CHAPTER 1

OPERATIONS MANAGEMENT

R E P O RT E R S :

B A Z A R , C H A M Y FA I T H E .
C ATA R M A N , J E M A R C H
DE LEON, SARAH NOEMIE
VA L E N C I A , M A R G A U X A U B R E Y C .
 Operation Management at Hard rock café

Operations managers throughout the world are producing products every day to provide for the well-being of
society. These products take on a multitude of forms. They may be washing machines at Whirlpool, motion
pictures at DreamWorks, rides at Disney World, or food at Hard Rock Cafe. These firms produce thousands of
complex products every day—to be delivered as the customer ordered them, when the customer wants them,
and where the customer wants them. Hard Rock does this for over 35 million guests worldwide every year.
This is a challenging task, and the operations manager's job, whether at Whirlpool, DreamWorks, Disney, or
Hard Rock, is demanding.

- Hard rock café opened it London 1971

- Hard rock café in Orlando, Florida, prepares over 3500 meals each day
- Seating more than 1500 people
- It is one of the largest restaurants in the world
- Operations managers are interested in the attractiveness of the layout
- Deliver quality products on time
- Well trained cooks to prepare quality means
- 3500 custom products in this case meals
- These products are designed , tested, and then analyzed for cost of ingredients, labor requirements and
customer satisfaction
- Operation managers, using the best people that they can recruit and train
WHAT IS OPERATION MANAGEMENT?

• IT IS THE SET OF ACTIVITIES THAT CREATES VALUE IN THE

FORM OF GOODS AND SERVICES BY TRANSFORMING
INPUTS INTO OUTPUTS.

• PRODUCTION IS THE CREATION OF GOODS AND

SERVICES
Organizing to Produce Goods and Services

To create goods and services, all organizations perform three functions These
functions are the necessary ingredients not only for production but also for an organization's
survival. They are:

1. Marketing, which generates the demand, or at least takes the order for a product or ser-
vice (nothing happens until there is a sale).

2. Production/operations, which creates, produces, and delivers the product.

3. Finance/accounting, which tracks how well the organization is doing, pays the bills, and
collects the money.
 THE SUPPLY CHAIN

• IS A GLOBAL NETWORK OF ORGANIZATIONS

AND ACTIVITIES THAT SUPPLY A FIRM WITH
GOODS AND SERVICES.

EXAMPLE OF SUPPLY CHAIN: SOFTDRINKS

WHY STUDY OM?

1. OM is one of the three major functions of any organization, and it is

integrally related to all the other business functions. All
organizations market (sell), finance (account), and produce
(operate), and it is important to know how the OM activity functions.
Therefore, we study how people organize themselves for productive
enterprise.

2. We study OM because we want to know how goods and services are

produced. The production function is the segment of our society that
creates the products and services we use.
3. We study OM to understand what operations managers do.
Regardless of your job in an organization, you can perform better if you
understand what operations managers do. In addition, understanding
OM will help you explore the numerous and lucrative career
opportunities in the field.

4. We study OM because it is such a costly part of an organization. A

large percentage of the revenue of most firms is spent in the OM
function. Indeed, OM provides a major oppor- tunity for an organization
to improve its profitability and enhance its service to society. Example I
considers how a firm might increase its profitability via the production
function.
WHAT OPERATIONS MANAGERS DO?

- ALL GOOD MANAGERS PERFORM THE BASIC FUNCTIONS OF THE

MANAGEMENT PROCESS.

• PLANNING
• ORGANIZING
• STAFFING
• LEADING
• CONTROLLING
 • DESIGN OF GOODS AND SERVICES
• MANAGING QUALITY
TEN • PROCESS AND CAPACITY STRATEGY
STRATEGIC • LOCATION STRATEGY
• LAYOUT STRATEGY
OPERATIONS • HUMAN RESOURCES AND JOB DESIGN
MANAGEMEN • SUPPLY CHAIN MANAGEMENT
• INVENTORY MANAGEMENT
T DECISIONS • SCHEDULING
• MAINTENANCE
THE HERITAGE OF OPERATIONS MANAGEMENT
 The field of OM is relatively young, but its history is rich and interesting. Our lives and
the OM discipline have been enhanced by the innovations and contributions of numerous
individuals.

 Plant Manager
- Division of Fortune 1000 company seeks plant manager for plant located in
the upper Hudson Valley area. This plant manufactures loading dock equipment for
commercial markets. The candidate must be experienced in plant management
including expertise in production planning, purchasing, and inventory management.
Good written and oral communication skills are a must, along with excellent application
of skills in managing people.

