Introduction to
Operations Management
Operations Management
• Operations Management is:
The management of systems or processes
that create goods and/or provide services
• Operations Management affects:
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Companies’ ability to compete
Nation’s ability to compete internationally
The Organization
The Three Basic Functions
Organization
Finance
Operations
Marketing
Value-Added Process
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
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.
The Goods–Service Continuum
Goods
Service
Surgery, teaching
Song writing, software development
Computer repair, restaurant meal
Automobile repair, fast food
Home remodeling, retail sales
Automobile assembly, steel making
Food Processor
Inputs
Processing
Outputs
Raw vegetables
Metal sheets
Water
Energy
Labor
Building
Equipment
Cleaning
Making cans
Cutting
Cooking
Packing
Labeling
Canned
vegetables
Hospital
Inputs
Doctors, nurses
Hospital
Medical supplies
Equipment
Laboratories
Processing
Outputs
Examination
Surgery
Monitoring
Medication
Therapy
Treated
patients
Manufacturing or Service?
Tangible
Act
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
Wholesale/retail
Financial services
Healthcare
Personal services
Business services
Education
Key Differences
1.
2.
3.
4.
5.
Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Key Differences
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design
Goods vs. Service
Characteristic
Goods
Service
Customer contact
Low
High
Uniformity of input
Labor content
Uniformity of output
High
Low
High
Low
High
Low
Output
Measurement of productivity
Opportunity to correct problems
Inventory
Evaluation
Patentable
Tangible
Easy
High
Much
Easier
Usually
Intangible
Difficult
Low
Little
Difficult
Not usually
Scope of Operations Management
• Operations Management includes:
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Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating and training employees
Locating facilities
Supply chain management
And more . . .
Types of Operations
Operations
Goods Producing
Examples
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
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
Singapore Manufacturing vs. Service Employment
80
70
60
Percent
50
40
Services
Manufacturing
30
20
10
0
'01
'02
'03
'04
'05
'06
Year
'07
'08
'09
'10
'11
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
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
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
General Approaches to Decision Making
1. Models
2. Quantitative approaches
3. Performance metrics
4. Analysis of trade-offs
5. Systems approach
6. Establishing priorities
7. Ethics
1. Models
A model is an abstraction of reality, a
simplified representation of something.
Classifications:
– Physical models (scale-models; miniature cars)
– Schematic models (charts, drawings, blueprints)
– Mathematical models (formulas, symbols)
What are the pros and cons of models?
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
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
2. Quantitative Approaches
 Linear programming
 Queuing techniques
 Inventory models
 Project models
 Statistical models
3. Performance Metrics
 To control different aspects of operations
 Many:
Profits
Costs
Quality
Productivity
Assets
Inventory
Schedules
Forecast accuracy
4. Analysis of Trade-Offs
• Decision on the amount of inventory to stock
–
Increased cost of holding inventory
vs.
–
Level of customer service
5. Systems Approach
“The whole is greater than
the sum of the parts.”
Suboptimization
6. 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.
7. Ethical Issues
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Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Worker’s rights
Overlap of Business Functions
Operations
Finance
Marketing
Operations Interfaces
Legal
Public
Relations
Accounting
Operations
Personnel/
Human
resources
MIS
Historical Summary of
Operations Management
• Industrial revolution (1770s)
• Scientific management (1911)
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Mass production
Interchangeable parts
Division of labor
• Human relations movement (1920–60)
• Decision models (1915, 1960–’70s)
• Influence of Japanese manufacturers
Trends in Business
• Major trends
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The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior
Management Technology
Technology – is the application of scientific
discoveries to the development and
improvement of goods and services
Kinds of Technology where Operations Management is
concerned about:
• Product and service technology
• Process technology
• Information technology
Simple Product Supply Chain
Suppliers’
Suppliers
Direct
Suppliers
Producer
Distributor
Supply Chain: A sequence of activities
And organizations involved in producing
And delivering a good or service
Final
Consumer
Other Important Trends
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Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement
Increased regulation and product liability
Lean production