INTRODUCTION TO OPERATIONS MANAGEMENT

KEY IDEAS
1. Three Basic Business Functions. Operations is that part of an organization responsible for the
creation of value in the form of goods and/or services, ideally balancing the supply of these items
with customer demand. Operations works in conjunction with the complementary business
functions of finance, responsible for securing and allocating the financial resources necessary to
maintain the organization, and marketing, responsible for evaluating and enhancing customer
demand.
2. Input, Output and Value-added. Any operation can be described as a set of inputs (i.e. labor
and materials) that are transformed into a set of outputs (i.e. goods and/or services), as illustrated
in Figure 1.4 of page 6 of the textbook. The essence of operations management is value-added,
or the degree to which the value of all outputs of an operation exceed the value of its inputs.
3. Goods vs. Services. Goods imply tangible products, those that can handled and/or stored in
some fashion, such as manufactured items or food. Services are intangible products, such as
health care or education. Material goods often require a distribution system to get them into the
hands of consumers, while service industries tend to deal directly with consumers. Other
important points on which the production of goods and services differ are summarized in Table
1.3 on page 9 of the textbook.
4. Process Management. A process is any action involved in the transformation of an input to an
output. Process management, therefore, focuses on these value-adding activities. Variability in
process, or process variation, can be particularly problematic for operations management.
5. Scope of Operations Management. Operations management people are involved in product and
service design, process selection, the management of technology, the design of work systems,
location planning, facilities planning, inventory management, and quality improvement.
6. Models. Models, which are abstractions of reality, are used throughout the book to enhance
understanding of important concepts, and they are used by managers to manage operations.
Models can include words, symbols, graphs, equations, and pictures.
7. Ethics. Operations managers, like all managers and professionals, have an obligation to make
ethical decisions. They must consider the impact of their decisions on their company, on the
workers, on the customers, and on the environment. They must know and obey the laws
pertaining to their operations.
8. Historical Evolution. Studying the historical evolution of production/operations management
gives us an appreciation of how the current state of operations management developed, and may
provide insight into future development. Some key elements of the historical development of
operations management include Eli Whitney’s introduction of interchangeable parts and Henry
Ford’s application of division of labor and the moving assembly line. A summary list of other
highlights and ‘pioneers’ is available in Table 1.4 on page 25 of the textbook.
9. Craft Production and Mass Production. The evolution of manufacturing began with craft
production, where skilled workers using general-purpose tools produced custom-made goods.
This was supplanted by mass production in the early 1900s. In contrast to craft production,
production workers were generally low-skill, machines were specialized, and jobs became
narrow. Specialization and division of labor were key concepts. Costs decreased while quality
and productivity increased. Mass production is starting to give way in some industries to lean
production.
10. Lean Production. An important approach to production of manufactured goods is lean
production. It gets its name from the fact that it requires less inventory, time, and other resources
than mass production. Lean production has the advantage of greater flexibility than mass
production, and can usually achieve higher quality than mass production.
11. Supply Chains. A supply chain is a sequence of organizations having some role in providing a
product to a customer. Supply chains typically link many different facilities and activities, as raw
materials are secured, work-in-process is finished, and final output is distributed. Supply chain
management integrates the activities of these differing operations, addressing issues such as
forecasting, purchasing and logistics, as summarized in Table 1.5 on page 31 of the textbook.
12. Current Issues. There are quite a few current issues that operations managers (and other
managers) must contend with, including globalization, quality and process improvement, the
management of technology, and agility. Three issues having a major impact are supply chain
management, e-commerce, and the Internet.