CHAPTER 1

*Business is managed through THREE MAJOR

FUNCTIONS:
1. Finance responsible for managing cash flow, current
assets and capital investments
2. Marketing responsible for sales, generating
customer demand and understanding customer wants
and needs
3. Operations Management plans, organizes and
coordinated and controls the resources needed to
produce the companys goods and services
B. Responsible for orchestrating all the resources
needed to produce the final product
*OTHER BUSINESS FUNCTIONS (supports the three
major functions): >Includes:
1. Accounting 1. Designing the product
3. Purchasing 2. Deciding what resources are needed
4. Human resources 3. Arranging schedules, equipment and facilities
5. Engineering 4. Managing inventory
OPERATIONS MANAGEMENT 5. Controlling quality
6. Designing the jobs to make the product
*Management function
7. Designing the work methods
*Involves managing: Customer feedback and performance
1. People information used to continually adjust the
2. Equipment inputs, transformation process and
3. Technology characteristics of the outputs
4. Information Transformation process dynamic in order to
5. Other resources adapt to changes in the environment
*No operations = no goods and services to sell to Proper management of operations company
customers success
Successful operations management:
*ROLE OF OPERATIONS MANAGEMENT
1. Value added describe the net increase
A. Transform a companys inputs into the finished between the final value of a product and
goods or services the value of all the inputs (greater value
added = more productive business)
>Inputs: To add value: reduce the cost of
1. Human resource activities in the transformations
2. Facilities and processes process
3. Materials
Activities that do not add value
4. Technology
are considered waste
5. Information
2. Efficiency being able to perform the
activities well and the lowest possible
>Outputs:
cost
1. Goods
2. Services *Management can be divided into TWO BROAD
Input The Transformation Process Output CATEGORIES:

>Transformation physical change of a raw materials 1. Manufacturing organization produce physical,

into products tangible goods that can be stored in inventory before
they are needed
2. Service organization produces intangible products *HISTORICAL DEVELOPMENT OF OPERATIONS
that cannot be produced ahead of time MANAGEMENT

Manufacturing Service Organization

Organization
Physical product Intangible product
Product can be Product cannot be
inventoried inventoried
Low customer contact Low customer contact
Capital intensive Capital intensive
Long response time Long response time

*Quasi-manufacturing organizations have some

characteristics of pure manufacturing and pure service
(ex. Mail-order catalog business)

