1
Introduction to
Operations
Management
McGraw-Hill/Irwin
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Operations Management
 Operations Management is:
The management of systems or processes
that create goods and/or provide services
 It revolves around
 Productivity, Quality, E-Business, global
competition and customer services
 OM is an Engine of a car
 Operations Management affects:
 Companies’ ability to compete
 Nation’s ability to compete internationally based on
collective operations management
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The Organization
Figure 1.1
The Three Basic Functions
Organization
Finance
Operations
Marketing
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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 & Product
Packages
 Value-Added is the difference between the cost of inputs
and the value or price of outputs
 Money generated through value addition is used in
R & D, investment in new facilities and equipment,
worker salaries and profits
 Greater the value addition the grater will be money
generated
 Customer involvement and Technology used are the
major factors in managing operations
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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 Process
Table 1.2
Inputs
Doctors, nurses
Hospital
Medical Supplies
Equipment
Laboratories
Processing
Outputs
Examination
Surgery
Monitoring
Medication
Therapy
Healthy
patients
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Manufacturing or Service?
Tangible
Act
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Production of Goods vs. Delivery of
Services
 Production of goods – tangible output
 Delivery of services – an act
 Service job categories
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Government
Retail
Financial services
Hospitality & Tourism
Shipping and delivery
Personal care
Education
Transportation
Communication
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Goods vs Service
Key Differences
Customer contact
Uniformity of input
Labor content
Uniformity of output
Output
Measurement of productivity
Opportunity to correct problems
Inventory
Evaluation
Patentable
Goods
Low
High
Low
High
Tangible
Easy
High
Much
Easier
Usually
Service
High
Low
High
Low
Intangible
Difficult
Low
Little
Difficult
Not usual1-11
Scope of Operations Management
 Operations Management includes:
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Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
Supply chain management
And more . . .
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Types of Operations
Table 1.4
Operations
Examples
Goods/Services Producing Farming, mining, construction,
manufacturing, generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange
Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment
Films, radio and television,
concerts, recording
Communication
Newspapers, radio and television
newscasts, telephone, satellites
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Importance of Operations Management
 The operations manager is the key figure in the
system: He/she has the ultimate responsibility
for the creation of goods or provision of services
 Job
of
operations
manager
in
both
manufacturing and services organizations is
basically Managerial
 The service sector and the manufacturing sector
are both important to the economy but recently
number of workers are instantly increasing in
services sector
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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
Designing of products, process and services
 Who
To do the work
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General Approaches to Decision
Making in Operations Mgt.
1.
2.
3.
4.
5.
6.
7.
Models
Quantitative approaches
Performance Matrices
Analysis of trade-offs
Systems approach
Establishing Priorities
Ethical Issues
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1.
Models
 A model is an abstraction of reality
 A simplified representation of something
Types of Models:
1. Physical Models look like their real-life counterparts.
Examples include miniature cars, trucks, airplanes, toy
animals and trains, and scale-model buildings
2. Schematic Models are more abstract than their
physical counterparts; that is, they have less
resemblance to the physical reality. Examples include
graphs and charts, pictures, and drawings
3. Mathematical Models are the most abstract: They do
not look at all like their real-life counterparts. Examples
include numbers, formulas, and symbols
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Models Are Beneficial
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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 is universal
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2.
Quantitative Approaches
 An attempt to obtain mathematically
optimal solutions to managerial problems
a) Linear programming for optimum allocation of
scarce resources
b) Queuing Techniques to form waiting lines
c) Inventory models to control inventories
d) Project Models use of Portfolio mgt., learning
curve and WBS methods
e) Statistical Models
f) Forecasting Techniques
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3. Performance Metrics
 Many matrics are used to manage and
control operations, these include related to
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Profits
Cost
Quality
Productivity
Feedback
Inventories
Schedules
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4. Analysis of Trade-Offs
 Decision on the amount of inventory to stock
 Over stocking
VS
 Being Stock Out
 Decision on Scheduling of Overtime
 Higher labor cost, lower productivity, lower
quality and greater risk of accidents
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5.
Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization
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5. Systems Approach
 System: A set of interrelated parts that must
work together
 An organization works as a system and is
composed of Subsystems (Marketing, Finance
and Operations)
 A systems approach is essential whenever
something is
being designed, redesigned,
implemented, improved, or other-wise changed
 For Example: To conduct a
Advertising, Budget designing etc
research
survey,
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6. Establishing Priorities
 Priorities are set and adjusted to take
operational decisions
 For Example, in expanding a business, there
are many priorities ranging from High to Medium
to Low.
 Pareto Phenomenon:
 Priorities may vary from Cost to PR and
Loyalty to customization.
 80/20 Rule - 80% of problems/profits are
caused by 20% of the activities/customers.
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7. Ethical Issues
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Financial statements
Worker safety
Product safety & Quality
Environment (Interloop)
Hiring/firing workers
Social Welfare
Worker’s rights
Host Govt. rights
Home Govt. rights
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Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing
Operations
Public
Relations
Legal
Personnel
Accounting
MIS
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Other Important Trends
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Ethical behavior
Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement
Increased regulation and product liability
Lean production
 System that uses minimal amounts of resources
to produce a high volume of high quality goods
with some variety
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