Chapter 1 – Introduction to Operations Management GMS401
- Operations Management: the management processes or systems that create goods
and/or provide services.
- A system is a set of interrelated parts that must work together.
- Process: a series of linked actions, changes, or functions bringing in a result.
- Types of processes:
o Core (or operational): directly create goods and/or services.
o Support: support core processes.
o Managerial: govern the system.
- Some activities performed that fall into the realm of operations mgmt: forecasting,
capacity planning, scheduling, managing inventories, assuring quality, employee
motivation and training, location of facilities, buying materials. Example, PG.2
- Many companies use operations mgmt strategies and actions to improve efficiency and
- Efficiency: operating at minimum cost and time.
- Effectiveness: achieving quality and responsiveness.
Functions within Organizations
- Organizations are formed to pursue goals by the efforts of a group of people; they are
devoted to producing goods and/or providing services.
- Three basic functions: operations, finance, and marketing; they each perform different
but related activities necessary for the operation of the organization. Fig.1-1, pg.5
- This function performs all the activities directly related to producing goods, or providing
services; goods-oriented and service-oriented.
- Responsible for the creation of an organizations good or services.
- Inputs are used to obtain finished goods/services using transformation/conversion
processes; feedback is taken to determine if corrective action is needed.
- Value added: the difference between the cost of inputs and the value or price of outputs.
- Activities related to securing resources at favourable prices and allocating those resources
throughout the organization.
- Finance and operations cooperate by exchanging information in activities such as:
o Provision of funds: the necessary funding of operations and the amount and
timing of funding can be important and even critical when funds are tight; needs
o Economic analysis of investment proposals: evaluation of alternative investments.
- Responsible for assessing customer wants and needs, and for communication those needs
and feedback to operations people and to product design people.
- Lead Time: the time between ordering a good or service and receiving it; this is
important info from the operations in order to give customers estimates on order time.
1 Chapter 1 – Introduction to Operations Management GMS401
- Accounting: costs of labour and materials; provide reports on inventories, etc.
- Management information systems (MIS): provides management with information is needs
to effectively manage.
- Purchasing: procurement of materials, supplies, equipment, and services.
- Personnel/Human resources: recruitment and training of personnel, labour relations,
contract negotiations, wage and salary administration, and ensuring the health and safety
- Manufacturing engineering: design or purchase of the machines and equipment needed in
the production process.
- Product design: create goods/services from information given to them on markets by
marketing people and provide product specifications to operations to make the products.
- Logistics: transportation of raw material to the plant; storage; and transportation of goods
to warehouses, retail outlets, or final customers.
The Scope of Operations Management
- Responsible for creation of goods/services; this involves designing, planning, executing,
and controlling the elements that make up the processes.
- A primary function is to guide the system by decision making:
o Design decisions are usually strategic and long term(1-5yrs ahead), planning
decisions are tactical and medium term(1-12mths ahead), and scheduling,
execution and control decisions are short term(1-12weeks ahead).
- System design involves decisions that relate to product and service design, geographic
location, arrangement of departments, placement of equipment.
- Operational activities involve management of personnel, inventory planning and control,
production planning, scheduling, project management, quality assurance; day-to-day
Differentiating Production of Goods Vs. Performance of Services
- Production of goods results in a tangible output; anything we can see or touch.
Production of goods can be categorized as follows:
o Manufacturing, construction, agriculture, forestry, fisheries, mining, oil, gas.
- Among these manufacturing is the largest sector:
o Food & beverage, textile & clothing, wood products & furniture, paper &
printing, chemicals & plastics, metals & non-metals, machinery, computer 7
electronics, electrical equipment & appliances, transportation equipment.
- Service, on the other hand, generally implies an act.
o Government, wholesale/retail, finance & insurance, real estate, health care,
personal services, business support, education, hotels & restaurants, transportation
and warehousing, utilities.
- Production of goods and performance of services are similar in terms of what is done, but
different in terms on how it is done.
- They differ in:
o Customer contract, use of inventories, and demand variability.
o Uniformity of input.
o Labour content jobs.
2 Chapter 1 – Introduction to Operations Management GMS401
o Uniformity of output.
o Measurement of productivity.
o Quality assurance.
o EACH DESCRIBED IN TEXTBOOK, PG.11
The Operations Manager’s Job
- The operations manager is the key figure in the system; he/she has the ultimate
responsibility for the creation of goods or performance of services.
- Operations manager must coordinate the use of resources through the management
activities or planning, organizing, directing, and controlling.
Operations Managers and Decision Making
- The chief role is that of a decision maker.
- Manager exerts considerable influence over the degree to which the goals and objectives
of the organization are realized.
- Model: an abstraction of reality; a simplified representation of something.
- Models ignore the unimportant details so that attention can be concentrated on the most
important aspects of a situation, thus increasing the opportunity to understand a problem
and its solution.
- An attempt to obtain optimum solutions to the mathematical models of managerial
problems; sometimes done by solving a set of equations.
- Linear programming: used for optimum allocation of scarce resources.
- Queuing techniques: useful for analyzing situations in which waiting lines form.
- Inventory techniques: control inventories.
- Project scheduling techniques: such as PERT, are useful for planning, coordinating, and
controlling large-scale projects.
- Forecasting techniques: forecasting demand.
- Statistical techniques: used in areas of decision making, including quality control.
ANALYSIS OF TRADE-OFFS
- Managers sometimes deal with