Chapter 1

Introduction to Operations Management

INTRODUCTION
Definition: Operations is that part of a business organization that is
responsible for producing goods and / or services.
Goods : 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 : activities that provide some combination of time, location,
form, or psychological value.
supply chain : the sequence of organizations—their facilities, functions,
and activities—that are involved in producing and delivering a product
or service.
The essence of the operations function is to add value during the
transformation process. Value-added is the term used to describe the
difference between the cost of inputs and the value or price of outputs.
PRODUCTION OF GOODS VERSUS PROVIDING SERVICES
Similarities between goods and services :
. Forecasting and capacity planning to match supply and demand
Process management
Managing variations
Monitoring and controlling costs and productivity
Supply chain management
Location planning, inventory management, quality control, and
scheduling .
Diffrences between goods and services :
Degree of customer contact
Goods : indirect relationship with the customer.
Services : face to face with the customer .
Labor content of jobs :
Services has always a higher degree of labor content than goods .
Uniformly of inputs :
Goods : inputs are often known (materials – manufacturing tools).
Services : inputs in services operationsare often have a higher degree of
variability .
Measurement of productivity :
Goods : the highest productivity by using the least inputs
Quality assurance :
Goods : is all about standerization .
Services : usually more challenging for services due to higher variations .
Inventory :
Goods : more inventory in goods .
Services : less inventory in services .
Wages :
Variations in services is more than in goods .
Evaluation of work :
Goods : accepted or refused .
Services : more difficult to achieve customer satisfaction .
Ability to patent design :
Goodsis more easy to patent something than services .
WHY LEARN ABOUT OPERATIONS MANAGEMENT?
Finance and operations management personnel cooperate by
exchanging information and expertise in such activities as the following:
Budgeting: Budgets must be periodically prepared to plan financial
requirements. Budgets must sometimes be adjusted, and performance
relative to a budget must be evaluated.
 Economic analysis of investment proposals. Evaluation of alternative
investments in plant and equipment requires inputs from both
operations and finance people.
Provision of funds. The necessary funding of operations and the amount
and timing of funding can be important and even critical when funds are
tight. Careful planning can help avoid cash-flow problems.
marketing and operations management personnel cooperate by
exchanging information and expertise in such activities as the following :
operations can supply information about capacities and judge the
manufacturability of designs. Operations will also have advance warning
if new equipment or skills will be needed for new products or services.
marketing, operations, and finance must interface on product and
process design, forecasting, setting realistic schedules, quality and
quantity decisions, and keeping each other informed on the other’s
strengths and weaknesses.
CAREER OPPORTUNITIES AND PROFESSIONAL SOCIETIES
Skills of operations employee:
. People skills : political awareness; mentoring ability; and collaboration,
negotiation, and communication skills .
Knowledge skills: necessary for credibility and good decision making,
include product and/or service knowledge, process knowledge, industry
and global knowledge, financial and accounting skills, and project
management skills.
PROCESS MANAGEMENT
there are three categories of business processes:
1. Upper-management processes. These govern the operation of the
entire organization. Examples include organizational governance and
organizational strategy.
2. Operational processes. These are the core processes that make up
the value stream. Examples include purchasing, production and/or
service, marketing, and sale
 3. Supporting processes. These support the core processes. Examples
include accounting, human resources, and IT (information technology).
Business process management (BPM) activities include:
process design, process execution, and process monitoring.
Process Variation
There are four basic sources of variation:
1. The variety of goods or services being offered. The greater the variety
of goods and services, the greater the variation in production or service
requirements.
2. Structural variation in demand. These variations, which include trends
and seasonal variations, are generally predictable. They are particularly
important for capacity planning.
3. Random variation. This natural variability is present to some extent in
all processes, as well as in demand for services and products, and it
cannot generally be influenced by managers.
4. Assignable variation. These variations are caused by defective inputs,
incorrect work methods, out-of-adjustment equipment, and so on. This
type of variation can be reduced or eliminated by analysis and corrective
action .
THE SCOPE OF OPERATIONS MANAGEMENT
The operations function activities: forecasting, capacity planning,
scheduling, managing inventories, assuring quality, motivating
employees, deciding where to locate facilities.
OPERATIONS MANAGEMENT AND DECISION MAKING
key decisions that affect the entire organization:
What: What resources will be 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?
When is corrective action needed?
Where: Where will the work be done?
How: How will the product or service be designed?
How will the work be done (organization, methods, equipment)?
How will resources be allocated? Who: Who will do the work?
Managers use models in a variety of ways and for a variety of reasons.
Models are beneficial because they:
1. Are generally easy to use and less expensive than dealing directly
with the actual situation.
2. Require users to organize and sometimes quantify information and, in
the process, often indicate areas where additional information is
needed.
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.
limitations of models
1. Quantitative information may be emphasized at the expense of
qualitative information.
2. Models may be incorrectly applied and the results misinterpreted.
The widespread use of computerized models adds to this
. 3. The use of models does not guarantee good decisions.
OPERATIONS TODAY
Operations management is primarily concerned with three kinds of
technology:
product and service technology.
process technology.
information technology (IT).
Ethical Conduct
principles for thinking ethically:
• The Utilitarian Principle: The good done by an action or inaction should
outweigh any harm it causes or might cause. An example is not allowing
a person who has had too much to drink to drive.
• The Rights Principle: Actions should respect and protect the moral
rights of others. An example is not taking advantage of a vulnerable
person.
• The Fairness Principle: Equals should be held to, or evaluated by, the
same standards. An example is equal pay for equal work.
• The Common Good Principle: Actions should contribute to the
common good of the community. An example is an ordinance on noise
abatement.
• The Virtue Principle: Actions should be consistent with certain ideal
virtues. Examples include honesty, compassion, generosity, tolerance,
fidelity, integrity, and self-control.