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Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-2

PART ONE
INTRODUCTION
• Chapter One
• Introduction to Operations
Management
• Chapter Two
• Competitiveness, Strategy, and
Productivity

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-3

Chapter One
Introduction
to
Operations
Management
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-4 Introduction to Operations Management

Operations Management

The management of systems or processes that

create goods and/or provide services

Organization

Finance Operations Marketing

Operations Management, Seventh Edition, by William J. Stevenson

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1-5 Typical Organization Chart

5
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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1-6 Introduction to Operations Management

Business Operations Overlap

Operations

Marketing Finance

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-7 Introduction to Operations Management

• Operations Management includes:

– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– Motivating employees
– And more . . .

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-8 Introduction to Operations Management

Types of Operations

Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-9 What is Role of OM?

• OM Transforms inputs to outputs

– Inputs are resources such as
• People, Material, and Money

– Outputs are goods and services

9
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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1-10 OM’s Transformation Role

• To add value
– Increase product value at each stage
– Value added is the net increase between output product value and
input material value

• Provide an efficient transformation

– Efficiency – means performing activities well for least possible cost

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Operations Management, Seventh Edition,10
by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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1-11 Introduction to Operations Management

Value-Added
The difference between the cost of inputs
and the value or price of outputs.

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback

Operations Management, Seventh Edition, by William J. Stevenson

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1-12 OM’s Transformation Process

12
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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1-13 Introduction to Operations Management

Stage of Production Value Value of

Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-14 Introduction to Operations Management

Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-15 Introduction to Operations Management

Hospital Process

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-19 Introduction to Operations Management

Major Characteristics of Production Systems

Degree of standardization
Type of operation
– project
– job shop
– batch
– repetitive production/assembly line
– continuous processing

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-20 Introduction to Operations Management

Manufacturing or Service?

Tangible Act

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-21 Introduction to Operations Management

Key Differences

• Customer contact
• Uniformity of input
• Labor content
• Uniformity of output
• Measurement of productivity
• Quality assurance

These differences are beginning to fade

in many cases

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-22 Introduction to Operations Management

Manufacturing vs Service

Characteristic Manufacturing Service

Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-23 Introduction to Operations Management

Goods-service continuum
Steel production
Automobile fabrication

House building
Low service content Road construction
High goods content
Dressmaking
Farming

Auto Repair
Appliance repair

Maid Service
Increasing Manual car wash
goods content
Increasing Teaching
service content Lawn mowing
High service content
Low goods content
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-24

Major Tasks of Operations Managers

Quality Production
Timely Production
Cost-effective Production

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-25 Introduction to Operations Management

Responsibilities of Operations Management

Planning Organizing
– Capacity – Degree of centralization
– Location – Subcontracting
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling – Issuance of work orders
– Inventory – Job assignments
– Quality

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-26 Introduction to Operations Management

Pareto Phenomenon

• A vital few things are important for reaching

an objective or solving a problem.
• 80/20 Rule - 80% of problems are caused by
20% of the activities.

How do we identify the vital few?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-27 Introduction to Operations Management

Recent Trends

• The Internet
• E-Business
• Supply Chain Management

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-28 Introduction to Operations Management

Simple Product Supply Chain

Suppliers’ Direct Final

Producer Distributor
Suppliers Suppliers Consumer

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-29 Introduction to Operations Management

Continuing Trends
• Quality and process improvement
• Technology
• Globalization
• Operations strategy
• Environmental issues

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-30 Important Quality Dimensions in Manufacturing

• Performance
• Features
• Reliability
• Conformance
• Durability
• Serviceability
• Aesthetics
• Perceived Quality

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-31

• Dimension 1: Performance
• Does the product or service do what it is supposed to do,
within its defined tolerances?
• Performance is often a source of contention between
customers and suppliers, particularly when deliverables
are not adequately defined within specifications.
• The performance of a product often influences
profitability or reputation of the end-user. As such, many
contracts or specifications include damages related to
inadequate performance.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-32

• Dimension 2: Features
• Does the product or services possess all of the features
specified, or required for its intended purpose?
• While this dimension may seem obvious, performance
specifications rarely define the features required in a
product. Thus, it’s important that suppliers designing
product or services from performance specifications are
familiar with its intended uses, and maintain close
relationships with the end-users.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-33

• Dimension 3: Reliability
• Will the product consistently perform within specifications?
• Reliability may be closely related to performance. For instance,
a product specification may define parameters for up-time, or
acceptable failure rates.
• Reliability is a major contributor to brand or company image,
and is considered a fundamental dimension of quality by most
end-users.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-34

