INTRODUCTION TO

OPERATIONS
MANAGEMENT
IE 310
Steven Co Jr., CIE, AAE, CSSYB
• Production, Operations Management, and Supply Chain
• Manufacturing operations vs Service operations
• Basic functions of the Organization
• Process Management
• Decision Making
• History of Operations Management
• Key issues

POINTS OF DISCUSSION
• Operations is responsible for producing goods and/or services
• Goods are physical items, including raw materials, subassemblies,
and final products
• Services are activities that provide some combination of time,
location, form, or psychological value
• The success or failure of a company's operations functions has an
impact on a nation's ability to compete with other nations, and
on the nation's economy

OPERATIONS
• Operations is responsible for producing goods or providing
services offered by the organization.
• Operations and supply chains are intrinsically linked; no business
can exist without both.
• Operations management is the management of systems or
processes that create goods and/or provide services
• Supply chain is the sequence of organizations that are involved in
producing and delivering a product/service
• An organization's usual sequence starts with basic suppliers of raw
materials and extends to the final customer

PRODUCTION, OPERATIONS
MANAGEMENT, AND SUPPLY CHAIN
• Supply chains are both internal and external to the organization
• Supply chains have a sequential nature, where elements are
interconnected with each other
• If one element fails, there is a possibility that the flow is interrupted
• A supply chain can also be visualized as a tree with many
branches
• The main branch consists of key suppliers and transporters
• Each main branch has its own side branches, with their own side
branches, etc.

SUPPLY CHAINS
• The essence of operations functions is to add value to the
transformation process
• "Value-added" describes the difference in terms of cost of input
and value of output
• Value of a company's outputs can be in the form of financial
(profits) or psychological (branding)

OPERATIONS FUNCTIONS AND VALUE

FINANCIAL VS PSYCHOLOGICAL
VALUE
• Goods are tangible outputs
• Goods can be manufactured or nonmanufactured
• Manufactured goods are produced in factories or manufacturing
operations
• Nonmanufactured goods are produced in other production facilities
such as farms and restaurants

MANUFACTURING OPERATIONS VS
SERVICE OPERATIONS
• Services are intangible outputs
• Majority of service jobs fall under the following:
• Professional services
• Mass services
• Personal care
• Government
• Food service
• Shipping and delivery
• Residential services
• Transportation
• Hospitality
• Miscellaneous services

MANUFACTURING OPERATIONS VS
SERVICE OPERATIONS
• Degree of customer contact
• How much customer contact and interaction between customer and server is
involved?
• Labor content
• How high is the intensity of labor involved when providing output?
• Uniformity of inputs
• How varied are the inputs used?
• Measurement of productivity
• How difficult can productivity be measured?
• Quality assurance
• How is quality measured and checked?

POINTS OF COMPARISON: PRODUCTS

VS SERVICES
• Inventory
• How is inventory handled?
• Wages
• How varied are wages between similar companies?
• Ability to patent
• How easy is the output to patent?

POINTS OF COMPARISON: PRODUCTS

VS SERVICES
• Forecasting and capacity planning
• Process management
• Managing variations
• Monitoring and controlling costs and productivity
• Supply chain management
• Location planning, inventory management, quality control, and
scheduling

SIMILARITIES IN MANAGEMENT:
PRODUCTS & SERVICES
Finance
Operations
Marketing

THREE BASIC FUNCTIONS OF BUSINESS

ORGANIZATIONS
• There is significant interfacing and collaboration between various
functional areas, involving exchange of information and
collaborative decision making
• The three basic functions mentioned earlier may have different
activities, but many of their decisions impact other areas in the
organization

THREE BASIC FUNCTIONS OF BUSINESS

ORGANIZATIONS
• In finance, activities interacting with operations include:
• Budgeting
• Economic analysis of investment proposals
• Provision of funds
• In marketing, activities interacting with operations include:
• Assessment of customer wants and needs
• Communication of trends
• Demand and planning
• Design, research and development
• Operations interact with other functions through:
• Capacity and manufacturability
• Allotment of equipment and skills
• Determining of lead times

