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 You should be able to:

1. Define the term operations management

2. Identify the three major functional areas of organizations and describe
how they interrelate
3. Identify similarities and differences between production and service
Introduction to operations
Operations 4. Describe the operations function and the nature of the operations
manager’s job
Management 5. Summarize the two major aspects of process management
6. Explain the key aspects of operations management decision making
7. Briefly describe the historical evolution of operations management
8. Characterize current trends in business that impact operations

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Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 What is operations? Goods are physical items that include raw materials, parts,
 The part of a business organization that is responsible subassemblies, and final products.
for producing goods or services •Computer
 How can we define operations management? •Oven
 The management of systems or processes that create
goods and/or provide services Services are activities that provide some combination of time, location,
form or psychological value.
•Air travel
•Legal counsel

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Supply Chain – a sequence of activities and
organizations involved in producing and delivering
a good or service

Suppliers’ Direct Final

Producer Distributor
suppliers suppliers Customers

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Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
Organization •Capital

Marketing Operations Finance and Feedback
Measurement Measurement
and Feedback 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.
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Products are typically neither purely service- or purely goods- Manufacturing and Service Organizations differ chiefly because
based. manufacturing is goods-oriented and service is act-oriented.

Goods Services
Surgery, Teaching

Songwriting, Software Development

Goods Services
Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

Tangible Act-Oriented

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1. Degree of customer contact 1. Jobs in services are often less structured than in manufacturing
2. Customer contact is generally much higher in services compared to
2. Uniformity of input manufacturing
3. Labor content of jobs 3. In many services, worker skill levels are low compared to those of
4. Uniformity of output manufacturing employees
4. Services are adding many new workers in low-skill, entry-level positions
5. Measurement of productivity
5. Employee turnover is high in services, especially in low-skill jobs
6. Production and delivery 6. Input variability tends to be higher in many service environments than in
7. Quality assurance manufacturing
7. Service performance can be adversely affected by many factors outside of
8. Amount of inventory the manager’s control (e.g., employee and customer attitudes)
9. Evaluation of work
10. Ability to patent design

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Operations &
Supply Chains Sales & Marketing
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
> Demand Costly

Opportunity Loss
Operational processes These are core processes that make up the

Supporting processes
value stream.
These support the core processes.
< Demand Customer

= Demand Ideal

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Four Sources of Variation: The scope of operations management ranges across

Variety of goods or services The greater the variety of goods and services the organization.
being offered offered, the greater the variation in production
or service requirements.
These are generally predictable. They are
The operations function includes many interrelated
Structural variation in demand
important for capacity planning. activities such as:
Random variation Natural variation that is present in all  Forecasting
processes. Generally, it cannot be influenced  Capacity planning
by managers.
 Facilities and layout
Assignable variation Variation that has identifiable sources. This
type of variation can be reduced, or  Scheduling
eliminated, by analysis and corrective action.  Managing inventories
 Assuring quality
Variations can be disruptive to operations and supply chain processes.  Motivating employees
They may result in additional costs, delays and shortages, poor  Deciding where to locate facilities
quality, and inefficient work systems.
 And more . . .

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The Operations Function consists of all activities • System Design
directly related to producing goods or providing – Capacity
services. – Facility location
– Facility layout
– Product and service planning
A primary function of the operations manager is to – Acquisition and placement of equipment
guide the system by decision making. • These are typically strategic decisions that
 System Design Decisions • usually require long-term commitment of resources
 System Operation Decisions • determine parameters of system operation

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• System Operation
• These are generally tactical and operational decisions
– Management of personnel
– Inventory management and control
– Scheduling
– Project management
– Quality assurance
• Operations managers spend more time on system operation
decision than any other decision area
• They still have a vital stake in system design

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 Every aspect of business affects or is affected by operations  Most operations decisions involve many alternatives that can
 Many service jobs are closely related to operations have quite different impacts on costs or profits
 Financial services  Typical operations decisions include:
 Marketing services  What: What resources are needed, and in what amounts?
 Accounting services
 When: When will each resource be needed? When should the work be
 Information services
scheduled? When should materials and other supplies be ordered?
 There is a significant amount of interaction and
collaboration amongst the functional areas  Where: Where will the work be done?

 It provides an excellent vehicle for understanding the world  How: How will he product or service be designed? How will the work be
in which we live done? How will resources be allocated?
 Who: Who will do the work?

