CHAPTER

Introduction to
Operations
1 Management

PowerPoint Presentation by Charlie Cook

Copyright © 2005 The McGraw-Hill Companies. All rights reserved.
Chapter Objectives
• Introduce and define operations management (OM)
in terms of its contribution to an organization and the
activities it involves.
• Describe how operations management contributes to
the overall betterment of society
• Present operations management as a function that
addresses issues in both manufacturing and
services.
• Show how operations management is gaining more
recognition both internally and externally to an
organization.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
2
Chapter Objectives
• Demonstrate how the operations management
function interacts with the other functional areas
within an organization.
• Present a brief history of operations management
as a field and its evolution to its current role in an
organization.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

3
Managerial Issues
• Shift in balance of power to consumers
–Globalization of business and markets
–E-commerce
• Achieving higher levels of productivity
–Creating higher quality products
–Delivering better customer service
–Achieving shorter delivery times
–Reducing labor and material costs

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

4
What Is Operations Management?
• Operations Management
–Management of the conversion process
which transforms inputs such as raw
material and labor into outputs in the
form of finished goods and services.
Inputs Outputs
(customers Transformation Process (goods
and/or (components) and
materials) services)

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

5
 Role of OM within an Organization

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

6
Top-down Approach to OM Strategy
• Operations Strategy
Decisions
– Strategic (long-range)
• Needs of customers
(capacity planning)
– Tactical (medium-range)
• Efficient scheduling of
resources
– Operational planning
and control (short-range)
• Immediate tasks and
activities

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

7
An Operational-Level OM Perspective
• OM’s function focuses on adding value through
the transformation process (technical core) of
converting inputs into outputs.
–Physical: manufacturing
–Locational: transportation
–Exchange:retailing
–Storage: warehousing
–Physiological: health care
–Informational: telecommunications

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

8
 The Transformation Process within OM

Exhibit 1.2
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
9
Input-Transformation-Output Relationships
for Typical Systems

Exhibit 1.3
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
10
OM’s Contributions to Society
• Higher Standard of Living
–Ability to increase productivity
–Lower cost of goods and services
• Better Quality Goods and Services
–Competition increases quality
• Concern for the Environment
–Recycling and concern for air and water quality
• Improved Working Conditions
–Better job design and employee participation

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

11
The Emergence of OM
• Operations management has been gaining
increased recognition in recent years for
several reasons, including
a) the application of OM concepts in service
operations,
b) an expanded definition of quality,
c) the introduction of OM concepts to other
functional areas such as marketing and
human resources, and
d) the realization that the OM function can add
value to the end product.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

12
The Emergence of OM (cont’d)
• Application of OM to Service Operations
–Batch cooking operations at McDonald’s
–Just-in-Time (JIT) at Northern Telecomm, Inc.
–Automatic inventory replenishment at Wal-
Mart

Service Product Good

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

13
 Services as a Percent of Gross Domestic Product
(GDP) for Different Countries

Source: The World Factbook 2000, Central Intelligence Agency, Washington, DC. Exhibit 1.5
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
14
 Growth in Services in the United States

Source: Eva E. Jacobs, ed., Handbook of U.S. Labor Statistics,

5th ed. (Bernan Press, 2001), Table 2-1, pp. 161–164. Exhibit 1.6
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
15
 Differences Between
Goods and Services
• Goods • Services
–Tangible –Intangible
–Can be –Cannot be
inventoried inventoried
–No interaction –Direct interaction
between customer between customer
and process and process

1-6 Exhibit 1.7

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
16
 Most Products Are a “Bundle”
of Goods and Services

Exhibit 1.8
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
17
An Expanded Definition of Quality
• Quality is important in all functional areas
of an organization.
• Quality is now much more than the
technical requirements for manufactured
goods.
• Service quality (customer relationships)
is equally important.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

18
A New Paradigm for OM
• Post-War U.S. Dominance in Manufacturing
–Available capacity built to support the war effort
–Pent-up demand for consumer goods
–Destruction of overseas production capabilities
• Proactive Operations Function (Skinner)
–Add value to products, increase profit margins.
–Compete on dimensions other than costs:
• Quality
• Speed of delivery
• Process flexibility

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

19
The Ever-Changing World of OM
• Increased Global Competition
–Transformation into a global economy
–Pressure to excel on multiple
competitive dimensions
–Increased emphasis on logistics
• Advances in Technology
–Information technology (IT)
–Internet email and commerce (B2B)
–Automation and robotics

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

20
 Ford’s Global Network to Support
the Manufacturing of the Escort

Source: From Joseph E. Stiglitz, Principles of Micro-economics, 2nd ed. (New

York: W. W. Norton and Company, 1997), p. 58. Reprinted with permission. Exhibit 1.9
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
21
Linking OM to Customers and
Suppliers (cont’d)

• Value Chain
– Steps an organization requires to produce a
good or a service regardless of where they are
performed.
– Virtual enterprises: fully integrated and
interlocked networks of interdependent
companies.
• Outsourcing Offshore
– Jobs are now outsourced worldwide.
– Originally outsourcing involved primarily
manufacturing jobs; increases in technology
now allow the outsourcing of white collar jobs.
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
22
 The Value Chain and
Its Support Functions

Exhibit 1.10
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
23
 Line and Staff Jobs in OM

Exhibit 1.11
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
24
 Inputs Provided by OM to
Other Functional Areas

Exhibit 1.11
Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 
25
Historical Development of OM
• Prior to 1900
–Cottage industry produced custom-
made goods.
–Watt’s steam engine in 1785.
–Whitney’s standardized gun parts in
1801.
–Industrial Revolution began at mid-
century.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

26
Historical Development of OM (cont.)
• Scientific Management (Frederick W. Taylor)
–Systematic approach to increasing worker
productivity through time study,
standardization of work, and incentives.
–Viewed workers as an interchangeable asset.
• Other Management Pioneers
–Frank and Lillian Gilbreth
• Motion study and industrial psychology
–Henry L. Gantt
• Scheduling and the Gantt chart

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

27
Historical Development of OM (cont.)
• Moving Assembly Line (1913)
–Labor specialization reduced assembly time.
• Hawthorne Studies
–Yielded unexpected results in the
productivity of Western Electric plant
workers after changes in their production
environment.
–Led to recognition of the importance of work
design and employee motivation.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

28
Historical Development of OM (cont.)
• Operations Research (Management Science)
–Outgrowth of WWII needs for logistics control
and weapons-systems design.
–Seeks to obtain mathematically optimal
(quantitative) solutions to complex problems.
• OM Emerges as a Field
–1950–1960, OM moved beyond industrial
engineering and operations research to the
view of the production operation as a system.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

29
Historical Development of OM (cont.)
• The Marriage of OM and IT
–Integrated solutions approaches
• Business process reengineering (for productivity,
efficiency, reducing cost, etc)
• Supply chain management
• Systems integration (SAP- System Application and
Processing) (connecting different sub-systems into
one system)

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

30
Historical Development of OM (cont.)
• Operations Management in Services
–OM concepts can apply to both manufacturing
and service operations.
• Integration of Manufacturing and Services
–Conducting world class operations requires
compatible manufacturing and service
operations.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. 

31
End of Chapter 1.