Chapter 1

Introduction to
Operations
Management
Learning Objectives
LO1 Define the term operations management and identify operations
management jobs.
LO2 Identify the three major functional areas of organizations and
describe how they interact.
Describe the scope of operations management and provide an
LO3
overview of this textbook, including differentiating between
design and planning/control decisions.
LO4 Compare production of goods and services.
LO5 Discuss the operations manager’s job.

LO6 Describe key aspects of operations management decision

making.
LO7 Briefly describe the historical evolution of operations mgmt.
LO8 Identify major trends that affect operations management.
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Chapter Outline
 What is operations management (OM)?
 Three basic functions within organizations
 The scope of operations management
 Differentiating goods and services
 Operations manager’s job
 Operations managers and decision making
 The historical evolution of operations
management
 Major trends
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What is Operations Management?

OM is the management of processes that create goods

and/or provide services.

Companies use OM to improve:

• Efficiency (operating to minimize cost and time)
• Effectiveness (achieving intended goals: quality &
timeliness)

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What is Operations Management?

Detail the following OM activities for each company

OM Activities Airline company Bicycle factory (goods)

(services)
Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating employees
Where to locate facilities

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Why Study Operations Management?

1. A large percentage of a company’s expenses occur in OM area

(more efficient operations = more profits).

2. A large number of all jobs are in OM area (purchasing, quality,

planning, scheduling, inventory, etc.).

3. Activities in all other areas( finance, human resources,

marketing, ) are interrelated with OM activities.

4. Operations innovations lead to marketplace and strategic

benefits (Toyota Production System, Dells’ direct shipping of
personal computers).
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Careers and Professional Certifications in
Operations Management
 Supply Chain Management Association (SCMA)
 Canadian Institute of Traffic and Transportation (CITT)
 Canadian Supply Chain Sector Council (CSCSC)
 American Production and Inventory Control Society
(APICS), now known as the Association for Supply
Chain Management
 American Society for Quality (ASQ)
 Project Management Institute (PMI)

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 Functions Within Organizations
A typical organization (manufacturing or service) has three basic
functions.
1. Operations: creates goods and services.
2. Finance: provide funds and the economic analysis of
investment proposals.
3. Marketing: assess customer wants and needs and
communicate them to others.

Figure 1-1

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Three Basic Functions Interact
 The functions must interact to achieve the goals and objectives
of the organization.
 Each functional area makes an important contribution to
organizational success.

Operations

Marketing Finance

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 Three Basic Functions : Airline
This shows how the operations function relates to an
airline company.
Note: this is an example of how operations applies to a service based business.

Airline Company

Finance/
Marketing
Operations Accounting

Flight Ground Facility

Catering
Operations Support Maintenance

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Operations Function
Value Added

Inputs:
Buildings Outputs:
Transformation/
Labour Goods
conversion
Machines Services
Process
Materials
Information
Feedback

Control
Feedback Feedback

Figure 1-2

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What is Added Value?
Stage of Production Value Added Value of
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

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Transformation Process at a
Food Processor

Table 1-2

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Transformation Process
at a Hospital

Table 1-2

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The Goods-Service Continuum

Figure 1-3

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Types of Operations
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Services
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

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Operations Interfaces
Operations interfaces with a
number of supporting
functions.

Figure 1-4

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 The Scope of Operations Management

• Capacity
Designing • Location
Decisions • Equipment

• Personnel
Planning/ • Inventory
Control • Scheduling
Decisions • Quality assurance

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The Scope of Operations Management
Decision area Basic question Chapter

Forecasting What will the demand be? 3

Product/ service design What customers want? How to improve products/services? 4
Capacity How much capacity will be needed? 5
Process What processes should be used? 6
Layout What is the best arrangement for the departments? 6
Work/Job Design How to improve work methods? 7
Quality How to define quality? How to improve it? 9
Supply Chain Management Which supplier to choose? 11
Inventory Management How much to order? 12
Aggregate planning How much capacity will be needed over the medium term? 13
JIT systems How to coordinate production and purchasing? 15

Scheduling How to schedule jobs, staff? 16

Which decision is design type and which is planning/control type?

