CHAPTER 1

WHAT IS OPERATIONS MANAGEMENT?

Production The creation of goods and services.
Operations Management (OM) Activities that relate to the creation of goods and
services through the transformation of inputs to outputs.

THE HERITAGE OF OPERATIONS MANAGEMENT

Eli Whitney is credited for the early popularization of interchangeable parts, which
was achieved through standardization and quality control.
Frederick Taylor contributed to de personnel selection, planning and scheduling,
motion study, and the now popular field of ergonomics.
Taylor belief that management should assume more responsibility for
1. Matching employees to the right job.
2. Providing proper training.
3. Providing proper work and methods and tools.
4. Establishing legitimate incentives for work to be accomplished.
Henry Ford combined what he knew about standardized parts adding the
revolutionary concept of the assembly line where men stood still and material
moved.

WHY STUDY OM?

1. OM is one of the 3 major functions of any organization, and it is integrally related to
all the other business functions.
We study how people organize themselves for productive enterprise.
2. We want to know how goods and services are produced.
3. To understand what operations managers do.
4. It is such a costly part of an organization.
A large percentage of the revenue of most firms is spent in the OM functions.
OM provides a major opportunity for an organization to improve its profitability and
enhance its service to society.
5. Development of an effective operations strategy is also the approach taken by many
companies as the face growing global competition.
WHAT OPERATIONS MANAGERS DO
Management Process The application of planning, organizing, staffing, leading,
and controlling to the achievement of objectives.
Operations managers apply this management process to the decisions they make in
the OM function.
Successfully addressing each of these decisions requires planning, organizing,
staffing, leading, and controlling.

10 OM STRATEGY DECISIONS
1. Design of goods & services

2. Managing quality

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Process strategy
Location strategy
Layout design
Human resources

7. Supply-chain management
8. Scheduling
9. Maintenance
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ORGANIZING TO PRODUCING GOODS AND SERVICES
To create goods and services, all organizations perform 3 functions, which are the
necessary ingredients not only for production but also for an organizations survival.
1. Marketing Generates the demand, or at least takes the order for a product or
service.
2. Production Creates the products.
3. Finance/accounting Tracks how well the organization is doing, pays the bills,
and collects the money.
EXCITING NEW TRENDS IN OPERATIONS MANAGEMENT
One of the reasons OM is such an exciting discipline is that the operations manager is
confronted with an ever-changing world.
These dynamics are the result of a variety of forces, from globalization of world trade
to the transfer of ideas, products, and money at electronic speeds.
1. Global focus: The rapid decline in communication and transportation costs has,
of course, made markets global.
2. Just-in-time performance: Vast financial resources are committed to inventory,
and inventory impedes response to the dynamic changes in the marketplace.
3. Supply-chain partnering: Shorter product life cycles, as well as rapid changes in
material and process technology, require more participation by suppliers.
4. Rapid product development: Rapid international communication of news,
entertainment, and lifestyles is dramatically chopping away at the life span of
products.
5. Mass customization: Once we begin to consider the world as the marketplace,
then the individual differences become quite obvious.
6. Empowered employees: The knowledge explosion and more technical
workplace have combined to require more competence at the workplace.
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OPERATIONS IN THE SERVICE SECTOR
Service Those economic activities that typically produce an intangible product.
Pure Service A service that does not include a tangible product.
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o Differences between Goods and Services
Services are usually intangible.
Services are often produced and consumed simultaneously.
Services are often unique.
Services have high customer interaction.
Services have inconsistent product definition.
Services are often knowledge-based.
Services are frequently dispersed.
o Growth of services.
Services now constitute the largest economic sector in advanced societies.

Service sector That segment of the economy that includes trade, financial,
lodging, education, legal, medical, and other profession occupations.
o Service Pay
Although there is a common perception that service industries are low paying, in fact,
many services jobs pay very well.
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THE PRODUCTIVITY CHALLENGE
Productivity The radio of outputs (goods and services) divided by one or more
inputs (such as labor, capital, or management)
Improving productivity means improving efficiency.
This improvement can be achieved in two ways:
1. Reduction in inputs while output remains constant.
2. Increase in output while inputs remain constant.
Outputs Goods and services, including such diverse items.
Production The total goods and services produced.
o Productivity measurement
Single-Factor productivity Indicates the ratio of one resource (input) to the goods
and services produced (outputs).
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Units produced
Productivity=
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Input Used
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Multifactor productivity Indicates the ratio of many or all resources (inputs) to
the goods and services produced (outputs).
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Units produced
Productivity=
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Labor+ Material+ Energy+Capital+ Miscellaneous
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Use of productivity measures aids managers in determining how well they are doing.
The multifactor-productivity measures provide better information about the trade-offs
among factors, but substantial measurement problems remain.
1. Quality may change while the quantity of inputs and outputs remains
constant.
2. External elements may cause an increase or decrease in productivity for
which the system under study may not be directly responsible.
3. Price units of measure may be lacking.
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Productivity Variables
Productivity variables The three factors critical to productivity improvementlabor, capital, and the arts and science of management.
These 3 factors are critical to improved productivity. They represent the broad areas
in which managers can take action to improve productivity.
1. Labor Improvement in the contribution of labor to productivity is the result of
a healthier, better-educated, and better-nourished labor force.
2. Capital Human beings are tool-using animals. Capital investment provides
those tools.

Using labor rather than capital may reduce unemployment in the short run,
but it also makes economies less productive and therefore lower wages in
the long run.
3. Management Is a factor of production and an economic resource. Is
responsible for ensuring that labor and capital are effectively used to increase
productivity.
Knowledge societies A society in which much of the labor force has
migrated from manual work to work based on knowledge.
Productivity and the service sector
The service sector provides a special challenge to the accurate measurement of
productivity and productivity improvement.
Productivity of the service sector has proven difficult to improve because service
sector work is:
Typically labor-intensive
Frequently individually processed
Often an intellectual task performed by professionals.
Often difficult to mechanize and automate
Often difficult to evaluate for quality
The more intellectual and personal the task, the more difficult it is to achieve
increases in productivity.
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