© 2006 Prentice Hall, Inc.
1–1
Outline
What Is Operations Management?
Organizing To Produce Goods And
Services
Why Study OM?
What Operations Managers Do?
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Learning Objectives
When you complete this chapter,
you should be able to:
Identify or Define:
Production and productivity
Operations management (OM)
What operations managers do
Services
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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
© 2006 Prentice Hall, Inc. 1–4
Organizing to Produce
Goods and Services
Essential functions:
Marketing – generates demand
Production/operations – creates the
product
Finance/accounting – tracks how well the
organization is doing, pays bills, collects
the money
- Other business functions—such as
accounting, purchasing, human resources,
and engineering – as support services
© 2006 Prentice Hall, Inc. 1–5
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. 1–6
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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What Operations
Managers Do
Basic Management Functions
Planning
Organizing
Staffing
Leading
Controlling
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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?
Table 1.2 (cont.)
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The Critical Decisions
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?
Table 1.2 (cont.)
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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?
Table 1.2 (cont.)
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The Critical Decisions
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?
Table 1.2 (cont.)
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The Critical Decisions
Intermediate and short–term
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?
Table 1.2 (cont.)
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Where are the OM Jobs?
© 2006 Prentice Hall, Inc.
Figure 1.2 1 – 14
Where are the OM Jobs?
Technology/methods
Facilities/space utilization
Strategic issues
Response time
People/team development
Customer service
Quality
Cost reduction
Inventory reduction
Productivity improvement
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Characteristics of Goods
Tangible product
Consistent product
definition
Production usually
separate from
consumption
Can be inventoried
Low customer
interaction
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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
Frequently dispersed
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Goods Versus Services
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure
measurable
Selling is distinct from Selling is part of service
production
Product is transportable Provider, not product, is
often transportable
Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily
from tangible product from the intangible service
© 2006 Prentice Hall, Inc.
Table 1.3 1 – 18
New Trends in OM
Past Causes Future
Lengthy Shorter life cycles, Rapid product
product Internet, rapid international development,
development communication, computer- alliances,
aided design, and collaborative
international collaboration designs
Standardized Affluence and worldwide Mass
products markets; increasingly customization
flexible production with added
processes emphasis on
quality
Job Changing socioculture Empowered
specialization milieu; increasingly a employees,
knowledge and information teams, and
society lean
production
Figure 1.6
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