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Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-2

Chapter One

Introduction
to
Operations
Management
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-3

• What is Operations?

The part of a business organization

that is responsible for producing
goods or services

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-4 Introduction to Operations Management

Operations Management

The management of systems or processes that

create goods and/or provide services

Organization

Finance Operations Marketing

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-5

Supply Chain
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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-6 Introduction to Operations Management

• The scope of Operations Management

includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– Deciding where to locate facilities
– And more . . .
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-7

Why Manufacturing Matters

• Over 18 million workers in manufacturing jobs
• Accounts for over 70% of value of U.S. exports
• Average full-time compensation about 20%
higher than average for all workers
• Manufacturing workers more likely to have
benefits
• Productivity growth in manufacturing in the last 5
years is more than double that of the U.S.
economy

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-8

Why Study OM?

• Every aspect of business revolves around operations
• Many service jobs are closely related to operations
– Financial services
– Marketing services
– Accounting services
– Information services
• There is a significant amount of interaction and
collaboration amongst the functional areas
• It provides an excellent vehicle for understanding the
world in which we live

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-9

Career Opportunities in OM

• Operations manager
• Production analyst
• Production manager
• Industrial engineer
• Time study analyst
• Inventory manager
• Quality analyst
• Quality manager

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-10 Introduction to Operations Management

Business Operations Overlap

Operations

Marketing Finance

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-11

Good or Service?
Goods are physical items that include raw materials, parts,
subassemblies, and final products.
•Automobile
•Computer
•Oven
•Shampoo
Services are activities that provide some combination of
time, location, form or psychological value.
•Air travel
•Education
•Haircut
•Legal counsel

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-12 Introduction to Operations Management

Goods-service continuum
Steel production
Automobile fabrication

House building
Low service content Road construction
High goods content
Dressmaking
Farming

Auto Repair
Appliance repair

Maid Service
Increasing Manual car wash
goods content
Increasing Teaching
service content Lawn mowing
High service content
Low goods content
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-13 Introduction to Operations Management

Stage of Production Value Value of

Added 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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-14 Introduction to Operations Management

Types of Operations

Operations Examples
Goods Producing 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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-15 Introduction to Operations Management

Value-Added
The difference between the cost of inputs
and the value or price of outputs.

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-16 Introduction to Operations Management

Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-17 Introduction to Operations Management

Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-18 Introduction to Operations Management

Operations Interfaces

Industrial Maintenance
Engineering
MIS

Distribution Public Relations

Operations

Purchasing Personnel
Accounting

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-19

Decision Making

• Most operations decisions involve many alternatives that

can have quite different impacts on costs or profits
• Typical operations decisions include:
– 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 he product or service be designed? How will the
work be done? How will resources be allocated?
– Who: Who will do the work?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-20

Role of the Operations Manager

The Operations Function consists of all activities

directly related to producing goods or providing services.

A primary function of the operations manager is to guide

the system by decision making.
– System Design Decisions
– System Operation Decisions

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-21 Introduction to Operations Management

Decision Making

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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-22 Introduction to Operations Management

Decision Making

System operation
– personnel
– inventory
– scheduling
– project
management
– quality assurance

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-23 Introduction to Operations Management

Models

A model is an abstraction of reality.

– Physical
– Schematic
– Mathematical Tradeoffs

What are the pros and cons of models?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-24 Introduction to Operations Management

Quantitative Approaches

• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-25 Introduction to Operations Management

Manufacturing or Service?

Tangible Act

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-26 Introduction to Operations Management

Key Differences

• Customer contact
• Uniformity of input
• Labor content
• Uniformity of output
• Measurement of productivity
• Quality assurance

These differences are beginning to fade

in many cases

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-27 Introduction to Operations Management

Manufacturing vs Service

Characteristic Manufacturing Service

Output Tangible Intangible
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 High Low
quality problems
High

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-28 Introduction to Operations Management

Responsibilities of Operations Management

Planning Organizing
– Capacity – Degree of centralization
– Location – Subcontracting
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling – Issuance of work orders
– Inventory – Job assignments
– Quality

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-29 Introduction to Operations Management

Systems Approach

“The whole is greater than

the sum of the parts.”

Suboptimization

•Beneficial in decision making

•Consider the impact on all parts of the system

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-30

Historical Evolution of OM

• Industrial Revolution
• Scientific Management
• Human Relations Movement
• Decision Models and Management Science
• Influence of Japanese Manufacturers

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-31

Key Trends and Issues in Business

• E-Business & E-Commerce

• Management of Technology
• Globalization
• Management of Supply Chains
• Outsourcing
• Agility
• Ethical Behavior

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.