Chapter 1 - Introduction

to
Operations
Management
Operations Management
by

R. Dan Reid & Nada R. Sanders

4th Edition Wiley 2010

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Operations Management is:

The business function responsible
for planning, coordinating, and
controlling the resources needed
to produce products and services
for a company

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Operations Management is:

A management function

An organizations core function

In every organization whether

Service or Manufacturing, profit or
Not for profit
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Typical Organization Chart

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What is Role of OM?

OM Transforms inputs to outputs

Inputs are resources such as

People, Material, and Money

Outputs are goods and services

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OMs Transformation
Process

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OMs Transformation Role

To add value

Increase product value at each stage

Value added is the net increase between output

product value and input material value

Provide an efficient transformation

Efficiency means performing activities well for least

possible cost

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Goods & Services

Manufacturing
Tangible product
Product can be
inventoried
Low customer contact
Longer response time
Capital intensive

Services
Intangible product
Product cannot be
inventoried
High customer
contact
Short response time
Labor intensive

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On the other hand

Both use technology

Both have quality, productivity, & response
issues
Both must forecast demand
Both will have capacity, layout, and
location issues
Both have customers, suppliers, scheduling
and staffing issues
Manufacturing often provides services
Services often provides tangible goods
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Hybrid organizations

Some organizations are a blend of

service/manufacturing/quasimanufacturing QuasiManufacturing (QM) organizations
QM characteristics include

Low customer contact & Capital

Intensive

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Improving Products

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e/content/11_02/b4210048400234.htm?
chan=rss_topStories_ssi_5
http://www.npr.org/templates/story/story
.php?storyId=89070760

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Improving Services

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/story.php?storyId=88196545
http://www.npr.org/templates/story
/story.php?storyId=7000908

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Improving Services

http://www.npr.org/templates/story
/story.php?storyId=88196545
http://www.npr.org/templates/story
/story.php?storyId=7000908

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Improving Both
Simultaneously

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albiz/content/sep2009/gb2009099_
395466_page_2.htm

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Growth of the Service

Sector

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Service sector
growing to 50-80% of
non-farm jobs
Global
competitiveness
Demands for higher
quality
Huge technology
changes
Time based
competition
Work force diversity
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OM Decisions

All organizations make decisions

and follow a similar path

First decisions very broad Strategic

decisions

Strategic Decisions set the direction for

the entire company; they are broad in
scope and long-term in nature

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OM Decisions

Following decisions focus on specifics Tactical decision

Tactical decisions: focus on specific day-today issues like resource needs, schedules, &
quantities to produce
are frequent

Strategic decisions less frequent

Tactical and Strategic decisions must
align
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OM Decisions

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Plan of Book-Chapters link to

Types of OM Decisions

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Historical Development of
OM

Industrial revolution Late 1700s

Scientific management
Early 1900s

Hawthorne Effect

1930s

Human relations movement

Management science 1940sComputer age 1960sEnvironmental Issues 1970sJIT & TQM*
1980s-

1930s-

*JIT= Just in Time, TQM= Total Quality Management

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Historical Development
cont

Reengineering
Global competition
Flexibility
Time-Based Competition
1990Supply chain Management
Electronic Commerce
Outsourcing & flattening of world

199019801990199020002000-

For long-run success, companies must place much importance on

their operations

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Todays OM Environment

Customers demand better quality,

greater speed, and lower costs
Companies implementing lean system
concepts a total systems approach to
efficient operations
Recognized need to better manage
information using ERP and CRM systems
Increased cross-functional decision
making
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OM in Practice

OM has the most diverse organizational

function
Manages the transformation process
OM has many faces and names such as;

V. P. operations, Director of supply chains,

Manufacturing manager
Plant manger, Quality specialists, etc.

All business functions need information

from OM in order to perform their tasks
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Business Information Flow

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OM Across the
Organization

Most businesses are supported by

the functions of operations,
marketing, and finance
The major functional areas must
interact to achieve the
organization goals

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OM Across the
Organization cont

Marketing is not fully able to meet customer needs if

they do not understand what operations can produce
Finance cannot judge the need for capital
investments if they do not understand operations
concepts and needs
Information systems enables the information flow
throughout the organization
Human resources must understand job requirements
and worker skills
Accounting needs to consider inventory management,
capacity information, and labor standards

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Review of Learning Objectives

Define and explain OM

Explain the role of OM in business
Describe the decisions that
operations managers make
Describe the differences between
service and manufacturing operations
Identify major historical
developments in OM
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Review of Learning Objectives

cont

Identify current trends in OM

Describe the flow of information
between OM and other business
functions

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Chapter 1 Highlights

OM is the business function that is responsible

for managing and coordinating the resources
needed to produce a companys products and
services.
The role of OM is to transform organizational
inputs into companys products or services
outputs
OM is responsible for a wide range of decisions,
ranging from strategic to tactical.
Organizations can be divided into manufacturing
and service organizations, which differ in the
tangibility of the product or service
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Chapter 1 Highlights
cont

Many historical milestones have shaped OM.

Some of these are the Industrial Revolution,
scientific management, the human relations
movement, management science, and the
computer age
OM is highly important function in todays
dynamic business environment. Among the
trends with significant impact are just-in-time,
TQM, reengineering, flexibility, time-based
competition, SCM, global marketplace, and
environmental issues
OM works closely with all other business functions
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The End

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