Chapter 1

Introduction to Operations
Management
Our aim in taking Operations Management is to give you a
comprehensive understanding of the issues and
techniques of operations management

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
 Operations Management is important, exciting, challenging, and
everywhere your
look!
Important, because its concerned with creating all of the products and
services upon which we depend. Exciting, because its at the centre of so
many of the changes affecting the world of business. Challenging, because
the solutions that we find need to work globally and responsibly within society
and the environment. And everywhere, because every service and product
that you use the cereal you eat at breakfast, the chair you sit on, and the
radio station you listen to while you eat is the result of an operation or
process.

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Production and Operations
Management
What is production and operations?
The part of a business organization that is responsible
for producing goods or services
How can we define production and operations
management?
The management of systems or processes that create
goods and/or provide services

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Why study operations
management? 4
1. Operations management activities are at the core of all
business organizations.
2. 50% or more of all jobs are in operation management
related areas such as customer service, quality
assurance, production planning and control, job design,
inventory management and more.
3. Other areas of business organizations such as finance,
marketing, HR, logistics and accounting are interrelated
with operation management activities.

1-4
Supply & Demand
Operations &
Supply Chains Sales & Marketing

Wasteful
Supply
> Demand Costly

Opportunity Loss

<
Supply Demand Customer
Dissatisfaction

Supply
= Demand Ideal

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Basic Functions of the Business
Organization

Organization

Finance Operation Marketing

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The Transformation Process
Value-Added

Inputs Transformation/ Outputs

Land Conversion Goods
Labor Services
Capital
Process
Information

Feedback

Feedback 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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Goods-service Continuum
Products are typically neither purely service- or purely goods-
based.
Goods Services
Surgery, Teaching

Computer Repair, Restaurant Meal

Automobile Assembly, Steelmaking

1-8
Manufacturing vs. Service?

Manufacturing and Service Organizations differ chiefly because

manufacturing is goods-oriented and service is act-oriented.

Goods Services

Tangible Act-Oriented

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Managing Services is Challenging
1. Jobs in services are often less structured than in manufacturing
2. Customer contact is generally much higher in services compared to
manufacturing
3. In many services, worker skill levels are low compared to those of
manufacturing employees
4. Services are adding many new workers in low-skill, entry-level positions
5. Employee turnover is high in services, especially in low-skill jobs
6. Input variability tends to be higher in many service environments than in
manufacturing
7. Service performance can be adversely affected by many factors outside
of the managers control (e.g., employee and customer attitudes)

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 Production of goods
11
versus
service operation goods
Characteristic services
Output tangible intangible
Uniformity of output high low
Uniformity of input high low
Measurement of prod
-uctivity easy difficult
Customer contact low high
Opp to correct quality
Problems. High low
Evaluation easier more difficult

lecturer: Ahmed El Rawas 1-11

Scope of Operations Management

The scope of operations management ranges across

the organization.

The operations function includes many interrelated

activities such as:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .
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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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System Design Decisions

System Design
Capacity
Facility location
Product and service planning
Acquisition and placement of equipment
These are typically strategic decisions that require
long-term commitment of resources

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System Operation Decisions

System Operation
Management of personnel
Inventory management and control
Scheduling
Project management
Quality assurance
Operations managers spend more time on system operation
decision than any other decision area

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 Type of operations
16

Craft production: ( customized process)involves

producing high variety of customized goods, low
volume output with skilled workers. Main
advantage is the flexibility to produce a wide
variety of output, the main disadvantage is its
inability to produce at low cost e.g: tailoring,
landscaping.

lecturer: Ahmed El Rawas 1-16

 Type of operations
17

Mass production( Batch process) involves

producing a few standardized goods at high
volume of output with low skilled workers. Main
advantage is low cost, efficient production, the
main disadvantage is that it does not allow easy
changes in volume of output or product design e.g:
automobiles, computers.

lecturer: Ahmed El Rawas 1-17

 Type of operations
18

Lean production (continuous) it provides

producing more variety of goods than most
production at moderate to high volume of output. It
requires high skilled workers, quality, employee
involvement, teamwork and flatter organizational
structure with fewer level of management. It
combine both advantages high volume, low cost
and variety, flexibility.

lecturer: Ahmed El Rawas 1-18

Decision Making
Most operations decisions involve many alternatives that can have
quite different impacts on costs or profits
Typical operations decisions include:
What: What resources are needed, and in what amounts?
When: When will each resource be needed? When should the work be
scheduled? When should materials and other supplies be ordered?
Where: Where will the work be done?
How: How will product or service be designed? How will the work be
done? How will resources be allocated?
Who: Who will do the work?

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General Approach to Decision Making

Modeling is a key tool used by all decision

makers
Model - an abstraction of reality; a simplification of something.
Common features of models:
They are simplifications of real-life phenomena
They omit unimportant details of the real-life systems they
can be focused on the most important aspects of the real-life
system

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Models
Types of Models:
Physical Models
Look like their real-life counterparts

Mathematical Models
Do not look at all like their real-life counterparts

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Understanding Models
Keys to successfully using a model in decision
making
What is its purpose?
How is it used to generate results?
How are the results interpreted and used?
What are the models assumptions and limitations?

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Benefits of Models
Models are generally easier to use and less expensive than dealing
with the real system
Require users to organize and sometimes quantify information
Increase understanding of the problem
Enable managers to analyze What if? questions
Serve as a consistent tool for evaluation and provide a standardized
format for analyzing a problem
Enable users to bring the power of mathematics to bear on a
problem.

