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GMS 401 (200)
Chapter 1

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Ryerson University
Global Management Studies
GMS 401
Kirk Bailey

Chapter 1: Introduction to Operations Management Operations Management: the management of 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 about a result - Three types of processes: core, support, and managerial Core (or operational) directly create goods and/or services Support processes support core or operational processes Managerial processes govern the system Example - Airline (service operation) The system includes: staff, airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide territory - Forecasting things such as seat demand for flights, the growth in air travel, and weather and landing conditions - Capacity planning such as deciding the number of planes and where to use them - Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers - Managing inventories of items such as food and beverages and spare parts - Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety. Also important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and in-flight service, where the emphasis is on efficiency and courtesy - Employee motivation and training in all phases of operations - Location of facilities according to top managers decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs - Buying materials such as fuel, food, and spare parts. Buying aircraft and maintaining it Efficiency: operating at minimum cost and time Effectiveness: achieving intended goals of the firm to ensure profitability and sustainability Why Study Operations Management? - large percentage of a companys expenses occur in the operations area, such as purchasing materials and workforce salaries - more efficient operations a small reduction in operations costs can result in large increases in profits - large number of management jobs are in operations management such as purchasing, quality assurance, production planning and control, scheduling, logistics, inventory management - activities in all of the other areas of business organizations, such as finance, accounting, human resources, management information systems (MIS), and marketing are all interrelated with operations management activities - essential for these areas of business organizations to have a basic understanding of operations management Operations - performs all the activities directly related to producing goods or providing services - exists both in fabrication and assembly operations, which are goods-oriented, and in areas such as health care, transportation, restaurant, and retailing, which are primarily service-oriented - core of most organizations, it is responsible for the creation of an organizations goods or services - Inputs are used to obtain finished goods or services using one or more transformation/conversion processes (storing, transporting, and cutting). To ensure that the 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) Inputs: Transformation/ Outputs: Building conversion Goods Labour processes Services Machines Materials Customers Information Feedback Feedback Control Illustration of Transformation Process: Input: raw vegetables, metal sheets, water, energy, labour, building, equipment Processes: cleaning, making cans, cutting, cooking, packing, labelling Output: canned vegetables Example of a Good/Service: Good: new oil or paint Service: having the oil changed in your car or house painting Value added: the difference between the cost of inputs and the value or price of outputs - in non-profit organizations, the value of outputs (e.g., highway construction, police, and fire protection) 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 or services - one way that businesses attempt to be more productive (i.e., make more output with the same or fewer inputs) is to examine critically whether the operations performed by their workers add value - eliminating or improving such operations decreases the cost of inputs or processing, thereby increasing the value added - producing an item much earlier than scheduled delivery date to a customer will require storage of item in a warehouse (additional costs are incurred by storing the item without adding to the value of the item), reducing storage time would reduce the transformation cost and, hence, increase the value added Finance - performs activities related to securing resources at favourable prices and allocating these resources throughout the organization - finance and operations management personnel cooperate by exchanging information and expertise in activities such as: 1. Provision of funds: Necessary funding of operations and the amount and timing of funding can be important and even critical when funds are tight. Careful planning can help avoid cash flow problems.Most for-profit companies obtain the majority of their funds through the revenues generated by sales of their goods and services 2. Economics analysis of investment proposals: Evaluation of alternative investments in plant and equipment requires inputs from both operations and finance people Marketing - responsible for assessing customer wants and needs - also responsible for communicating those needs and feedback to operations people and to product design people (usually engineers in manufacturing companies) - marketing, design, and production must work closely together to successfully implement design changes and to develop and produce new products - important piece of information marketing needs from operations is the manufacturing or service lead time (the time between ordering a good or service and receiving it) - the lead time gives customers a realistic estimate as to how long it will take to fill their orders Other Functions - Accounting: supplies information to management on costs of labour materials, and overhead, and may provide reports on items such as scrap, downtime, and inventories - accounting includes accounts payable and accounts receivable - accountants gather information needed for financial statements - Management information systems (MIS): concerned with providing management with the information it needs to effectively manage - occurs through designing systems (hardware and software) to capture relevant information and preparing reports - Purchasing: responsible for procurement of materials, supplies, equipment, and services - close contact with operati
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