 Operations Analyst
- Expanding national coffee shop: top 10 "Best Places to Work" wants junior
level systems analyst to join our excellent store improvement team. Business or L.E.
degree, work methods, labor standards, ergonomics, cost accounting knowledge a plus.
This is a hands-on job and excellent opportunity for a team player with good people
skills. West Coast location. Some travel required.
 Quality Manager

- Several openings exist in our small package processing facilities in the

Northeast, Florida, and Southern California for quality managers. These highly visible
positions require extensive use of statistical tools to monitor all aspects of service,
timeliness, and workload measurement. The work involves (1) a combination of
hands-on applications and detailed analysis using databases and spreadsheets, (2)
processing of audits to identify areas for improvement. and (3) management of
implementation of changes. Positions involve night hours and weekends.

 Supply-Chain Manager and Planner

- Responsibilities entail negotiating contracts and establishing long-term

relationships with suppliers. We will rely on the selected candidate to maintain
accuracy in the purchasing system, invoices, and product returns. A bachelor's degree
and up to 2 years related experience are required. Working knowledge of MRP, ability
to use feedback to master scheduling and suppliers and consolidate orders for best
price and delivery are necessary. Proficiency in all PC Windows applications,
particularly Excel and Word, is essential. Effective verbal and written communication
skills are essential.
 Process Improvement Consultants

- An expanding consulting firm is seeking consultants to

design and implement lean production and cycle time reduction
plans in both service and manufacturing processes. Our firm is
currently working with an international bank to improve its back
office operations, as well as with several manufacturing firms. A
business degree required, APICS certification a plus.
 MANY OPPORTUNITIES EXIST FOR
OPERATIONS MANAGERS
- Eli Whitney (1800) is credited for the early popularization of
interchangeable parts, which was achieved through standardization and
quality control. Through a contract he signed with the U.S. government for
10,000 muskets, he was able to command a premium price because of
their interchangeable parts.
Frederick W. Taylor (1881), known as the father of scientific
management, contributed to personnel selection, planning and scheduling,
motion study, and the now popular field of ergo- nomics. One of his major
contributions was his belief that management should be much more
resourceful and aggressive in the improvement of work methods. Taylor
and his colleagues, Henry L. Gantt and Frank and Lillian Gilbreth, were
among the first to systematically seek the best way to produce.
Another of Taylor's contributions was the
belief that management should assume
more responsibility for:

1. Matching employees to the right job.

2. Providing the proper training.

3. Providing proper work methods and

tools.

4. Establishing legitimate incentives for

work to be accomplished.
SIGNIFICANT EVENTS IN OPERATIONS MANAGEMENT

By 1913, Henry Ford and Charles Sorensen combined what they knew about standardized
parts with the quasi-assembly lines of the meatpacking and mail-order industries and added the
revolutionary concept of the assembly line, where men stood still and material moved. Quality
control is another historically significant contribution to the field of OM. Walter Shewhart (1924)
combined his knowledge of statistics with the need for quality control and provided the foundations
for statistical sampling in quality control. W. Edwards Deming (1950) believed, as did Frederick
Taylor, that management must do more to improve the work environment and processes so that
quality can be improved.

Operations management will continue to progress as contributions from other disciplines, including
industrial engineering, statistics, management, and economics, improve decision making.
Innovations from the physical sciences (biology, anatomy, chemistry, physics) have also contributed
to advances in OM. These innovations include new adhesives, faster integrated circuits, gamma
rays to sanitize food products, and specialized glass for iPhones and plasma TVs Innovation in
products and processes often depends on advances in the physical sciences.
 Especially important contributions to OM have come from
information technology, which we define as the systematic processing of
data to yield information. Information technology-with wireless links,
Internet, and e-commerce is reducing costs and accelerating
communication. Decisions in operations management require individuals
who are well versed in analyti- cal tools, in information technology, and
often in one of the biological or physical sciences. In this textbook, we look
at the diverse ways a student can prepare for a career in operations
management.
OPERATIONS FOR GOODS AND SERVICES

Manufacturers produce a tangible product, while service products are

often intangible. But many products are a combination of a good and a
service, which complicates the definition of a service. Even the US
government has trouble generating a consistent definition. Because
definitions vary, much of the data and statistics generated about the service
sector are inconsistent. However, we define services as including repair and
maintenance, government, food and lodging, transportation, insurance,
trade, financial, real estate, education, legal medical, entertainment, and
other professional occupations.
 SERVICE PAY
Although there is a common perception that
service industries are low paying, in fact, many
service jobs pay very well. Operations managers
in the maintenance facility of an airline are very
well paid, as are the operations managers who
supervise computer services to the finan cial
community. About 42% of all service workers
receive wages above the national average.
Hawever, the service-sector average is driven
down because 14 of the US. Department of
Commerce categories of the 33 service industries
do indeed pay below the all-private industry
average. Of these, retail trade, which pays only
61% of the national private industry average, is
large. But even considering the retail sector, the
average wage of all service workers is about 96%
of the average of all private industries.
GROWTH OF SERVICES

