LESSON 1: INTRODUCTION TO OPERATIONS
MANAGEMENT
AND
TOTAL QUALITY
MANAGEMENT
Operations Management
 Management of systems or processes that
creates goods and services.
 The business function that is responsible for
planning, coordinating, and controlling the
resources needed to produce products and
services for a company.
 The creation of goods and services that
involves transforming or converting inputs
into output.
WHY
IS OPERATIONS
IMPORTANT?
MANAGEMENT
1. Efficiency. The company can create highest
level of efficiency possible within an
organization.
2. Profit maximization. The organization is
able to convert materials and labor, money
and other resources into goods and services
as efficiently as possible to maximize the
profit of an organization.
3. Productivity.
Improves
the
overall
productivity of organizations.
THE SCOPE OF OPERATIONS MANAGEMENT
1. Forecasting
2. Capacity Planning
3. Locating Facilities
4. Facilities and Layout
5. Scheduling
6. Managing Inventories
7. Assuring Quality
8. Motivating Employees
Forecasting. Such things as weather and
landing conditions, seat demand for flights, and
the growth in air travel.
Capacity Planning. Essential for the airline to
maintain cash flow and make a reasonable profit.
Too few or too many planes, or even the right
number of planes but in the wrong places, will hurt
profits.
Locating Facilities. According to managers’
decisions on which cities to provide service for,
where to locate maintenance facilities, and where
to locate major and minor hubs.
Facilities and Layout. Important in achieving
effective use of workers and equipment.
Scheduling. Scheduling of planes for flights and
for routine maintenance; scheduling of pilots and
flight attendants; and scheduling of ground crews,
counter staffs, and baggage handlers.
Managing Inventories. Such items as food and
beverages, first-aid equipment, and etc.
Assuring Quality. Essential in flying and
maintenance operations, where the emphasis is
on safety, and important in dealing with
customers at ticket counters, check-in, telephone
and electronic reservations, and curb service,
where the emphasis is on efficiency and courtesy.
Motivating and Training Employees. Important
in all phases of operations.
The responsibility of operations manager is in
the creation of goods and services. This includes
the following:
 Acquisition of resources and the
conversion of those inputs into outputs
using one or more transformation
processes.
 It also includes product and/or service
design.
 Operations performs this activity in
conjunction with marketing.
 Also be a source of new ideas for
improvements in the processes that
provide the goods or services.
A primary function of an operations manager
is to guide the system by decision making.
Certain decisions affect the design of the system,
and others affect the operation of the system.
System Design
 Decisions that relate to system capacity,
the geographic location of facilities,
arrangement of departments and
placement of equipment within physical
structures, product and service planning,
and acquisition of equipment.
 Requires long-term commitment.
System Operations
 Involves management of personnel,
inventory
planning
and
control,
scheduling, project management, and
quality assurance.

Involves day to day operating decisions.
OTHER
SCOPE
OF
OPERATIONS
MANAGEMENT/OPERATIONS INTERFACES
1. Accounting
2. Purchasing
3. Distribution
4. Industrial Engineering
5. Maintenance
6. Management Information Systems
7. Public Relations
8. Personnel
Accounting. Providing quantitative information
that is financial in nature to guide economic
decisions. Main goal is decision-usefulness.
Purchasing. Procurement of materials, supplies,
and equipment, evaluate vendors for quality,
reliability, service, price, and ability to adjust to
changing demand.
Distribution. Shipping of goods to warehouses,
retail outlets, or final customer.
Industrial
Engineering.
Scheduling,
performance standard, work methods, quality
control, and material handling.
Maintenance. General upkeep and repair of
equipment, building and grounds, heating and air
conditioning, removing toxic wastes, parking, and
security.
Management Information Systems. Gathering
and collecting information from different offices.
Centralization of systems.
Public Relations. Maintaining a good image for
the business. Establishing the morale and
integrity of the company.
Personnel. Human resource office. Hiring,
training, and procurement of manpower.
Responsible for all the needs and benefits of its
employees.
BASIC
FUNCTIONS
MANAGEMENT


OF
OPERATIONS
Operations management is important
because every aspect of business affects or
is affected by operations.
Operations and sales are the two line
functions in a business organization.
THREE MAJOR FUNCTIONS OF OM
1. Operations
2. Marketing
 Lead Time
Time necessary to deliver an action or
producing a product.
