This document provides an introduction to operations management. It defines operations management as the management of systems or processes that create goods and/or provide services. It discusses the three major functional areas of organizations - operations, finance, and marketing. It also compares and contrasts goods production and service delivery. The document outlines several key learning objectives and concepts in operations management, including the value-added process, types of operations, differences between manufacturing and services, decisions made by operations managers, and historical and current trends impacting the field.

1. Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved.
1
Introduction to
Operations
Management

2. 1-2
Learning Objectives
 Define the term operations management
 Identify the three major functional areas of
organizations and describe how they
interrelate
 Compare and contrast service and
manufacturing operations
 Describe the operations function and the
nature of the operations manager’s job

3. 1-3
Learning Objectives
 Differentiate between design and operation
of production systems
 Describe the key aspects of operations
management decision making
 Briefly describe the historical evolution of
operations management
 Identify current trends that impact operations
management

4. 1-4
Operations Management
 Operations Management is:
The management of systems or processes
that create goods and/or provide services
 Operations Management affects:
 Companies’ ability to compete
 Nation’s ability to compete internationally

5. 1-5
The Organization
The Three Basic Functions
Organization
Finance Operations Marketing
Figure 1.1

6. 1-6
Value-Added Process
The operations function involves the conversion of
inputs into outputs
Inputs
Land
Labor
Capital
Transformation/
Conversion
process
Outputs
Goods
Services
Control
Feedback
Feedback
Feedback
Value added
Figure 1.2

7. 1-7
Value-Added and Product Packages
 Value-added elements make the difference
between the cost of inputs and the value or
price of outputs.
 Product packages are a combination of
goods and services.
 Product packages can make a company
more competitive.

8. 1-8
Automobile assembly, steel making
Home remodeling, retail sales
Automobile repair, fast food
The Goods–Service Continuum
Figure 1.3
Computer repair, restaurant meal
Song writing, software development
Goods Service
Surgery, teaching

9. 1-9
Food Processor
Inputs Processing Outputs
Raw vegetables Cleaning Canned
vegetables
Metal sheets Making cans
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
Table 1.2

10. 1-10
Hospital
Inputs Processing Outputs
Doctors, nurses Examination Treated
patients
Hospital Surgery
Medical supplies Monitoring
Equipment Medication
Laboratories Therapy
Table 1.2

11. 1-11
Manufacturing or Service?
Tangible Act

12. 1-12
Production of Goods
vs. Delivery of Services
 Production of goods – tangible output
 Delivery of services – an act
 Service job categories
 Government
 Wholesale/retail
 Financial services
 Healthcare
 Personal services
 Business services
 Education

13. 1-13
Key Differences
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity

14. 1-14
Key Differences
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

15. 1-15
Goods vs. Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usually
Table 1.3

16. 1-16
 Operations Management includes:
 Forecasting
 Capacity planning
 Scheduling
 Managing inventories
 Assuring quality
 Motivating and training employees
 Locating facilities
 Supply chain management
 And more . . .
Scope of Operations Management

17. 1-17
Types of Operations
Table 1.4
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, financial
advising, renting or leasing
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and TV
newscasts, telephone, satellites

18. Year Mfg. Service
45 79 21
50 72 28
55 72 28
60 68 32
65 64 36
70 64 36
75 58 42
80 44 46
85 43 57
90 35 65
95 25 75
00 30 70
02 25 75
U.S. Manufacturing vs. Service Employment
0
10
20
30
40
50
60
70
80
90
45 50 55 60 65 70 75 80 85 90 95 00 02 05
Year
Percent
Mfg.
Service
Figure 1.4a

19. 1-19
Figure 1.4b
Singapore Manufacturing vs. Service Employment
0
10
20
30
40
50
60
70
80
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Percent
Year
Services
Manufacturing

20. 1-20
Decline in Manufacturing Jobs
 Productivity
 Increasing productivity allows companies to
maintain or increase their output using fewer
workers
 Outsourcing
 Some manufacturing work has been outsourced
to more productive companies

