Managing

Operations and
Supply Chains

Chapter 8

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 Learning Objectives
8-1 Define operations management and differentiate
between operations and manufacturing.
8-2 Explain how operations management differs in
manufacturing and service firms.
8-3 Describe the elements involved in planning and
designing an operations system.
8-4 Specify some techniques managers may use to
manage the logistics of transforming inputs into
finished products.
8-5 Assess the importance of quality in operations
management.
8-6 Evaluate a business’s dilemma and propose a
solution.

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 The Nature of Operations Management 1
Operations management is the development and
administration of the activities involved in
transforming resources into goods and services
• Historically, it has been referred to as “production” or
“manufacturing”
• The change from “production” to “operations”
recognizes organizations that provide services and
ideas
• Recognition of operation functions as a whole rather
than just inputs and outputs

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 The Nature of Operations Management 2
Manufacturing
• Activities and processes used in making tangible
products; also called production
Production
• Activities and processes used in making tangible
products; also called manufacturing
Operations
• Activities used in making both tangible and intangible
products

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 The Nature of Operations Management 3
The Transformation Process converts inputs into
outputs
• Inputs are resources such as labor, money, materials,
and energy
• Outputs are the goods, services, and ideas that result
from the conversion of inputs
• Transformation may take place through one or more
processes

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 Figure 8.1 The Transformation Process of
Operations Management

Access the text alternative for these images.

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 Figure 8.2 Inputs, Outputs, and
Transformation Processes in the Manufacture
of Oak Furniture

Access the text alternative for these images.

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 The Transformation Process

Blaze Pizza’s inputs are components such as pepperoni, mozzarella,

mushrooms, onions, and sausage, while its outputs are customized
pizzas.
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 The Nature of Operations Management 4
Operations Management in Service Businesses
• Services require different transformation processes
• Services require high customer-contact
• Ideal service provider is high tech and high touch
• Service output is generally intangible and even
perishable

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 Table 8.1 Characteristics of Services

Service Characteristics Examples

Intangibility Going to a concert or sports event such as
baseball, basketball, or football
Inseparability of production Going to a chiropractor; air travel; veterinary
and consumption services
Perishability Seats at a speaker’s presentation
Customization Haircut; legal services; tax consultation
Customer contact Restaurants; retailing such as Macy’s

Sources: Adapted from Valerie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Delivering Quality Service:
Balancing Customer Perceptions and Expectations (New York: Free Press, 1990); K. Douglas Hoffman and John E.G.
Bateson, Essentials of Services Marketing (Mason, OH; Cengage Learning, 2001); Ian P. McCarthy, Leyland Pitt, and
Pierre R. Berthon, “Service Customization Through Dramaturgy,” Mass Customization, 2011, pp. 45–65.

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 The Nature of Operations Management 5
Nature and Consumption of Output
• Services require more customer contact
• Performance of a service typically occurs at the point
of consumption
Uniformity of Inputs
• Service providers have less control over the amount of
variability of resources
• Services are more customized to each customer

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 The Nature of Operations Management 6
Uniformity of Output
• The human element is inherent in providing services,
therefore, each service is performed differently
Labor Required
• Services are more labor-intensive due to the high level
of customer contact
Measurement of Productivity
• Intangibility of the service product makes
measurement more difficult

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 POLLING QUESTION Historically, there have been other names for
Operations Management. One such was
Production and _____.
A. Supply chain management
B. Logistics management
C. Manufacturing management
D. IT management

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 Planning and Designing Operations Systems 1
Planning the Product
• Determine what consumers want, usually through
marketing research
• Product development can be a lengthy, expensive
process
• Some firm develop products jointly

• Create a workable design; transformation process

• Research and development

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 Planning and Designing Operations Systems 2
Designing the Operations Processes
• Standardization
• Making identical, interchangeable components or even
complete products
• Usually costs less than a custom-designed product

• Modular design
• Building an item in a self-contained unit or module that can be
combined or interchanged to create different products
• Often produced as integrated units; failure of one unit usually
means entire component must be replaced

