Chapter 1

Introduction to
Operations
Management

Sam Lampropoulos
George Brown College

Learning Objectives
• Define the term operations management
• Identify the three major functional areas of
organizations and describe how they interact.
• Describe the scope of operations management,
including differentiating between design and
planning/control decisions.
• Compare production of goods and services.
• Discuss the operations manager’s job.
• Describe key aspects of operations management
decision making.
• Briefly describe the historical evolution of OM
• Identify major trends that affect operations
management.
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 Chapter Outline
• What is operations management (OM)?
• Three basic functions within organizations
• The scope of operations management
• Differentiating goods and services
• Operations manager’s job
• Operations managers and decision making
• The historical evolution of operations management
• Major trends

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What is Operations Management?

OM is the management of processes that create
goods and/or provide services.

• Companies use OM to improve:

• Efficiency (operating to minimize cost and time)
• Effectiveness (achieving intended goals: quality &
timeliness)

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 What is Operations Management?

Detail the following OM activities for each company

OM Activities Airline company Bicycle factory (goods)

(services)
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Where to locate facilities

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Why Study Operations Management?

Opportunity!
• A large percentage of a company’s expenses occur in
OM area (more efficient operations = more profits).
• A large number of all jobs are in OM area (purchasing,
quality, planning, scheduling, inventory, etc.).
• Activities in all other areas( finance, human resources,
marketing, ) are interrelated with OM activities.
• Operations innovations lead to marketplace and strategic
benefits (Toyota Production System, Dells’ direct
shipping of personal computers).

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Careers and Professional Certifications in OM

• Supply Chain Management Association (SCMA)

• Canadian Institute of Traffic and Transportation (CITT)
• Canadian Supply Chain Sector Council (CSCSC)
• American Production and Inventory Control Society
(APICS), now known as the Association for Supply Chain
Management
• American Society for Quality (ASQ)
• Project Management Institute (PMI)

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Functions Within Organizations

• A typical organization (manufacturing or service) has
three basic functions.
• Operations: creates goods and services.
• Finance: provide funds and the economic analysis of
investment proposals.
• Marketing: assess customer wants and needs and
communicate them to others.

Figure 1-1 The three basic functions of an organization and flows between them.

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 Three Basic Functions Interact
• The functions must interact to achieve the goals and
objectives of the organization.
• Each functional area makes an important contribution to
organizational success.

Operations

Marketing Finance

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Three Basic Functions : Airline

This shows how the operations function relates to an airline
company.
Note: this is an example of how operations applies to a
service based business.
Airline Company

Finance/
Marketing
Operations Accounting

Flight Ground Facility

Catering
Operations Support Maintenance

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 Operations Function

Figure 1-2 The operations function involves the conversion of inputs into outputs.

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Types of Operations
Operations Examples
Goods Producing Farming, mining, construction
,
manufacturing, power generation
Services
Warehousing, trucking, mail
Storage/Transportation
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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Transformation Process at a Food Processor

Food Processor Inputs Process Output

Raw Materials Cleaning Canned

Vegetables

Metal sheets Making cans

Water Cutting
Energy Cooking
Labour Packing
Building Labelling
Equipment

Table 1-2
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Transformation Process at a Hospital

Hospital Inputs Process Output

Sick patients, Examination Healthy patients

doctors, nurses

Building Surgery

Medical supplies Monitoring

and drugs
Equipment Medication
Laboratories Therapy

Table 1-2

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 The Goods-Service Continuum

Figure 1-3

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Operations Interfaces
Operations
interfaces with a
number of
supporting
functions.

