• Production is the creation of goods and services using the factors of production: land, labour, capital, entrepreneurship, and knowledge. Production has
historically been associated with manufacturing, but the nature of business has changed significantly in the last 20 years. The service sector, especially
Internet services, has grown dramatically. Canada now has what is called a service economy—that is, one dominated by the service sector
• When supply chain excellence improves operations, companies experience a higher profit margin, less inventory, stronger “perfect order” ratings, and
significantly shorter cycle times than their competitors
Operations Management Fundamentals
• Production management describes all the activities managers perform to help companies create goods. To reflect the change in importance from
manufacturing to services, the term “production” is often replaced by “operations” to reflect the manufacturing of both goods and services
• Operations management (OM) is the management of systems or processes that convert or transform resources (including human resources) into goods
and services. Operations management is responsible for managing the core processes used to manufacture goods and produce services
• Transformation process is often referred to as the technical core, especially in manufacturing organizations, and is the actual conversion of inputs to
outputs. To ensure that the desired outputs are obtained, an organization takes measurements at various points in the transformation process (feedback) and
then compares them with previously established standards to determine whether corrective action is needed (control).
• Value-added is the term used to describe the difference between the cost of inputs and the price value of outputs. OM is critical to an organization because
of its ability to increase value-added during the transformation process. In non-profit and many government organizations, the value of outputs (highway
construction, police, and fire protection) is their value to society; the greater the value-added, the greater the effectiveness of the operations.
OM in Business
• The scope of OM ranges across the organization and includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing
inventories, assuring quality, motivating employees, deciding where to locate facilities, and more.
• OMs do:
o Forecasting – estimating seat demand for flights, weather and landing conditions
o Capacity planning – key essential metric for the airline to maintain cash flow and increase revenues. Underestimating and overestimating flights
will hurt profits
o Managing inventory
o Assuring quality
o Motivating and training employees
o Locating facilities
Information Systems’ Role in OM • IS can heavily influence OM decisions in productivity, costs, flexibility, quality and customer satisfaction
• Most OM decisions involve many possible alternatives that can have varying impacts on revenues and expenses. OM information systems are critical for
managers to be able to make well-informed decisions
• Numerous managerial and strategic key decisions are based on OM information systems that affect the entire organization, including:
o What: What resources will be needed, and in what amounts?
o When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When
is corrective action needed?
o Where: Where will the work be performed?
o How: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be
o Who: Who will perform the work?
OM strategic Business Systems
• Operations strategy is concerned with developing a long-term plan for determining how to best use the firm's major resources so that there is a high degree
of compatibility between these resources and the firm's long-term corporate strategy
• Operations strategy addresses broad questions about how these major resources should be configured to achieve the desired corporate objectives.
• Today, many organizations, especially larger conglomerates, operate in terms of strategic business units (SBUs), which consist of several stand-alone
businesses. When companies become really big, they are best thought of as being composed of a number of businesses (or SBUs)
Hierarchy of Operational Planning
• Material requirements planning (MRP) systems use sales forecasts to make sure that needed parts and materials are available at the right time and place
in a specific company
• Global inventory management systems (GIMS) provide the ability to locate, track, and predict the movement of every component or material anywhere
upstream or downstream in the business process.
• Inventory management and control systems provide control and visibility to the status of individual items maintained in inventory. The software maintains
inventory record accuracy, generates material requirements for all purchased items, and analyzes inventory performance.
o Current inventory and order status.
o Cost accounting.
o Sales forecasts and customer orders. o Manufacturing capacity.
o New-product introductions
• OP&C systems are comprised of a number of systems:
o Transportation planning systems track and analyze the movement of materials and products to ensure the delivery of materials and finished
goods at the right time, to the right place, and at the lowest cost
o Distribution management systems coordinate the process of transporting materials from a manufacturer to distribution centres to the final
Competitive OM Strategy
• The key to developing a competitive OM strategy lies in understanding how to create value-added goods and services for customer
• Five key competitive priorities translate directly into characteristics that are used to describe various processes by which a company can add value to its OM
• Cost – you need low-cost providers. Customers use cost as the primary determinant in making a decision.
• Quality can be divided into two categories: product and process quality. Product quality levels vary as to the particular market that it aims to serve. Process
quality is critical in every market segment. The primary goal of process quality is to produce error-free products. Quality control standards are:
o Six Sigma Quality: goal to detect potential problems
o ISO 9000: involve process control, product testing, storage, and delivery
o ISO 14000: Certification in ISO 14000 displays that a firm has a world-class management system in both quality and environmental standards
o CMMI: CMMI does not describe the processes themselves; it describes the characteristics of good processes, thus providing guidelines for
companies developing or honing their own sets of processes
• Delivery – delivery speed
• Flexibility – the ability for a company to offer a wide variety of products to their customers
OM and the Supply Chain
• supply chain consists of all parties involved, directly or indirectly, in procuring a product or raw material
• Supply chain management (SCM) involves managing information flows between and among stages in a supply chain to maximize total supply chain
effectiveness and profitability. The four basic components of supply chain management are:
o Supply chain strategy—the strategy for managing all the resources required to meet customer demand for all products and services