford and Charles Sorensen combined what they knew about
standardized parts with the quasi-assembly lines of the meatpacking and mail-order
industries and added the revolutionary concept of the assembly line, where men stood
still and material moved.
Quality control is another historically significant contribution to the field of OM. Walter
Shewhart (1924) combined his knowledge of statistics with the need for quality control
and provided the foundations for statistical sampling in quality control. W. Edwards
Deming (1950) believed, as did Frederick Taylor, that management must do more to
improve the work environ­ment and processes so that quality can be improved.
Operations management will continue to progress as contributions from other
disciplines, including industrial engineering, statistics, management, analytics, and
economics, improve decision making.
Innovations from the physical sciences (biology, anatomy, chemistry, physics) have also
contributed to advances in OM. These innovations include new adhesives, faster
integrated circuits, gamma rays to sanitize food products, and specialized glass for
iPhones and plasma TVs. Innovation in products and processes often depends on
advances in the physical sciences.
Especially important contributions to OM have come from information technology,
which we define as the systematic processing of data to yield information. Information
technology-with wireless links, Internet, and e-commerce-is reducing costs and
accelerating communication.
Decisions in operations management require individuals who are well versed in analytical
tools, in information technology, and often in one of the biological or physical sciences.
In this textbook, we look at the diverse ways a student can prepare for a career in
operations management.

Operations for Goods and Services

Manufacturers produce a tangible product, while service products are often intangible.
But many products are a combination of a good and a service, which complicates the
definition of a service. Even the U.S. government has trouble generating a consistent
definition. Because definitions vary, much of the data and statistics generated about the
service sector are inconsistent. However, we define services as including repair and
maintenance, government, food and lodging, transportation, insurance, trade, financial,
real estate, education, legal, medical, entertainment, and other professional
occupations.
The operation activities for both goods and services are often very similar. For instance,
both have quality standards, are designed and produced on a schedule that meets
customer de­mand, and are made in a facility where people are employed. However,
some major differences do exist between goods and services. These are presented in
Table 1. 3.
we should point out that in many cases, the distinction between goods and services is
not clear-cut. In reality, almost all services and almost all goods are a mixture of a service
and a tangible product. Even services such as consulting may require a tangible report.
Similarly, the sale of most goods includes a service. For instance, many products have the
service components of financing and delivery (e.g., automobile sales). Many also require
after-sale training and maintenance (e.g., office copiers and machinery). "Service"
activities may also be an integral part of production. Human resource activities, logistics,
accounting, training, field service, and repair are all service activities, but they take place
within a manufacturing organization. Very few services are "pure," meaning they have no
tangible component. Counseling may be one of the exceptions.

