Chapter 1
Introduction to Operations Management
BOM1001
Learning objectives
After completing this chapter, you should be able to:
L01.1 Define the term operations management and supply chain
L01.2 Compare and contrast service and production operations
L01.3 Explain the importance of learning about operations management
L01.4 Identify the three major functional areas of organizations and describe how they interrelate.
L01.5 Summarize the two major aspects of process management.
L01.6 Describe the operations function and the nature of the operations
managers’ job.
L01.7 Explain the key aspects of operations management decision-making
L01.8 Briefly describe the historical evolution of operations management
L01.9 Characterize some of the current trends in business that impact operations management
L01.10 Explain the need to manage the supply chain
L01.1 Define the term operations management and supply
chain (Pg.4)
What is Operations ?
The part of the business that is responsible for producing goods or services.
How can we define operations management ?
The management of systems or processes that create goods and/or services.
Supply chain – a sequence of organizations (their facilities, functions, and activities) that
are involved in producing and delivering a product or service.
LO 1: Goods and Services
Goods are physical items that include raw materials,
parts, subassemblies, and final products. Examples
are:

Automobiles

Computer

Oven

Shampoo
Services are activities that provides some
combination of time, location, form or psychological
value. Examples are:

Air travel

Education

Hair cut

Legal counsel
LO 1: The Transformation Process (Pg 6)
Control = The comparison of feedback against previously established standards
to determine if corrective action is needed
Table 1.2 Illustrations of the transformation process (Pg 8).
L01.2 Identify the similarities and differences between
production and service operations. (pg 9)
1.
2.
3.
4.
5.
6.
7.
8.
Degree of customer contact
Labor content of jobs
Uniformity of input
Measurement of productivity
Quality assurance
Inventory
Wages
Ability to patent design
L01.2 Identify the similarities and differences between
production and service operations. (Pg 9)
There are many similarities between managing the production of products and
managing services:
•
•
•
•
•
•
Forecasting and capacity planning to match supply and demand
Process management
Managing variations
Monitoring and controlling costs and productivity
Supply chain management
Location Planning, inventory management, quality control and scheduling
L01.2 Identify the differences between production and
service operations. (Pg.10)
LO1.3
• Every aspect of business affects or is affected by operations
• Many service jobs are closely related to operations
•
•
•
•
Financial services
Marketing services
Accounting services
Information services
• Through learning about operations and supply chains you will have a better
understanding of:
•
•
•
•
The world you live in
The global dependencies of companies and nations
Reasons that companies succeed or fail
The importance of working with others.
L01.4 Identify the 3 major functional areas of organisations
and describe how they interrelate (Pg 11)
L01.4 Identify the 3 major functional areas of organisations
and describe how they interrelate (Pg 11)
Function overlap:

Finance & operations
•
•
•

Budgeting
Economic analysis of investment proposals
Provision of funds
Marketing & operations
•
•
•
•
Demand data
Product and service design
Competitor analysis
Lead time data
LO1.5: Summarize the two major aspects of process
management (Pg 13)
Process - one or more actions that transform inputs into outputs
LO1.5: Summarize the two major aspects of process
management (Pg 13).
Managing a process to meet demand
Supply
>
Demand
Supply
<
Demand
Opportunity Loss
Customer
Dissatisfaction
Supply
=
Demand
Ideal
LO5: Process Variation (Pg14)
LO1.6: Describe the operations function and nature of the
operations manager’s job. (Pg 14)
The scope of operations management ranges across the organization.
The operations function includes many interrelated activities such as:
• Forecasting
• Capacity planning
• Locating facilities
• Facilities and layout
• Scheduling
• Managing inventories
• Assuring quality
• Motivating employees
LO1.7: Explain the key aspects of operations management decision
making. (Pg 18)
Operations management professionals make a number of key decisions that affect the entire organization.
They include:
What resources will be needed, and in what amounts?
When will each resource be needed? When should the work be scheduled? When
should materials and other supplies be ordered? When is corrective action needed?
Where will the work be done?
How will the product or service be designed? How will the work be done (organization,
method, equipment) How will resources be allocated?
Who will do the work?
LO1.8: Briefly Describe the historical evolution of operations
management. (Pg 21)
•
Industrial Revolution.
•
Scientific Management.
•
Human Relations Movement.
•
Decision Models and Management Science
•
Influence of Japanese Manufactures
1.7 Historical Evolution of Operations Management (Pg 21)
Industrial Revolution
Pre-Industrial Revolution: Craft production- A system which highly skilled workers use
simple flexible tools to produce small quantities of customized goods.
Some key elements of industrial revolution
•
Began in England in the 1770’s
•
Division of labour- Adam Smith 1776
•
Application of Rotating Steam Engine 1780.
•
Cotton Gin and Interchangeable Parts Eli Whitney 1792
Notably, management theory and practice did not advance considerably in this period.
1.7 Historical Evolution of Operations Management (Pg 21)
Scientific Management
Movement was led by Frederick Winslow-Taylor.
Believed in a “science of management” based on observation, measurement, analysis,
and improvement of work methods, and economic incentives.
Management is responsible for planning, carefully selecting, and training workers, finding
the best way to perform each job, achieving cooperation, between management and
workers, and separating management from work activities.
Emphasis on maximizing output.
1.7 Historical Evolution of Operations Management (Pg 23)
Human Relations Movement
Human relations movement emphasized on the human element of the job design.