Table 1-3
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Goods vs. Services
Differences Goods Services
(Produce a car) (Teach a class)

Output Tangible Intangible

Customer contact Low High
Uniformity of input High Low
Labour content Low High
Uniformity of output High Low
Measurement of Easy Difficult
productivity
Quality assurance Easy Difficult

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Goods or Service?

Tangible Act

Most systems are a blend of both good & service.

Service sector accounts for > 79% of jobs in Canada.

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Goods vs. Services in Canada
Percentage of total labour force by industry.

Figure 1-5

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The Operations Manager’s Job
The operations manager must coordinate the use of resources
through the management activities of planning, organizing,
directing, and controlling.

Table 1-4
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OM Level of Job Satisfaction

Figure 1-6

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 Operations Managers and Decision Making

Models

Quantitative
Ethics
techniques

Establishing Priorities Analysis of trade-offs

Systems approach

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Models
A model is an abstraction of reality. Used to support
the decision process.

Physical

Mathematical Schematic

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Quantitative Approaches

 Linear programming
 Queuing techniques
 Inventory techniques
 Project techniques
 Statistical techniques

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Analysis of Trade-Offs
Decision on amount of inventory to stock
• Increased cost of holding inventory
vs.
• Level of customer service

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Establishing Priorities
Pareto Phenomenon
 A few factors account for a high percentage of the
occurrence of some event(s).
 80/20 Rule - 80% of problems are caused by 20%
of the activities.

How do we identify the vital few?

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Ethical Issues
Financial
statements

Hiring/firing Worker
workers safety

Product
Community
safety

Environment Quality

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The Historical Evolution of OM
Decision
Human Japanese
Models
Earliest Industrial Manu-
relations and
days revolution Computer
facturers
Movement (1980+)
(1960+)
Craft Improve
production Interchangeable
Productivity Manage- TQM
(no Parts (Eli Whitney,
(Elton Mayo, ment revolution
economies of 1700)
1930) Science,
scale),
Motivational
Mercant- Division of Labour Theories lean
ilism (Adam Smith, (Abraham EDI, production
1776) Maslow), 1940s

Scientific
Management Employee World Class
(1920s, Frederick Problem Solving ERP Mftg
Taylor, Frank and (William Ouchi),
Lillian Gilbreth, 1970s
Henry Gantt, Henry
Ford)

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Trends in Business
The Internet and e-commerce

Management technology

Globalization

Management of supply chains

Sustainability

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Supply Chain
A sequence of activities and organizations involved in
producing and delivering a good or service.

Figure 1-8

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Chapter Summary (1)
 Operations management is responsible for planning and coordinating
the use of the organization’s resources to convert inputs into outputs.
 The operations function is one of three primary functions of
organizations; the other two are marketing and finance. The operations
function is present in both service- and goods-producing organizations.
 Operations decisions involve design decisions and planning/control
decisions. Design decisions relate to capacity planning, product design,
processes design, layout of facilities, and selecting locations for
facilities. Planning/control decisions relate to quality assurance,
production planning, scheduling and control, inventory management,
and project management.
 Service differs from goods production in customer contact and labour
content, lack of inventories, variation in inputs and outputs, and
difficulties in productivity measurement and quality assurance.

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Chapter Summary (2)
 Operations managers plan, organize, control, and
direct the operations of an organization.
 They use models, quantitative techniques, trade-off
analysis, systems approach, priorities, and ethics in
decision making.
 Operations management evolved through craft,
mass, and lean production systems.
 Major trends currently are e-commerce, technology,
globalization, supply chains, and sustainability.

© 2018 McGraw-Hill Education Limited. All rights reserved. 35

Learning Checklist
 Define the term operations management and describe what an
operation manager might do.
 Identify the three major functional areas of organizations and
describe how they interact.
 Differentiate between design and operations decisions.
 Compare goods versus services.
 Describe key aspects of the operations managers job and their
role and involvement in decision making.
 Briefly describe the historical evolution of operations
management.
 Identify current trends that affect operations management.

© 2018 McGraw-Hill Education Limited. All rights reserved. 36