3. Finance
FINANCE AND OPERATIONS
a. Budgeting
Budgets must be periodically prepared to
plan financial requirements. Budgets must
sometimes be adjusted, and performance
relative to a budget must be evaluated.
b. Economic
analysis
of
investment
proposals
Evaluation of alternative investments in
plant and equipment requires inputs from
both operations and finance people.
c. Provision of funds
The necessary funding of operations and
the amount and timing of funding can be
important and even critical when funds are
tight. Careful planning can help avoid cashflow problems.
MARKETING AND OPERATIONS
a. Product development
Marketing, design, and production must
work closely together to successfully
implement design changes and to develop
and produce new products.
b. Assessing competitors
Marketing can provide valuable insight
on what competitors are doing.
c. Capacity Setting
Marketing also can supply information on
consumer preferences so that design will
know the kinds of products and features
needed; operations can supply information
about
capacities
and
judge
the
manufacturability of designs.
d. Promotion
Marketing’s focus is on selling and/or
promoting the goods or services of an
organization.
e. Consumer Preferences
Marketing is also responsible for
assessing customer wants and needs, and
for communicating those to operations
people (short term) and to design people
(long term).
That is, operations needs information
about demand over the short to intermediate
term so that it can plan accordingly (e.g.,
purchase materials or schedule work), while
design people need information that relates
to improving current products and services
and designing new ones.
OPERATIONS, FINANCE, AND MARKETING
 Operations will also have advance warning if
new equipment or skills will be needed for
new products or services.
 Finance people should be included in these
exchanges in order to provide information on
what funds might be available (short term)
and to learn what funds might be needed for
new products or services (intermediate to
long term).
 Marketing, operations, and finance must
interface on product and process design,
forecasting, setting realistic schedules,
quality and quantity decisions, and keeping
each other informed on the other’s strengths
and weaknesses.
People in every area of business need to
appreciate the importance of managing and
coordinating operations decisions that affect the
supply chain and the matching of supply and
demand, and how those decisions impact other
functions in an organization.
FEATURES OF OPERATIONS
(Degree of Standardization)
SYSTEMS
Standardized Output
 There is a high degree of uniformity in
goods or services.
 Goods - radios, televisions, computers,
newspapers, canned foods, automobile
tires, pens, and pencils
 Services - automatic car washes,
televised newscasts, taped lectures, and
commercial airline service.
Customized Output
 The product or service is designed for a
specific case or individual.

Goods - eyeglasses, custom-fitted
clothing, window glass (cut to order), and
customized draperies

Services - tailoring, taxi rides, and
surgery.
The Transformation Process
Value Added
INPUTS
Land
Labor
Capital
Information
Transformation
Conversion
Process
OUTPUTS
Goods
Services
Feedback
Feedback
Control
Value Added
 Used to describe the difference between the
cost of inputs and the value or price of
outputs.
 The greater the value added, the greater
amount of funds available for some purposes.
Examples of value added for
organizations:
o Highway construction, police
protection
non-profit
and
fire
Examples of value added for profit organizations:
o Research and development, investment in
new facilities and equipment, worker salaries,
incentives, and others.
DIFFERENCE
SERVICES
BETWEEN
GOODS
AND
Although goods and services often go
hand in hand, there are some very basic
differences between the two, differences that
impact the management of the goods portion
versus management of the service portion. There
are also many similarities between the two.
Production of goods results in a tangible output.
Such as an automobile, eyeglasses, a golf ball, a
refrigerator—anything that we can see or touch.
It may take place in a factory, but it can occur
elsewhere. For example, farming and restaurants
produce non-manufactured goods.
Delivery of service generally implies an act. A
physician’s examination, TV and auto repair, lawn
care, and the projection of a film in a theater are
examples of services.
POINTS OF COMPARISON
1. Degree of customer contact
Many services involve a high degree of
customer contact, although services such as
Internet providers, utilities, and mail service
do not. When there is a high degree of
contact, the interaction between server and
customer becomes a “moment of truth” that
will be judged by the customer every time the
service occurs.
2. Labor content of jobs
Services often have a higher degree of
labor content than manufacturing jobs do,
although automated services are an
exception.
3. Uniformity of inputs
Service operations are often subject to a
higher degree of variability of inputs. Each
client, patient, customer, repair job, and so on
presents a somewhat unique situation that
requires
assessment
and
flexibility.