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 Planning and Designing Operations Systems 3
Designing the Operations Processes continued
• Customization
• Making products to meet a customer’s particular needs or
wants
• Mass customization

• Blockchain
• Secure, public database that records all transactions and is
spread across multiple computers
• Difficult to tamper with
• Growing rapidly

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 Planning and Designing Operations Systems 4
Planning Capacity
• Capacity is the maximum load an organizational unit
can carry or operate
• The unit of measure could be a worker or machine, a
department, a branch, or an entire plant
• Capacity can be stated in terms of inputs or outputs
• Operations managers need to plan for capacity needs
• Too low; unmet demand and lost customers
• Too high; higher operating costs

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 Planning and Designing Operations Systems 5
Planning Facilities
• Selection of a facility location is significant due to high
costs involved
• Where to locate a facility involves the evaluation of
many factors
• Proximity to market
• Availability of raw materials, transportation, power, and labor
• Climatic influences and community characteristics
• Taxes and inducements

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 POLLING QUESTION Richard, the CEO of MeeFone Manufacturing, is
having a meeting with the Board of Directors
to discuss the advantages and disadvantages of
opening a new facility in one of the following
countries. In your opinion, which is his best
option?
A. United States
B. China
C. Mexico

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 Planning and Designing Operations Systems 6
Planning Facilities continued
• Technology
• Computer-assisted design (CAD)
• Computer-assisted manufacturing (CAM)
• Flexible manufacturing
• Drones
• Robots

• Computer-integrated manufacturing (CIM)

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 Planning and Designing Operations Systems 7
Sustainability and Manufacturing
• Sustainability deals with conducting activities in such a
way as to provide for the long-term well-being of the
natural environment, including all biological entities
• Sustainability issues increasingly important to
stakeholders and consumer

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 Planning and Designing Operations Systems 8
Sustainability Issues
• Pollution of land, air, water
• Climate change
• Waste management
• Deforestation
• Urban sprawl
• Protection of biodiversity
• Genetically modified foods

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 Managing the Supply Chain 1
Supply Chain Management
• Connecting and integrating all parties of the
distribution system in order to satisfy customers
• Procurement
• Logistics
• Inbound logistics
• Outbound logistics
• Third-party logistics

• Operations are often the most public and visible

aspect of the supply chain

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 Managing the Supply Chain 2
Procurement is the buying of all materials needed
by the organization; also called purchasing
• Aim is to obtain items of desired quality in the right
quantities at the lowest possible cost
• Companies may be able to make some component
parts more economically and efficiently
• Can arrange to lease the item from another company
• What the firm does depends on cost, product
availability, and supplier reliability

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 Managing the Supply Chain 3
Managing Inventory
• Inventory is all raw materials, components, completed
or partially completed products, and pieces of
equipment a firm uses
• Finished-goods inventory

• Work-in-process inventory

• Raw materials inventory

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 Managing Inventory

Operations managers are concerned with managing inventory to

ensure that there is enough inventory in stock to meet demand.

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 Managing the Supply Chain 4
Managing Inventory continued
• Inventory control
• Economic order quantity model

• Just-in-time inventory management

• Material-requirements planning

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 POLLING QUESTION Which inventory management system
minimizes inventory by providing a near-
continuous flow of items from suppliers to the
production facility?
A. Economic order quantity
B. Just-in-time
C. Materials-requirements planning
D. Outsourcing

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 Managing the Supply Chain 5
Managing Inventory continued
• Outsourcing is the contracting of manufacturing or
other tasks to independent companies
• Globalization requires supply chain managers to improve
speed and balance resources
• Linked with competitive advantage
• May raise negative public opinion

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 Table 8.2 Top Outsourcing Providers
Company Services
ISS Facility services
Accenture Management consulting, technology, and
outsourcing
Canon Business Process Business process services, document
Services management, and managed workforce services
CBRE Commercial real estate services
Kelly Outsourcing and Talent management solutions
Consulting Group

Source: International Association of Outsourcing, The Global Outsourcing 100, 2016, https://www.iaop.org/FORTUNE
(accessed April 12, 2017).