*OPERATIONS MANAGEMENT DECISIONS

Strategic decisions long-term decisions that

set the direction for the entire organization
- Key to the companys effectiveness
in the long run
Tactical decisions short-term decisions that
focus on more specific day-to-day issues such as
quantities and timing of specific resources
- Provide feedback to strategic
decisions, which can be modified
accordingly
A. INDUSTRIAL REVOLUTION relied on machine power
instead of human power with the development of
number of inventions
James Watt invented steam engine
Steam engine provided a new source of power
that was used to replace human labor in textile
mills, machine-making plants and other facilities
- led to advances in transportation
(allowed wider distribution of
goods)
The concept of factory was emerging
The concept of division of labor was introduced
Division of labor the production of a good is
broken down into a series of small, elemental
tasks, each of which is performed by a different
worker
- Repetition of the task: allows the
worker to become highly specialized
in that task
- Allowed higher volumes to be
produced, which coupled with the
advances in transportation of
steam-powered boats and railroads,
opened up distant markets
- would become one of the important
ideas behind the development of
the assembly line (Adam Smith,
1776)
 The concept of interchangeable parts
interchangeable parts are standardized so that
every item in a batch of items fits equally
- We could move from one-at-a-time
production to volume production
B. SCIENTIFIC MANAGEMENT - an approach to
management promoted by Frederick W. Taylor
- sought to increase worker
productivity and organizational
input
Frederick W. Taylor engineer with an eye for
efficiency
TWO KEY FEATURES:
1. Workers are motivated only by money and
are limited only by their physical ability.
o Worker productivity governed
by scientific laws (discovered by
management)
o Workers are to be paid in direct
proportion to how much they
produce
2. Separation of the planning and doing
functions in a company
o Separation of management and
labor
Stopwatch time studies widely used method
of work measurement
- Observations are made and
recorded of a worker performing a
task over many cycles
- Info gathered: used to set a time
standard for performing the
particular task
Henry Ford popularized scientific management
approach
- used techniques in his factories
introduced moving
assembly line to produce
combined scientific
management with the
division of labor and
interchangeable parts to
develop the concept of
mass production
C. HUMAN RELATIONS MOVEMENT
Hawthorne studies the studies responsible for
creating the humans relations movement, which
focused on giving more consideration to
workers needs
o Findings from the study: The
productivity of the workers
continued to increase regardless of
the environmental changes made
o Elton Mayo : workers were actually
motivated by the ATTENTION they
were given
o Scientific management: made jobs
repetitive and boring
Hawthorne effect the idea of workers
responding to the attention they are given
Human relations movement a philosophy
based on the recognition that factors other than
money can contribute to worker productivity
Impact: new concepts that motivate workers by
making their jobs interesting and meaningful
1. Job enlargement an approach in which
workers are given a large portion of the
total task to do
2. Job enrichment workers are given a
greater role in planning
D. MANAGEMENT SCIENCE a field of study that
focuses on the development of quantitative techniques
to solve operations problems
F.W Harris developed the first mathematical
model for inventory management
Statistical sampling theory and quality control
procedures were developed
World War II: greater need for the ability to
quantitatively solve complex problems of
logistics control
Management science provides operations
management with tools to assist in decision
making
o Popular example: Linear programming
E. THE COMPUTER AGE
Quantitative models developed by management
science could be employed on a larger scale
Data processing became easier, with important
effects in areas such as:
- Forecasting
- Scheduling
- Inventory management
 Material Requirements Planning important
computerized system developed for inventory
control and scheduling
- able to process huge amounts of
data in order to compute inventory
requirements and develop
schedules for the production of
thousands of items
F. JUST-IN-TIME (JIT) a philosophy designed to achieve
high-volume production through elimination of waste
and continuous improvement
Developed in Japan
Achieved through coordination movements of
goods
All inclusive organizational philosophy that
employs teams of workers to achieve
continuous improvement in processes and
organizational efficiency by eliminating all
organizational waste
G. TOTAL QUALITY MANAGEMENT philosophy that
seeks to improve quality by eliminating causes of
product defects and by making quality the responsibility
of everyone in the organization
Promulgated by quality gurus such as W.
Edwards Deming
Everyone in the company is responsible for
quality
ISO 9000 set of quality standards developed
for global manufacturers by International
Organization for Standardization (ISO) to
control trade into the then emerging European
economic community (EEC)
- Global set of standards with many
companies requiring their suppliers
to meet the standards as a condition
for obtaining contracts
H. BUSINESS PROCESS REENGINEERING
Reengineering redesigning a companys
processes to increase efficiency, improve
quality, and reduce costs
- Requires asking why things are done
in a certain way, questioning
assumptions and then redesigning
the processes
Operations management : key player in a
companys reengineering efforts
I. FLEXIBILITY an organizational strategy in which the
company attempts to offer a greater variety of product
choices to its customers
Mass customization an example of flexibility
- ability of a to highly customize its
goods and services at high volumes
requires designing flexible
operations and using
delayed product
differentiation
(postponement)
keeping the product in
generic form as long as
possible and postponing
completion of the product
until specific customer
preferences are known
J. TIME-BASED COMPETITION an organizational
strategy focusing on efforts to develop new products
and deliver them to customers faster than competitors
K. SUPPLY CHAIN MANAGEMENT (SCM) management
