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Chapter 1

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Ryerson University
Global Management Studies
GMS 401
Robert Meiklejohn

Chapter 1 – Introduction to Operations Management Operations Management  The management of processes or systems that create goods and/or provide services Process  A series of linked actions, changes, or functions bringing about a result - There are three types of processes: o Core  Directly create goods and/or services o Support  Support core processes o Managerial  Govern the system Most of the activities performed by management and administrative employees fall into the realm of operations management - Forecasting - Capacity planning - Scheduling - Managing inventories - Assuring quality - Employee motivation and training - Location of facilities - Buying materials Example: for an airline - Core processes: reservations, boarding and flying the planes, handling the luggage, and performing maintenance - Support processes: forecasting, scheduling, managing inventories, assuring quality, and buying material - Managerial processes: capacity planning, locating facilities, and employee motivation - Success of business depends on planning - Many companies use operations management strategies, tactics, and actions in order to improve their efficiency and effectiveness Efficiency  refers to operating at minimum cost and time Effectiveness  refers to achieving the intended goals (achieving quality and responsiveness) Why Study Operations Management? - Large percentage of a company’s expenses occur in the operations area o Such as purchasing materials and workforce salaries, more efficient operations - A large number of management jobs are in operations management - Activities in all of the other areas of business organizations, such as finance, accounting, human resources, management information systems, and marketing are all interrelated with operations management activities Functions within Organizations - Three basic functions: o Operations o Finance o Marketing Operations - The operations function performs all the activities directly related to producing goods or providing services. - It is responsible for the creation of an organization’s goods or services o Therefore exists both in fabrication and assembly operations (both goods-oriented and service-oriented) - Inputs are used to obtain finished goods or services using one or more transformation/conversion processes - To ensure desired outputs are obtained, measurements are taken at various points (feedback) and then compared with previously established standards to determine whether corrective action is needed (control) - Essence of the operations function is to add value during the transformation process: Value added  the difference between the cost of inputs and the value or price of outputs - In non-profit organizations, the value of outputs is their value to society - In for-profit organizations, the value of outputs is measured by the prices that customers are willing to pay for those goods and services - One way that businesses attempt to become more productive is to examine critically whether the operations performed by their workers add value Finance - Performs activities related to securing resources at favorable prices and allocating those resources throughout the organization - Finance and operations management personnel cooperate by exchanging information and expertise in activities such as: o Provision of funds o Economic analysis of investment proposals Marketing - Responsible for assessing customer wants and needs, and for communicating those needs and feedback to operations people and to product design people - Operations needs information about demand so that it can plan accordingly - Product design needs information that relates to improving current products and services, and designing new ones - One important piece of information marketing needs from operations is the manufacturing or service lead time in order to give customers realistic estimates of how long it will take to fill their orders. - Lead Time  the time between ordering a good or service and receiving it - Marketing, operations, and finance must interface on product and processes design, forecasting, setting realistic schedules and quality and quantity decisions Other Functions - Accounting o Supplies information to management on costs of labour, materials, overhead, and ma provide reports on such items such as scrap, downtime, and inventories - Management Information Systems (MIS) o Concerned with providing man
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