Chapter OneIntroduction to

OperationsManagement

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Back to Basics

• What is the objective for any business?

• How is profit determined?

• Profit=revenue-cost

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What is the Operations Function in an Organization?

• The operations function is responsible for the the creation of goods and services

• Alternatively, the operations function transforms a set of inputs into a set of outputs

• The operations function exists in some form in all firms

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Marketing

Operations

Finance

Business Operations Overlap

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Types of OperationsOperations Examples

Goods Producing Farming, mining, construction,manufacturing, power generation

Storage/Transportation Warehousing, trucking, mailservice, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, banking,renting, leasing, library, loans

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and televisionnewscasts, telephone, satellites

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Value-Added

The difference between the cost of inputs and the value or price of outputs

Inputs Land Labor Capital

Transformation/Conversion

process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

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The Model Applied to aFood Processor

Inputs Transformation/Processing

Outputs

Canned vegetables

Packing

CleaningMaking cansCuttingCooking

Labeling

Raw VegetablesMetal SheetsWaterEnergyLaborBuildingEquipment

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Inputs Transformation/Processing

Outputs

Healthy patients

DoctorsNursesStaffBuildingMedical SuppliesEquipmentLaboratories

ExaminationSurgeryMonitoringMedicationTherapy

The Model Applied to aHospital

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Stage of ProductionValue Added

Value of Product

Farmer produces and harvests wheat $0.15 $0.15

Wheat transported to mill $0.08 $0.23

Mill produces flour $0.15 $0.38

Flour transported to baker $0.08 $0.46

Baker produces bread $0.54 $1.00

Bread transported to grocery store $0.08 $1.08

Grocery store displays and sells bread $0.21 $1.29

Total Value-Added $1.29

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Operations Interfaces

Public Relations

Accounting

IndustrialEngineering

Operations

Maintenance

PersonnelPurchasing

Distribution

MIS

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Operations System Design

• Decisions concerning– capacity

– location

– arrangement of work areas

– product and service planning

– acquisition and placement of processes

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Operations System Operation

• Decisions concerning– personnel– inventory– scheduling– project management– quality– assurance

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Major Characteristics of Operations Systems

• Degree of standardization /customization

• Type of operation– Project– Job shop– Repetitive production– Continuous processing

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Tangible Act

Manufacturing or Service?

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Steel productionAutomobile fabrication

House buildingRoad construction

DressmakingFarming

Auto RepairAppliance repair

Maid ServiceManual car wash

TeachingLawn mowing

Low service contentHigh goods content

High service contentLow goods content

Increasinggoods content

Increasingservice content

Goods-service continuum

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Opportunity to correct High Lowquality problems

Measurement of productivity Easy Difficult

Uniformity of output High Low

Labor content Low High

Uniformity of input High Low

Customer contact Low High

Output Tangible Intangible

Characteristic Manufacturing Service

High

Key Differences Between Service and Manufacturing Operations

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What Does the Managerof the Operations Function Do?• Makes and implements decisions

regarding the design, operation and control of the operations system

• Applies analyses and tools to enhance the performance measures for the operations system

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Products and services

• Planning– Capacity– Location–

– Make or buy– Layout– Projects– Scheduling

• Controlling– Inventory– Quality

• Organizing–

–

Degree of centralizationSubcontracting

• Staffing– Hiring/laying off– Use of Overtime

• Directing–

–

–

Incentive plansIssuance of work ordersJob assignments

Responsibilities of Operations Management

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A model is an abstraction of reality.

– Physical– Schematic– Mathematical

What are the pros and cons of models?

Tradeoffs

Models

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SuboptimizationSuboptimization

A Systems Approach to Decision Making

• A system is a set of interrelated parts that must work together

• The whole is greater than the sum of the parts

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Quantitative Approaches to Decision Making

• Linear programming

• Queuing techniques

• Inventory models

• Project models

• Statistical models

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• A vital few things are important for reaching an objective or solving a problems

• 80/20 Rule – 80% of problems are caused by 20% of the activities

How do we identify the vital few?

Pareto Phenomenon

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Recent Trends

• The Internet

• E-Business

• Supply Chain Management

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Suppliers’ Suppliers

DirectSuppliers Producer Distributor Final

Consumer

A Simple ProductSupply Chain

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Continuing Trends

• Quality and process improvement

• Technology

• Globalization

• Operations strategy

• Environmental issues