Chapter 1 – Introduction to Operations Management
Operations Management: The management of processes or systems that create goods and/or provide services
-it encompasses forecasting, capacity planning, scheduling, managing inventories, assuring quality,
motivating employees, deciding where to locate facilities, buying material and equipment and maintain them,
- 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 fast whereas effectiveness refers to achieving the
intended goals (quality).
Why Study Operations Management?
- OM activities are at the core of all business organizations
-A large percentage of a company’s expenses occur in OM area (OM is such a costly part of any organization)
- A large number of all jobs are in OM area (purchasing, quality, planning, scheduling, inventory, etc)
- Activities in all other areas( finance, marketing) are interrelated with OM activities
- We want (and need) to know how goods and services are produced in order to be able to produce them better
Functions Within Organizations
3 Basic Functions Within an Organization Operations, Finance, and Marketing
Operations Function: performs all the activities directly related to producing goods or providing services.
- The essence of operations function is to add value during the transformation process.
-Value-added: the difference between the cost of inputs and the value of outputs
- Non-Profit Organizations – the value of outputs is their value to society; the greater the value added, the
greater the efficiency of these operations
- For-Profit Organizations – the value of output is measured by the price that customer is willing to pay
- The greater the value added, the greater the amount of funds available for these purposes
- Firms attempt to increase value added by decreasing the cost of inputs or processing.
Finance Operations: performs activities related to securing resources at favourable prices and allocating those
resources throughout the organization
- Finance and operations management personnel cooperate by exchanging information and expertise about
provision of funds and economic analysis of investing proposals.
Marketing Operations: selling and/or promoting goods/services. Assessing customer wants and needs, and
communicating those needs and feedback to operations/ product design people.
-Important info mkting needs from operations is the Lead Time: time between ordering a good or service and
receiving it. This is important in order to give customers realistic estimates of time it will take to fill orders
Other Functions Include: Accounting, Management Information Systems (MIS), Purchasing, Personnel or human
resources, Product Design, Maintenance, Manufacturing Engineering, and Logistics
The Scope of Operations Management
Creation of goods and services involves designing and operating the production process:
-Designing decisions (capacity, location, equipment) – Strategic and Long term (1-5 years ahead)
- Planning – Tactic and Medium Term (1-12 months ahead)
- Execution – Short term (1-12 weeks ahead)
- Controlling – Short term (1-12 weeks ahead)
System design involves decisions that relate to system capacity, the geographic location of facilitates, arrangement
of departments, and placement of equipment within physical structures, product and service planning, and
acquisition of equipment
System Operation involves management of personnel, inventory planning and control, production planning,
scheduling, project management and quality assurance. is the most important because many of the parameters of the
system operation are decided by design
Operations Manager is usually involved in day-today operations rather than system design however, System
design is the most important because many of the parameters of the system operation are decided by design
Differentiating Features of Operations Systems
The features that differentiate operations systems include; Degree of Product Standardization, Type of Process, and
Production of Goods vs. Services
Degree of Product Standardization
Standardized output: there is a high degree of uniformity (i.e. little variety) in goods and services. (e.g. radios,
TVs, computers, newspapers, canned foods, car tires, pens and pencils, car washes, fast food, motels, education)
Customized Output: the product or service is designed for a specific case or individual. (e.g. eyeglasses, custom-fit
clothing, window glass (cut to order), customized draperies, tailoring, and taxi rides)
Type of process (quantity of output)
The degree of standardization and the quantity of output of a product/service influence the way a firm organizes its
production process. On one end of the scale there is a single, large-scale project, and on the other end is a continuous
process. Between these extremes are customized individual units of output and mass production (repetitive process)
Production of Goods vs. Services
Production of goods results in tangible output, and services generally implies an act.
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 fast whereas effectiveness refers to achieving the intended goals (quality). Om activities are at the core of all business organizations. A large percentage of a company"s expenses occur in om area (om is such a costly part of any organization) A large number of all jobs are in om area (purchasing, quality, planning, scheduling, inventory, etc) Activities in all other areas( finance, marketing) are interrelated with om activities. We want (and need) to know how goods and services are produced in order to be able to produce them better. 3 basic functions within an organization operations, finance, and marketing. Operations function: performs all the activities directly related to producing goods or providing services. The essence of operations function is to add value during the transformation process.