Why Learn about Operations Management? “There are many career-related reasons for wanting fo learn abou! operations management, whether you plan te workin the fed of operations or not. This = because every aspect of usiness affects or Is aTected by operations. Operations ana sales are the io ne funcuons n a business organtzaton. Allotner functions accounting, finance, marketing, IT. and £0 an—suppot the two ine functions. Among the service jobs that are closely related to operations are ‘nancia services (29. stock market analyst, oroker, investment banker, anc loan omcer, marketing services (eg, market analyst, marketing researcher, advetising manager. and product manager), accounting services (e.g, corporate accountant, public accountant, and budget analyst). and information services {€-9.. corporate mteligence, rary services, management information systems design services) 215 FIGURE 1.8 ‘The thee major functions of business organizations overlap _Agatt ftom te career-related reasons isa not so obvious one. Through learning abou! operations and supply chains, you wil have 3 much Deter Understanding ofthe wor you ve in, tne global dependencies of companies and nations, some of the reasons that companies succeed a al, andthe importance of working wth others. ‘Working togetner successtuly means that al members ofthe organization understand net only thelr avn fle, bul ey also understand the roles of ethers. Tis 's preasely why all business students, regardless of ther particular major. are required to take a common core of courses that vil enable themto leam about all aspects of business. Because operations management is central tothe functioning of every business organizalon, ts included inthe core of courses business, Students are required to take. And even though individual courses have a narrow focus (eg. accounting, marketing), practice, thete is significant mterfacing ‘and cotaboration among the various functional areas, involving exciiange of information and cooperative decision making, For example, athough the three Primary functions in business organizations perform diferent acivtes, many of their decisions impact the other areas ofthe organization. Consequently, these ‘unctons nave numerous interactions, as depiced by the overlapping cies shown in Fqure 13 Finance ana operations management personnel cooperate by exchanging Information and experise in such activites asthe flowing 1. Budgeting. Budgeis must be periodically prepared to plan nancial requirements. Budgels must sometimes be adjusted, and performance relative to a budget rust be evaluated 2. Economie analysis of investment proposals. Evaluation of akernative investments in plant and equioment requis inputs rom bath operations and finance people {3 Provision of funds. The necessary funding of operations and the amount and timing of funding can be important and even erlical when funds are tight. ‘Careful planning can help avoid cash-fow problems. Marketing's focus is on selling and/or prompting the goods or services of an organization. Marketing is also responsible for assessing customer wants and needs, and for communicating those to operations peoale (shor term) and to design people (long term). Thats, operations needs information about demand ‘aver the snort to Iermeatate term so that can plan accoraingly (eg. purchase materials or Schedule wark), while design peaple need information that relates ‘o improving current products and services and designing new ones. Marketing, design, and production must work closely together to successfully implement design changes and to develop and produce new products. Marketing can provide valuable insight on what compettors are doing. Marketing also can supply information on consumer preferences so that design will now the kinds of products and features needed, operations can supply information about capackies and |udge the manufacturabity of designs. Operations wil also nave advance waming it new equipment or skis wil be needed for new products or services. Finance Reape shouls be cluded in these exchanges in order te pravige Information on wnat funds might be avallale (shart term) and to learn wat tunes might be needed for new products or services (intermediate to long ten). One important piece of inforration marketing needs trom operations isthe manufacturing or service lead time in order to gle customers reallstic estimates of now long Kil take to fl helr orders, ‘Thus, marketing, operations, and tinance must interface on product and process desigh, forecasting, setting realise schedules, qualry and quantity decisions, ‘and keeping each other informed on the others sirengtns and weaknesses. People in every area of business need to appreciate the importance cf managing and coorcinating operations decisions that affect the supply chain and the ‘matching ct supply ana demand, and naw these decisions impact cther tuncions in an organization, (Operations also interacts with other functional areas ofthe organization, including legal, management infomation systems (MIS), accountng, personnelhuman resaurees, and pubic relations, as depictes n Figure 1.9, ‘The legal