of the flow of materials from suppliers to customers in
order to reduce overall and increase responsiveness to
customers
Supply chain the network of entities that is
involved in producing and delivering a finished
product to the final customer
Objective : have everyone in the chain to work
together (requires team approach)
Marketing, purchasing, operations and
engineering
Become possible with the development of
information technology (IT): enable
collaborative planning and scheduling ; allow
synchronized supply chain execution and design
collaboration enables companies to respond
better and faster to changing market needs
L. GLOBAL MARKET PLACE a trend in business focusing
on customers, suppliers and competitors from a global
perspective
Key issues :
meeting customer needs
getting the right product to diverse
markets
 Operations management : responsible for most
of these decisions
Whether to tailor products to different
customer needs
TODAYS OM ENVIRONMENT
Where to locate facilities
How to manage suppliers
How to meet local government
standards
Global competition: forced companies to read
higher levels of excellence in the products and
services they offer
M. SUSTAINABILITY AND GREEN OPERATIONS
Sustainability a trend in business to
consciously reduce waste, recycle, and reuse
products and parts
Operations management:
Redesigning processes and products in
order to meet and exceed
environmental quality standards
N. ELECTRONI COMMERCE (E-commerce) use of the
internet for conducting business activities such as
communications, business transactions and data
transfer
Internet developed from a government
network call ARPANET created in 1969 by the
US defense department
- Cut costs as it provides direct links
between entities
Business-to-business (B2B) electronic
commerce between businesses
- Makes up the highest percentage of
transactions
OPERATIONS MANAGEMENT IN PRACTICE
Business-to-customers (B2C) electric
commerce between businesses and their
customers
Customers-to-customers (C2C) electronic
commerce between customers
O. OUTSOURCING AND FLATTENING OF THE WORLD
Outsourcing obtaining goods or services from
an outside provider
- Touted as the enabling factor that
helps companies achieve the
needed speed and flexibility to be
competitive
Can range from outsourcing of one aspect of the
operation, such as shipping, to outsourcing an
entire part of the manufacturing process
Flattening or leveling of the playing field
enabled workers everywhere in the world to
compete globally for intellectual work
Customers demand better quality, greater
speed, and lower costs
Lean systems a concept that takes a
total system approach to creating
efficient operations including:
Just-in-time (JIT)
Total quality management (TQM)
Continuous improvement
Resource planning
Supply chain management (SCM)
Need for efficiency
Enterprise resource planning (ERP)
large, sophisticated software systems
used for identifying and planning the
enterprise-wide resources needed to
coordinate all activities involved in
producing and delivering products
Need to have deep knowledge of customers
and to be able to anticipate demand
Customer relationship management
(CRM) software solutions that enable
firm to collect customer-specific data
Increased us of cross-functional decision
making
Cross-functional decision making the
coordinated interaction and decision
making that occur among the different
functions of the organization
OPERATIONS MANAGERS:
Vice president of operations /vice
president of manufacturing/ VP head
of operations functions in a company
- Director of supply chain operations
- Generally reports directly to the
president or chief operating officer
Midlevel managers:
Manufacturing manager
Operations manager
Quality control manager
Plant manager and others
Quality specialist, production analyst,
inventory analyst and production
supervisor
OM ACROSS THE ORGANIZATION demand, quality levels being
achieved, inventory levels,
Marketing:
supplier deliveries, and worker
- Not fully capable of meeting
schedules.
customer needs if marketing
- IS must understand the needs
managers do not understand
of OM in order to design an
what operations can produce,
adequate information system.
what due dates it can and
- Usually, IS and OM work
cannot meet, and what types of
together to design an
customization operations can
information network. This close
deliver.
relationship needs to be
- The marketing department can
ongoing.IS must be capable of
develop an exciting marketing
accommodating the needs of
campaign, but if operations
OM as they change in response
cannot produce the desired
to market demands.
product, sales will not be made.
Human resource managers
- In turn, operations managers
- Must understand job
need information about
requirements and worker skills
customer wants and
if they are to hire the right
expectations. It is up to them to
people for available jobs.
design products with
- To manage employees
characteristics that customers
effectively, operations
nd desirable, and they cannot
managers need to understand
do this without regular
job market trends, hiring and
coordination with the
layoff costs, and training costs
marketing department
Accounting
Finance:
- Needs to consider inventory
- Cannot realistically judge the
management, capacity
need for capital investments,
information, and labor
make-or-buy decisions, plant
standards in order to develop
expansions, or relocation if
accurate cost data.
nance managers do not
- In turn, operations managers
understand operations
must communicate billing
concepts and needs
information and process
- On the other hand, operations
improvements to accounting,
managers cannot make large
and they depend heavily on
nancial expenditures without
accounting data for cost
understanding nancial
management decisions.
constraints and methods of
Engineering and other disciplines that
evaluating nancial
are not in the business eld are also
investments. It is essential for
tied to operations. Operations
these two functions to work to-
management provides engineering with
gether and understand each
the operations capabilities and design
others constraints.
requirements, and engineering, in turn,
Information systems (IS)
provides valuable input on
- Function that enables
technological trade-offs and product
information to ow through-
specications. These are essential for
out the organization and allows
the product design process.
OM to operate effectively
- OM is highly dependent on
information such as forecasts of