INTRODUCTION TO

OPERATIONS
MANAGEMENT

CHAPTER - I

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
1. Define the term operations
management
2. Identify the three major functional
areas of organizations and describe
how they interrelate
3. Compare and contrast service and
manufacturing operations
4. Describe the operations function and
the nature of the operations manager’s
job
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 Learning Objectives
5. Differentiate between design and
operation of production systems
6. Describe the key aspects of operations
management decision making
7. Briefly describe the historical
evolution of operations management
8. Identify current trends that impact
operations management

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

Operations Management affects:

◦ Companies’ ability to compete
◦ Nation’s ability to compete
internationally

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Historical Evolution of Operations
Management
Industrial revolution (1770’s)
Scientific management (1911)
◦ Mass production
◦ Interchangeable parts
◦ Division of labor
Human relations movement (1920-60)
Decision models (1915, 1960-70’s)
Influence of Japanese manufacturers

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Historical Events in Operations
Management
Era Events/Concepts Dates Originator
Steam engine 1769 James Watt
Industrial
Division of labor 1776 Adam Smith
Revolution
Interchangeable parts 1790 Eli Whitney
Principles of scientific
1911 Frederick W. Taylor
management
Frank and Lillian
Scientific Time and motion studies 1911 Gilbreth
Management Activity scheduling chart 1912 Henry Gantt
Moving assembly line 1913 Henry Ford

COPYRIGHT 2011 JOHN WILEY & SONS, INC. 1-6

 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Hawthorne studies 1930 Elton Mayo
Human 1940s Abraham Maslow
Relations Motivation theories 1950s Frederick Herzberg
1960s Douglas McGregor
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
Operations Operations research
line theory, decision 1950s
Research groups
theory, PERT/CPM
1960s, Joseph Orlicky, IBM
MRP, EDI, EFT, CIM
1970s and others

COPYRIGHT 2011 JOHN WILEY & SONS, INC. 1-7

 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality W. Edwards Deming,
1980s
management) Joseph Juran
Quality Strategy and Wickham Skinner,
1980s
Revolution operations Robert Hayes
Michael Hammer,
Reengineering 1990s
James Champy
Six Sigma 1990s GE, Motorola

COPYRIGHT 2011 JOHN WILEY & SONS, INC. 1-8

 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Internet Internet, WWW, ERP, 1990s ARPANET, Tim
Revolution supply chain management Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union, 1990s China, India,
Global supply chains, 2000s emerging
Outsourcing, Service economies
Science

COPYRIGHT 2011 JOHN WILEY & SONS, INC. 1-9

 Historical Events in
Operations Management
Era Events/Concepts Dates Originator
Green Global warming, An Today Numerous
Revolution Inconvenient Truth, Kyoto scientists,
statesmen and
governments

COPYRIGHT 2011 JOHN WILEY & SONS, INC. 1-10

 The Organization

The Three Basic Functions

Organization

Finance Operations Marketing

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 Value-Added Process

The operations function involves the conversion of

inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

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Value-Added & Product Packages

Value-added is the difference between

the cost of inputs and the value or price
of outputs.
Product packages are a combination of
goods and services.
Product packages can make a company
more competitive.

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 Goods-service Continuum

Goods Service

Surgery, teaching

Song writing, software development

Computer repair, restaurant meal

Automobile Repair, fast food

Home remodeling, retail sales

Automobile assembly, steel making

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 Food Processor
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

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 Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

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 Manufacturing or Service?

Tangible Act

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Production of Goods vs. Delivery of Services
Production of goods – tangible output
Delivery of services – an act

◦ Service job categories

◦ Government
◦ Wholesale/retail
◦ Financial services
◦ Healthcare
◦ Personal services
◦ Business services
◦ Education
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 Key Differences

1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity

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 Key Differences
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

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 Goods vs Service
Characteristic Goods Service
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Output Tangible Intangible
Measurement of productivity Easy Difficult
Opportunity to correct problems High Low
Inventory Much Little
Evaluation Easier Difficult
Patentable Usually Not usual
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 Scope of Operations Management
Operations Management includes:
◦ Forecasting
◦ Capacity planning
◦ Scheduling
◦ Managing inventories
◦ Assuring quality
◦ Motivating employees
◦ Deciding where to locate facilities
◦ Supply chain management

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 Types of Operations

Operations Examples
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

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Decline in Manufacturing Jobs
Productivity
◦ Increasing productivity allows companies to
maintain or increase their output using fewer
workers
Outsourcing
◦ Some manufacturing work has been outsourced to
more productive companies

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Challenges of Managing
Services
Service jobs are often less structured than manufacturing
jobs
Customer contact is higher
Worker skill levels are lower
Services hire many low-skill, entry-level workers
Employee turnover is higher
Input variability is higher
Service performance can be affected by worker’s personal
factors

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Operations Management
Decision Making
What?
◦ What are the resources needed and in what amount?

When?
◦ When are the resources needed? Scheduling? Order?action?

Where?
◦ Where will the work be done?

How?
◦ Design? Methods? Equipment?

Who?
Who will do the work?
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 Decision Making

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

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 Decision Making

System operation

– personnel

– inventory

– scheduling

– project
management

– quality assurance
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Operations Management Decision
Making
1. Models
2. Quantitative approaches
3. Analysis of trade-offs
4. Systems approach
5. Establishing priorities
6. Ethics

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 Models

A model is an abstraction of reality.

Physical
–
Look like real – life counterparts. Mini version
Correspond to reality
– Schematic
Less resemblance to their physical counterparts –
graphs, charts, blueprints, pictures and drawing
– Mathematical
Fully abstract – number, formula, symbols-
Input to computers/ calculators
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 Models Are Beneficial
Easy to use, less expensive
Require users to organize
Increase understanding of the problem
Enable “what if” questions
Consistent tool for evaluation and
standardized format
Power of mathematics

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Limitations of Models
1. Quantitative information may be
emphasized over qualitative
2. Models may be incorrectly applied and
results misinterpreted
3. Nonqualified users may not comprehend
the rules on how to use the model
4. Use of models does not guarantee good
decisions

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 Quantitative Approaches

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

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Analysis of Trade-Offs

Decision on the amount of

inventory to stock
◦ Increased cost of holding inventory
Vs.
◦ Level of customer service

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 Systems Approach

“The whole is greater than

the sum of the parts.”

Suboptimization

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 Pareto Phenomenon
• A few factors account for a high
percentage of the occurrence of some
event(s).
• 80/20 Rule - 80% of problems are caused
by 20% of the activities.

How do we identify the vital few????

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Ethical Issues
Financial statements
Worker safety
Product safety
Quality
Environment
Community
Hiring/firing workers
Closing facilities
Worker’s rights

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 Business Operations Overlap

Operations

Marketing Finance

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 Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS

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 Trends in Business
Major trends
◦ The Internet, e-commerce, e-business
◦ Management technology
◦ Globalization
◦ Management of supply chains
◦ Outsourcing
◦ Agility
◦ Ethical behavior

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Management Technology
Technology: The application of scientific
discoveries to the development and
improvement of goods and services
Product and service technology
Process technology
Information technology

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 Simple Product Supply Chain

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Consumer

Supply Chain: A sequence of activities

And organizations involved in producing
And delivering a good or service

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 A Supply Chain for Bread

Stage of Production Value Value of

Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29

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 Other Important Trends
Ethical behavior
Operations strategy
Working with fewer resources
Revenue management
Process analysis and improvement
Increased regulation and product liability
Lean production

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