Introduction to
Operations Management
Operations Management – ITOM 3306
Based on Operations Management (14th ed.) by William J. Stevenson
Instructor: Nils Van den Steen (PhD)
1-1
Introduction
Transformational process
Supply chain management
Why study OM?
What does an OM do?
Processes
Systems
Tools for decision making
Introduction
What is operations?
 The part of a business organization that is responsible for
creating goods or providing services
How to define operations management?
 The management of processes or systems that create goods
and/or provide services
Introduction
Good – A physical* item that includes
raw materials, parts, subassemblies, and
final products. Examples include cars, 3D
printers, cornflakes, gym equipment…
Service – An activity that delivers value
in terms of location, time, transformation
or phycological impact. Examples include
hairdressing, financial advisory,
cleaning,…
Good  Service
Characteristic
Goods
Services
Scalability
Easier
More difficult
Typically, yes
Typically, no
Usable over a long time
Consumed at point of delivery
Easy
Difficult
Ownership
Transferrable
Not transferrable
Location
Can be produced and sold at
different locations
Production and consumption at
the same place
Degree of customer contact
Low
High
Uniformity of input
High
Low
Measurement of productivity
Easy
Difficult
Ability to store in inventory
High
Low
Ability to patent
High
Low
Returns & Warranty
Durability
Correct problems before delivery
Good  Service
Products are typically neither purely service- or purely goods
Goods
Services
Surgery, Teaching
Songwriting, Software Development
Computer Repair, Restaurant Meal
Home Remodeling, Retail Sales
Automobile Assembly, Steelmaking
Good  Service
Servitization – The transformation of a company's strategy from selling
products to offering integrated product and service solutions, enhancing
value and customer relationships.
Product as a Service (PaaS) – A business model where products are
provided as services, involving subscriptions or leases, emphasizing longterm customer engagement and often also environmental sustainability.
Everything as a service (XaaS) – Delivering various products and services
over the internet, transforming traditional business models to subscriptionbased, on-demand solutions, enhancing flexibility and scalability.
Transformation Process
Outputs
•Goods
•Services
Transformation Process
Value-Added
Inputs
•Land / Resources
•Labor
•Capital
•Information
Transformation/
Conversion
Process
Outputs
•Goods
•Services
Measurement
and Feedback
Measurement
and Feedback
Control
Measurement
and Feedback
Feedback = Measurements taken at various points in the transformation process
Control = The comparison of feedback against previously established standards to
determine if corrective action is needed
Supply Chain Management
Supply Chain Management
A sequence of activities and organizations involved in
producing and delivering a good or service
Suppliers’
suppliers
Direct
suppliers
Producer
Distributor
Final
customers
Supply Chain Management
 A firm that does not adequately manage its supply
chain can experience issues such as
 Oscillating inventory levels
 Inventory stockouts
 Late deliveries
 Quality problems
Operations Management
 What is operations?
 The part of a business organization that is responsible for
producing goods or services
 What is operations management?
 The management of processes or systems that create goods
and/or provide services
Introduction
Transformational process
Supply chain management
Why study OM?
What does an OM do?
Processes
Systems
Tools for decision making
Functional Departments
Organization
Marketing
and sales
Operations
Finance
Functional Departments
Functional Departments
 Finance & operations
 Budgeting
 Economic analysis of investment
proposals
 Provision/distribution of funds
 Marketing & operations
 Demand data
 Product and service design
 Competitor analysis
 Lead time data
Functional Departments
 Accounting & operations


Costing and pricing strategies: applying knowledge of operations to develop precise costing
methods and pricing strategies that reflect the true cost of production, leading to better financial
planning and profitability analysis..
Inventory Management: Gaining insights into inventory management practices to accurately
account for inventory levels, reduce holding costs, and minimize obsolescence, which impacts the
financial health of the company.
 Real estate & operations