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 Modeling is a key tool used by all decision makers  Types of Models:

 Model - an abstraction of reality; a simplification of something.  Physical Models
 Common features of models:  Look like their real-life counterparts
 They are simplifications of real-life phenomena
 Schematic Models
 They omit unimportant details of the real-life systems they
 Look less like their real-life counterparts than physical
mimic so that attention can be focused on the most important
aspects of the real-life system
 Mathematical Models
 Do not look at all like their real-life counterparts

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1. Models are generally easier to use and less expensive than dealing  A decision making approach that frequently seeks to
with the real system obtain a mathematically optimal solution
2. Require users to organize and sometimes quantify information  Linear programming
 Queuing techniques
3. Increase understanding of the problem
 Inventory models
4. Enable managers to analyze “What if?” questions
 Project models
5. Serve as a consistent tool for evaluation and provide a standardized  Forecasting techniques
format for analyzing a problem  Statistical models
6. Enable users to bring the power of mathematics to bear on a problem.

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 System - a set of interrelated parts that must work together  Industrial Revolution
 The business organization is a system composed of subsystems
 marketing subsystem
 Scientific Management
 operations subsystem  Human Relations Movement
 finance subsystem
 Decision Models and Management Science
 The systems approach
 Influence of Japanese Manufacturers
 Emphasizes interrelationships among subsystems
 Main theme is that the whole is greater than the sum of its parts
 The output and objectives of the organization take precedence over those
of any one subsystem

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 Pre-Industrial Revolution  Movement was led by efficiency engineer, Frederick
 Craft production - System in which highly skilled workers use simple, Winslow Taylor
flexible tools to produce small quantities of customized goods
 Believed in a “science of management” based on observation,
 Some key elements of the industrial revolution measurement, analysis and improvement of work methods, and
 Began in England in the 1770s economic incentives
 Division of labor - Adam Smith, 1776
 Management is responsible for planning, carefully selecting and
 Application of the “rotative” steam engine, 1780s
training workers, finding the best way to perform each job,
 Cotton Gin and Interchangeable parts - Eli Whitney, 1792
achieving cooperate between management and workers, and
 Management theory and practice did not advance appreciably separating management activities from work activities
during this period  Emphasis was on maximizing output

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 Frank Gilbreth - father of motion studies  The human relations movement emphasized the
 Henry Gantt - developed the Gantt chart scheduling importance of the human element in job design
system and recognized the value of non-monetary rewards  Lillian Gilbreth
for motivating employees  Elton Mayo – Hawthorne studies on worker motivation, 1930
 Abraham Maslow – motivation theory, 1940s; hierarchy of needs,
 Harrington Emerson - applied Taylor’s ideas to
organization structure
 Frederick Hertzberg – Two Factor Theory, 1959
 Henry Ford - employed scientific management techniques  Douglas McGregor – Theory X and Theory Y, 1960s
to his factories  William Ouchi – Theory Z, 1981
 Moving assembly line
 Mass production

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 F.W. Harris – mathematical model for inventory management, 1915  Refined and developed management practices that
 Dodge, Romig, and Shewart – statistical procedures for sampling and increased productivity
quality control, 1930s  Credited with fueling the “quality revolution
 Tippett – statistical sampling theory, 1935  Just-in-Time production
 Operations Research (OR) Groups – OR applications in warfare
 George Dantzig – linear programming, 1947

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 Economic conditions  Sustainability

 Innovating  Using resources in ways that do not harm ecological
systems that support human existence
 Quality problems
 Sustainability measures often go beyond traditional
 Risk management environmental and economic measures to include measures
 Competing in a global economy that incorporate social criteria in decision making
 All areas of business will be affected
 Product and service design
 Consumer education programs
 Disaster preparation and response
 Supply chain waste management
 Outsourcing decisions

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 Ethical issues arise in  In the past, organizations did little to manage the
many aspects of operations  Financial statements supply chain beyond their own operations and
management:  Worker safety immediate suppliers which led to numerous problems:
 Product safety
 Oscillating inventory levels
 Quality
 Inventory stockouts
 The environment
 Late deliveries
 The community
 Quality problems
 Hiring and firing workers
 Closing facilities
 Workers rights

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 Customers – what products/services do customers want

1. The need to improve operations
 Forecasting – predicting timing and volume of customer demand
2. Increasing levels of outsourcing  Design – incorporating customer wants, manufacturability, and time to
3. Increasing transportation costs  Capacity planning – matching supply and demand
4. Competitive pressures  Processing – controlling quality, scheduling work
 Inventory – meeting demand requirements while managing costs
5. Increasing globalization
 Purchasing – evaluating potential suppliers, supporting the needs of
6. Increasing importance of e-business operations on purchased goods and services
7. The complexity of supply chains  Suppliers – monitoring supplier quality, on-time delivery, and flexibility;
maintaining supplier relations
8. The need to manage inventories  Location – determining the location of facilities
 Logistics – deciding how to best move information and materials

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