1-1 Introduction to Operations Management

CHAPTER
1

Introduction to
Operations Management

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
1-2 Introduction to Operations Management

Lecture outline

· Operations management
· 3 major functional areas of organizations

· Good versus Service

· Operations function and nature of operations

manager’s job
· 10 OM decisions

· Historical evolution of OM

· Current issues in OM
1-3 Introduction to Operations Management

Operations management

· What is operations?
· The part of a business organization that is responsible
for producing goods or services.
· What is operations management?
· The management of systems or processes
that create goods and/or provide services.
1-4 Introduction to Operations Management

Organizing to Produce Goods and Services

▶ Essential functions:
1. Marketing – accessing demand, promoting
2. Production/operations – creating the product
3. Finance- securing financial resources at favorable prices,
allocating, budgeting, providing funds.
1-5 Introduction to Operations Management

Organizational Charts

Figure 1.1
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Organizational Charts

Figure 1.1
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Organizational Charts

Figure 1.1
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Value-Added
Figure 1.2
The difference between the cost of inputs
and the value or price of outputs.
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Food Processor
Table 1.2

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
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Hospital Process
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
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Goods-service Continuum
Figure 1.3
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Goods-service Continuum
Figure 1.3
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l Similarities for Service/Manufacturers
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y
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0 · Both use technology
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0 · Both have quality, productivity, & response issues
· Both must forecast demand
· Both can have capacity, layout, and location
issues
· Both have customers, suppliers, scheduling and
staffing issues
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Key differences
1-15 Introduction to Operations Management

Nature of OM - Why Study OM?

1. OM is one of three major functions of any
organization; we want to study how people
organize themselves for productive enterprise
2. We want (and need) to know how goods and
services are produced
3. We want to understand what operations
managers do
4. We need to understand how operations
interface with other functions in organization
5. OM is such a costly part of an organization
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Business Information Flow
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 Options for Increasing Contribution

TABLE 1.1
FINANCE/
MARKETING ACCOUNTING
OPTION OPTION OM OPTION
INCREASE REDUCE REDUCE
SALES FINANCE PRODUCTION
CURRENT REVENUE 50% COSTS 50% COSTS 20%
Sales $100,000 $150,000 $100,000 $100,000
Cost of goods –80,000 –120,000 –80,000 –64,000
Gross margin 20,000 30,000 20,000 36,000
Finance costs –6,000 –6,000 –3,000 –6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% –3,500 –6,000 –4,200 –7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

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1-18 Introduction to Operations Management

What do Operations Managers do?

Table 1.6

Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
1-19 Introduction to Operations Management

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
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10 OM decisions

· System design
1. Products and services design
2. Managing quality
3. Process strategy
4. Facility location
5. Facility layout
6. HR and job design
1-21 Introduction to Operations Management

10 OM decisions

· System operation
7. Supply chain management
8. Inventory management
9. Scheduling
10. Maintenance
 Where are the OM Jobs?
▶ Technology/methods
▶ Facilities/space utilization
▶ Strategic issues
▶ Response time
▶ People/team development
▶ Customer service
▶ Quality
▶ Cost reduction
▶ Inventory reduction
▶ Productivity improvement
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 Opportunities
Figure 1.3

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 Certifications
▶ APICS, the Association for Operations
Management
▶ American Society for Quality (ASQ)
▶ Institute for Supply Management (ISM)
▶ Project Management Institute (PMI)
▶ Council of Supply Chain Management
Professionals
▶ Charter Institute of Procurement and Supply
(CIPS)

Copyright © 2017 Pearson Education, Inc. 1 - 24

1-25 Introduction to Operations Management

Historical evolution of OM

Figure 1.4
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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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Other Important Trends

· Ethical behavior
· Environmental concerns

· Lean production
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Lecture Highlights
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l
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y
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0 · OM is the business function that is responsible for
1
0 managing the systems or processes to produce a
company’s products and services.
· The role of OM is to transform organizational inputs into
company’s products or services outputs.
· OM is responsible for a wide range of decisions,
including design and system decisions.
· Organizations can be divided into manufacturing and
service organizations, which differ in the tangibility of the
product or service
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Chapter 1 Highlights – con’t

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2
0 · Many historical milestones have shaped OM. Some of
1
0 these are the Industrial Revolution, scientific
management, the human relations movement,
management science, and the computer age
· OM is highly important function in today’s dynamic
business environment. Among the trends with
significant impact are e-business, just-in-time, TQM,
reengineering, flexibility, lean production, SCM, global
marketplace, and environmental issues
· OM works closely with all other business functions