Operational due diligence: Evaluating the feasibility of construction projects by understanding
operational requirements, ensuring that the projects are viable and sustainable from both a financial
and logistical perspective..
Efficient property maintenance: Utilizing operations management principles to streamline
maintenance processes, reduce costs, and enhance the longevity and value of properties.
Optimizing the use of space: Applying operations management techniques to maximize the
efficient use of space in real estate developments, leading to better-designed, more functional, and
profitable properties.
Investment banking & operations


Operational due diligence during mergers and acquisitions OM knowledge can help to assess the
efficiency and sustainability of a target company's operations. This helps in identifying potential
risks and synergies.
Valuation accuracy: understanding the operational metrics that drive a company's performance,
such as production capacity, supply chain efficiency, and inventory management, leads to more
accurate company valuations and investment decisions.
Functional Departments

Lawyers & operations




Enhanced legal council: Knowledge of operations management will help with advising clients on
the practical impact of legal contracts and agreements, ensuring that these documents are realistic
and enforceable.
Regulatory compliance: A solid understanding of how operational processes can be brought in
alignment with legal standards and regulations will help guide businesses in maintaining
compliance and avoiding legal issues.
Risk management: By understanding the operational aspects of a business, future lawyers can
develop legal strategies that effectively mitigate risks associated with production, logistics, and
supply chain management.
Medical practitioners & operations



