Overview: OPERATIONS MANAGEMENT
• TOPIC 1
• What Do Operations Managers Do?
• Operations Function
• Evolution of Operations Management
• Operations Management and E–business
• Globalization and Competitiveness
BM 240 Topic 1
What Is Operations Management?
• Operations Management
• The design, operation, and control of the transformation
process that converts such resources as labor and raw
materials into goods and services that are sold to
customers.
• The Importance of Operations Management
• It encompasses both services and manufacturing.
• It is important in effectively and efficiently managing
productivity.
• It plays a strategic role in an organization’s competitive
success.
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Operations Function
• Operations
• Marketing
• Finance and
Accounting
• Human
Resources
• Outside Suppliers
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How is Operations Relevant to my Major?
• Accounting
• Information
Technology
• Management
• “As an auditor you must understand the
fundamentals of operations management.”
• “IT is a tool, and there’s no better place to
apply it than in operations.”
• “We use so many things you learn in an
operations class—scheduling, lean
production, theory of constraints, and tons
of quality tools.”
BM 240 Topic 1
How is Operations Relevant to my Major?
• Economics
• Marketing
• Finance
• “It’s all about processes. I live by
flowcharts and Pareto analysis.”
• “How can you do a good job marketing a
product if you’re unsure of its quality or
delivery status?”
• “Most of our capital budgeting requests
are from operations, and most of our cost
savings, too.”
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Operations Management
Operations function consists of all activities
directly
related to producing goods or providing services.
Organization
Finance
Production/
Operations
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Marketing
Business Operations Overlap
Production/
Operations
Marketing
Finance
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Types of Operations
Operations
Examples
Goods Producing
Farming, mining, construction,
manufacturing, power 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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Transformation Process
• Physical: as in manufacturing operations
• Locational: as in transportation operations
• Exchange: as in retail operations
• Physiological: as in health care
• Psychological: as in entertainment
• Informational: as in communication
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Transformation Process
Inputs
Land
Labor
Capital
Outputs
Goods
Services
Transformation/
Conversion
process
Feedback
Control
Feedback
Feedback
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Value-Added
• The difference between the cost of inputs
and the value or price of outputs.
Value added
Inputs
Land
Labor
Capital
Outputs
Goods
Services
Transformation/
Conversion
process
Feedback
Control
Feedback
Feedback
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Manufacturing and Services
• Manufacturing Organizations
• Use operations management in the transformation
process of turning raw materials into physical goods.
• Service Organizations
• Use operations management in creating nonphysical
outputs in the form of services (the activities of employees
interacting with customers).
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Managing Productivity
• Productivity
• The overall output of goods or services produced divided
by the inputs needed to generate that output.
• A composite of people and operations variables.
• Benefits of Increased Productivity
• Economic growth and development
• Higher wages and profits without inflation
• Increased competitive capability due to lower costs
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Food Processor
Inputs
Processing Outputs
Raw Vegetables
Metal Sheets
Water
Energy
Labor
Building
Equipment
Cleaning
Making cans
Cutting
Cooking
Packing
Labeling
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Canned vegetables
Hospital Process
Inputs
Processing
Outputs
Doctors, nurses
Hospital
Medical Supplies
Equipment
Laboratories
Examination
Surgery
Monitoring
Medication
Therapy
Healthy patients
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Historical Events in Operations
Management
Era
Industrial
Revolution
Events/Concepts
Dates
Originator
Steam engine
Division of labor
Interchangeable parts
Principles of scientific
management
1769
1776
1790
James Watt
1911
Frederick W. Taylor
Time and motion studies
Scientific
Management Activity scheduling chart
Moving assembly line
1911
1912
1913
Adam Smith
Eli Whitney
Frank and Lillian
Gilbreth
Henry Gantt
Henry Ford
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Historical Events in Operations
Management (cont.)
Era
Human
Relations
Operations
Research
Events/Concepts
Dates
Originator
Hawthorne studies
1930
1940s
1950s
1960s
1947
1951
Elton Mayo
Abraham Maslow
Frederick Herzberg
Douglas McGregor
George Dantzig
Remington Rand
1950s
Operations research
groups
1960s,
1970s
Joseph Orlicky, IBM
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andBMothers
Motivation theories
Linear programming
Digital computer
Simulation, waiting
line theory, decision
theory, PERT/CPM
MRP, EDI, EFT, CIM
Historical Events in Operations
Management (cont.)
Era
Events/Concepts Dates Originator
JIT (just-in-time)
TQM (total quality
management)
Quality
Strategy and
Revolution
operations
Business process
reengineering
1970s
1980s
1990s
1990s
Taiichi Ohno (Toyota)
W. Edwards Deming,
Joseph Juran
Wickham Skinner,
Robert Hayes
Michael Hammer,
James Champy
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Historical Events in Operations
Management (cont.)
