Operations Management Chapter 1 Notes
Operations and Productivity
What Is Operations Management?
• Production is the creation of goods and services
• Operations management (OM) is the set of activities that create value in the
form of goods and services by transforming inputs into outputs
• The business functions responsible for planning, coordinating, and
controlling the resources needed to produce a company’s products and
• “In business today, the emphasis is not so much on what you make, but on
how you do business. Dell makes computers just like every other PC
manufacturer.” Quote: CEO on CNBC
• The resurgence of American business in the 1990’s capitalized on improved
• The proper use of OM concepts has assisted tremendously in bringing the US
out of it’s current recession
Why Study OM?
1. OM is one of three major functions of any organization, we want ot study how
people organize themselves for productive enterprise
2. We want (and need) to know how goods and services are produced
3. We want to understand what operations managers do
4. OM is such a costly part of an organization
• Strategic decisions
➢ Broad in scope
➢ Long-term in nature
➢ All encompassing
➢ E.g. What are the unique features of our product that make us
• Tactical decisions
➢ Narrow in scope
➢ Short term in nature
➢ Concerning a small group of issues
➢ E.g. Who will work the 2 shift tomorrow?
What Operations Managers Do
• Basic management functions
➢ Staffing ➢ Leading
The Critical Decisions
1. Design of goods and services
➢ What good or service should we offer?
➢ How should we design these products and services?
2. Managing quality
➢ How do we define quality?
➢ Who is responsible for quality?
3. Process and capacity design
➢ What process and what capacity will these products require?
➢ What equipment and technology is necessary for these processes?
4. Location strategy
➢ Where should we put the facility?
➢ On what criteria should we base the location decision?
5. Layout strategy
➢ How should we arrange the facility?
➢ How large must the facility be to meet our plan?
6. Human resources and job design
➢ How do we provide a reasonable work environment?
➢ How much can we expect our employees to produce?
7. Supply-chain management
➢ Should we make or buy this component?
➢ Who should be our suppliers and how can we integrate them into our
8. Inventory, material requirements planning, and JIT
➢ How much inventory of each item should we have?
➢ When do we re-order?
9. Intermediate and short-term scheduling
➢ Are we better off keeping people on the payroll during slowdowns?
➢ Which jobs do we perform next?
➢ How do we build reliability into our processes?
➢ Who is responsible for maintenance?
New Challenges in OM
• From To
➢ Local or national focus global focus
➢ Batch shipments just-in-time
➢ Low bid purchasing supply-chain partnering
➢ Lengthy product development rapid product development, alliances
➢ Standard products mass customization
➢ Job specialization empowered employees, teams Service vs. Manufacturing Operations
➢ Intangible product
➢ Product cannot be inventories
➢ High customer contact
➢ Short response time
➢ Labor intensive
➢ Tangible product
➢ Product can be inventoried
➢ Low customer contact
➢ Longer response time