Patient flow optimization: Learning how to optimize patient flow and reduce wait times can
significantly enhance patient care, leading to higher patient satisfaction and better health outcomes.
Resource allocation: Efficient management of medical supplies and equipment ensures that these
critical resources are always available when needed, reducing waste and lowering costs.
Process Improvement: Implementing best practices to streamline medical procedures and
administrative processes can increase overall efficiency, allowing healthcare providers to focus
more on patient care and less on administrative burdens.
Why study OM?
Every aspect of business affects or is affected by operations.
=> Important to have a working knowledge of what makes a firm tick.
Whether you are planning to become a consultant, a CFO, CMO, CAO,
accountant, lawyer, investment banker, or real estate professional.
=> Solid understanding of operations will help you succeed at your job.
By studying operations, you will:
 Better understand firm success and failure
 Learn how strategic planning helps your firm excel
 Develop analytical and critical thinking skills
 Gain insight into operational due diligence for informed decision making
 Learn how to analyze and optimize efficiency of business processes
Introduction
Transformational process
Supply chain management
Why study OM?
What does an OM do?
Processes
Systems
Tools for decision making
What does an OM do?
Operations Management is the management of processes
or systems that create goods and/or provide services
You manage processes [1]
You manage systems [2]
What does an OM do?
Process - one or more actions that transform inputs into outputs
Three categories of business processes
Upper-management processes
These govern the operation of the entire
organization.
Operational processes
These are core processes that make up the
value stream.
Supporting processes
These support the operational (core) processes.
What does managing
operational processes
entail?
A) Making sure supply matches demand
B) Dealing with process variability
What does an OM do?
Operations Management
& SC management
Sales &
Marketing
>
Demand
Wasteful
Costly
Opportunity Loss
Customer
Dissatisfaction
Ideal
Supply
Supply
<
Demand
Supply
=
Demand
What does an OM do?
Disruptions due to variation can result in additional costs, delays and
shortages, poor quality, and other inefficiencies.
Four Sources of Variation
Variety of goods or services
being offered
The greater the variety of goods and services
offered, the greater the variation in production or
service requirements (chapter 4).
Structural variation in demand
These are generally predictable. They are
important for capacity planning (chapter 5 and 3).
Random variation
Natural variation that is present in all processes.
Generally, it cannot be influenced by managers.
Assignable variation
Variation that has identifiable sources
(incorrect work, defective inputs, etc.). This
type of variation can be reduced, or eliminated,
by analysis and corrective action.
What does an OM do?
Operations Management is the management of processes
or systems that create goods and/or provide services
You manage processes [1]
You manage systems [2]
What does an OM do?
System – a set of interrelated parts that must work together
A primary function of the operations manager is to guide the
system by decision making.
A)Decision about the design of the system
B) Decision about the operation of the system
What does an OM do?
These decisions involve
– Capacity planning
– Facility location
– Facility layout
– Product and service planning
– Acquisition and placement of equipment
These decisions are typically strategic in nature and
• usually require long-term commitment of resources
• determine parameters of system operation
What does an OM do?
These decisions involve
– Management of personnel
– Inventory management and control
– Scheduling production and people
– Project management
– Quality assurance
These decisions are typically tactical in nature
• Involving the day to day ‘running’ of the organization
Operation manager primarily deals with these tactical decisions.
However, it is good for them to also give input for the strategic design
decisions.
What does an OM do?
Operations Management is the management of processes
or systems that create goods and/or provide services.
[1] Management of processes
 A) making sure supply matches demand
 B) dealing with the inherent variability of processes
[2] Management of systems
 A) making design decisions (long term & strategic)
 B) making operational decisions (short term & tactical)
What does an OM do?
Most operations decisions involve the choice between different alternatives,
each of which will can have a distinct impact on
 Firm profit through revenue or cost implications
 Firm competitive position
 Firm longevity
Examples:
What: What resources are needed, and in what amounts?
When: When will each resource be needed? When should the work
be scheduled? When should materials and other supplies be
ordered?
Where: Where will the work be done?
How: How will the product or service be designed? How will the
work be done? How will resources be allocated?
Who: Who will do the work?
Introduction
Transformational process
Supply chain management
Why study OM?
Functional departments
What does an OM do?
Processes
Systems
Tools for decision making
Effective decision making
There are many ways to make decisions. This course introduces
 How to use quantitative approaches
 How to rely on performance metrics and handle trade-offs
 How to use models
 How to establish priorities
Effective decision making
 A decision-making approach that frequently seeks to
obtain a mathematically optimal solution
 Supported by computer calculations
 Often work together with qualitative approaches
Effective decision making
 Performance metrics
 All managers use metrics to
manage and control operations
 Profits
 Costs
 Quality
 Productivity
 Flexibility
 Inventories
 Schedules
 Forecast accuracy
 Analysis of trade-offs
 A trade-off is giving up one
thing in return for something
else
 Carrying more inventory (an
expense) in order to
guarantee a higher service
level to customers.
Effective decision making
Model – an abstraction of reality, a simplification of something
Common features of models:
 They are simplifications of real-life phenomena
 They omit unimportant details of the real-life systems they mimic so
that attention can be focused on the most important aspects of the
real-life system
There are different types of models:
 Physical Model – miniature airplane
 Schematic Model – drawing of a city
 Mathematical Model – Inventory optimization
Effective decision making
Model – an abstraction of reality, a simplification of something
Some of the benefits
 Generally easier to use and less expensive than dealing with the real system
 Increase understanding of the problem
 Enable managers to analyze “What if?” questions
 Serve as a consistent tool for evaluation and provide a standardized format for
analyzing a problem
 Enable users to bring the power of mathematics to bear on a problem
Some of the limitations
 Quantitative information may be emphasized at the expense of qualitative information
 Models may be incorrectly applied and the results misinterpreted
The use of models does not
guarantee good decisions
Effective decision making
 By recognizing that some issues or items are more important than
others, managers can focus their attention on those efforts that
will create the most value.
 Pareto Principle (80/20 rule) : a few factors account for a high percentage
of occurrence of some event(s)
 The critical few factors should receive the highest priority
 Common rule of thumb across all areas of management (and life?)
What you can become
Data
Data Analyst
Data Visualization Expert
Machine Learning Expert
Business Intelligence Analyst
Operations
Supply Chain
Operations Manager
Quality Control manager
Production Scheduler
Project Manager…
Supply Chain Analyst
Logistics Manager
SC Relationship Manager
Sustainability Analyst …
What you can become
Data
Data Analyst
Data Visualization Expert
Machine Learning Expert
Business Intelligence Analyst …
Operations
Operations Manager
Quality Control Manager
Production Scheduler
Project Manager…
Supply Chain
Supply Chain Analyst
Logistics Manager
SC Relationship Manager
Sustainability Analyst …