Lillian Gilbreth – application of psychology.

Elton Mayo – Hawthorne studies on worker motivation, 1930.

Abraham Maslow – motivation theory 1940s: hierarchy of needs, 1954.

Frederick Hertzberg – Two factor Theory, 1959.

Douglas McGregor – Theory X and Theory Y, 1960s

William Ouchi – Theory Z, 1981
1.7 Historical Evolution of Operations Management (Pg 23)
Decision Models and Management Science
•
F.W. Harris – mathematical model for inventory management, 1915.
•
Dodge, Romig, and Shewart – Statistical procedures for sampling and quality control,
1930s
•
Tippet – Statistical sampling theory, 1935.
•
Operations Research (OR) Groups – OR in warfare.
•
George Dantzig – Linear programming, 1947.
1.7 Historical Evolution of Operations Management (Pg 24&25)
Influence of Japanese Manufactures
Refined and developed management practices that increased productivity
Credited with fueling the “quality revolution”
Just-in-Time production
LO1.9: Describe current issues in business that impact operations
management. (Pg 27)
Although not experienced by all organizations, the following are issues that are high priorities of
many organisations:
• Economic conditions
• Innovating
• Quality problems
• Risk management
• Competing in global economy
• Environmental concerns
• Ethical conduct
• Managing the supply chain
LO1.9: Describe current issues in business that impact operations
management. (Pg 27)
Sustainability
 Using resources in ways that do not harm ecological systems that support human existence
 Sustainability measures often go beyond traditional environmental and economic measures
to include measures that incorporate social criteria in decision making
 All areas of business will be affected:
 Product and service design
 Consumer education programs
 Disaster preparation and response
 Supply chain waste management
 Outsourcing decisions
LO1.9: Describe current issues in business that impact operations
management. (Pg 29)
Ethical Conduct:
Ethics: is a standard of behavior that guides how one should act in various situations.
5 Principles for thinking
ethically:
• Utilitarian Principle
• Rights Principle
• Fairness Principle
• Common Good Principle
• Virtue Principle
Ethical Framework
• Recognize an ethical issue by asking if an action could be damaging to
a group or individual
• Make sure the pertinent facts are known – who will be impacted / what
options are available
• Evaluate the options by referring to the appropriate preceding ethical
principle
• Identify the best option and then further examine it by asking how
someone you respect will view it
• Retrospect – consider the effect your decision had and what you can
lean from it
LO1.9: Describe current issues in business that impact operations
management. (Pg 29)
Ethical issues that may arise in many aspects of operations management:
 Financial statements
 Worker safety
 Product safety
 Quality
 The environment
 The community
 Hiring and firing workers
 Closing facilities
 Workers’ rights
LO1.9: Describe current issues in business that impact operations
management. (Pg 31)
The need to manage the supply chain:
In the past, organizations did little to manage the supply chain beyond their own
operations and immediate suppliers which led to numerous problems:
• Oscillating inventory levels
• Inventory stock-outs
• Late deliveries
• Quality problems
LO1.9: Describe current issues in business that impact operations
management. (Pg 31)
Other Supply Chain Issues contributing to the need of Supply Chain Management:
• The need to improve operations:
• Increasing levels of outsourcing
• Increasing transportation costs
• Competitive pressures
• Increasing globalization
• Increasing importance of e-business
• The complexity of supply chains
• The need to manage inventories
Next
Chapter 2: Competitiveness, Strategy and
Productivity