This document discusses key concepts related to operations management. It covers topics such as operations, productivity, different types of production systems, new production technologies like flexible production and mass customization, inventory management strategies like just-in-time and economic order quantity, and supply chain management. The document provides definitions and explanations of these important operations management terms.

1. chapter
7
Managing
Operations
McGraw-Hill/Irwin
Principles of Management

2. 7 - 2
Operations
• Operations: The different
activities involved in creating
an organization’s products
and services.
• Operations managers:
People who manage
operations.

3. 7 - 3
Productivity and
Efficiency
• Productivity: The output produced by a given
input.
• Productivity = Output/Input
• Productivity of labor: Unit output divided by
some measure of labor input.
• Productivity of capital: Sales divided by the
total capital (money) invested in a business.

4. 7 - 4
Traditional Production
System
• Production system: How the flow of work is configured.
• Job shop: Production systems used when items are ordered
individually.
• Small batch: Production systems used when customers order
in small batches but when each order is different.
• Assembly-line production: Systems used to mass-produce
large volumes of a standardized product.
• Continuous flow production: Production systems that
continuously produce a standardized output that flows out of
the system.

5. 7 - 5
Production Systems –
Costs and Flexibility
Continuous
flow
Assembly
line
Small
batch
Job
shop
New
production
technologies
Low cost High cost
Inflexible/
standardized
Flexible/
standardized
Natureoftechnology/product

6. 7 - 6
New Production
Technologies
• Flexible production technology: A set of
methodologies that allows enterprises to produce a
wider range of end products from a given
production system without incurring a cost
penalty.
• Mass customization: The ability to customize
the final output of a product to individual customer
requirements without suffering a cost penalty.

7. 7 - 7
Managing Inventory
• Inventory holding costs: The capital cost of
money tied up in inventory and the cost of the
warehouse space required to store inventory.
• Just in time: Inventory that enters a production
process just in time to be used.
• Inventory turnover: The speed with which
inventory is replaced.

8. 7 - 8
Economic Order
Quantity
• EOQ = (2 X D X FC)/(VC X K)
• D = Annual demand
• FC = Fixed costs of producing/procuring inventory
• VC = Variable costs of inventory
• K = Inventory holding costs

9. 7 - 9
Build to Order and
Inventory
• Build-to-stock: Stocking a distribution
channel in the anticipation that a customer will
purchase those products.
• Build-to-order: Taking an order first, then
building the product.

10. 7 - 10
Question
When Toyota put s more emphasis on
manufacturing a larger proportion of their cars
once the order is received or the car is actually
sold, they are moving toward the model of
a. licensing.
b. build-to-order.
c. global standardization.
d. build-to-stock.

11. 7 - 11
Supply Chain Management
and Information Systems
• Supply chain: The chain that provides raw materials, partly
finished products, or finished products to an organization.
• Electronic data interchange (EDI): Coordinates the flow of
materials into manufacturing, and out to customers.