Chapter 1

Introduction to
Operations
Management

Three Functions in a
Business
Marketing
to sell products

Operations
to make products

Finance and Accounting

to use money effectively
and keep track business
activities in terms of dollar.

Role of Operation
Role of operation in a
business is to transform a
companys input into the
finished goods or services.
Value of the product is added
in the process of operation.

Business Operation as a
Value Added Process
Value Added by Process

Inputs in $$

Transformation
Process

Outputs in $$$

Operations Management
The business function
responsible for planning,
coordinating, and controlling
the process and resources
needed to produce a
companys products and
services.

Essential Pursuit of OM
The essential pursuit of
operations management is
EFFICIENCY (or productivity,
or effectiveness).

Manufacturing vs.
Service
Manufacturing:
Services:
Tangible product Intangible product
Product can be
Product cannot be
inventoried
inventoried
Low customer
High customer
contact
contact
Capital intensive Labor intensive
Long response time Short response
time

OM Decisions
Strategic decisions:
Decisions that set the direction for the
entire company.
Broad in scope & long-term in nature

Tactical decisions:
Short-term & specific in nature
Bound by the strategic decisions

Spectrum of OM
Decisions

Milestones of OM
Development
Industrial Revolution Late 1700s
Scientific Management
Early 1900s
Human Relations Movement 1930s to 1960s
Management Science
Mid-1900s
Computer Age
1970s
Just-In-Time Systems 1980s
Total Quality Management (TQM) 1980s
Reengineering
1980s
Flexibility
1990s
Time-based Competition
1990s
Supply Chain Management 1990s
Global Competition 1990s
Environmental Issues1990s
Electronic CommerceLate 1990s Early 21st Century

Industrial Revolution
(late 1700s)
Replaced traditional craft methods
Substituted machine power for
labor (James Watts steam engine,
)
Major contributions:
Adam Smith (1776): division of labor
Eli Whitney (1790): interchangeable parts

Scientific Management
(early 1900s)
Separated planning from doing
Managements job was to
discover workers physical limits
through measurement, analysis &
observation
Major contributors:
Fredrick Taylor: stopwatch time studies
Henry Ford: moving assembly line

Human Relations
Movement (1930s-1960s)
Recognition that factors other than
money contribute to worker
productivity
Major contributions:
Understanding of the Hawthorn effect:
Study of Western Electric plant in Hawthorn, Illinois intended
to study impact of environmental factors (light & heat) on
productivity, but found workers responded to managements
attention regardless of environmental changes

Job enlargement
Job enrichment

Management Science
(mid-1900s)
Developed new quantitative
techniques for common OM problems:
Major contributions include: inventory
modeling, linear programming, project
management, forecasting, statistical
sampling, & quality control techniques
Played a large role in supporting
American military operations during
World War II

Computer Age (1970s)

Computer provided the tool necessary to
support the widespread use of
Management Sciences quantitative
techniques the ability to process huge
amounts of data quickly & relatively
cheaply
Major contributions include the
development of Material Requirements
Planning (MRP) systems for production
control

Development in 1980s
Just-In-Time (JIT):
Techniques designed to achieve high-volume
production using coordinated material flows,
continuous improvement, & elimination of waste.
Lean system

Total Quality Management (TQM):

Techniques designed to achieve high levels of
product quality through shared responsibility & by
eliminating the root causes of product defects

Business Process Reengineering:

Clean sheet redesign of work processes to increase
efficiency, improve quality & reduce costs

Development since
1990s (1)
Flexibility:
Offer a greater variety of product choices on a
mass scale (mass customization)

Time-based competition:
Developing new product designs & delivering
customer orders more quickly than competitors

Supply Chain Management:

Cooperating with suppliers & customers to
reduce overall costs of the supply chain &
increase responsiveness to customers

Development since
1990s (2)
Global competition:
International trade agreements open new
markets for expansion & lower barriers to the
entry of foreign competitors (e.g.: NAFTA & GATT)
Creates the need for decision-making tools for
facility location, compliance with local
regulations, tailoring product offerings to local
tastes, managing distribution networks,

Environmental issues:
Pressure from consumers & regulators to reduce,
reuse & recycle solid wastes & discharges to air
& water

Electronic Commerce
(since late 1990s)
Internet & related technologies
enable new methods of business
transactions:
E-retailing creates a new outlet for selling goods &
services with global access and 24-7 availability.
B2C.
Internet provides a cheap network for coordinating
supply chain management information. B2B

Developing influence of broadband

& wireless