1

Introduction to
Operations
Management

Copyright 2014 by McGraw-Hill Education (Asia). All rights reserved.

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

Nations ability to compete internationally

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The Organization
Figure 1.1

The Three Basic Functions

Organization

Finance

Operations

Marketing

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Value-Added Process
Figure 1.2

The operations function involves the conversion of

inputs into outputs
Value added
Inputs
Land
Labor
Capital

Transformation/
Conversion
process

Outputs
Goods
Services

Feedback

Control
Feedback

Feedback

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Value-Added and Product Packages

Value-added elements make the difference
between the cost of inputs and the value or
price of outputs.
Product packages are a combination of
goods and services.
Product packages can make a company
more competitive.

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The GoodsService Continuum

Figure 1.3

Goods

Service
Surgery, teaching
Song writing, software development
Computer repair, restaurant meal
Automobile repair, fast food

Home remodeling, retail sales

Automobile assembly, steel making

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Food Processor
Table 1.2

Inputs

Processing

Outputs

Raw vegetables
Metal sheets
Water
Energy
Labor
Building
Equipment

Cleaning
Making cans
Cutting
Cooking
Packing
Labeling

Canned
vegetables

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Hospital
Table 1.2

Inputs
Doctors, nurses
Hospital
Medical supplies
Equipment
Laboratories

Processing

Outputs

Examination
Surgery
Monitoring
Medication
Therapy

Treated
patients

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Manufacturing or Service?

Tangible

Act

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Production of Goods
vs. Delivery of Services
Production of goods tangible output
Delivery of services an act
Service job categories

Government
Wholesale/retail
Financial services
Healthcare
Personal services
Business services
Education
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Key Differences
1.
2.
3.
4.
5.

Customer contact
Uniformity of input
Labor content of jobs
Uniformity of output
Measurement of productivity

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Key Differences
6. Production and delivery
7. Quality assurance
8. Amount of inventory
9. Evaluation of work
10. Ability to patent design

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Table 1.3

Goods vs. Service

Characteristic

Goods

Service

Customer contact
Uniformity of input
Labor content
Uniformity of output

Low
High
Low
High

High
Low
High
Low

Quality assurance
Measurement of productivity
Opportunity to correct problems
Inventory
Evaluation of work
Patentable

Easy
Easy
High
Much
Easier
Usually

Difficult
Difficult
Low
Little
Difficult
Not usually
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Scope of Operations Management

Operations Management includes:

Forecasting
Capacity planning
Scheduling
Managing inventories
Assuring quality
Motivating and training employees
Locating facilities
Supply chain management
And more . . .
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Types of Operations
Table 1.4

Operations

Examples

Goods Producing

Farming, mining, construction,

manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange
Retailing, wholesaling, financial
advising, renting or leasing
Entertainment
Films, radio and television,
concerts, recording
Communication
Newspapers, radio and TV
newscasts, telephone, satellites
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Figure 1.4a

Percent

U.S. Manufacturing vs. Service Employment

02

Year
Mfg. Service
45
79
21
90
Mfg.
50
72
28
80
Service
55
72
28
70
60
68
32
60
65
64
36
50
70
64
36
40
75
58
42
30
80
44
46
20
85
43
57
10
90
35
65
0
95
25
75
45 50 55 60 65 70 75 80 85 90 95 00 02 05
00
30
70
Year
25
75

Figure 1.4b
Singapore Manufacturing vs. Service Employment
80

70

60

Percent

50

40
Services

Manufacturing

30

20

10

0
'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

Year

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Decline in Manufacturing Jobs

Productivity

Increasing productivity allows companies to

maintain or increase their output using fewer
workers

Outsourcing

Some manufacturing work has been outsourced

to more productive companies

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Overlap of Business Functions

Figure 1.5

Operations

Finance

Marketing

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Operations Interfaces
Figure 1.6
Legal
Public
Relations

Accounting

Operations
Personnel/
Human
resources
MIS

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Trends in Business
Major trends

The Internet, e-commerce, e-business

Management technology
Globalization
Management of supply chains
Outsourcing
Agility
Ethical behavior

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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

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Simple Product Supply Chain

Figure 1.7

Suppliers
Suppliers

Direct
Suppliers

Producer

Distributor

Final
Consumer

Supply Chain: A sequence of activities

and organizations involved in producing
and delivering a good or service

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A Supply Chain for Bread

Value
Added

Value of
Product

Farmer produces and harvests wheat

$0.15

$0.25

Wheat transported to mill

$0.08

$0.33

Mill produces flour

$0.15

$0.48

Flour transported to baker

$0.08

$0.56

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

Stage of Production

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Other Important Trends

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

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