Figure 1-4

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The Scope of Operations Management

• Capacity
Designing • Location
Decisions • Equipment

• Personnel
Planning/Control • Inventory
Decisions • Scheduling
• Quality assurance
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The Scope of Operations Management

Decision area Basic question Chapter

Forecasting What will the demand be? 3

Product/ service design What customers want? How to improve 4
products/services?
Capacity How much capacity will be needed? 5
Process What processes should be used? 6
Layout What is the best arrangement for the departments? 6
Work/Job Design How to improve work methods? 7
Quality How to define quality? How to improve it? 9
Inventory Management How much to order? 11
Aggregate planning How much capacity will be needed over the medium 12
term?
JIT systems How to coordinate production and purchasing? 14
Supply Chain Which supplier to choose? 15
Management
Scheduling How to schedule jobs, staff? 16

Table 1-3
Which decision is design type and which is planning/control type?
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Goods vs. Services
Differences Goods Services
(Produce a car) (Teach a class)

Output Tangible Intangible

Customer contact Low High

Uniformity of input High Low

Labour content Low High
Uniformity of High Low
output
Measurement of Easy Difficult
productivity
Quality assurance Easy Difficult

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Goods or Service?

Tangible Act

Most systems are a blend of both good & service.

Service sector accounts for > 79% of jobs in Canada.

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 Goods vs. Services in Canada
Percentage of total labour force by industry.

Figure 1-5

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The Operations Manager’s Job

The operations manager must coordinate the use of resources through the
management activities of planning, organizing, directing, and controlling.
Planning Organizing
Capacity Degree of centralization
Location Departments
Mix of products Subcontracting
Production process Suppliers
Layout Staffing
Controlling Directing
Inventory Control Scheduling
Quality control Issuance of work orders
Production pace Job assignments
Motivation Purchasing
Cost control Logistics
Table 1-4
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 The Systems Approach

Figure 1-6
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Operations Managers and Decision Making

Models

Quantitative
Ethics
techniques

Establishing Analysis of trade-

Priorities offs

Systems approach

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 Models
A model is an abstraction of reality. Used to support
the decision process.

Physical

Mathematical Schematic

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Quantitative Approaches
• Linear programming
• Queuing techniques
• Inventory techniques
• Project techniques
• Statistical techniques

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 Analysis of Trade-Offs
• Decision on amount of inventory to
stock

• Increased cost of holding inventory

vs.

• Level of customer service

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Establishing Priorities
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

Hiring/firing Worker
workers safety

Product
Community
safety

Environment Quality

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The Historical Evolution of OM

Decision
Human Models Japanese
Earliest Industrial relations and Manu-
days revolution Movement Computer facturers
(1980+)
(1960+)
Craft Interchangeable Improve
production (no
Parts (Eli Whitney, Productivity (Elton Manage- TQM
economies of ment revolution
scale), 1700) Mayo, 1930)
Science,

Motivational
Mercant- Division of Labour Theories lean
ilism (Adam Smith, 1776) (Abraham EDI, production
Maslow), 1940s

Scientific
Management Employee World Class
(1920s, Frederick Problem Solving ERP Mftg
Taylor, Frank and (William Ouchi),
Lillian Gilbreth, 1970s
Henry Gantt, Henry
Ford)

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 Trends in Business
The Internet and e-commerce

Management technology

Globalization

Management of supply chains

Sustainability

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

Figure 1-8

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 Chapter Summary
• Operations management is responsible for planning and
coordinating the use of the organization’s resources to
convert inputs into outputs.
• The operations function is one of three primary functions
of organizations; the other two are marketing and
finance. The operations function is present in both
service- and goods-producing organizations.
• Operations decisions involve design decisions and
planning/control decisions. Design decisions relate to
capacity planning, product design, processes design,
layout of facilities, and selecting locations for facilities.
Planning/control decisions relate to quality assurance,
production planning, scheduling and control, inventory
management, and project management.
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Chapter Summary
• Service differs from goods production in customer
contact and labour content, lack of inventories, variation
in inputs and outputs, and difficulties in productivity
measurement and quality assurance.
• Operations managers plan, organize, control, and direct
the operations of an organization.
• They use models, quantitative techniques, trade-off
analysis, systems approach, priorities, and ethics in
decision making.
• Operations management evolved through craft, mass,
and lean production systems.
• Major trends currently are e-commerce, technology,
globalization, supply chains, and sustainability.
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