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Introduction to
Operations
Management

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights

 Learning Objectives
Define the term operations management
Identify the three major functional areas of
organizations and describe how they
interrelate
Compare and contrast service and
manufacturing operations
Describe the operations function and the
nature of the operations manager’s job

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 Learning Objectives
Differentiate between design and operation
of production systems
Describe the key aspects of operations
management decision making
Briefly describe the historical evolution of
operations management
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 (Stevenson &
Chuong)
Is the science and art of ensuring that goods and
services are created and delivered successfully to
customers.(Collier & Evans)
Operations Management affects:
Companies’ ability to compete
Impact on nation’s ability to compete internationally

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 The Organization
Figure 1.1

The Basic Functions

Organization

Finance Operations Marketing HRD

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 Value-Added Process
Figure 1.2
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 and Product Packages
Value-added elements make 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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 The Goods–Service Continuum
Figure 1.3

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
Table 1.2

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
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Treated
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
June 22, 2015
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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
Table 1.3

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 usually
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Scope of Operations Management
Operations Management includes:
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating and training employees
Locating facilities
Supply chain management
And more . . .
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 Types of Operations
Table 1.4
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, financial
advising, renting or leasing
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and TV
newscasts, telephone, satellites

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Philippine Employment and Employment Growth by Sector,
1998–2010 by ADB Report
Indicator 2004 2005 2006 2007 2008 2009 2010
Employment Growth, %
Agriculture 0.4 2.2 2.6 -0.2 2.1 0.1 -1.6
Industry 3.0 0.6 -0.2 2.3 -1.4 0.9 6.1
Manufacturing 0.6 0.6 -0.4 0.4 -4.7 -1.1 4.5
Services 3.5 2.8 4.0 3.1 2.2 5.4 3.9

Employment (% in total)
Agriculture 36.0 35.9 35.8 35.1 35.3 34.4 33.0
Industry 15.9 15.6 15.2 15.3 14.8 14.5 15.1
Manufacturing 9.7 9.6 9.3 9.1 8.6 8.3 8.4
Services 48.1 48.4 49.0 49.6 49.9 51.1 51.9
Source: NSCB (2012).
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Figure 1.4a
Figure 1.4b

Singapore Manufacturing vs. Service Employment

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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
Models
Quantitative approaches
Performance metrics
Analysis of trade-offs
Systems approach
Establishing priorities
Ethics

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Key Decisions of Operations Managers

What
What resources/what amounts
When
Needed/scheduled/ordered
Where
Work to be done
How
Designed
Who
To 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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 Decision Making
Models
Quantitative approaches
Performance metrics
Analysis of trade-offs
Systems approach
Establishing priorities
Ethics

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

What are the pros and cons of models?

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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
Quantitative information may be emphasized
over qualitative
Models may be incorrectly applied and
results misinterpreted
Nonqualified users may not comprehend the
rules on how to use the model
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
Figure 1.5

Operations

Finance Marketing

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 Operations Interfaces
Figure 1.6

Legal
Public
Relations

Accounting
Operations

Personnel/
Human
resources
MIS

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

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 Trends in Business
Major trends
The Internet, e-commerce, e-business - growth
Management technology – design and IT
Globalization – borderless market place
Management of supply chains - global
Outsourcing – skills and labor
Agility – speed
Ethical behavior – fairness

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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
Figure 1.7

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 Php0.15 Php0.25
Wheat transported to mill 0.08 0.33
Mill produces flour 0.15 0.48
Flour transported to baker 0.08 0.56
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 Php1.29

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

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