Introduction to

Operations
Management

McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
 Chapter 1: Learning Objectives
 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
operations
4. Describe the operations function and the nature of the operations manager’s
job
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 management

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Operations Management
 What is operations?
 The part of a business organization that is responsible
for producing goods or services
 What is Operations Management(OM)?
 The management of systems or processes that create
goods and/or provide services

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Good or Service?
Goods are physical/tangible 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
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 Operations Management
 In service
For example a bank’s operation activities may include
 Forecasting
 Capacity planning (How any tellers? Too few or too many tellers
will have a negative impact to profit)
 Scheduling
 Inventory management
 Service design
 Waiting lines
 Location of facilities
 Employee motivation and training
 Layout
 Process selection
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 Operations Management
 PC manufacturing
Example
 Forecasting
 Capacity planning
 Scheduling
 Inventory management
 Quality assurance
 Product design
 Waiting lines
 Location of facilities
 Employee motivation and training
 Layout
 Process selection
 More …

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Basic Functions of the Business Organization

Organization

Marketing Operations Finance

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Operations Organization
 Marketing
 Marketing is concerned with promoting and/or selling
goods or services.

 Finance
 Finance is concerned with provision of funds necessary for
operation

 Operations
 Operations is concerned with the creation of goods and
services

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Organization - Marketing
 Marketing
 Determine customer wants and needs and communicate
those to
 Operations (for short term use)
 Designers (for long term use)
 Study the competitors/market and suggest new designs
or modify design

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Organization - Finance
 Finance
 Budgeting
 Economic analysis of investment proposal
 Provision of funds
 Source
 Amount
 Timing

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Organization - Operations
 Operations
 The operations function consists of all activities that are
directly related to producing goods or providing
services. It is the core of most business organizations
because it is responsible for the creation of an
organization's goods or services.

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 Business Operations Overlap
Figure 1.5

Operations

Marketing Finance

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 Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS

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The Transformation Process
Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
•Capital
Process
•Information

Measurement
and Feedback
Measurement Measurement
and Feedback and Feedback
Control

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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Goods-service Continuum
Products are typically neither purely service- or purely goods-
based.
Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

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Manufacturing vs. Service?
Manufacturing and Service Organizations differ chiefly because
manufacturing is goods-oriented and service is act-oriented.

Goods Services

Tangible Act-Oriented

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Manufacturing vs. Service
1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

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 Managing Services is Challenging
1. Jobs in services are often less structured than in manufacturing
2. Customer contact is generally much higher in services compared to
manufacturing
3. In many services, worker skill levels are low compared to those of
manufacturing employees
4. Services are adding many new workers in low-skill, entry-level positions
5. Employee turnover is high in services, especially in low-skill jobs
6. Input variability tends to be higher in many service environments than in
manufacturing
7. Service performance can be adversely affected by many factors outside of
the manager’s control (e.g., employee and customer attitudes)

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 Scope of Operations
Management
The scope of operations management ranges across
the organization.
The operations function includes many interrelated
activities such as:
 Forecasting
 Capacity planning
 Facilities and layout
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 And more . . .
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Basic Management Function
•Planning
•Organizing
•Staffing
•Directing
•Controlling

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 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

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 Why Study OM?
 Every aspect of business affects or is affected by 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

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 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?

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General Approach to Decision Making

 Modeling is a key tool used by all decision makers

 Model - an abstraction of reality; a simplification of
something.
 Common features of models:
 They are simplifications of real-life phenomena

 They omit unimportant details of the real-life systems

they mimic so that attention can be focused on the
most important aspects of the real-life system

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 Models
 Types of Models:
 Physical Models
 Look like their real-life counterparts
 Schematic Models
 Look less like their real-life counterparts than physical models
 Mathematical Models
 Do not look at all like their real-life counterparts

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 Benefits of Models
1. Models are generally easier to use and less expensive than dealing
with the real system
2. Require users to organize and sometimes quantify information
3. Increase understanding of the problem
4. Enable managers to analyze “What if?” questions
5. Serve as a consistent tool 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.

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Quantitative Methods
 A decision making approach that frequently seeks to
obtain a mathematically optimal solution
 Linear programming
 Queuing techniques
 Inventory models
 Project models
 Forecasting techniques
 Statistical models

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 Systems Approach
 System - a set of interrelated parts that must work together
 The business organization is a system composed of subsystems
 marketing subsystem
 operations subsystem
 finance subsystem
 The systems approach
 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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Model Limitations
 Quantitative information may be emphasized at the
expense of qualitative information
 Models may be incorrectly applied and the results
misinterpreted
 This is a real risk with the widespread availability of
sophisticated, computerized models are placed in the
hands of uninformed users.
 The use of models does not guarantee good decisions.