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 Managing the Supply Chain 6
Managing Inventory continued
• Routing
• The sequencing of operations through which the product must
pass
• Sequence depends on the product specifications

• Scheduling
• The assignment of required tasks to departments or even
specific machines, workers, or teams

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 Managing the Supply Chain 7
Managing Inventory continued
• Program Evaluation and Review Technique (PERT)
• Identifies all the major activities required to complete a project
• Arranges them in a sequence or path
• Determines the critical path
• Path that requires the longest time from start to finish

• Estimates the time require for each event

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 Figure 8.3 A Hypothetical PERT Diagram for a
McDonald’s Big Mac

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 Managing Quality 1
Quality reflects the degree to which a good or
service meets the demands and requirements of
customers
• Determining quality can be difficult because it
depends on customers’ perceptions
• Quality is especially difficult to measure for services
• Companies must define important quality characteristics that
can be measured

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 Managing Quality 2
Malcom Baldridge National Quality Award
• Given each year to companies that meet rigorous
standards of quality
• The criteria are:
1. Leadership
2. Information and analysis
3. Strategic planning
4. Human resource development and management
5. Process management
6. Business results customer focus and satisfaction
7. Customer focus and satisfaction

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 Managing Quality 3
Quality Control
• Process an organization uses to maintain its
established quality standards
Total Quality Management
• Philosophy that uniform commitment to quality in all
areas of the organization will promote a culture that
meets customers’ perceptions of quality
Statistical Process Control
• System in which management collects and analyzes
information about the production process to pinpoint
quality problems in the production system

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 Managing Quality 4
International Organization for Standardization (ISO)
• ISO 9000
• A series of quality assurance standards designed to ensure the
customer’s quality standards are met

• ISO 14000
• Comprehensive set of environmental standards that
encourages a cleaner and safer world

• ISO 19600
• A comprehensive set of guidelines for compliance management
that addresses risks, legal requirements, and stakeholder
needs

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 Managing Quality 5
Inspection
• Reveals whether a product meets quality standards
• Inspecting finished items determines quality level
• Inspecting work-in-process items finds defects before
the product is completed so corrections can be made

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 Managing Quality 6
Sampling
• Allows a company to pass an entire batch of products
through inspection by testing a sample
• There is always a risk of making an incorrect
conclusion based on a sample
• Sampling more likely to be used when inspection tests
are destructive

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 POLLING QUESTION Michelle is the General Manager of Noah’s
Noodles. The owner has instructed her to
evaluate the of quality of restaurant
operations. In your opinion, which topic should
be of greatest concern?
A. Wait time
B. Service
C. Food quality
D. Cleanliness and appearance

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 Integrating Operations and
Supply Chain Management
Managing various partners is important because
stakeholders hold the firm responsible
Firms can adopt a Global Supplier Code of
Conduct and ensure it’s communicated
Supply chain and procurement managers must
work together to make operational decisions
Must regularly audit its suppliers and take action
where necessary

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 Solve the Dilemma
Planning for Pizza 1
McKing Corporation operates fast-food restaurants in
50 states, selling hamburgers, roast beef and chicken
sandwiches, french fries, and salads
• Wants to diversify into the growing pizza business
• Ideal pizza to sell is a 16-inch pie in three varieties: cheese,
pepperoni, and deluxe (multiple toppings)
• Marketing and human resources personnel prepared:
• Training manuals for employees
• Advertising materials
• Rationale to present to the restaurant managers (many stores
are franchised)

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 Solve the Dilemma
Planning for Pizza 2

Issues:
• The drive-through windows in current restaurants are
too small for a 16-inch pizza to pass through
• Concerned that if this aspect of operations has been
overlooked perhaps the product is not ready to be
launched
• There may be other problems yet to be uncovered

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 Solve the Dilemma
Planning for Pizza 3

Critical Thinking Questions

1. What mistake did McKing make in approaching the
introduction of pizza?
2. How could this product introduction have been
coordinated to avoid the problems that were
encountered?
3. If you were an executive at McKing, how would you
proceed with the introduction of pizza into the
restaurants?

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