1-1 Introduction to Operations Management
Operations Management
William J. Stevenson
8th edition
1-2 Introduction to Operations Management
CHAPTER
1
Introduction to
Operations Management
Operations Management, Eighth Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
1-3 Introduction to Operations Management
INTRODUCTION
Operations is that part of a business organization that is
responsible for producing goods and/ or services.
Goods are physical items that include raw materials,
parts, subassemblies such as motherboards that go into
computers, and final products such as cell phones and
automobiles.
Services are activities that provide some combination of
time, location, form, or psychological value.
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SUPPLY AND DEMAND MANAGEMENT
The ideal situation for a business organization is to
achieve a match of supply and demand.
Having excess supply or excess capacity is wasteful and
costly; having too little means lost opportunity and
possible customer dissatisfaction.
The key functions on the supply side are operations and
supply chains, and sales and marketing on the demand
side
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Operations Management
The management of systems or processes
that create goods and/or provide services
Organization
Finance Operations Marketing
Figure 1.1 The three basic functions of
business organizations
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Conversion system- Value addition
Figure 1.2
The difference between the cost of inputs
and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback
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Goods-service Continuum
Figure 1.3
Steel production Home remodeling Auto Repair Maid Service Teaching
Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing
High percentage goods Low percentage goods
Low percentage service High percentage service
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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 Process
Table 1.2
Inputs Processing Outputs
Doctors, nurses Examination Healthy
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
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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
6. Production and delivery
7. Quality assurance
8. Amount of inventory
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Manufacturing vs Service
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
Inventory High Low
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Scope of Operations Management
Operations Management includes:
Forecasting
Capacity planning
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
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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, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
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Figure 1.4
U.S. Manufacturing vs. Service Employment
Year Mfg. Service
45 79 21
100
50 72 28
55 72 28 80
60 68 32
65 64 36
Percent 60
70 64 36 40
75 58 42
80 44 46 20
85 43 57
0
90 35 65
95 32 68 45 50 55 60 65 70 75 80 85 90 95 00
00 30 70 Year
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Responsibilities of Operations Management
Table 1.6
Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
1-20 Introduction to Operations Management
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
Analysis of trade-offs
Degree of customization
Systems approach
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Models
A model is an abstraction of reality.
– Physical
– Schematic
– Mathematical
Tradeoffs
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Models Are Beneficial
Easy to use, less expensive
Require users to organize
Systematic approach to problem solving
Increase understanding of the problem
Enable “what if” questions
Specific objectives
Consistent tool
Power of mathematics
Standardized format
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Quantitative Approaches
• Linear programming
• Queuing Techniques
• Inventory models
• Project models
• Statistical models
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Systems Approach
“The whole is greater than
the sum of the parts.”
In a business organization, the organization
can be thought of as a system composed of
subsystems (e.g., marketing subsystem,
operations subsystem, finance subsystem),
which in turn are composed of lower
subsystems
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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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Business Operations Overlap
Figure 1.5
Operations
Marketing Finance
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Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing Public
Operations Relations
Legal
Personnel
Accounting MIS
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Historical Evolution of Operations Management
Table 1.7
Industrial revolution (1770’s)
Scientific management (1911)
Mass production
Interchangeable parts
Division of labor
Human relations movement (1920-60)
Decision models (1915, 1960-70’s)
Influence of Japanese manufacturers
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Trends in Business
Major trends
The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
Agility
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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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Example
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A Supply Chain for Bread
Stage of Production Value Value of
Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
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 $1.29
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Other Important Trends
Ethical behavior
Operations strategy
Working with fewer resources
Cost control and productivity
Quality and process improvement
Increased regulation and product liability
Lean production