Era
Events/Concepts
Dates Originator
Globalization
WTO, European Union,
and other trade
agreements
Internet, WWW, ERP,
supply chain
management
1990s
2000s
Numerous countries
and companies
1990s
E-commerce
2000s
ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE,
PeopleSoft
Amazon, Yahoo,
eBay, and others
Internet
Revolution
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Globalization
can take the form of selling in foreign
markets, producing in foreign lands, purchasing
from foreign suppliers, or partnering with foreign
firms. Companies “go global” to take advantage of
favorable costs, to gain access to international
markets, to be more responsive to changes in
demand, to build reliable sources of supply, and
to
keep abreast of the latest trends and
technologies.
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Trends and Key Issues for Operations Management
Prof. Iansiti’s article defines operations as what gives a company
the power to act. There are a lot of issues the business
organizations would need to grapple with to survive, and as
operations give the company the power to act, it is directly
affected by a lot of issues many businesses face. Here are some
issues and trends, and some pandemic-related examples:
1. Economic conditions:
The Philippine economy has borne the effects of COVID19,
however, for managers of business organizations, changes in
operations are necessary for the company to survive.
BM 240 Topic 1
Trends and Key Issues for Operations Management
2. Innovation:
Businesses needed to reinvent themselves to survive. In the information
technology industry, this reinvention would be called a pivot. A pivot
occurs when a company shifts its business strategy to accommodate
changes in its industry, customer preferences, or any other factor that
impacts its bottom line, and this would directly affect operations.
3. Quality problems:
If customers can easily replace products, they will have no second
thoughts about purchasing from a business with inferior product or
service quality. Even worse would be the risk of having the company’s
reputation shattered online because of the multiple customer
complaints, or the company experiencing lawsuits from disgruntled
customers.
BM 240 Topic 1
Trends and Key Issues for Operations Management
4. Risk management:
Not all risk is bad- sometimes taking a risk results in a good outcome.
However, risks with foreseen negative incomes should be managed or
minimized. Managing risks starts with the company identifying risks, as
such, there are and will be multiple risks the company has in its
operations. For example, a hospital may be able to acquire an
COVID testing machine, which is foreseen to be another source of
income and help the larger community it is in, a positive outcome for it.
However, if the hospital cannot assure the public of the quality and
accuracy of its tests, it has the risk of not being able to recover its
investment in the said testing machine.
BM 240 Topic 1
Trends and Key Issues for Operations Management
5. Competing in a global economy:
We are now able to purchase and enjoy products from all
over the world, and this has led local companies vying against
international sellers for a slice of the market. Conversely, local
companies may also export to international buyers. But how
exactly do companies compete?
6. Sustainability:
We learned earlier that businesses create products and
services out of various types of input (land, labor, capital and
information). It is now important to ensure that we use
resources in ways that do not harm ecological systems that
support both current and future human existence.
BM 240 Topic 1
Trends and Key Issues for Operations Management
7. Ethical conduct:
You may have heard of the Enron case and the Worldcom scandal in textbooks. Lately,
there have been several scandals as well: search through Netflix, Instagram, or Twitter
to learn of the Fyre Festival fiasco by Billy McFarland, the Theranos fraud case by
Elizabeth Holmes, or the Nissan Japan Pay Scandal orchestrated by Carlos Ghosn.
As Iskolars ng Bayan, we are asked time and time again to hold fast to Honor, even
having Honor come before Excellence. As future operations managers, it is important
to know the ethics required of you, ethics being the standard of behavior that would
give you in managing operations.
8. Supply Chain Management
Businesses used to focus only on their internal processes. However, the systems school
of management thought tells us that a business organization is in constant interaction
with its environment, and in the real world, we rely on suppliers and business partners
who make up our supply chain. There are problems of business organizations which
had roots causes lying outside of the management of internal processes, for example,
delayed materials shipment from suppliers leading to stockouts. These make it clear
that management of supply chains is essential to attain the goals managers set for
their organizations.
BM 240 Topic 1
Trends and Key Issues for Operations Management
9. Business Process Management
Businesses have various processes: upper-management processes that
include governance, operational processes that transform inputs into
outputs and add value, and supporting processes. Management of
business processes (BPM) occurs when processes are adequately
designed, executed, and monitored. BPM also has two aspects:
managing processes to meet demand, and dealing with process
variability.
10. Variability
Variability is true in nature as well as in every manufacturing operation,
no matter how precise and delicate the process is. For example, cans of
baked beans vary slightly in net weight from can to can. And, the size of
holes drilled by the same machine under exactly identical conditions do
vary.
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The operations function in business organizations is responsible for producing
goods and providing services. It is a core function of every business. Supply
chains are the sequential system of suppliers and customers that begins with
basic sources of inputs and ends with final customers of the system.
Operations and supply chains are interdependent—one couldn’t exist without
the other, and no business organization could exist without both.
Operations management involves system design and operating decisions
related to product and service design, capacity planning, process selection,
location selection, work management, inventory and supply management,
production planning, quality assurance, scheduling, and project management.
The historical evolution of operations management provides interesting
background information on the continuing evolution of this core business
function.
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