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Chapter 1

GMS 401 Chapter Notes - Chapter 1: Operations Management, Material Requirements Planning, Production Function

Global Management Studies
Course Code
GMS 401
Wally Whistance- Smith

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Isaiah Ferris Winter 2017
GMS401 Chapter 1 Textbook Notes
Production is the creation of goods and services
Operations management (OM) is activities that relate to the creation of goods and services
through the transformation of inputs to outputs
o Takes place in all organizations
In manufacturing firms, the activities that create goods take place in all organizations
Seen creation of a tangible product
In an organization that does not create tangible goods or products, the production
function may be less obvious
These activities are referred to as services
Hidden from the public and even from the customer
o Regardless of whether the end product is a good or service, the production activities that go
on in the organization are often referred to as operations, or OM
To create goods and services, all organizations perform three functions
o Marketing
Generates the demand, or at least takes the order for a product or service
Nothing happens until there is a sale
o Production/Operations
Creates the product
o Finance/Accounting
Tracks how well the organization is doing, pays the bills, and collects the money
Through these three functions, value is added
o However, firms seldom create value for themselves
o Instead, they rely on a variety of suppliers who provide everything from raw materials to
accounting services
These suppliers, when taken together, form the supply chain
A global network of organizations and activities that supplies a form with goods
and services
Operations management is studied for four reasons
o OM is one of the three major functions of any organization, and it is integrally related to all
the other business functions
All organizations market (sell), finance (account), and produce (operate)
o We want to know how the OM activity operates
Production function is the segment of our society that creates the products and
services we use
o Allows us to understand what operations managers do
Allows you to perform better if you understand what operations managers do
Allows you to explore numerous career opportunities
o It is a costly part of an organization
That is where a large percentage of the revenue of most firms is spent in an
Many products are a combination of a good and a service
o Complicates the definition of a service
A service is an economic activity that typically produces an intangible product (such as
education, entertainment, lodging, government, financial, and health services)
o Even services such as consulting may require a tangible report
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Isaiah Ferris Winter 2017
o The sale of most goods includes a service
o "Service" activities may also be an integral part of production
Human resource activities, logistics, accounting, training, field service, and repair are
all service activities, but they take place within a manufacturing organization
Very few services are "pure", meaning they have no tangible component
Differences between goods and services
o Services are usually intangible as opposed to a tangible good
o Services are often produced and consumed simultaneously
There is no inventory
o Services are often unique
Somebody's insurance and investments for example
o Services have high customer interaction
Often difficult to standardize, automate, and make as efficient as we would like
because customer interaction demands uniqueness
o Services have inconsistent product definition
o Services are often knowledge based
Hard to automate
o Services are frequently dispersed
Dispersion occurs because services are frequently brought to the client/customer via a
local office, a retail outlet, or even a house call
o The activities of the operations function are often very similar for both goods and services
Both goods and services have quality standards established
Both must be designed and processed on a schedule in a facility where human
resources are employed
Services constitute the largest economic sector in postindustrial societies
o The Canadian market tends to follow US trends
The number of people employed in manufacturing has decreased since 1950, but each
person is now producing almost 20 times more than in 1950
o Services became the dominant employer in the early 1920's, with manufacturing
employment peaking at about 32% in 1950
o The huge productivity increases in agriculture and manufacturing have allowed more of our
economic resources to be devoted to services
o A service sector is the segment of the economy that includes trade, financial, lodging,
education, legal, medical, and other professional occupations
o Many service jobs pay very well
The management process is the application of planning, organizing, staffing, leading, and
controlling to the achievement of objectives
o Operations managers apply this management process to the decisions they make in the in
the OM function
10 major decisions:
Design of goods and services
What goods or services should we offer?
How should we design these products and services?
Managing quality
How do we define quality?
Who is responsible for quality?
Process and capacity design
What process and what capacity will these products require?
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