Chapter One

Introduction to Operations
Management

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 1. Introduction
• All business organizations have three basic
functional areas: finance, marketing, and
operations.
Organization

Finance Operations Marketing

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• Other business functions—such as accounting,
purchasing, human resources, and engineering—
support these three major functions.
• Finance for managing cash flow, current assets,
and capital investments.

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• Marketing is responsible for sales, generating
customer demand, and understanding customer
wants and needs.
• Operation is responsible for producing the goods
or providing the services offered by the
organization.

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• To put this into perspective, if a business organization
were a car, operations would be its engine.
• And just as the engine is the core of what a car does,
in a business organization, operations is the core of
what the organization does.
• Operations management is responsible for managing
that core.
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• Hence, operations management is the
management of systems or processes that
create goods and/or provide services.
Value added
Inputs Outputs
Land Transformation/
Conversion Goods
Labor
Capital process
Services
Feedback

Control
Feedback Feedback
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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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 Production of Goods Versus
Providing Services
• Goods and services often go hand in hand.

• However, there are some very basic differences

between the two.
• There are also many similarities between the two.

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• Production of goods results in a tangible output,
such as an automobile, eyeglasses, a golf ball, a
refrigerator—anything that we can see or touch.
• Delivery of service, on the other hand, generally
implies an act. A physician’s examination, TV and
auto repair, lawn care, and the projection of a
film in a theater are examples of services.
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 Manufacturing vs Service

Characteristic Manufacturing Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to High Low
correct quality
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High

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 Similarities
• Here are some of the primary factors for both:
a. Forecasting and capacity planning to match
supply and demand.
b. Process management.
c. Managing variations.
d. Monitoring and controlling costs and
productivity.
e. Supply chain management.
f. Location planning, inventory management,
quality control, and scheduling.
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 The goods–service continuum
•Although goods and services are listed separately,
it is important to note that goods and services
often occur jointly.
•For example, having the oil changed in your car is
a service, but the oil that is delivered is a good.

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• The goods–service combination is a continuum. It
can range from primarily goods, with little service,
to primarily service, with few goods.
Songwriting,
Automobile Assembly Automobile Repair Computer Repair software development Teaching
Steelmaking Fast Food Restaurant Meal Surgery

High percentage of goods Low percentage goods

Low percentage of service High percentage service

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 Historical Development of Operation
Management

Industrial revolution (1770’s)

• substituting machine power for human power
• the development of standard gauging systems.

Scientific management (1911)

• Frederick Winslow Taylor
• He studied work methods in great detail to identify
the best method for doing each job.
• Taylor’s methods emphasized maximizing output.
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 Human relations movement (1920-60)
• Lillian Gilbreth and Frank Gilbreth,
• focusing on the human factor in work.

Decision models (1915, 1960-70’s)

• development of several quantitative techniques.
Influence of Japanese manufacturers
•developed or refined management practices that
increased the productivity of their operations and
the quality of their products.
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 Scope of Operations Management

• The scope of operations management ranges across the

organization.
• Operations Management includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– Deciding where to locate facilities
– And more . . .
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 Operations management
and decision making
• The chief role of an operations manager is that of
planner/decision maker.
•Operations management professionals make a number of
key decisions that affect the entire organization.
•These include the following:
What: What resources will be 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? When is corrective action
needed?
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• Where: Where will the work be done?
• How: How will the product or service be
designed? How will the work be done
(organization, methods, equipment)? How will
resources be allocated?
• Who: Who will do the work?

An operations manager’s daily concerns include

costs (budget), quality, and schedules (time).

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 Model
• A model is an abstraction of reality, a simplified
representation of something.
• For example, a child’s toy car is a model of a real
automobile.
• It has many of the same visual features that make
it suitable for the child’s learning and playing.

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• Models are sometimes classified as;

1.Physical models look like their real-life

counterparts.
• Examples include miniature cars, trucks,
airplanes, toy animals and trains, and scale-model
buildings.

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2. Schematic models are more abstract than their
physical counterparts; that is, they have less
resemblance to the physical reality.
• Examples include graphs and charts, blueprints,
pictures, and drawings.

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3. Mathematical models are the most abstract:
• They do not look at all like their real-life
counterparts.
• Examples include numbers, formulas, and
symbols.

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 Productivity
• A measure of how efficiently inputs are being
converted into outputs.
• Productivity measures how well resources are
used.
• It is computed as a ratio of outputs to inputs.
• The more efficiently a company uses its
resources, the more productive it is:

Productivity = Outputs
Inputs
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 Measures of Productivity

• Partial measures
– output/(single input)

• Multi-factor measures
– output/(multiple inputs)
• Total measure
– output/(total inputs)

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 Examples
1. A company that processes fruits and vegetables
is able to produce 400 cases of canned peaches
in one-half hour with four workers. What is labor
productivity?
2. Two workers have the job of placing plastic labels
on packages before the packages are shipped
out. The first worker can place 1000 labels in 30
minutes. The second worker can place 850 labels
in 20 minutes. Which worker is more productive?

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3. A wrapping-paper company produced 2,000 rolls
of paper one day. Labor cost was $160, material
cost was $50, and overhead was $320.
Determine the multifactor productivity.

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4. D/Birhan Textile PLC is a huge factory that
focuses on making cloths. Assume the weekly
dollar value of its output, including finished goods
and work in progress, is $50,000. The value of
inputs, such as labor, materials, and capital, is
approximately $24,500. Compute the total
productivity measure for D/birhan Textile PLC.
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5. Last week, employees at Jenious PLC produced
46 chairs after working a total of 200 hours. Of
the 46 chairs produced, 12 were damaged due to
a problem with the new sanding machine. The
damaged chairs can be discounted and sold for
$25 each. The undamaged chairs are sold to a
department store retail chain for $70 each. What
was the labor productivity ratio for last week?
And if labor productivity was $15 in sales per
hour the previous week, what was the change in
labor productivity?
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 Improving Productivity
• A company or a department can take a number of
key steps toward improving productivity:

Develop productivity measures

Determine critical (bottleneck) operations

Develop methods for productivity improvements

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 Establish reasonable goals

Get management support

Measure and publicize improvements

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