Services constitute the largest economic sector in postindustrial

societies. Until about 1900, most Americans were employed in agriculture.
Increased agricultural productivity allowed people to leave the farm and
seek employment in the city. Similarly, manufactur ing employment has
decreased for the past 60 years. The changes in agriculture, manufac
turing, and service employment as a percentage of the workforce are
shown in Figure 1.5. Although the number of people employed in
manufacturing has decreased since 1950, each person is now producing
almost 20 times more than in 1950. Services became the dominant
THE PRODUCTIVITY CHALLENGE

• Why Productivity Challenge is important?

- ‘The creation of goods and services requires changing resources into goods
and services. The more efficiently we make this change, the more productive we are
and the more value is added to the good or service provided. Productivity is the ratio
of outputs (goods and services) divided by the inputs (resources, such as labor and
capital). The operations manager's job is to enhance (improve) this ratio of outputs to
inputs. Improving productivity means improving efficiency.
 Productivity measurement is particularly difficult in the service
sector, where the end product can be hard to define. For example,
economic statistics ignore the quality of your haircut, the outcome of a
court case, or the service at a retail store. In some cases, adjustments
are made for the quality of the product sold but not the quality of the
sales presentation or the advantage of a broader product selection.
Productivity measurements require specific inputs and outputs, but a
free economy is producing worth—what people want—which includes
convenience, speed, and safety. Traditional measures of outputs may
be a very poor measure of these other measures of worth. Note the
quality-measurement problems in a law office, where each case is
different, altering the accuracy of the measure “cases per labor-hour”
or “cases per employee.”
Productivity and the Service Sector

The service sector provides a special challenge to the

accurate measurement of productivity and productivity
improvement. The traditional analytical framework of economic
theory is based primarily on goods-producing activities.
Consequently, most published economic data relate to goods
production. But the data do indicate that, as our contemporary
service economy has increased in size, we have had slower
growth in productivity.
PRODUCTIVITY RESULTS AT TACO BELL

Improvements:

•Revised the menu

•Designed meals for easy preparation
•Shifted some preparation to suppliers
•Efficient layout and automation
•Training and employee empowerment

Results:

•Preparation time cut to 8 seconds

•Management span of control increased from 5 to 30
•Drive-up to pull-out Customer time to 164 seconds
•Stores handle twice the volume with half the labor
CURRENT CHALLENGES IN OPERATIONS
MANAGEMENT
 Operations managers work in an exciting and dynamic environment. This
environment is the result of a variety of challenging forces, from globalization of world
trade to the transfer of ideas, products, and money at electronic speeds. Let's look at
some of these challenges:
Globalization

Supply Chain Partnering

Sustainability

Rapid Product Development

Mass Customization

Lean Operations
ETHICS, SOCIAL RESPONSIBILITY, AND SUSTAINABILITY
The systems that operations managers build to convert resources into goods and
services are complex. And they function in a world where the physical and social
environment is evolving. as are laws and values. These dynamics present a variety of
challenges that come from the conflicting perspectives of stakeholders, such as customers,
distributors, suppliers, owners, lenders, employees, and community. Stakeholders, as well
as government agencies at various levels through require constant monitoring and
thoughtful responses.

Identifying ethical and socially responsible responses while developing sustainable

processes that are also effective and efficient productive systems is not easy. Managers are
also challenged to:

⚫Develop and produce safe, high-quality green products

⚫ Train, retain, and motivate employees in a safe workplace
⚫ Honor stakeholder commitments
Managers must do all this while meeting the demands of a very competitive
and dynamic world marketplace. If operations managers have a moral
awareness and focus on increasing productivity in this system, then many
of the ethical challenges will be successfully addressed. The organiza- tion
will use fewer resources, the employees will be committed, the market will
be satisfied, and the ethical climate will be enhanced. Throughout this text,
we note ways in which operations managers can take ethical and socially
responsible actions while successfully addressing these challenges of the
market. We also conclude each chapter with an Ethical Dilemma exercise.
IMPROVING PRODUCTIVITY AT STARBUCKS
Productivity Measurement

The measurement of productivity can

be quite direct. Such is the case
when productivity in measured by
labor-hours per ton of a specific type
of steel Although labor-hours is a
common measure of input, other
measures such as capital (dollars
invested), materials (tons of ore), or
energy (kilowatts of electricity) can be
used An example of this can be
summarized in the following equation:
THANK YOU!!!!