Dimension 4: Conformance
Does the product or service conform to the specification?
If it’s developed based on a performance specification,
does it perform as specified? If it’s developed based on a
design specification, does it possess all of the features
defined?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-35

Dimension 5: Durability
How long will the product perform or last, and under what
conditions?
Durability is closely related to warranty. Requirements for
product durability are often included within procurement
contracts and specifications.
For instance, fighter aircraft procured to operate from aircraft
carriers include design criteria intended to improve their
durability in the demanding naval environment.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-36

Dimension 6: Serviceability
Is the product relatively easy to maintain and repair?
As end users become more focused on Total Cost of
Ownership than simple procurement costs, serviceability
(as well as reliability) is becoming an increasingly
important dimension of quality and criteria for product
selection.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-37

Dimension 7: Aesthetics
The way a product looks is important to end-users. The
aesthetic properties of a product contribute to a company’s or
brand’s identity. Faults or defects in a product that diminish its
aesthetic properties, even those that do not reduce or alter
other dimensions of quality, are often cause for rejection.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-38

Dimension 8: Perception
Perception is reality. The product or service may possess
adequate or even superior dimensions of quality, but still fall
victim to negative customer or public perceptions.
As an example, a high quality product may get the reputation
for being low quality based on poor service by installation or
field technicians. If the product is not installed or maintained
properly, and fails as a result, the failure is often associated
with the product’s quality rather than the quality of the
service it receives.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-39

Summary
It should be obvious from the discussion above that the
individual dimensions of quality are not necessarily distinct.
Depending on the industry, situation, and type of contract or
specification several or all of the above dimensions may be
interdependent.
When designing, developing or manufacturing a product (or
delivering a service) the interactions between the dimensions of
quality must be understood and taken into account.
While these dimensions may not constitute a complete list of
relevant dimensions, taking them into consideration should
provide us with a better understanding of the slippery concept of
quality.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-40 Important Quality Dimensions in Servicing

• Time
• Timeliness
• Completeness
• Courtesy
• Consistency
• Accessibility & Convenience
• Accuracy
• Responsiveness

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-41 Important Quality Dimensions in Servicing

Time: How long must a customer wait?

Timeliness: Will a package be delivered by 10:30 the next
morning?
Completeness: Are all items in the order included?
Courtesy: Do front-line employees greet each customer
cheerfully?
Consistency: Are services delivered in the same fashion for
every customer?
Accessibility and convenience: Is the service easy to obtain?
Accuracy: Is the service performed right the first time?
Responsiveness: Can service personnel react quickly and
resolve unexpected problems?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-42 Exciter, Satisfier, Dissatisfier

• An exciter is something that a company does that leaves

their customer not just satisfied, but a raving fan!  The
customer is left with an extremely
positive impression and feels the need to share their great
experience with their friends and family.  They are
providing this positive feedback without being prompted
by the company to do so.  In a world where word of
mouth referrals drive business more than media
advertising, this is huge!  
• These are "front of the box" features that typically set
your product apart from the competition.  They're
typically hard to discover or require unique assets. 
• Exciters are also features that get your development team
excited to work on ‘something cool’ and keep team
moral high. Operations Management, Seventh Edition, by William J. Stevenson
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1-43 Exciter, Satisfier, Dissatisfier

• A satisfier is something that a company does that leaves their

customer satisfied and happy, but not necessarily with any
certain "wow" factor.  An example of this would be arriving
to a clean hotel room with good customer service, but
nothing beyond that.  The customer leaves with positive
thoughts in their mind and if asked, would give the hotel a
good review.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-44 Exciter, Satisfier, Dissatisfier

• Dissatisfiers are features customer just expect to be there,

or defects where the product is designed to perform a task
that it doesn't (a bug). 
• A dissatisfier turn a client or candidate away and send them
out into the marketplace with a negative impression of the
company.  An example would be a hotel giving someone a
room that had barely been cleaned and providing below
average customer service.  The person going through that
experience would be certain to leave with a negative
thought in their mind and to share that thought with their
friends and family.  

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-45 Exciter, Satisfier, Dissatisfier

• Indifferent features are issues customers just don't care

about.  Perhaps you may think they're cool, but the general
customer doesn't really care.  Many times indifferents are
required for another feature For example, the differential gear
in a car. you may think the distribution ratio and response is
impressive, but most customers just don't care.

Operations Management, Seventh Edition, by William J. Stevenson

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1-46 Product Life Cycle

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1-47 Product Life Cycle

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.