The Productivity Challenge

The creation of goods and services requires changing resources into goods and services.
The more efficiently we make this change, the more productive we are and the more
value is added to the good or service provided. Productivity is the ratio of outputs (goods
and services) divided by the inputs (resources, such as Iabor and capital). The operations
manager's job is to enhance (improve) this ratio of outputs to inputs. Improving
productivity means improving efficiency.
This improvement can be achieved in two ways: reducing inputs while keeping output
constant or increasing output while keeping inputs constant. Both represent an
improvement in productivity. In an economic sense, inputs are Iabor, capital, and
management, which are integrated into a production system. Management creates this
production system, which provides the conversion of inputs to outputs. Outputs are
goods and services, including such diverse items as guns, butter, education, improved
judicial systems, and ski resorts. Production is the making of goods and services. High
production may imply only that more people are working and that employment Ievels
are high (Iow unemployment), but it does not imply high productivity.
Measurement of productivity is an excellent way to evaluate a country's ability to
provide an improving standard of living for its people. Only through increases in
productivity can the standard of living improve. Moreover, only through increases in
productivity can Iabor, capital, and management receive additional payments. If returns
to Iabor, capital, or management are increased without increased productivity, prices
rise. On the other hand, downward pressure is placed on prices when productivity
increases because more is being produced with the same resources.
Current Challenges in Operations Management
Operations managers work in an exciting and dynamic environment. This environment is
the result of a variety of challenging forces, from globalization of world trade to the
transfer of ideas, products, and money at electronic speeds. Let's Iook at some of these
challenges:
Globalization: The rapid decline in the cost of communication and transportation has
made markets global. Similarly, resources in the form of capital, materials, talent, and
labor are also now global. As a result, countries throughout the world are contributing to
globalization as they vie for economic growth. Operations managers are rapidly seeking
creative designs, efficient production, and high-quality goods via international
collaboration.
• Supply-chain partnering: Shorter product Iife cycles, demanding customers, and fast
changes in technology, materials, and processes require supply-chain partners to be in
tune with the needs of end users. And because suppliers may be able to contribute
unique expertise, operations managers are outsourcing and building long-term
partnerships with critical players in the supply chain.
• Sustainability: Operations managers' continuing battle to improve productivity is
con­cerned with designing products and processes that are ecologically sustainable. This
means designing green products and packaging that minimize resource use, can be
recycled or re­used, and are generally environmentally friendly.
• Rapid product development: Technology combined with rapid international
communica­tion of news, entertainment, and lifestyles is dramatically chopping away at
the life span of products. OM is answering with new management structures, enhanced
collaboration, digi­tal technology, and creative alliances that are more responsive and
effective.
• Mass customization: Once managers recognize the 1vorld as the marketplace, the
cultural and individual differences become quite obvious. In a world where consumers
are increas­ingly aware of innovation and options, substantial pressure is placed on firms
to respond in a creative way. And OM must rapidly respond with product designs and
flexible production processes that cater to the individual whims of consumers. The goal
is to produce custom­ized products, whenever and wherever needed.
• Lean operations: Lean is the management model sweeping the world and providing
the standard against which operations managers must compete. Lean can be thought of
as the driving force in a well -run operation, where the customer is satisfied, employees
are respected, and waste does not exist. The theme of this text is to build organizations
that are more efficient, where management creates enriched jobs that help employees
engage in continuous improvement, and where goods and services are produced and
delivered when and where the customer desires them. These ideas are also captured in
the phrase Lean.
Ethics, Social Responsibility, and Sustainability
The systems that operations managers build to convert resources into goods and
services are complex. And they function in a world where the physical and social
environment is evolving, as are laws and values. These dynamics present a variety of
challenges that come from the con­flicting perspectives of stakeholders, such as
customers, distributors, suppliers, owners, lenders, employees, and community.
Stakeholders, as well as government agencies at various levels, require constant
monitoring and thoughtful responses.
Identifying ethical and socially responsible responses while developing sustainable
processes that are also effective and efficient productive systems is not easy. Managers
are also challenged to:
• Develop and produce safe, high-quality green products
• Train, retain, and motivate employees in a safe workplace
• Honor stakeholder commitments
Managers must do all this while meeting the demands of a very competitive and dynamic
world marketplace. If operations managers have a moral awareness and focus on
increasing productivity in this system, then many of the ethical challenges will be
successfully addressed. The organization will use fewer resources, the employees will be
committed, the market will be satisfied, and the ethical climate will be enhanced.
Throughout this text, we note ways in which operations managers can take ethical and
socially responsible actions while successfully addressing these challenges of the market.
We also conclude each chapter with an Ethical Dilemma exercise.
Operations, marketing, and finance/accounting are the three functions basic to all
organizations. Tue operations function creates goods and services. Much of the progress
of operations management has been made in the twentieth century, but since the
beginning of time, humankind has been attempting to improve its material well-being.
Operations managers are key players in the battle to improve productivity.
As societies become increasingly affluent, more of their resources are devoted to
services. In the U.S., more than 85% of the workforce is employed in the service sector.
Productivity improvements and a sustainable environment are difficult to achieve, but
operations managers are the primary vehicle for making improvements.