1-1 Introduction to Operations Management
Operations Management
William J. Stevenson
8th edition
1-2 Introduction to Operations Management
CHAPTER
1
Introduction to
Operations Management
Operations Management, Eighth Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
1-3 Introduction to Operations Management
The 3 Dimensions of Operations
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The Realm of Operations
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Operations Management
Figure 1.1
The management of systems or processes
that create goods and/or provide services
Organization
Finance Operations Marketing
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The Operations Function
Marketing Operations Finance
-Creating Demand -Production of goods -Acquisition and
-Generating Sales & services, 80% of allocation of
both physical & capital
human resources
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Value-Added
Figure 1.2
The difference between the cost of inputs
and the value or price of outputs.
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback
1-8 Introduction to Operations Management
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Goods-service Continuum
Figure 1.3
Steel production Home remodeling Auto Repair Maid Service Teaching
Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing
High percentage goods Low percentage goods
Low percentage service High percentage service
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Food Processor
Table 1.2
Inputs Processing Outputs
Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
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Hospital Process
Table 1.2
Inputs Processing Outputs
Doctors, nurses Examination Healthy
Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
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Production of Goods vs. Delivery of Services
• Production of goods – tangible output
• Delivery of services – an act
• Service job categories
• Government
• Wholesale/retail
• Financial services
• Healthcare
• Personal services
• Business services
• Education
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Key Differences
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
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Manufacturing vs Service
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
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An Operation As A Productive
System
Inputs Outputs
Energy
Materials Transformation
(Conversion) Process
Labor Goods or Services
Capital
Information
Feedback information for control of process
inputs and process technology
What is Operations Mgmt.?
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• The Traditional Model
OM transforms factors of production into goods or
services of higher value
• The Business Process Model of the Firm OM is
involved in doing or supporting the four core sets of
business processes
• Determining customer needs
• Developing product strategy (product innovation)
• Managing the entire supply chain
• Managing non-value adding support activities
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Implications of the Business Process Perspective
• Operations Managers Must Maintain a Cross-functional
perspective
• Concern about pleasing the customer is paramount
• A resource balancing act: things, humans and information
• The Operations Manager must wear many hats
• Profit = MS1 x MS2 x MS3
= market size x market share x margin on sales
where margin on sales = price – cost
Managing the Operations
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Subsystem
• Functions of the operations manager:
• Planning
• Product Planning
• Facilities Design
• Organizing
• Determines the activities required to achieve the operations subsystem’s
goals.
• Assign authority for carrying them out.
• Controlling
• Measure the outputs to see if theyconform to what has been planned.
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Functions of the operations
manager
Planning &
Organizing Inputs
-Management Planning & Outputs
Organizing
-Labor -Goods
The Conversion
-Capital -Services
Process
-Land
Feedback to enhance control
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Scope of Operations Management
• Operations Management includes:
• Forecasting
• Capacity planning
• Scheduling
• Managing inventories
• Assuring quality
• Motivating employees
• Deciding where to locate facilities
• And more . . .
1-21 Introduction to Operations Management
• The operations function
• Consists of all activities directly related to
producing goods or providing services
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Responsibilities of Operations Management
Table 1.6
Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
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Key Decisions of Operations Managers
• What
What resources/what amounts
• When
Needed/scheduled/ordered
• Where
Work to be done
• How
Designed
• Who
To do the work
Tactical & Strategic Decisions
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Business Operations Overlap
Figure 1.5
Operations
Marketing Finance
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Strategy Operations Management
• Evolution of Strategy
• Know thy enemy/Know the customer
• Forces impacting strategy
• Information technology/e-commerce
• Increase customer participation/demands
• Market growth opportunities may be limited
• Your markets might be maturing
• Geographic expansion opportunities may be limited
• Two Basic Approaches
• Focus on your core competencies (stick to your knitting)
• Demand innovation—investigate your customers’ total needs and expand your
product offering scope
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Trends in Business
• Major trends
• The Internet, e-commerce, e-business
• Management technology
• Globalization
• Management of supply chains
• Agility
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Future Challenges
• To the OM function
• Scarcity of worthwhile human resources
• Deflation, inflation and/or currency fluctuations
• A wired supply chain (is B2B still valid?)
• Increased customer involvement
• New product/process technologies
• The Intellectual Property Challenge
• Globalism
• China / Japan / Europe / Mexico /So-called 3rd world