Conversely, manufacturing operations often
have a greater ability to control the variability
of inputs, which leads to more-uniform job
requirements.
4. Quality assurance
Quality assurance is usually more
challenging for services due to the higher
variation in input, and because delivery and
consumption occur at the same time. Unlike
manufacturing, which typically occurs away
from the customer and allows mistakes that
are identified to be corrected, services have
less opportunity to avoid exposing the
customer to mistakes.
5. Inventory
Many services tend to involve less use of
inventory than manufacturing operations, so
the costs of having inventory on hand are
lower than they are for manufacturing.
However, unlike manufactured goods,
services cannot be stored. Instead, they must
be provided “on demand.”
6. Wages
Manufacturing jobs are often well paid,
and have less wage variation than service
jobs, which can range from highly paid
professional services to minimum-wage
workers.
7. Ability to patent
Product designs are often easier to
patent than service designs, and some
services cannot be patented, making them
easier for competitors to copy.
SIMILARITIES BETWEEN MANAGING THE
PRODUCTION OF GOODS AND MANAGING
SERVICES
1. Forecasting and capacity planning to match
supply and demand.
2. Process management.
3. Managing variations.
4. Monitoring and controlling costs and
productivity.
5. Supply chain management.
6. Location planning, inventory management,
quality control, and scheduling.
Characteristics
Output
Customer Contact
Uniformity of Input
Uniformity of Output
Labor Content
Measurement of
Productivity
Opportunity to correct
quality
problems
before delivering to
customers
Goods
Tangible
Low
High
High
Low
Easy
Service
Intangible
High
Low
Low
High
Difficult
High
Low
THE
HISTORICAL
EVOLUTION
OPERATIONS MANAGEMENT
OF
1940
Operations
research
applications in warfare
The Industrial Revolution
 Craft production system in which highly
skilled workers use simple, flexible tools
to produce small quantities of customized
goods.
1947
Linear programming
1951
Commercial
digital
computers
Automation
Extensive development
of quantitative tools
Emphasis
on
manufacturing strategy
Emphasis on quality,
flexibility, time-based
competition,
lean
production
Scientific Management
 Mass production system in which lowerskilled
workers
use
specialized
machinery to produce high volumes of
standardized goods.
 The scientific-management era brought
widespread changes to the management
of factories.
 The movement was spearheaded by the
efficiency
engineer
and
inventor
Frederick Winslow Taylor, who is often
referred to as the father of scientific
management.
A number of other pioneers also contributed
heavily to this movement, including the following:
Frank Gilbreth
 Was an industrial engineer who is often
referred to as the father of motion study.
He developed principles of motion
economy that could be applied to
incredibly small portions of a task.
Henry Gantt
 Recognized the value of nonmonetary
rewards to motivate workers, and
developed a widely used system for
scheduling, called Gantt charts.
Harrington Emerson
 Applied Taylor's ideas to organization
structure and encouraged the use of
experts to improve organizational
efficiency. He testified in a congressional
hearing that railroads could save a million
dollars a day by applying principles of
scientific management.
Henry Ford
 The great industrialist, employed
scientific management techniques.
Historical
Summary
Management
Date
1776
1790
1911
1911
1912
1913
1915
1930
1935
of
Contribution/Concept
Division of labor
Interchangeable parts
Principles of scientific
management
Motion study; use of
industrial psychology
Chart for scheduling
activities
Moving assembly line
Mathematical model for
inventory management
Howthorne studies on
worker motivation
Statistical procedures
for
sampling
and
quality control
Operations
Originator
Adam Smith
Eli Whitney
Frederick W.
Taylor
Frank
and
Lilian Gilbreth
Henry Gantt
Henry Ford
F. W. Harris
Elton Mayo
H.F.
Dodge,
H.G. Romig,
W. Shewhart,
L.H.C. Tippett
1950s
1960s
1975
1980s
1990s
Internet, supply chains
Operations
research
groups
George
Dantzig
Sperry Univac
Numerous
Numerous
W. Skinner
Japanese
manufacturers,
especially
Toyota
and
Taiichi Ohno
Numerous
TRENDS IN BUSINESS
E-business
 Use of the Internet to transact business.
Supply Chain
 A
sequence
of
activities
and
organizations involved in producing and
delivering a good or service.