What is operations?

The part of a business organization that is

responsible for producing goods or services
Introduction to
Operations How can we define operations
Management management?
The management of systems or processes
that create goods and/or provide services

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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
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 Value-Added
Supply chain a sequence of activities and
Inputs Transformation/ Outputs
organizations involved in producing and Land Conversion Goods
Labor Services
delivering a good or service Capital
Process
Information

Direct Final Measurement

Producer Distributor and Feedback
suppliers suppliers customers
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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Products are typically neither purely service- or

1. Degree of customer contact
purely goods-based. 2. Uniformity of input
Goods Services 3. Labor content of jobs
Surgery, Teaching 4. Uniformity of output
Songwriting, Software Development 5. Measurement of productivity
Computer Repair, Restaurant Meal 6. Production and delivery
Home Remodeling, Retail Sales 7. Quality assurance
Automobile Assembly, Steelmaking 8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

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 Every aspect of business affects or is Through learning about operations and
affected by operations supply chains you will have a better
understanding of:
Many service jobs are closely related to The world you live in
operations The global dependencies of companies and nations
Financial services Reasons that companies succeed or fail
Marketing services The importance of working with others
Accounting services
Information services

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Finance & operations

Budgeting
Economic analysis of investment
Organization proposals
Provision of funds
Marketing & operations
Marketing Demand data
Operations Finance Product and service design
Competitor analysis
Lead time data

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 Operations manager
Supply chain manager
Process - one or more actions that transform inputs into outputs
Production analyst
Schedule coordinator Three Categories of Business Processes:
Production manager Upper-management processes These govern the operation of the entire
Industrial engineer organization.
Operational processes These are core processes that make up the value
Purchasing manager stream.
Supporting processes These support the core processes.
Inventory manager
Quality manager

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Operations &
Sales & Marketing Four Sources of Variation:
Supply Chains
Variety of goods or services being The greater the variety of goods and services offered,
offered the greater the variation in production or service
requirements.
Wasteful

>
Structural variation in demand These are generally predictable. They are important
Supply Demand Costly for capacity planning.
Random variation Natural variation that is present in all processes.
Generally, it cannot be influenced by managers.
Opportunity Loss Assignable variation Variation that has identifiable sources. This type of
Supply
< Demand Customer
Dissatisfaction
variation can be reduced, or eliminated, by analysis
and corrective action.

Variations can be disruptive to operations and supply chain processes.

Supply
= Demand Ideal
They may result in additional costs, delays and shortages, poor quality,
and inefficient work systems.

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 The scope of operations management ranges across The Operations function consists of all
the organization. activities directly related to producing goods or
The operations function includes many interrelated providing services.
activities such as:
Forecasting
Capacity planning A primary function of the operations manager is
Facilities and layout to guide the system by decision making.
Scheduling
Managing inventories System design decisions
Assuring quality System operation decisions
Motivating employees
Deciding where to locate facilities
And more . . .
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System design
Capacity
Facility location
Facility layout
Product and service planning
Acquisition and placement of equipment
These are typically strategic decisions that
usually require long-term commitment of resources
determine parameters of system operation

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 System operation Most operations decisions involve many alternatives that can
have quite different impacts on costs or profits
These are generally tactical and operational decisions
Management of personnel Typical operations decisions include:
Inventory management and control What: What resources are needed, and in what amounts?
Scheduling When: When will each resource be needed? When should the work be
Project management scheduled? When should materials and other supplies be ordered?
Quality assurance Where: Where will the work be done?
Operations managers spend more time on system operation
How: How will he product or service be designed? How will the work be
decision than any other decision area
done? How will resources be allocated?
They still have a vital stake in system design
Who: Who will do the work?

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Modeling is a key tool used by all decision Keys to successfully using a model in
makers decision making
Model - an abstraction of reality; a simplification of
something. What is its purpose?
Common features of models: How is it used to generate results?
They are simplifications of real-life phenomena How are the results interpreted and used?
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 limitations?

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1. Models are generally easier to use and less expensive than dealing Quantitative information may be emphasized at the
with the real system expense of qualitative information
2. Require users to organize and sometimes quantify information
Models may be incorrectly applied and the results
3. Increase understanding of the problem
misinterpreted
4. This is a real risk with the widespread availability of
5. Serve as a consistent tool for evaluation and provide a sophisticated, computerized models are placed in the
standardized format for analyzing a problem hands of uninformed users

6. Enable users to bring the power of mathematics to bear on a

problem.
The use of models does not guarantee good decisions

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Performance metrics Analysis of trade-offs

A decision-making approach that All managers use metrics to A trade-off is giving up
frequently seeks to obtain a manage and control one thing in return for
operations
mathematically optimal solution Profits
something else
Carrying more
Supported by computer calculations Costs inventory (an
Often work together with qualitative Quality
Productivity
expense) in order to
approaches achieve a greater
Flexibility level of customer
Inventories service
Schedules
Forecast accuracy

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 System - a set of interrelated parts that must work In nearly all cases, certain issues or items are more
together important than others
The business organization is a system composed of subsystems Recognizing this allows managers to focus their attention
Marketing subsystem to those efforts that will do the most good
Operations subsystem Pareto Phenomenon - a few factors account for a high percentage of
Finance subsystem occurrence of some event(s)
The critical few factors should receive the highest priority
The systems approach This is a concept that is appropriately applied to all areas and
Emphasizes interrelationships among subsystems levels of management
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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Industrial Revolution Pre-Industrial Revolution

Craft production - System in which highly skilled workers use simple,
Scientific management flexible tools to produce small quantities of customized goods
Human relations movement Some key elements of the industrial revolution
Began in England in the 1770s
Decision models and management science Division of labor - Adam Smith, 1776
Influence of Japanese manufacturers
Cotton gin and interchangeable parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably
during this period

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 Movement was led by efficiency engineer, Frederick The human relations movement emphasized the
Winslow Taylor importance of the human element in job design
Lillian Gilbreth applications of psychology
measurement, analysis and improvement of work methods, and Elton Mayo Hawthorne studies on worker motivation, 1930
economic incentives
Abraham Maslow motivation theory, 1940s; hierarchy of needs,
Management is responsible for planning, carefully selecting and
1954
training workers, finding the best way to perform each job,
achieving cooperation between management and workers, and Frederick Hertzberg Two Factor Theory, 1959
separating management activities from work activities Douglas McGregor Theory X and Theory Y, 1960s
Emphasis was on maximizing output William Ouchi Theory Z, 1981

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F.W. Harris mathematical model for inventory management, 1915

Refined and developed management
Dodge, Romig, and Shewart statistical procedures for sampling and
quality control, 1930s practices that increased productivity
Tippett statistical sampling theory, 1935
Operations Research (OR) Groups OR applications in warfare Just-in-Time production
George Dantzig linear programming, 1947

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 Economic conditions Sustainability
Using resources in ways that do not harm ecological
Innovating systems that support human existence
Sustainability measures often go beyond traditional
Quality problems environmental and economic measures to include measures
that incorporate social criteria in decision making
Risk management All areas of business will be affected
Competing in a global economy Product and service design
Consumer education programs
Disaster preparation and response
Supply chain waste management
Outsourcing decisions

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Ethical issues that may arise in many aspects of operations In the past, organizations did little to
management:
Financial statements manage the supply chain beyond their own
Worker safety operations and immediate suppliers which
Product safety led to numerous problems:
Quality
Oscillating inventory levels
The environment
The community Inventory stockouts
Hiring and firing workers Late deliveries
Closing facilities Quality problems
rights

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 1. The need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-business
7. The complexity of supply chains
8. The need to manage inventories

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