department must be consulted on contracts with employees, customers, suppliers, anc transporters, as well as on labilty and environmental issues. ‘Accounting supplies information fo management on costs of labor, materials, and ovettiead. and may provide reports on items such as scrap, downline, and Inventories. [Management mtormation systems (MIS) fs concemed wih providing management wth the information it needs to effecvely manage. This oceurs any through designing systems to caplure relevant information and designing reports. MIS is also important for managing the control and decision ¢raking tools used in ‘operations management. ‘The personnel or human resources department Is concerned wth recruitment and training of personnel, tabor relations, contract negotiations, wage and salary administration, assisting in manpower projections, and ensuring the health and safely of employees, Pupie relarons nas responsibity for building and maintaining a positive public image ofthe organization. Good pubic relations provides many potential benefis. An obvious one is inthe marketplace. Other potential benef include public awareness of the organization as a good place to work (labor supply). improved chances of approval of zoning change requests, community acceptance of expansion plans, and instiling a postive atttuce among employees.Career Opportunities and Professional Societies Thete are many career opportunities in the operations management and supply chain fields. Among the numerous job tiles are operations manager, production analyst, production manager, Inaustral engineer, time stucy analyst, Inventory manager, purcnasing manager, schedule cacrainator. alsinpution manager, Supply chain manager. quailty analyst, and qualty manager. People who work in the operations field should have a stil st that includes both people skils and knawledae stils. People sklls include palical awareness: mentoring ally; and collaboration, negotiation, ane communication skils. Knowledge Skils, necessary for crealDity and goad decision making, Include product andior service knowledge. process knowiedge. Industry and global knowledge, and fnancial and accounting skis Iryou are thinking ota career in operations management, you can benef by Joining ane or more of the professional societies. APICS, the Assooiation for Operations Management 8430 West Bryn Maur Avenue, Suite 1000, Chicago, linois 60631 wow apics.o19 ‘American Sooty tr Quatty (ASQ). 230 West Wels Street, Miaukee, Wisconsin 63203 www asa 019 Institute for Supply Management (ISM) 2055 East Centennial Circe, Tempe, Arizona 85284 wowrismws Institute for Operations Research and he Management Solences (INFORMS) 901 Ekridge Landing Road, Linthicum, Maryland 21000-2009 wa informs. 019 ‘The Producton and Operatons Management Society (POMS) CGatege of Engineering, Floraa international Unwversty, EAS 2460, 10555 West Flagler Steet, Agari, Flora 33174 wuwpoms ora ‘The Project Management Insttute (PM) +4 Camous Boulevard, Newtown Square, Pennsylvania 19073-3209 www pmi.ora CCounes of Supply Gnain Management Professionals (CSCMP) 333 East Butlerfeld Road, Sure 140, Lomvard, Minols 60748 bitavesemp org APICS, ASO, ISM, and other professional societies offer a practioner certification examation that can enhance your qualifications. Information about job opportunties can be obtained fram allt these societles as well as from omner sources, such as the Decision Sciences Instkute (Unwersty Plaza, Atianta, Georgia 30303) and the Institute of Industrial Engineers (25 Technology Park, Norcross, Georgia 30092) Operations Management and Decision Making ‘Te chiet role of an operations manager Is that of planneriecision maker. In tis capacty. the operations manager exerts conscerable mtuence over ihe degree to which the goals and objectives of the organization are realized. Most decisions invale many possibe alternatives that can have quit ferent pacts on costs or profs, Consequentiy, tis important to make inormed decisions ‘Operations management professionals make a number of Key decisions hat antec the entre organization. These include the folowing ‘What Winat resources willbe needed, and in what amounts? ‘When: When ull each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When fs correctNe action needed? ‘Where: Were willthe work be done? 5-18 How: How wil the product or service be designed? How wilthe work be done (organization, methods, equipment)? How wil resources be allocated? ‘eo: wno wi do tne work? “Throughout ths book, you wl encounter the broad range of decisions tat operations managers must make, and yoU wl be introduced to the tools necessary to hanale mese decisions This Section describes general approaches fo decsion making, cluding the use of models, quantative methods, analysis of wade- of. establishing priors, ethics, and the systems approach. Models are often a key tool used by all Gecsion MAES Models ‘A model isan abstraction of realy, a simplified representation of Something. For example, a chil toy carts a model ofa real aulomale thas many ofthe ‘same visual features (shape, relative proportions, wheels) that make it suitable forthe