21. 1-21
Challenges of Managing Services
 Service jobs are often less structured than
manufacturing jobs
 Customer contact is higher
 Worker skill levels are lower
 Services hire many low-skill, entry-level workers
 Employee turnover is higher
 Input variability is higher
 Service performance can be affected by worker’s
personal factors

22. 1-22
Key Decisions of Operations Managers
 What
What resources/what amounts
 When
Needed/scheduled/ordered
 Where
Work to be done
 How
Designed/Resources allocated
 Who
To do the work

23. 1-23
Operations Management Decision
Making
 Models
 Quantitative approaches
 Performance metrics
 Analysis of trade-offs
 Systems approach
 Establishing priorities
 Ethics

24. 1-24
Decision Making
 Models
 Quantitative approaches
 Performance metrics
 Analysis of trade-offs
 Systems approach
 Establishing priorities
 Ethics

25. 1-25
Models
A model is an abstraction of reality.
– Physical
– Schematic
– Mathematical
What are the pros and cons of models?
Tradeoffs

26. 1-26
Models Are Beneficial
 Easy to use, less expensive
 Require users to organize
 Increase understanding of the problem
 Enable “what if” questions
 Consistent tool for evaluation and
standardized format
 Power of mathematics

27. 1-27
Limitations of Models
 Quantitative information may be emphasized
over qualitative
 Models may be incorrectly applied and
results misinterpreted
 Nonqualified users may not comprehend the
rules on how to use the model
 Use of models does not guarantee good
decisions

28. 1-28
Quantitative Approaches
 Linear programming
 Queuing techniques
 Inventory models
 Project models
 Statistical models

29. 1-29
Performance Metrics
 To control different aspects of operations
 Many: Profits
Costs
Quality
Productivity
Assets
Inventory
Schedules
Forecast accuracy

30. 1-30
Analysis of Trade-Offs
 Decision on the amount of inventory to stock
 Increased cost of holding inventory
vs.
 Level of customer service

31. 1-31
Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization

32. 1-32
Establishing Priorities
 Pareto phenomenon
 A few factors account for a high
percentage of the occurrence of some
event(s).
 80–20 Rule: 80% of problems are caused
by 20% of the activities.
How do we identify the vital few?

33. 1-33
Ethical Issues
 Financial statements
 Worker safety
 Product safety
 Quality
 Environment
 Community
 Hiring/firing workers
 Closing facilities
 Worker’s rights

34. 1-34
Overlap of Business Functions
Operations
Finance
Figure 1.5
Marketing

35. 1-35
Operations Interfaces
Operations
Personnel/
Human
resources
MIS
Legal
Public
Relations
Accounting
Figure 1.6

36. 1-36
Historical Summary of
Operations Management
 Industrial revolution (1770s)
 Scientific management (1911)
 Mass production
 Interchangeable parts
 Division of labor
 Human relations movement (1920–60)
 Decision models (1915, 1960–’70s)
 Influence of Japanese manufacturers

37. 1-37
Trends in Business
 Major trends
 The Internet, e-commerce, e-business
 Management technology
 Globalization
 Management of supply chains
 Outsourcing
 Agility
 Ethical behavior

38. 1-38
Management Technology
 Technology: The application of scientific
discoveries to the development and
improvement of goods and services
 Product and service technology
 Process technology
 Information technology

39. 1-39
Suppliers’
Suppliers
Direct
Suppliers Producer Distributor Final
Consumer
Simple Product Supply Chain
Figure 1.7
Supply Chain: A sequence of activities
And organizations involved in producing
And delivering a good or service

40. 1-40
Stage of Production Value
Added
Value of
Product
Farmer produces and harvests wheat $0.15 $0.25
Wheat transported to mill $0.08 $0.33
Mill produces flour $0.15 $0.48
Flour transported to baker $0.08 $0.56
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
A Supply Chain for Bread

41. 1-41
Other Important Trends
 Operations strategy
 Working with fewer resources
 Revenue management
 Process analysis and improvement
 Increased regulation and product liability
 Lean production