INTRODUCTION

to
Operation Management
Chapter 1, The Operations Function

4e, Schroeder
McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Outline
Why Study Operations Management?
Definition of Operations Management
Decisions at Pizza U.S.A.
Operations Decisions - A Framework
Cross-Functional Decision Making
Operations as a Process
Contemporary Operations Themes
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Why Study Operations Management?

Every decision is cross-functional in nature.
Operations is a major function in every
organization.
The principles of process thinking can be
applied across the business.
Operations Decisions - A Framework
Operations Management is an interesting and
challenging field of study.

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Definition of
Operations Management
Operations is responsible for supplying
the product or service of the
organization. Operations managers
provide value for the customer at the
lowest cost by making decisions for the
operations function and by managing
the transformation process.
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Key Points in OM Definition

1. Decisions the operations manager must make:
Process, quality, capacity, inventory

2. Functions in the organization.

Operations, marketing, finance

3. Process: planning and controlling the

transformation process and its interfaces

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Major Decisions at Pizza USA

A Framework for OM
Process
How to produce & deliver

Quality
Criteria, measurement & process for achieving

Capacity
Physical facilities & labor

Inventory
What, when & how much?

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Cross-Functional
Decision Making
Operations as the primary function.
Other primary functions:
Marketing
Finance

Supporting functions: all others

Major cross-functional decision making
relationships (See Table 1.1)

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Operations as a Process

Input

Transformation
(Conversion)
Process

Output

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Operations as a Process

Input

Transformation
Fabrication

Transformation
Assembly

Output

Fabrication: making the parts

Assembly: putting the parts together
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Operations as a Process
(Figure 1.1)
Energy
Materials
Labor
Capital

Transformation
(Conversion)
Process

Goods or
Services

Information

Feedback information for

control of process inputs
and process technology
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Relation of Operations to its

Environment
(Figure 1.2)
SOCIETY
Human
Engineering Marketing
Resources

Suppliers

Operations transformation system

Accounting

Finance

External
Environment

CUSTOMERS

MIS

COMPETITORS

GOVERNMENT
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Contemporary Operations Themes

Service and Manufacturing (differences and
implications)
Customer-Directed Operations
Lean Operations
Integration of Operations and Other Functions
Environmental Concerns
Supply Chain Management
Globalization of Operations

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Environmental Concerns
Volkswagen, Germanys biggest car maker, was
reported to be setting aside DM1 billion ($470m)
to pay for compliance with a European directive
that will come into force in 2007 forcing car
makers to pay for recycling their vehicles. New
cars will be
required to be 85% recyclable.
--The Economist, 15 February 2001
See: www.arn.nl
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Globalization: Who took my job?

Early 1990s
Small town near Charlotte, NC
Aluminum smelter closed after 50 years
Only significant industry in town
In many families, several generations had
worked there. Now all out of work.
Who caused it to close?

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Mikls Nmeth
WHO!?!?!?
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U.S. production of aluminum dropped dramatically

in the early 1990s because the Russians dumped
aluminum on the world market. Why? The opening
of the Hungarian border, 2 May 1989, led to the fall
of the Berlin Wall in November, 1989, which led to
the breakup of the Soviet Union in 1991, which
caused them to downsize their military, which gave
them overcapacity in aluminum production, which
caused them to dump in the world markets, which
led to the closing of U.S. smelters such as the one
near Charlotte, NC.
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Mikls Nmeth
Was the Hungarian Prime
Minister who opened the
border on 2 May 1989.
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Moral of the Story

In an age of globalization, you never
know who will be the competition or who
is doing something that will affect your
job or your life.
The aluminum workers in NC had never
heard of Mikls Nmeth, but he ultimately
cost them their jobs.
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Summary
Why Study Operations Management?
Definition of Operations Management
Decisions at Pizza U.S.A.
Operations Decisions - A Framework
Cross-Functional Decision Making
Operations as a System
Contemporary Operations Themes
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End of Chapter One

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