chs leamning and playing. Sut the toy does not have a real engine, i cannot transport peopl, and does not weigh 2,000 pounes. ‘other examples of models include automobile test tracks and crash tess; formulas, graphs and charts, nalance sheets and income statements; and fnancial ratios. Common statistical models include descrptive statistics such 26 the mean, median, mode, range, and standard deviaton, as well as random samping the Normal disrution, and regression equations. Models are sometimes classified as physical. schematic, or mathematical Physical models look ike their reaL-ife counterparts. Examoles include miniature cars, trucks, aiplanes, toy animals an¢ trains, and scale-madel buildings. The ‘agvantage of these mode's s thelr visual corresponcence win realty. Schematic models are mare absitact than ther physical counterparts; that, they have less resemblance to the physical realty. Examples include graphe and Cats, blueprint, pictures, ana drawings, The advantage of schematic models Is that they are ofen retalvely simple to construct and change. Moreover, they have some degree of visual correspondence ‘Mathematical models are the most abstract: They do not look a ll ike their rea-fe counterparts. Examples include numbers, formulas, and symbols. These models are usualy the easiest to manipulate, and they are important forms of inputs for computers and calculators. ‘The variety of models m use Is enormous. Nonetheless, all nave certain camman features: They are all decision-making alds and simpiniations at mare complex Feabite phenomena. Real ife IvoWes an overwhelming amount ot detal, much of which Is relevant for any paricular problem. Mocels ome unimpartant geval sa thal atlention can be concentrated on the mast important aspects ofa stuation. Because models play a signifcant rle in operations management decision making they are heavily integrated into the material ofthis text For each model, try to earn (1) fs purpose, (2) how tis used to generate resus, (3) how these results are interpreted and used, and (4) wnat assumptions and imations apply. “The fast point is particularly important because virally every model has an associated set of assumpiions oF conditions under which the model s val. Failure to satisfy all ofthe assumptions wll make the resuls suspect. Attempis to apply the resuks to a problem under such circumstances can lea to disastrous consequences,(Managers use models in a variely of ways and for a variety of reasons. Models are beneficial because they 1. Ate goneraly easy to use and ess expensive than dealing drecty wl the actual skuation 2 Require users o organize and sometimes quantity Information and, the process, een nacate areas wnere adctional informations neesea 15. nrease uncerstanaing f the prem 4 Enable managers to analyze what. questons. 5, Serve as a consistent too for evaluation and provide a standardized format for analyzing a problem. 6. Enable users to bring the power of mathematics to bear on a problem, ‘This impressive Ist of benefits notwithstanding, models have certain linitations of which you should be aware. The following are three of the more important Imitation: 41. Quanta information may be emphasized atthe expense of qualitative information. 2. Models may be incorrectly applied and the results misinterpreted. The widespread use of computerized models adds to this isk because highly sophisticated ‘models may be placed inthe hands of users who are not sufciently knowiedgeable fo appreciate the subtleties ofa particular model, thus, they are unable to fully comprehend the circumstances under which the model can be successfully employed. 13. The use of modets does not guarantee good decisions. Quantitative Approaches ‘Quanttatwe approaches to problem solving onen emnody’ an attempt to obtain matnematicaly optiral solutions to managerial problems. Linear programming ana feiated matnematical techniques are widely used tor optimum allocation of scarce resaurces. Queuing tecnniques are useful or analyzing stuations n which ‘aitng nes form fnventory models are widely used to control lwventotles. Projet mode's such as PERT (program evaluation and review technique) and CPM (ertieal pain method) are usetul or planning, coordinating, and controling large-scale projects. Forecasting techniques are widely used in planning and scheduling. Statistica! models are currently used In many areas of decision making, Intarge measure, quantiatve approaches to derision making in operations management (and in otner tunctonal business areas) nave been accepted because of calculators anc computers capable of hanging the required calculations. Computers nave nad a major impact on operations management Moreover, the ‘gfowng avatlanity ot setvare packages Tor quanttatve teenniques has greatly Increased management's use of hose tecnniques. Atnough quantitative approaches are widely used in operations management decision making It Is important to nate that managers typically use a combination ‘of qualiative and quantitative appreaches, and many important decisions are based on qualitative approaches. Performance Metrics All managers use metncs to