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Quantitative Methods
A decision making approach that frequently
seeks to obtain a mathematically optimal solution
Linear programming
Queuing techniques
Inventory models
Project models
Forecasting techniques
Statistical models

1-24
Model Limitations
Quantitative information may be emphasized at
the expense of qualitative information
Models may be incorrectly applied and the
results misinterpreted
This is a real risk with the widespread availability of
sophisticated, computerized models are placed in the
hands of uninformed users.
The use of models does not guarantee good
decisions.

1-25
Metrics and Trade-Offs
Performance Metrics
All managers use metrics to
manage and control
operations
Profits
Costs
Productivity
Forecast accuracy
Analysis of Trade-Offs
A trade-off is giving up one
thing in return for something
else
Carrying more inventory
(an expense) in order to
achieve a greater level of
customer service
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Degree of Customization
Relative to other standardized products and services customized products:
Tend to be more labor intensive
Tend to be more time consuming
Tend to require more highly-skilled people
Tend to require more flexible equipment
Have much lower volume of output
Have higher price tags
Degree of customization has a significant influence on the entire
organization
Process selection
Job design
Affects marketing, sales, accounting, finance, and information systems

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Establishing Priorities
In nearly all cases, certain issues or items are more
important than others
Recognizing this allows managers to focus their
attention to those efforts that will do the most good
Pareto Phenomenon - a few factors account for a high
percentage of occurrence of some event(s)
The critical few factors should receive the highest priority
This is a concept that is appropriately applied to all areas and
levels of management

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Systems Approach
System - a set of interrelated parts that must work together
The business organization is a system composed of subsystems
marketing subsystem
operations subsystem
finance subsystem
The systems approach
Emphasizes interrelationships among subsystems
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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Ethical Issues in Operations
Ethical issues arise in Financial statements
many aspects of Worker safety
operations management: Product safety
Quality
The environment
The community
Hiring and firing workers
Closing facilities
Workers rights

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Supply Chain
Supply Chain a sequence of activities and
organizations involved in producing and delivering
a good or service

Suppliers Direct Final

Producer Distributor
suppliers suppliers Customers

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The Need for Managing the Supply Chain

In the past, organizations did little to manage

the supply chain beyond their own operations
and immediate suppliers which led to numerous
problems:
Inventory stockouts
Late deliveries
Quality problems

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Elements of Supply Chain Management

Customers what products/services do customers

want
Forecasting predicting timing and volume of
customer demand
Design incorporating customer wants,
manufacturability, and time to market
Capacity planning matching supply and demand
Processing controlling quality, scheduling work

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Elements of Supply Chain Management

Inventory meeting demand requirements while managing

costs
Purchasing evaluating potential suppliers, supporting the
needs of operations on purchased goods and services
Suppliers monitoring supplier quality, on-time delivery, and
flexibility; maintaining supplier relations
Location determining the location of facilities
Logistics deciding how to best move information and materials

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Historical Evolution of OM
Industrial Revolution
Scientific Management
Human Relations Movement
Decision Models and Management Science
Influence of Japanese Manufacturers

1-35
Industrial Revolution
Pre-Industrial Revolution
Craft production - System in which highly skilled workers use simple,
flexible tools to produce small quantities of customized goods
Some key elements of the industrial revolution
Began in England in the 1770s
Division of labor - Adam Smith, 1776
Application of the rotative steam engine, 1780s
Cotton Gin and Interchangeable parts - Eli Whitney, 1792
Management theory and practice did not advance appreciably
during this period

1-36
Scientific Management
Movement was led by efficiency engineer, Frederick
Winslow Taylor
Believed in a science of management based on observation,
measurement, analysis and improvement of work methods, and
economic incentives
Management is responsible for planning, carefully selecting and
training workers, finding the best way to perform each job,
achieving cooperate between management and workers, and
separating management activities from work activities
Emphasis was on maximizing output

1-37
Scientific Management - contributors
Frank Gilbreth - father of motion studies
Henry Gantt - developed the Gantt chart scheduling
system and recognized the value of non-monetary
rewards for motivating employees
Harrington Emerson - applied Taylors ideas to
organization structure
Henry Ford - employed scientific management
techniques to his factories
Moving assembly line
Mass production

1-38
Human Relations Movement
The human relations movement emphasized the
importance of the human element in job design
Elton Mayo Hawthorne studies on worker motivation, 1930
Abraham Maslow motivation theory, 1940s; hierarchy of
needs, 1954
Frederick Hertzberg Two Factor Theory, 1959
Douglas McGregor Theory X and Theory Y, 1960s
William Ouchi Theory Z, 1981

1-39
Decision Models & Management Science
F.W. Harris mathematical model for inventory management, 1915
Dodge, Romig, and Shewart statistical procedures for sampling
and quality control, 1930s
Tippett statistical sampling theory, 1935
Operations Research (OR) Groups OR applications in warfare
George Dantzig linear programming, 1947

1-40
Influence of Japanese Manufacturers

Refined and developed management practices that

increased productivity
Credited with fueling the quality revolution
Just-in-Time production

The growth of technology: the wide spread use of

personal computer and user friendly software in the
workplace may cause a resurgence in the popularity of mgt
science technology.
The influence of Japanese manufacturer: JIT, TQM,ISO

1-41
Key Trends and Issues in Business

E-Business & E-Commerce

Management of Technology
Globalization
Management of Supply Chains
Outsourcing
Agility
Ethical Behavior

1-42