LESSON 1

Goods-service Continuum
OPERATIONS MANAGEMENT

Operations Management is:

The management of systems or processes that
create goods and/or provide services.

Operations Management affects:

• Companies’ ability to compete
• Nation’s ability to compete internationally

The Organization
The three Basic Functions Food Processor

ORGANIZATION Inputs Processing Outputs

OPERATIONS MARKETING
Raw Vegetables Cleaning Canned
FINANCE
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Value-Added Process Labor Packing
Building Labeling
The Operations function involves the conversion of Equipment
inputs into outputs.
Hospital Process
VALUE ADDED
Inputs Processing Outputs
INPUTS OUTPUT
Doctors, nurses Examination Healthy
-Land Transformation/ -Goods Hospital Surgery patients
-Labor Conversion Process -Services MedicalSupplies Monitoring
- Capital
Equipment Medication
feedback

CONTROL Manufacturing or Service?

feedback feedback

Value-Added & Product Packages

Production of Goods vs. Delivery of Services
• Value-added is the difference between the cost
of inputs and the value or price of outputs. • Production of goods – tangible output
• Delivery of services – an act
• Product packages are a combination of goods • Service job categories
and services. - Government
- Wholesale/retail
• Product packages can make a company more - Financial services
competitive. - Healthcare
-Personal services
- Business services
-Education
 Key Differences Types of Operations

1. Customer contact OPERATIONS EXAMPLE

2. Uniformity of input Goods Producing Farming, Mining,
3. Labor content of jobs Construction,
4. Uniformity of output Manufacturing, Power
5. Measurement of productivity generation
6. Production and delivery
7. Quality assurance Storage / Transportation Warehousing, Trucking,
mail service, moving,
8. Amount of inventory
Taxis, Buses, Hotels,
9. Evaluation of work airlines
10. Ability to patent design
Exchange Retailing, Wholesaling,
Goods vs Service Banking, renting, leasing,
library, loans
Characteristics Goods Service
1. Customer contact Low High Entertainment Films, radio, and
2. Uniformity of input High Low television, concerts,
3. Labor content Low High recording
Communication Newspaper, radio and
4. Uniformity of output High Low
television newscasts,
5. Output Tangible Intangible telephone, satellites
6. Measurement of Easy Difficult
productivity Decline in Manufacturing Jobs
7. Opportunity to High Low
correct problems • Productivity
8. Inventory Much Little Increasing productivity allows companies to
9. Evaluation Easier Difficult maintain or increase their output using fewer
10. Patentable Usually Not usual workers

• Outsourcing
Scope of Operations Management Some manufacturing work has been outsourced to
more productive companies
• Operations Management includes:
-Forecasting Challenges of Managing Services
-Capacity planning
-Scheduling • Service jobs are often less structured than
-Managing inventories manufacturing jobs
-Assuring quality • Customer contact is higher
-Motivating employees • Worker skill levels are lower
-Deciding where to locate facilities • Services hire many low-skill, entry-level
-Supply chain management workers
And more . . . • Employee turnover is higher
• Input variability is higher
• Service performance can be affected by
worker’s personal factors

Operations Management Decision Making

• Models
• Quantitative approaches
• Analysis of trade-offs
• Systems approach
• Establishing priorities
• Ethics
 Key Decisions of Operations Managers Limitations of Models
• Quantitative information may be emphasized
• What over qualitative
What resources/what amounts • Models may be incorrectly applied and results
• When misinterpreted
Needed/scheduled/ordered • Nonqualified users may not comprehend the
• Where rules on how to use the model
Work to be done • Use of models does not guarantee good
• How decisions
Designed
• Who Quantitative Approaches
To do the work • Linear programming
• Queuing Techniques
Decision Making • Inventory models
• Project models
System Design • Statistical models
– capacity
– location Analysis of Trade-Offs
– arrangement of departments • Decision on the amount of inventory to stock
– product and service planning - Increased cost of holding inventory Vs.
– acquisition and placement of equipment - Level of customer service

System operation Systems Approach

– personnel
– inventory “The whole is greater than the sum of the parts.
– scheduling
– project management Pareto Phenomenon
– quality assurance
• A few factors account for a high percentage of the
 Models occurrence of some event(s).
 Quantitative approaches
 Analysis of trade-offs • 80/20 Rule - 80% of problems are caused by 20%
 Systems approach of the activities.

Models Ethical Issues

• Financial statements
– Physical • Worker safety
– Schematic • Product safety
– Mathematical • Quality
• Environment
[what are the PROS and CONS ] • Community
• Hiring/firing workers
Models Are Beneficial • Closing facilities
• Easy to use, less expensive • Worker’s rights
• Require users to organize
• Increase understanding of the problem
• Enable “what if” questions
• Consistent tool for evaluation and standardized
format
• Power of mathematics
 Business Operations Overlap
Simple Product Supply Chain

Supply Chain: A sequence of activities And

organizations involved in producing And delivering
a good or service

Operations Interfaces Other Important Trends

• Ethical behavior
• Operations strategy
• Working with fewer resources
• Revenue management
• Process analysis and improvement
• Increased regulation and product liability
• Lean production

Historical Evolution of Operations Management

• Industrial revolution (1770’s)

• Scientific management (1911)
-Mass production
-Interchangeable parts
-Division of labor
• Human relations movement (1920-60)
• Decision models (1915, 1960-70’s)
• Influence of Japanese manufacturers

Trends in Business
• Major trends
- The Internet, e-commerce, e-business
- Management technology
- Globalization
- Management of supply chains
- Outsourcing
- Agility
- Ethical behavior

Management Technology

• Technology: The application of scientific

discoveries to the development and
improvement of goods and services
• Product and service technology
• Process technology
• Information technology