HOW BASIC FUNCTIONS OF THE

ORGANIZATION INTERACT
• A process involves one or more actions that transform inputs to
outputs
• There are three categories of business processes
• Upper-management processes, which govern the entire
organization
• Operational processes, which are the core processes that make up
the value stream
• Supporting processes, which support the core processes
• Ideally, the capacity of a process will be such that its output just
matches demand

PROCESS MANAGEMENT
• In order to meet the ideal capacity, forecasts of demand have to
be accurate
• Forecasts have to be translated accurately into capacity
requirements
• The organization must also have processes in place to meet the
expected demand
• The organization must be able to deal with variations
• Four basic sources of variation are:
• Variety of goods or services being offered
• Structural variation in demand (trends and seasonal variations)
• Random variation
• Assignable variation (resulting from errors in production)

PROCESS MANAGEMENT
• An operations manager is expected to be a planner and
decision maker
• When making decisions, especially those involving costs and
profits, it is important to make informed decisions
• When making decisions, it is important to ask the 5W1H questions

DECISION MAKING
• Models are a key tool used by decision makers
• Models are simplified representations of real life events, processes, or
items
• Types of models include:
• Physical models
• Schematic models
• Mathematical models

DECISION MAKING
• Quantitative approaches often embody an attempt to obtain
mathematically optimal solutions to managerial problems
• Performance metrics are usually used to manage and control
operations
• Most often, decisions revolve around trade-offs, where decision-
makers must weigh in the advantages and disadvantages of
options

DECISION MAKING
• The degree of customization of products or services is a major
influence on the entire organization, impacting process selection
and job requirements and other functions
• A systems viewpoint is also beneficial in decision making
• Systems are a set of interrelated parts working together to produce
outputs
• Determining priorities when dealing with certain issues is
important
• The Pareto principle (80/20 rule) tells that a few percentage of items
(20%) can make up the majority (80%) of the overall impact

DECISION MAKING
PARETO PRINCIPLE
 Industrial Revolution: the emergence of the steam engine paved
the way for production (18th century)
 During this time, craft production was prevalent, wherein highly
skilled workers use simple tools to produce small quantities of
customized goods
 The development of standard gauging systems boosted the
Industrial Revolution more.
 Scientific Management era: emergence of management based
on observation, measurement, analysis and improvement of work
methods
 The scientific management movement was spearheaded by
Frederick Winslow Taylor (Father of Scientific Management)

HISTORY OF OPERATIONS
MANAGEMENT
 During the Scientific Management era, other pioneers emerged:
 Frank and Lillian Gilbreth pioneered motion study, especially for
small tasks
 Henry Gantt developed the Gantt chart
 Henry Ford was the chief developer of the assembly line technique
of mass production
 Eli Whitney was an advocate for the concept of interchangeable
parts, which furthered launched mass production

HISTORY OF OPERATIONS
MANAGEMENT
 Human Relations Movement: gave emphasis on the importance
of human elements in job design
 Lillian Gilbreth is one of the well-known pioneers on the study on
human factor in work, dealing with worker fatigue and motivation
 Factory Movement: emergence of quantitative decision models
and Management Science
 Statistical procedures were applied in sampling, quality control, and
inventory
 The onset of World War II paved the way for industries to use
quantitative tools for decision making

HISTORY OF OPERATIONS
MANAGEMENT
 Japanese Influence: the spread of Japanese manufacturing
techniques around the world
 The Japanese were credited with the “quality revolution”, which
sparked interest in lean production
 Toyota especially had a large impact on manufacturing industries
with the use of lean manufacturing and the Toyota Production
System
 Taiichi Ohno is considered the father of lean manufacturing
 W. Edwards Deming and Joseph Juran helped shape quality
management and statistical process control, thus helping spread
the Japanese standards to the West
 Kaoru Ishikawa pioneered the fishbone diagram

HISTORY OF OPERATIONS
MANAGEMENT
 Economic conditions
 Innovating
 Quality problems
 Risk management
 Cyber-security
 Competing in a global economy
 Environmental concerns
 Ethical concerns

KEY ISSUES IN TODAY’S OPERATIONS

END OF LECTURE