Introduction

to
Operations
Management
 Operations Management

The management of systems or processes that

create goods and/or provide services

Organization

Finance Operations Marketing

 Introduction to Operations
Management
• Operations Management includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– And more . . .
 Business Operations Overlap

Operations

Marketing Finance
 Goods-service continuum
Steel production
Automobile fabrication

House building
Low service content
Road construction
High goods content
Dressmaking
Farming

Auto Repair
Appliance repair

Maid Service
Increasing Manual car wash
goods content
Increasing Teaching
service content Lawn mowing
High service content
Low goods content
 Introduction to Operations
Management
Stage of Production Value Value of
Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29
 Types of Operations

Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
 Value-Added
The difference between the cost of inputs
and the value or price of outputs.

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
 Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Introduction to Operations Management

Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
 Introduction to Operations Management

Operations Interfaces

Industrial Maintenance
Engineering
MIS

Distribution Public Relations

Operations

Purchasing Personnel
Accounting
 Introduction to Operations Management

Decision Making

System Design
– capacity
– location
– arrangement of departments
– product and service planning
– acquisition and placement of
equipment
 Introduction to Operations Management

Decision Making

System operation
– personnel
– inventory
– scheduling
– project
management
– quality assurance
 Introduction to Operations Management

Major Characteristics of Production Systems

Degree of standardization
Type of operation
– project
– job shop
– repetitive production
– continuous processing
 Introduction to Operations Management

Manufacturing or Service?

Tangible Act
 Introduction to Operations Management

Key Differences

• Customer contact
• Uniformity of input
• Labor content
• Uniformity of output
• Measurement of productivity
• Quality assurance

These differences are beginning to fade

in many cases
 Introduction to Operations Management

Manufacturing vs Service

Characteristic Manufacturing Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
 Introduction to Operations Management

Responsibilities of Operations Management

Planning Organizing
– Capacity – Degree of centralization
– Location – Subcontracting
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling – Issuance of work orders
– Inventory – Job assignments
– Quality
 Introduction to Operations Management

Models

A model is an abstraction of reality.

– Physical
– Schematic
– Mathematical Tradeoffs

What are the pros and cons of models?

 Introduction to Operations Management

Systems Approach

“The whole is greater than

the sum of the parts.”

Suboptimization
 Introduction to Operations Management

Quantitative Approaches

• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
 Introduction to Operations Management

Pareto Phenomenon

• A vital few things are important for reaching

an objective or solving a problem.
• 80/20 Rule - 80% of problems are caused by
20% of the activities.

How do we identify the vital few?

 Introduction to Operations Management

Recent Trends

• The Internet
• E-Business
• Supply Chain Management
 Introduction to Operations Management

Simple Product Supply Chain

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Consumer
 Introduction to Operations Management

Continuing Trends
• Quality and process improvement
• Technology
• Globalization
• Operations strategy
• Environmental issues