Introduction to

Operations
Management

McGraw-Hill/Irwin
Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
 You should be able to:
1. Define the term operations management
2. Identify the three major functional areas of organizations and
describe how they interrelate
3. Identify similarities and differences between production and
service operations
4. Describe the operations function and the nature of the operations
managers job
5. Summarize the two major aspects of process management
6. Explain the key aspects of operations management decision
making
7. Briefly describe the historical evolution of operations management
8. Characterize current trends in business that impact operations
management

Instructor Slides 1-2

What is operations?
The part of a business organization that is
responsible for producing goods or services
How can we define operations
management?
The management of systems or processes that
create goods and/or provide services

Instructor Slides 1-3

 Goods are physical items that include raw materials, parts,
subassemblies, and final products.
Automobile
Computer
Oven
Shampoo

Services are activities that provide some combination of time, location,

form or psychological value.
Air travel
Education
Haircut
Legal counsel

Instructor Slides 1-4

 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

Instructor Slides 1-5

Instructor Slides 1-6
 Organization

Marketing Operations Finance

Instructor Slides 1-7

 Value-Added

Inputs Transformation/ Outputs

Land Conversion Goods
Labor Services
Capital
Process
Information

Measurement
and Feedback
Measurement Measurement
and Feedback Control and Feedback

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.
Instructor Slides 1-8
 Products are typically neither purely service- or purely goods-
based.
Goods Services
Surgery, Teaching

Songwriting, Software Development

Computer Repair, Restaurant Meal

Home Remodeling, Retail Sales

Automobile Assembly, Steelmaking

Instructor Slides 1-9

 Manufacturing and Service Organizations differ chiefly because
manufacturing is goods-oriented and service is act-oriented.

Good Services
s

Tangible Act-Oriented

Instructor Slides 1-10

1. Degree of customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

Instructor Slides 1-11

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)

Instructor Slides 1-12

 Process - one or more actions that transform inputs into outputs

Instructor Slides 1-13

 Operations &
Supply Chains Sales & Marketing

Instructor Slides 1-14

 Variations can be disruptive to operations and supply chain processes.
They may result in additional costs, delays and shortages, poor
quality, and inefficient work systems.

Instructor Slides 1-15

 The scope of operations management ranges across
the organization.
The operations function includes many
interrelated activities such as:
Forecasting
Capacity planning
Facilities and layout
Scheduling
Managing inventories
Assuring quality
Motivating employees
Deciding where to locate facilities
And more . . .

Instructor Slides 1-16

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

Instructor Slides 1-17

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

Instructor Slides 1-18

 System Operation
These are generally tactical and operational decisions
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
They still have a vital stake in system design

Instructor Slides 1-19

Instructor Slides 1-20
 Every aspect of business affects or is affected by
operations
Many service jobs are closely related to operations
Financial services
Marketing services
Accounting services
Information services
There is a significant amount of interaction and
collaboration amongst the functional areas
It provides an excellent vehicle for understanding
the world in which we live

Instructor Slides 1-21

 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 he product or service be designed? How will the
work be done? How will resources be allocated?
Who: Who will do the work?

Instructor Slides 1-22

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 mimic so that attention can be focused on the
most important aspects of the real-life system

Instructor Slides 1-23

Types of Models:
Physical Models
Look like their real-life counterparts
Schematic Models
Look less like their real-life counterparts than
physical models
Mathematical Models
Do not look at all like their real-life counterparts

Instructor Slides 1-24

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

Instructor Slides 1-25

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

Instructor Slides 1-26

 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

Instructor Slides 1-27

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

Instructor Slides 1-28

 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

Instructor Slides 1-29

 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

Instructor Slides 1-30

 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

Instructor Slides 1-31

The human relations movement emphasized the
importance of the human element in job design
Lillian Gilbreth
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

Instructor Slides 1-32

 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

Instructor Slides 1-33

 Refined and developed management
practices that increased productivity
Credited with fueling the quality revolution
Just-in-Time production

Instructor Slides 1-34

Economic conditions
Innovating
Quality problems
Risk management
Competing in a global economy

Instructor Slides 1-35

Sustainability
Using resources in ways that do not harm
ecological systems that support human existence
Sustainability measures often go beyond traditional
environmental and economic measures to include
measures that incorporate social criteria in decision
making
All areas of business will be affected
Product and service design
Consumer education programs
Disaster preparation and response
Supply chain waste management
Outsourcing decisions

Instructor Slides 1-36

Ethical issues arise in
many aspects of Financial statements
operations Worker safety
management: Product safety
Quality
The environment
The community
Hiring and firing workers
Closing facilities
Workers rights

Instructor Slides 1-37

In the past, organizations did little to manage
the supply chain beyond their own operations
and immediate suppliers which led to
numerous problems:
Oscillating inventory levels
Inventory stockouts
Late deliveries
Quality problems

Instructor Slides 1-38

1. The need to improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-business
7. The complexity of supply chains
8. The need to manage inventories

Instructor Slides 1-39

 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
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

Instructor Slides 1-40