OPERATIONS

MANAGEMENT

Introductio
n
 You should be able to:
LO 1.1 Define the terms operations management
and supply chain
LO 1.2 Identify similarities and differences between
production and service operations
LO 1.3 Explain the importance of learning about
operations management
LO 1.4 Identify the three major functional areas of
organizations and explain how they
interrelate

LEAR NI NG LO 1.5 Summarize the two major aspects of

process management
OB J EC T I VE LO 1.6 Describe the operations function and the
nature of the operations manager’s job
S LO 1.7 Explain the key aspects of operations
management decision making
LO 1.8 Briefly describe the historical evolution of
operations management
LO 1.9 Describe the current issues in business that
impact operations management
LO 1.10 Explain the importance of ethical decision
making
LO 1.11 Explain the need to manage the supply
chain
WHAT IS OPERATIONS MANAGEMENT?
• Production is the creation of goods and services

• Operations management (OM) is the set of activities that create

value in the form of goods and services by transforming inputs into
outputs
 Marketing – generates
demand
ES S ENTI AL
F UNC TI ONS I N
T O PR OD UCE Production/operations –
G OOD S O R creates the product
D ELI VER
S ERVI C ES Finance/accounting –
tracks how well the
organization is doing, pays
bills, collects the money
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

 Degree of customer contact
Labor content of jobs
Uniformity of input

GOODS Uniformity of output

OR Measurement of productivity
SERVICE? Production and delivery
Quality assurance
Amount of inventory
Evaluation of work
Ability to patent design
ORGANIZATIONAL
CHART TO
DELIVER A
SERVICE
ORGANIZATIONAL CHART COMBINING
GOODS AND SERVICE
O R G A N I Z AT I O N A L
C H A RT T O
PRODUCE GOODS
 Every aspect of the organization
affects or is affected by operations.

We want (and need) to know how

WHY S TUDY goods and services are produced
OPERAT I ONS
M ANAG EM ENT We want to understand what
? operations managers do and how
their decisions affect organizations,
nations, and the lives of people

OM is such a costly part of an

organization and can usually make
oragnizations to succeed or fail.
 Options for Increasing Contribution
TABLE 1.1
FINANCE
MARKETING /ACCOUNTING
OPTION OPTION OM OPTION
INCREASE REDUCE REDUCE
SALES FINANCE PRODUCTION
CURRENT REVENUE 50% COSTS 50% COSTS 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of goods –80,000 –120,000 –80,000 –64,000
Gross margin 20,000 30,000 20,000 36,000
Finance costs –6,000 –6,000 –3,000 –6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% –3,500 –6,000 –4,200 –7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

© 2014 Pearson Education, Inc. 1 - 11

 1. Design 3. Process
2.
of goods and
Managing
and capacity
quality
services design

6. Human
4.
5. Layout resources
Location
strategy and job
STRATEGIC strategy
design
DECISIONS
7. Supply- 8.
IN OM chain Inventory 9.
manageme manageme Scheduling
nt nt

10.
Maintenanc
e
 Operations manager

Supply chain manager

Production analyst

Schedule coordinator
CAREER
O P P O RT U N I T I E S Production manager
IN OM
Industrial engineer

Purchasing manager

Inventory manager

Quality manager
SIGNIFICANT EVENTS IN OM
 Division of
labor Quality
(Adam control
Smith Scientific (Shewhart
1776; Gantt 1924;
Managem charts
Charles ent (Taylor Deming
Babbage (Gantt 1950)
1881) 1916)
1852)
1776 1881 1916 1924
HERITAGE OF
OM
1800 1913 1922
Coordinate Motion
Standardiz d study
ed parts assembly (Frank and
(Whitney line (Ford/ Lillian
1800) Sorenson Gilbreth
1913) 1922)
 HERITAGE OF OM

Material Flexible
Computer CPM/PERT Computer
requirements manufacturing
(Atanasoff (DuPont 1957, aided design
planning system (FMS
1938) Navy 1958) (CAD 1970)
(Orlicky 1960) 1975)

Computer
Baldrige
integrated Globalization
Quality Awards Internet (1995)
manufacturing (1992)
(1980)
(1990)
 Human factors

Industrial engineering

CONTRIBUTORS Management science

OF OM
D E VE LO P M E N T
Biological science

Physical sciences

Information technology
Supply & Demand Challenges
Operations & Sales &
Supply Chains Marketing

Supply
> Demand Wasteful
Costly

Opportunity
Supply
< Demand Loss
Customer
Dissatisfaction

Supply
= Demand Ideal
 The Operations
function consists of all
activities directly related
to producing goods or
providing services.
ROLE OF
O P E RAT I O N A primary function of the
S M A N AG E R operations manager is to
guide the system by
decision making.
• System design decisions
• System operation decisions
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
 System operation

• These are generally tactical and

SYSTEM operational decisions
O P E RAT I O N • Management of personnel
• Inventory management and control
S • Scheduling
DECISIONS • 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
 OM 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 the product or service be
designed? How will the work be done?
How will resources be allocated?
• Who: Who will do the work?
 OM TODAY

• Technology Management
• Global competition
• Working with fewer
resources
• Revenue management
• Agility
 Using resources in ways that do
not harm ecological systems that
support 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
S U S TA I N A B I L I T Y
affected
• Product and service
design
• Consumer education
programs
• Disaster preparation and
response
• Supply chain waste
management
• Outsourcing decisions
 ETHICAL ISSUES

The
Financial Worker Product
Quality environme
statements safety safety
nt

Hiring and
The Closing Workers’
firing
community facilities rights
workers
 THE SUPPLY
CHAIN
▶ A global network of
organizations and activities
that supply a firm with
goods and services
▶ Members of the supply
chain collaborate to achieve
high levels of customer
satisfaction, efficiency and
competitive advantage.

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers customers
 Oscillating
Inventory
inventory
stockouts
THE NEED levels
F O R S U P P LY
CHAIN
MANAGEMENT
Late Quality
deliveries problems
 The need to improve
operations
Increasing levels of
outsourcing
Increasing transportation
SUPPLY costs
Competitive pressures
CHAIN
ISSUES Increasing globalization
Increasing importance of e-
business
The complexity of supply
chains
The need to manage
inventories