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Introduction to Operations Management

Operations Management
The management of systems or processes that create goods and/or provide services Organization




Introduction to Operations Management
• Operations Management includes:
– Forecasting – Capacity planning – Scheduling – Managing inventories – Assuring quality – Motivating employees – And more . . .

Business Operations Overlap




Goods-service continuum
Steel production Automobile fabrication House building Low service content construction Road

High goods content

Dressmaking Farming Auto Repair Appliance repair

Increasing goods content

Maid Service Manual car wash

Increasing Teaching service content Lawn mowing High service content Low goods content

Introduction to Operations Management
Stage of Production
Farmer produces and harvests wheat Wheat transported to mill Mill produces flour Flour transported to baker Baker produces bread Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

Value Added
$0.15 $0.08 $0.15 $0.08 $0.54 $0.08 $0.21 $1.29

Value of Product
$0.15 $0.23 $0.38 $0.46 $1.00 $1.08 $1.29

Types of Operations
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

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

Value added
Inputs Land Labor Capital Transformation/ Conversion process

Outputs Goods Services

Feedback Feedback

Food Processor Inputs
Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Cleaning Making cans Cutting Cooking Packing Labeling

Canned vegetables

Introduction to Operations Management

Hospital Process Inputs
Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Examination Surgery Monitoring Medication Therapy

Healthy patients

Introduction to Operations Management

Operations Interfaces
Industrial Engineering Maintenance MIS



Public Relations

Purchasing Accounting


Introduction to Operations Management

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

Introduction to Operations Management

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

Introduction to Operations Management

Major Characteristics of Production Systems Degree of standardization Type of operation
– – – – project job shop repetitive production continuous processing

Introduction to Operations Management

Manufacturing or Service?



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

Introduction to Operations Management

Manufacturing vs Service
Output Customer contact Uniformity of input Labor content Uniformity of output Measurement of productivity Opportunity to correct quality problems

Manufacturing Service
Tangible Low High Low High Easy High Intangible High Low High Low Difficult Low

Introduction to Operations Management

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

Introduction to Operations Management

Models A model is an abstraction of reality.
– Physical – Schematic – Mathematical


What are the pros and cons of models?

Introduction to Operations Management

Systems Approach
“The whole is greater than the sum of the parts.”


Introduction to Operations Management

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

Introduction to Operations Management

Pareto Phenomenon
• A vital few things are important for reaching an objective or solving a problem. • 80/20 Rule - 80% of problems are caused by 20% of the activities.

How do we identify the vital few?

Introduction to Operations Management

Recent Trends
• The Internet • E-Business • Supply Chain Management

Introduction to Operations Management

Simple Product Supply Chain

Suppliers’ Suppliers

Direct Suppliers



Final Consumer

Introduction to Operations Management

Continuing Trends
• Quality and process improvement • Technology • Globalization • Operations strategy • Environmental issues