Chapter 1 - Introduction to Operations
Management
Operations Management is:
• The management of systems or processes
that create goods and/or provide services
• The business function responsible for planning,
coordinating, and controlling the resources
needed to produce products and services for a
company.
Operations Management is:
• A management function
• An organization’s core function
• In every organization whether Service or
Manufacturing, profit or Not for profit
Typical Organization Chart
What is Role of OM?
• OM Transforms inputs to outputs
– Inputs are resources such as
• People, Material, and Money
– Outputs are goods and services
OM’s Transformation Process
OM’s Transformation Role
• To add value:
Value-added is the difference between the cost of
inputs and the value or price of outputs.
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
Scope of Operations Management
• Operations Management includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– Deciding where to locate facilities
– Supply chain management
– And more .
The d/ce b/n Goods & Services
Manufacturing Services
• Tangible product Intangible product
• Product can be inventoried Product cannot be
• Low customer contact inventoried
• Longer response time High customer
• Capital intensive contact
Short response time
Labor intensive
Historical Development of OM
• Industrial revolution Late 1700s
• Scientific management Early
1900s
• Human relations movement 1930s-
• Management science 1940s-
• Computer age 1960s-
• Environmental Issues 1970s-
• JIT & TQM* 1980s-
*JIT= Just in Time, TQM= Total Quality Management
Historical Development con’t
• Reengineering 1990-
• Electronic Commerce 2000-
For long-run success, companies must place much importance on
their operations
Operations Strategy and Competitiveness
The Role of Operations Strategy:
• Provide a plan that makes best use of resources
which;
– Specifies the policies and plans for using
organizational resources
– Supports Business Strategy as shown on next slide
Business/Functional Strategy
Importance of Operations Strategy
• Companies often do not understand the
differences between operational efficiency
and strategy
– Operational efficiency is performing tasks well,
even better than competitors
– Strategy is a plan for competing in the
marketplace
• Operations strategy is to ensure all tasks
performed are the right tasks
Developing a Business Strategy
• A business strategy is developed after taking
into many factors and following some strategic
decisions such as;
– What business is the company in (mission)
– Analyzing and understanding the market
(environmental scanning)
– Identifying the companies strengths (core
competencies)
Three Inputs to a Business Strategy
Examples from Strategies
• Mission: Dell Computer- “to be the most
successful computer company in the world”
• Environmental Scanning: political trends, social
trends, economic trends, market place trends,
global trends
• Core Competencies: strength of workers,
modern facilities, market understanding, best
technologies, financial know-how, logistics
Developing an Operations Strategy
• Operations Strategy is a plan for the
design and management of operations
functions
• Operation Strategy developed after the
business strategy
• Operations Strategy focuses on specific
capabilities which give it a competitive
edge – competitive priorities
Operations Strategy – Designing the
Operations Function
Competitive Priorities- The Edge
• Four Important Operations Questions: Will
you compete on –
Cost?
Quality?
Time?
Flexibility?
Competing on Cost?
• Offering product at a low price relative to competition
– Typically high volume products
– Often limit product range & offer little
customization
– May invest in automation to reduce unit costs
– Can use lower skill labor
– Low cost does not mean low quality
Competing on Quality?
• Quality is often subjective
• Quality is defined differently depending on who is
defining it
• Two major quality dimensions include
– High performance design:
• Superior features, high durability, & excellent
customer service
– Product & service consistency:
• Meets design specifications
• Error free delivery
• Quality needs to address
– Product design quality – product/service meets
requirements
– Process quality – error free products
Competing on Time?
• Time/speed one of most important competition
priorities
• First that can deliver often wins the race
• Time related issues involve
– Rapid delivery:
• Focused on shorter time between order
placement and delivery
– On-time delivery:
• Deliver product exactly when needed every time
Competing on Flexibility?
• Company environment changes rapidly
• Company must accommodate change by being flexible
– Product flexibility:
• Easily switch production from one item to another
• Easily customize product/service to meet specific
requirements of a customer
– Volume flexibility:
• Ability to ramp production up and down to match
market demands