manage and control operations. There are many metrics in use, including those related to profs, casts, quay. productuy. lexi ‘assets, inventories, schedules, and forecast accuracy. As you read each chapter, note the metrics being used anc how they are applied to manage operations. Analysis of Trade-Offs ‘Operations personne! frequently encounter decisions that can be described as trade-off decisions. For example, In deciing on the amount of ventory to stock. the decision maker must take info account the trade-off between the increased level of customer service thatthe additional inventory would yield and the increased costs required io stock that inventory. “Throughout iis Book you wil be presented with decison models that renect ese Kinds of trade-ons. Decision makers sometimes eal with these decisions by isting tne aavantages ane alsaavantages—ine pros ana cons—at a course of action to better understana ine consequences of tne decisions they must make. In ‘some instances, decision makers ada weights tothe Kem on thek Ist that reflect the relate Importance of vatious factors. This can help them “net out” the Potential impacts ofthe trade-offs on their decision Degree of Customization ‘A maj infence on the entire organization is the degree of customization of products or services being offered tots customers. Provicing highly customized products or services such as home remodeing, plastic Surgery, ana legal counseling tends to be more labor intensive than prowaing stanaaraizea proaucts such ‘a5 ose you would buy “ofthe shel" at a mall store ora supermarket or standarcized services such as Publi lites and Internet services. Furthermore, production of customized products r provision of customized services Is generally mare tlme consuming, requtres more highly skalee people, and invawes more ‘exo equipment tnan what is needed for standardized products ar services. Customized processes tend to have a much lier volume of output than ‘standardized processes, and customized output carries a higher price tag, The degree of customization as important implications for process selection and job Tequitements. The Impact goes beyond operations and supply chains It affects marketing, sales, accounting, fhance, and information systems. A Systems Approach A ystems viewpoints almost always beneficial in decision making. A system can be defined as a set of interrelated pars that must work together. In 2 business, ‘organization, tne organization can be taught of asa system composed of subsystems (@.g., marketing suDsystem, operations sunsjstem, tmance subsystem), ‘whicn in tura are composed of wer subsystems. The systems approach emphasizes intertelationships amang subsystems, but iis main theme fs that the whole Is {greater than the sum oF ts indvdua parts. Hence, oma systems viewpoint, tne output and objectives of ine organization as a whole take precedence over ‘those of any one subsystem An alternative approach is to concentrate on effciency within subsystems and thereby achieve overall efficiency. But that approach ‘overlooks the fats that organizations must aperale in an environment of scarce resources and that subsystems are often i gect competition for hose scarce resouroes, so that an orderly approach to the allocation of resources is called for Asystems approach fs essential whenever something s being designed, redesigned, Impletrented, improved, or otherwise changed. Is Important to take nto account the impact on all parts ofthe sysiem For example, ifthe upcoming model of an auomobie will add antilock brakes, a designer must take into account how custome wil view the change. instructions for using the brakes, chances for misuse, the cost of producing the new brakes. instalation procedures, recycling worn-out brakes, and repair procecures. In aditon, workers vill need training to make andlor assemble the brakes, production scheduling may ‘change, inventory procedures may nave to change, quality standards wil ave to be established, advertising must be informed of the new features, and parts ‘suppllers must ne selected Global competion and outsourcing are increasing the lengtn of companies’ supply chains, making K more important than ever for companies fo use a systems approach ta take the “nig picture” inta account in the'r decision making.Establishing Priorities In virtualy every situation, managers discover that certain issues or tems are more imoortant than others. Recognizing this enables the ‘managers 1 aiect nei enor 10 where they will do the mast goo sind cian ‘Typleay, a retatwely few Issues or Rems are very important, So that cealing with tnese factors wi generally have a alsproportionately large Impact an the results achieved. This wellknown effect i referred to as the Pareto phenomenon. The implication fs that a manager should examine each situation, searching for the few faciors that will have the greatest impact, and give them the highest priority. This is one of the most imporiant and pervasive concepts in operations ‘management. n fact, this concept can be applied at alllevels of management and to every aspect of decision making, both professional and personal