Operations
Management
Introduction - Chapter 1
1-1
Outline
 What is Operations Management?
 Why Study OM?
 Production vs. Service Organizations.
 Operations Management Decisions.
 Heritage of OM.
 Recent Developments & Challenges.
 Productivity.
1-2
What Is Operations Management?
 Operations management is the management of
systems that produce goods and provide
services.

It includes planning, designing and operating
systems to achieve goals of the organization.
 Book definition (not as good): The set of activities
that creates goods and services by transforming
inputs into outputs.
1-3
Transforming Inputs to Outputs
Inputs
Process
Outputs
Land,
Labor,
Goods
Capital,
Production or Service
Materials,
and
System
Services
Equipment,
Management
1-4
Examples
Production
Service
 Auto factories
(assembly plants)
 Hospitals
 Airlines
 Job shops (printing)
 Movie theaters
 Fast food restaurants
 Grocery stores
1-5
Why Study OM?
 OM is one of three major functions of any
organization (Marketing, Finance, and
Operations).
 We should know how goods and services are
produced.
 OM is such a costly part of an organization.
 Jobs!
1-6
Organizational Functions
 Operations.

Creates product or service.
 Marketing.

Generates demand.
 Finance/Accounting.

Obtains funds &
tracks money.
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Characteristics of Goods
 Tangible product.
 Consistent inputs and
outputs.
 Production separate from
consumption.
 Can be inventoried.
 Low customer interaction.
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Characteristics of Service
 Intangible product.
 Variable inputs and outputs
(people!).
 Production and consumption
at same place and time.
 No inventories.
 High customer interaction.
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Goods Contain Services &
Services Contain Goods
Automobile
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Consulting Service
Counseling
100
75
50
25
0
% of Product that is a Good
25
50
75
100
% of Product that is a Service
1-10
OM Jobs
1-11
Operations Management for a
Manufacturer
Marketing
Manufacturing
Finance/
Accounting
Operations
Production
Control
Quality
Control
1-12
Purchasing
Operations Management for an
Airline
Marketing
Flight
Operations
Operations
Ground
Support
Facility
Maintenance
1-13
Finance/
Accounting
Catering
Critical Decisions for OM
 Product & service design.
 Quality management.
 Process design.
 Capacity & location of facilities.
 Layout of facilities.
 Human resources & Job design.
 Supply-chain management.
 Inventory management.
 Scheduling.
 Maintenance.
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Skills and Knowledge Needed
 Knowledge of production and service processes.
 Knowledge of basic OM principles.
 Analytical Tools:
Forecasting
 Decision-Making
 Linear Programming
 Break-even analysis
 Inventory control
 Waiting lines (queueing)

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Heritage of OM
 Prior to 1700’s - Most products custom-made on a
small scale with local distribution.
Local craftsmen.
 Products were handmade and unique.

 Industrial Revolution
Mechanized production and distribution.
 Allowed mass production and wider distribution.
 Fostered division of labor.

1-16
Industrial Revolution
 Key developments:
Steam engine (1769).
 Interchangeable parts (1798).
 Machine tools (1798).

 Results:
Production increased.
 Prices decreased.
 Workers replaced by machines.
 Need to manage complex production systems.

1-17
Scientific Management
 Study production systems scientifically to
improve them (beginning in 1880’s).
 There are ‘scientific laws’ for production
systems that can be used to improve (optimize)
production.
 Work smarter,
 Management
not harder.
is responsible for productivity.
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Related Fields
 Operations Management.
 Industrial Engineering.
 Social and psychological factors.
 Operations Research/Management Science
(Mathematical modeling).
 Logistics.
1-19
Eli Whitney
 Born 1765; died 1825.
 Invented cotton ‘gin’.
 Received government contract
to make 10,000 muskets (1798).
 Showed machine tools could
make standardized parts.
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Recent Developments for OM
 Information technology: (computers, bar codes,
EDI, internet, wireless, etc.)
 Just-In-Time systems.
 Quality emphasis.
 Service economy.
 Globalization.
 Environmental concerns.
 Security.
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Development of the Service
Economy
80%
U.S. Employment, % Share
Services
40%
Industry
Farming
0
1850
1900
1950
1-22
2000
Most Jobs are in Services
Sector
% of Jobs
Professional Services
24
Retail & Wholesale
21
Utilities & transportation
7
Other Services (finance, real estate, hospitality, etc.)
21
Agriculture
2
Manufacturing, construction and mining
1-23
25
Productivity
 Used to measure of process improvement.
 Amount of output relative to input.
Productivity =
Units produced
Inputs used
 Productivity increases improve standard of living.

From 1889 to 1973, U.S. productivity increased at a 2.5%
annual rate.
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How Would You Measure
Productivity for A Restaurant?
Amount of output (????) per input (????).
Output:
Number of meals served?
 Number of tables served?
 Number of satisfied customers?

Input:
Lbs. of food?
 Number of employees?
 Number of tables?

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Productivity for One Product
Productivity =
Units produced
Inputs used
 Output is easy to measure with one product.
 Input may have many components.

Parts and subassemblies.

Labor.

Equipment.

Knowledge.

etc.
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Productivity Variables
Productivity =
Output
Labor + material + energy + capital +
miscellaneous
 Use a common measure to combine different
inputs - usually $.
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Productivity Measurement
Problems
Quality of output should be considered.

If you produce more, but of lower quality, does
productivity rise?
 External elements may change productivity.

Wireless communication may raise productivity.
Precise units of measure may be lacking.
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How Would You Measure
Productivity for UM - St. Louis?
Productivity =
Units produced
Inputs used
 What is output?

How is it measured?
 What is input?

How is it measured?
1-29
How Would You Measure
Productivity for:
A builder of new homes?
An automobile mechanic?
A hospital?
A fire department?
A restaurant?
1-30