1
Introduction to
Operations
Management
Copyright © 2014 by McGraw-Hill Education (Asia). All rights reserved.
Module Objectives
1. Define operations management.
2. Cite examples of service and manufacturing.
3. Identify the three major functional areas in
organizations and their relationship.
4. Discuss the value-added process
5. Use the IPO concept in various sample industries.
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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
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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
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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
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Manufacturing or Service?
Tangible
Act
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Key Differences
1.
2.
3.
4.
5.
Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
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Key Differences
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
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Table 1.3
Goods vs. Service
Characteristic
Goods
Service
Customer contact
Uniformity of input
Low
High
High
Low
Labor content
Uniformity of output
Low
High
High
Low
Output
Measurement of productivity
Opportunity to correct problems
Tangible
Easy
High
Intangible
Difficult
Low
Inventory
Evaluation
Patentable
Much
Easier
Usually
Little
Difficult
Not usually
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The Organization
Figure 1.1
The Three Basic Functions
Organization
Finance
Operations
Marketing
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Overlap of Business Functions
Figure 1.5
Operations
Finance
Marketing
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Operations Interfaces
Figure 1.6
Legal
Public
Relations
Accounting
Operations
Personnel/
Human
resources
MIS
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Value-Added Process
Figure 1.2
The operations function involves the conversion of
inputs into outputs
Value added
Inputs
Land
Labor
Capital
Transformation/
Conversion
process
Outputs
Goods
Services
Feedback
Control
Feedback
Feedback
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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.
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The Goods–Service Continuum
Figure 1.3
Goods
Service
Surgery, teaching
Song writing, software development
Computer repair, restaurant meal
Automobile repair, fast food
Home remodeling, retail sales
Automobile assembly, steel making
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Food Processor
Table 1.2
Inputs
Processing
Outputs
Raw vegetables
Metal sheets
Water
Energy
Labor
Building
Equipment
Cleaning
Making cans
Cutting
Cooking
Packing
Labeling
Canned
vegetables
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Hospital
Table 1.2
Inputs
Doctors, nurses
Hospital
Medical supplies
Equipment
Laboratories
Processing
Outputs
Examination
Surgery
Monitoring
Medication
Therapy
Treated
patients
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Table 1.3
Goods vs. Service
Characteristic
Goods
Service
Customer contact
Uniformity of input
Labor content
Uniformity of output
Output
Measurement of productivity
Opportunity to correct problems
Inventory
Evaluation
Patentable
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Scope of Operations Management
 Operations Management includes:









Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating and training employees
Locating facilities
Supply chain management
And more . . .
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Figure 1.4a
Percent
U.S. Manufacturing vs. Service Employment
02
Year
Mfg. Service
45
79
21
90
Mfg.
50
72
28
80
Service
55
72
28
70
60
68
32
60
65
64
36
50
70
64
36
40
75
58
42
30
80
44
46
20
85
43
57
10
90
35
65
0
95
25
75
45 50 55 60 65 70 75 80 85 90 95 00 02 05
00
30
70
Year
25
75
Figure 1.4b
Singapore Manufacturing vs. Service Employment
80
70
60
Percent
50
40
Services
Manufacturing
30
20
10
0
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
Year
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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
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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
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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
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Operations Management Decision
Making







Models
Quantitative approaches
Performance metrics
Analysis of trade-offs
Systems approach
Establishing priorities
Ethics
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Decision Making







Models
Quantitative approaches
Performance metrics
Analysis of trade-offs
Systems approach
Establishing priorities
Ethics
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Quantitative Approaches
 Linear programming
 Queuing techniques
 Inventory models
 Project models
 Statistical models
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Performance Metrics
 To control different aspects of operations
 Many:
Profits
Costs
Quality
Productivity
Assets
Inventory
Schedules
Forecast accuracy
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Analysis of Trade-Offs
 Decision on the amount of inventory to stock

Increased cost of holding inventory
vs.

Level of customer service
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Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization
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Ethical Issues









Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Worker’s rights
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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
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Trends in Business
 Major trends







The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior
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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
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Simple Product Supply Chain
Figure 1.7
Suppliers’
Suppliers
Direct
Suppliers
Producer
Distributor
Final
Consumer
Supply Chain: A sequence of activities
And organizations involved in producing
And delivering a good or service
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A Supply Chain for Bread
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
Stage of Production
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Other Important Trends






Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement
Increased regulation and product liability
Lean production
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