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 manager’s job
5. Summarize the two major aspects of process
management
6. Explain the key aspects of operations management
decision making
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 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
 The operations function consists of all the
activities directly related to producing goods
or providing services
 Operations Management affects:
 Companies’ ability to compete
 Nation’s ability to compete internationally

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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

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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

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1-6
 Finance
Sales HRM

OM
QA
Marketing

MIS Accounting
Engineering

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 Organization

Marketing Operations Finance

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 Value-Added

Inputs Transformation/ Outputs

•Land Conversion •Goods
•Labor •Services
•Capital
Process
•Information

Measurement
and Feedback
Measurement Measurement
and Feedback and Feedback
Control

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.
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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

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 Food Processor (Goods)
Table 1.2
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Hospital Process (Service)
Table 1.2

Inputs Processing Outputs

Doctors, nurses Examination Healthy
Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
Manufacturing and Service Organizations differ chiefly
because manufacturing is goods-oriented and service is act-
oriented.

Goods Services

Tangible Act-Oriented

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 Goods Service
Output Tangible Intangible
Customer contact Low High
Labor content of jobs Low High
Uniformity of input & output High Low
Measurement of productivity Easy Difficult
Production and delivery Different time Same time
Opportunity to correct problems High Low
Quality assurance Easy Difficult
Amount of inventory Large Small
Evaluation of work Easy Difficult
Wages Narrow range Wide range
Ability to patent design Usually Not usually
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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 manager’s control (e.g., employee and
customer attitudes)
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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 . . .
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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

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• 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

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

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 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

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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.
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 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

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 System - a set of interrelated parts that must
work together
 The business organization is a system composed of
subsystems
 marketing subsystem Sub-
 operations subsystem
optimization
 finance subsystem
 The systems approach
 Emphasizes interrelationships among subsystems
 Main theme: 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
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 Economic conditions

 Innovating

 Quality problems

 Risk management

 Competing in a global economy

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 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

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Ethical issues arise in many aspects
of operations management:

* Financial statements * Worker safety

* Product safety * Quality

* The environment * The community

* Hiring and firing workers * Closing facilities

* Workers rights

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