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Introduction to Operations Management

Operations Management

William J. Stevenson

8th edition

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Introduction to Operations Management

CHAPTER

Introduction to
Operations Management

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. Stevenson

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights

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Introduction to Operations Management

Operations Management
Figure 1.1

The management of systems or processes

that create goods and/or provide services
Organization

Finance

Operations

Marketing

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Introduction to Operations Management

Value-Added
Figure 1.2

The difference between the cost of inputs

and the value or price of outputs.
Value added
Inputs
Land
Labor
Capital

Transformation/
Conversion
process

Outputs
Goods
Services

Feedback

Control
Feedback

Feedback

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Introduction to Operations Management

Goods-service Continuum
Figure 1.3

Steel production
Home remodeling
Auto Repair
Maid Service
Teaching
Automobile fabrication
Retail sales
Appliance repair Manual car wash Lawn mowing

High percentage goods

Low percentage service

Low percentage goods

High percentage service

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Introduction to Operations Management

Food Processor
Table 1.2

Inputs

Processing

Outputs

Raw Vegetables
Metal Sheets
Water
Energy
Labor
Building
Equipment

Cleaning
Making cans
Cutting
Cooking
Packing
Labeling

Canned
vegetables

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Introduction to Operations Management

Hospital Process
Table 1.2

Inputs
Doctors, nurses
Hospital
Medical Supplies
Equipment
Laboratories

Processing

Outputs

Examination
Surgery
Monitoring
Medication
Therapy

Healthy
patients

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Introduction to Operations Management

Manufacturing or Service?

Tangible

Act

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Introduction to Operations Management

Production of Goods vs. Delivery of Services

Production of goods tangible output
Delivery of services an act
Service job categories

Government
Wholesale/retail
Financial services
Healthcare
Personal services
Business services
Education

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Key Differences
1.
2.
3.
4.
5.
6.
7.
8.

Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity
Production and delivery
Quality assurance
Amount of inventory

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Manufacturing vs Service
Characteristic

Manufacturing Service

Output

Tangible

Customer contact

Low

High

Uniformity of input

High

Low

Labor content

Low

High

Uniformity of output

High

Low

Measurement of productivity

Easy

Difficult

Opportunity to correct
quality problems

High

Low

High

Intangible

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Scope of Operations Management

Operations Management includes:

Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .

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The operations function

Consists of all activities directly related to

producing goods or providing services

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Types of Operations
Table 1.4

Operations
Goods Producing

Examples

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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Figure 1.4
U.S. Manufacturing vs. Service Employment
100
80
Percent

Year Mfg. Service

45
79
21
50
72
28
55
72
28
60
68
32
65
64
36
70
64
36
75
58
42
80
44
46
85
43
57
90
35
65
95
32
68
00
30
70

60
40
20
0
45

50 55

60

65 70

75

Year

80 85

90

95 00

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Responsibilities of Operations Management

Table 1.6

Planning

Capacity
Location
Products & services
Make or buy
Layout
Projects
Scheduling

Controlling/Improving

Inventory
Quality
Costs
Productivity

Organizing

Degree of centralization
Process selection

Staffing

Hiring/laying off
Use of Overtime

Directing

Incentive plans
Issuance of work orders
Job assignments

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Key Decisions of Operations Managers

What
What resources/what amounts

When
Needed/scheduled/ordered

Where
Work to be done

How
Designed

Who
To do the work

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Decision Making
System Design

capacity
location
arrangement of departments
product and service planning
acquisition and placement of
equipment

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Decision Making
System operation
personnel
inventory
scheduling
project
management
quality assurance

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Decision Making
Models
Quantitative approaches
Analysis of trade-offs
Systems approach

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Models
A model is an abstraction of reality.
Physical
Schematic
Mathematical

Tradeoffs

What are the pros and cons of models?

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Models Are Beneficial

Easy to use, less expensive
Require users to organize
Systematic approach to problem solving
Increase understanding of the problem
Enable what if questions
Specific objectives
Consistent tool
Power of mathematics
Standardized format

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Quantitative Approaches
Linear programming
Queuing Techniques
Inventory models
Project models
Statistical models

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Systems Approach
The whole is greater than
the sum of the parts.

Suboptimization

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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.
How do we identify the vital few?

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Business Operations Overlap

Figure 1.5

Operations

Marketing

Finance

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Operations Interfaces
Industrial
Engineering
Maintenance

Distribution

Purchasing

Operations

Public
Relations

Legal
Personnel
Accounting

MIS

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Historical Evolution of Operations

Management

Table 1.7

Industrial revolution (1770s)

Scientific management (1911)

Mass production
Interchangeable parts
Division of labor

Human relations movement (1920-60)

Decision models (1915, 1960-70s)
Influence of Japanese manufacturers

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Trends in Business

Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Agility

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Simple Product Supply Chain

Figure 1.7
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

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A Supply Chain for Bread

Stage of Production

Value
Added

Value of
Product

Farmer produces and harvests wheat

$0.15

$0.15

Wheat transported to mill

$0.08

$0.23

Mill produces flour

$0.15

$0.38

Flour transported to baker

$0.08

$0.46

Baker produces bread

$0.54

$1.00

Bread transported to grocery store

$0.08

$1.08

Grocery store displays and sells bread

$0.21

$1.29

Total Value-Added

$1.29

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Other Important Trends

Ethical behavior
Operations strategy
Working with fewer resources
Cost control and productivity
Quality and process improvement
Increased regulation and product liability
Lean production