Operations

Management
Introduction - Chapter 1
1-1

Outline
What is Operations Management?

Why Study OM?

Production vs. Service Organizations.
Operations Management Decisions.
Heritage of OM.
Recent Developments & Challenges.

Productivity.
1-2

What Is Operations Management?

Operations management is the management of
systems that produce goods and provide
services.

It includes planning, designing and operating

systems to achieve goals of the organization.

Book definition (not as good): The set of activities

that creates goods and services by transforming
inputs into outputs.
1-3

Transforming Inputs to Outputs

Inputs

Process

Outputs

Land,
Labor,

Goods

Capital,

Production or Service

Materials,

and

System

Services

Equipment,
Management

1-4

Examples
Production

Service

Auto factories
(assembly plants)

Hospitals
Airlines

Job shops (printing)

Movie theaters

Fast food restaurants

Grocery stores

1-5

Why Study OM?

OM is one of three major functions of any
organization (Marketing, Finance, and
Operations).
We should know how goods and services are
produced.
OM is such a costly part of an organization.

Jobs!
1-6

Organizational Functions
Operations.

Creates product or service.

Marketing.

Generates demand.

Finance/Accounting.

Obtains funds &

tracks money.
1-7

Characteristics of Goods
Tangible product.
Consistent inputs and
outputs.
Production separate from
consumption.
Can be inventoried.
Low customer interaction.

1-8

Characteristics of Service
Intangible product.
Variable inputs and outputs
(people!).
Production and consumption
at same place and time.
No inventories.
High customer interaction.

1-9

Goods Contain Services &

Services Contain Goods
Automobile
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Consulting Service
Counseling
100

75

50

25

% of Product that is a Good

25

50

75

100

% of Product that is a Service

1-10

OM Jobs

1-11

Operations Management for a

Manufacturer

Marketing

Manufacturing

Finance/
Accounting

Operations

Production
Control

Quality
Control
1-12

Purchasing

Operations Management for an

Airline

Marketing

Flight
Operations

Operations

Ground
Support

Facility
Maintenance
1-13

Finance/
Accounting

Catering

Critical Decisions for OM

Product & service design.
Quality management.
Process design.
Capacity & location of facilities.
Layout of facilities.
Human resources & Job design.
Supply-chain management.
Inventory management.
Scheduling.
Maintenance.
1-14

Skills and Knowledge Needed

Knowledge of production and service processes.
Knowledge of basic OM principles.

Analytical Tools:
Forecasting
Decision-Making
Linear Programming
Break-even analysis
Inventory control
Waiting lines (queueing)

1-15

Heritage of OM
Prior to 1700s - Most products custom-made on a
small scale with local distribution.
Local craftsmen.
Products were handmade and unique.

Industrial Revolution
Mechanized production and distribution.
Allowed mass production and wider distribution.
Fostered division of labor.

1-16

Industrial Revolution
Key developments:
Steam engine (1769).
Interchangeable parts (1798).
Machine tools (1798).

Results:
Production increased.
Prices decreased.
Workers replaced by machines.
Need to manage complex production systems.

1-17

Scientific Management
Study production systems scientifically to
improve them (beginning in 1880s).
There are scientific laws for production

systems that can be used to improve (optimize)

production.
Work smarter, not harder.
Management is responsible for productivity.

1-18

Related Fields
Operations Management.

Industrial Engineering.
Social and psychological factors.
Operations Research/Management Science

(Mathematical modeling).
Logistics.

1-19

Eli Whitney
Born 1765; died 1825.

Invented cotton gin.

Received government contract
to make 10,000 muskets (1798).
Showed machine tools could
make standardized parts.

1-20

Recent Developments for OM

Information technology: (computers, bar codes,
EDI, internet, wireless, etc.)
Just-In-Time systems.
Quality emphasis.

Service economy.
Globalization.
Environmental concerns.
Security.
1-21

Development of the Service

Economy
80%

U.S. Employment, % Share

Services

40%

Industry

Farming
0

1850

1900

1950

1-22

2000

Most Jobs are in Services

Sector

% of Jobs

Professional Services
Retail & Wholesale

24
21

Utilities & transportation

Other Services (finance, real estate, hospitality, etc.)
Agriculture
Manufacturing, construction and mining

7
21
2
25

1-23

Productivity
Used to measure of process improvement.
Amount of output relative to input.
Productivity =

Units produced

Inputs used

Productivity increases improve standard of living.

From 1889 to 1973, U.S. productivity increased at a 2.5%

annual rate.
1-24

How Would You Measure

Productivity for A Restaurant?
Amount of output (????) per input (????).
Output:
Number of meals served?
Number of tables served?
Number of satisfied customers?

Input:
Lbs. of food?
Number of employees?
Number of tables?

1-25

Productivity for One Product

Productivity =

Units produced
Inputs used

Output is easy to measure with one product.

Input may have many components.

Parts and subassemblies.

Labor.

Equipment.

Knowledge.

etc.

1-26

Productivity Variables
Productivity =

Output
Labor + material + energy + capital +
miscellaneous

Use a common measure to combine different

inputs - usually $.

1-27

Productivity Measurement
Problems
Quality of output should be considered.

If you produce more, but of lower quality, does

productivity rise?

External elements may change productivity.

Wireless communication may raise productivity.

Precise units of measure may be lacking.

1-28

How Would You Measure

Productivity for UM - St. Louis?
Productivity =

Units produced
Inputs used

What is output?

How is it measured?

What is input?

How is it measured?
1-29

How Would You Measure

Productivity for:
A builder of new homes?
An automobile mechanic?

A hospital?
A fire department?

A restaurant?
1-30