Operations

Management

Chapter 1 –
Introduction to Operations
Management
© 2006 Prentice Hall, Inc. 1–1
 Outline
 Nature of operations management,
 scope and structure of Operations,
 Historical Evolution of operations
management,
 Manufacturing Vs. Service Operations,
 Operations and process management,
 operations and process decisions

© 2006 Prentice Hall, Inc. 1–2

 What Is Operations
Management?

Production is the creation of goods and

services
Operations management (OM) is the
set of activities that creates value in
the form of goods and services by
transforming inputs into outputs

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 Why Study OM?
 OM is one of three major functions
(marketing, finance, and operations)
of any organization
 We want (and need) to know how
goods and services are produced
 We want to understand what
operations managers do
 OM is such a costly part of an
organization
© 2006 Prentice Hall, Inc. 1–4
 Options for Increasing
Contribution
Finance/
Marketing Accounting OM
Option Option Option

Increase Reduce Reduce

Sales Finance Production
Current Revenue 50% Costs 50% Costs 20%

Sales $100,000 $150,000 $100,000 $100,000

Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
Gross Margin 20,000 30,000 20,000 36,000
Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
Subtotal 14,000 24,000 17,000 30,000
Taxes at 25% – 3,500 – 6,000 – 4,250 – 7,500
Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

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 Scope of operations
Management
What Operations Managers Do?
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
© 2006 Prentice Hall, Inc. 1–6
 scope …
Ten Decision Areas

 Service and product design

 Quality management

 Process and capacity design

 Location
 Layout design
 Human resources, job design
 Supply-chain management
 Inventory management
 Scheduling
 Maintenance
Table 1.2
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 The Critical Decisions
 Service and product design
 What good or service should we offer?
 How should we design these products and services?
 Quality management
 How do we define quality?
 Who is responsible for quality?
 Process and capacity design
 What process and what capacity will these products
require?
 What equipment and technology is necessary for these
processes?
 Location
 Where should we put the facility?
 On what criteria should we base the location decision?

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 The Critical Decisions
 Layout design
 How should we arrange the facility and material flow?
 How large must the facility be to meet our plan?
 Human resources and job design
 How do we provide a reasonable work environment?
 How much can we expect our employees to produce?
 Supply-chain management
 Should we make or buy this component?
 Who are our suppliers and who can integrate into our e-
commerce program?
 Inventory, material requirements planning, and JIT
 How much inventory of each item should we have?
 When do we re-order?

© 2006 Prentice Hall, Inc. 1–9

 The Critical Decisions
 scheduling
 Are we better off keeping people on
the payroll during slowdowns?
 Which jobs do we perform next?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?

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 Where are the OM Jobs?

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 Assignment I
analyze historical evolution
of OM from the ten decision
areas view point.

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 Manufacturing vs. service
operations

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 Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction
 Low labor content
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 Characteristics of Service
 Intangible product
 Produced and
consumed at same time
 Often unique
 High customer
interaction
 Inconsistent product
definition
 Often knowledge-based
 High labor content
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 Operations and process
management,
• All operations are composed of
processes.
• A process is an arrangement of resources
and activities that transform inputs into
outputs that satisfy (internal or external)
customer needs.
• The process technology is the methods,
procedures, and equipment used to
transform materials or inputs into
products or services.

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 • The difference between operations and processes is one of
scale, and there fore complexity.

• Both transform inputs into outputs but processes are the

smaller version. They are the component parts – the building
blocks – of an operation.

• So, ‘operations and process management’, is the term we

use to encompass the management of all types of operation,

• The general truth is that processes are everywhere, and all

managers have something to learn from studying operations
and process management.

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 operations and process
decisions
1. Directing the overall strategy of the operation . A general
understanding of operations and processes and their
strategic purpose, together with an appreciation of how
strategic purpose is translated into reality through how
innovation is incorporated into products and services and
how much of the total value-adding process should be
kept in-house and how much outsourced.
2. Designing the operation’s processes. Design is the activity
of determining the physical form, shape and composition
of operations and processes, together with the type of
resources they contain.

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 Cont…
3. Planning and control process delivery. After
being designed, the delivery of products and
services from suppliers and through the total
operation to customers must be planned and
controlled.
4. Developing process performance. Increasingly, it
is recognized that operations, or any process
managers cannot simply routinely deliver
products and services in the same way

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 End of chapter one

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