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Metrics and Trade-Offs
 Performance Metrics  Analysis of Trade-Offs
 All managers use metrics to
manage and control
operations
 Profits
 Costs
 Productivity
 Forecast accuracy
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 A trade-off is giving up one
thing in return for
something else
 Carrying more inventory
(an expense) in order to
achieve a greater level of
customer service
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 Degree of Customization
 Relative to other standardized products and services customized
products:
 Tend to be more labor intensive
 Tend to be more time consuming
 Tend to require more highly-skilled people
 Tend to require more flexible equipment
 Have much lower volume of output
 Have higher price tags
 Degree of customization has a significant influence on the entire
organization
 Process selection
 Job design
 Affects marketing, sales, accounting, finance, and information
systems
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Historical Evolution of OM
 Industrial Revolution
 Scientific Management
 Human Relations Movement
 Decision Models and Management Science
 Influence of Japanese Manufacturers

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 Historical Evolution of Operations Management
 Craft production
 Industrial revolution (1770’s)
 Scientific management (1911)
 Human relations movement (1920-60)
 Workers should be treated with dignity
 Decision models (1915, 1960-70’s)
 Influence of Japanese manufacturers
 JIT, TQM, …

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 Industrial Revolution
 Pre-Industrial Revolution
 Craft production - System in which highly skilled workers
use simple, flexible tools to produce small quantities of
customized goods
 Some key elements of the industrial revolution
 Began in England in the 1770s
 Division of labor - Adam Smith, 1776
 Application of the “rotative” steam engine, 1780s
 Cotton Gin and Interchangeable parts - Eli Whitney, 1792
 Management theory and practice did not advance appreciably
during this period
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 Historical Evolution of Operations Management
 Post Civil War
 Labors coming to the cities
 Increase in capitals by forming joint stock companies
 Separation of capital from employer
 Increase in production
 Improved transportation

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 Scientific Management
 Movement was led by efficiency engineer, Frederick Winslow
Taylor
 Believed in a “science of management” based on observation,
measurement, analysis and improvement of work methods,
and economic incentives
 Management is responsible for planning, carefully selecting
and training workers, finding the best way to perform each
job, achieving cooperate between management and workers,
and separating management activities from work activities
 Emphasis was on maximizing output

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Scientific Management -
contributors
 Frank Gilbreth - father of motion studies
 Henry Gantt - developed the Gantt chart scheduling
system and recognized the value of non-monetary rewards
for motivating employees
 Harrington Emerson - applied Taylor’s ideas to
organization structure
 Henry Ford - employed scientific management techniques
to his factories
 Moving assembly line
 Mass production

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Human Relations Movement
 The human relations movement emphasized the
importance of the human element in job design
 Lillian Gilbreth
 Elton Mayo – Hawthorne studies on worker motivation, 1930
 Abraham Maslow – motivation theory, 1940s; hierarchy of needs,
1954
 Frederick Hertzberg – Two Factor Theory, 1959
 Douglas McGregor – Theory X and Theory Y, 1960s
 William Ouchi – Theory Z, 1981

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Decision Models & Management
Science
 F.W. Harris – mathematical model for inventory
management, 1915
 Dodge, Romig, and Shewart – statistical procedures
for sampling and quality control, 1930s
 Tippett – statistical sampling theory, 1935
 Operations Research (OR) Groups – OR applications
in warfare
 George Dantzig – linear programming, 1947

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Influence of Japanese
Manufacturers
 Refined and developed management
practices that increased productivity
 Credited with fueling the “quality revolution
 Just-in-Time production
 Total Quality Management

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Key Issues for Operations
Managers Today
 Economic conditions
 Innovating
 Quality problems
 Risk management
 Competing in a global economy

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Environmental Concerns
 Sustainability
 Using resources in ways that do not harm ecological
systems that support human existence
 Sustainability measures often go beyond traditional
environmental and economic measures to include measures
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 in Operations
 Ethical issues arise in  Financial statements
many aspects of operations  Worker safety
management:  Product safety
 Quality
 The environment
 The community
 Hiring and firing workers
 Closing facilities
 Workers rights

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