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Introduction to Operations Management

Operations Management

William J. Stevenson

8th edition


Introduction to Operations Management


Introduction to Operations Management


Operations Management, Eighth Edition, by William J. Stevenson Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.


Introduction to Operations Management


Introduction to Operations Management


Introduction to Operations Management

This strategy is based on the corporate mission, and in essence reflects how the firm plans to use all its resources and functions (marketing, finance, and operations) to gain competitive advantage. The operations strategy specifies how the firm will employ its production capabilities to support its corporate strategy. (We will discuss the extent to which operations influences corporate strategy in subsequent chapters.) Operations management deals with the direct production resources of the firm. These resources may be thought of as the five Ps of operations management People, Plants, Parts, Processes, and Planning and control systems. The people are the direct and indirect work force, the plants include the factories or service branches where production is carried out; the parts include the materials (or in the case of services, the supplies) that go through the system: the process include the equipment and the steps by which production is accomplished; and the planning and control systems are the procedures and information used by management to operate the system.


Scope of Operations Management

Operations Management includes:

Introduction to Operations Management

Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating employees Deciding where to locate facilities And more . . .


Why Study Operations Management?

Introduction to Operations Management

You may be wounding why you need to study operation Management. There are number of very good reasons. 1. Operations Management activities are at the core of all business organizations, regardless of what business they are in. 2. 50% or more of all jobs are in operations management related areas such as customer services, quality assurance, production planning, and control scheduling, job design, inventory management, and many more. 3. Activities in all of the other areas of business organizations, such as finance, accounting, human resources, logistics, marketing, purchasing as well as other all interrelated with operation management activities. 4. So it is essential for these people to have basic understanding of operations management 5. Also you will learn how to use a range of quantitative tools that enhance managerial decision making


Functions within the business organizations

The management of systems or processes that create goods and/or provide services

Introduction to Operations Management

Figure 1.1





Introduction to Operations Management

Business Operations Overlap

Figure 1.5




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Figure 1.2

The difference between the cost of inputs and the value or price of outputs.
Value added
Inputs Land Labor Capital Transformation/ Conversion process

Outputs Goods Services

Feedback Feedback

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Operations Interfaces
Industrial Engineering Maintenance




Public Relations


Accounting MIS

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Goods-service Continuum

Figure 1.3

Steel production Home remodeling Auto Repair Maid Service Teaching Automobile fabrication Retail sales Appliance repair Manual car wash Lawn mowing

High percentage goods Low percentage service

Low percentage goods High percentage service

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Food Processor
Cleaning Making cans Cutting Cooking Packing Labeling

Table 1.2

Raw Vegetables Metal Sheets Water Energy Labor Building Equipment

Canned vegetables

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Hospital Process
Examination Surgery Monitoring Medication Therapy

Table 1.2

Doctors, nurses Hospital Medical Supplies Equipment Laboratories

Healthy patients

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Manufacturing or Service?



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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
2. 3. 4. 5. 6. 7. 8.

Customer contact Uniformity of input Labor content of jobs Uniformity of output Measurement of productivity Production and delivery Quality assurance Amount of inventory

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Manufacturing vs Service
Manufacturing Service
Tangible Low

Customer contact Uniformity of input Labor content Uniformity of output

High Low High Low Difficult Low

High Easy

Measurement of productivity Opportunity to correct quality problems



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The operations function

Consists of all activities directly related to producing goods or providing services

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Types of Operations

Table 1.4

Goods Producing

Farming, mining, construction, manufacturing, power generation 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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Figure 1.4
U.S. Manufacturing vs. Service Employment
Year Mfg. Service 45 79 21 50 72 28 55 72 28 60 68 32 65 64 36 70 64 36 75 58 42 80 44 46 85 43 57 90 35 65 95 32 68 00 30 70
90 80 70 60 50 40 30 20 10 0

Mfg. Service















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Responsibilities of Operations Management

Table 1.6

Capacity Location Products & services Make or buy Layout Projects Scheduling Inventory Quality Costs Productivity

Degree of centralization Process selection

Hiring/laying off Use of Overtime

Incentive plans Issuance of work orders Job assignments


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A model is an abstraction of reality.

Physical Schematic Mathematical


What are the pros and cons of models?

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Key Decisions of Operations Managers

What resources/what amounts


Work to be done


To do the work

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Decision Making

System Design
capacity location arrangement of departments product and service planning acquisition and placement of equipment

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Decision Making

System operation
personnel inventory scheduling project management quality assurance

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Decision Making

Models Quantitative approaches Analysis of trade-offs Systems approach

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Models Are Beneficial

Easy to use, less expensive Require users to organize Systematic approach to problem solving Increase understanding of the problem Enable what if questions Specific objectives Consistent tool Power of mathematics Standardized format

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Quantitative Approaches

Linear programming Queuing Techniques Inventory models Project models Statistical models

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Systems Approach

The whole is greater than the sum of the parts.


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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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Historical Evolution of Operations Management

Table 1.7

Industrial revolution (1770s) Scientific management (1911)

Mass production Interchangeable parts Division of labor

Human relations movement (1920-60) Decision models (1915, 1960-70s) Influence of Japanese manufacturers

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Trends in Business

Major trends

The Internet, e-commerce, e-business Management technology Globalization Management of supply chains Agility

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Simple Product Supply Chain

Figure 1.7 Suppliers Suppliers

Direct Suppliers



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
$0.08 $0.15 $0.08

Stage of Production
Farmer produces and harvests wheat
Wheat transported to mill Mill produces flour Flour transported to baker

Value of Product
$0.23 $0.38 $0.46

Baker produces bread

Bread transported to grocery store Grocery store displays and sells bread Total Value-Added

$0.08 $0.21 $1.29

$1.08 $1.29

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Other Important Trends

Global Marketplace
Markets and companies are becoming increasingly global in nature. The North American Free Trade Agreement (NAFTA) has opened borders for trade between the United States, Canada, and Mexico. Even more far-reaching is the General Agreement on Tariffs and Trade (GATT). 124 Countries have agreed to open their economies, reduce tariffs and subsidies, and expand protection of intellectual property. Operations strategy At present various companies are recognizing the importance of operations strategy on the overall success of their business, and the necessity for relating it to their overall business strategy.

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Other Important Trends

Total Quality Management Many firms are now adopting a total quality management approach to their business. In this approach organization involved in a never ending quest to improve the quality of goods and services. Key features are; a team approach, finding and eliminating problems, emphasis on serving the customer, and continuously working to improve the system. Flexibility
The ability to adopt quickly to changes in volume of demand, in the mix of products demanded, and in product design, has become a major competitive strategy. In manufacturing, the term agile manufacturing is sometimes used to connote flexibility.

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Other Important Trends

Technology Technological advances have led to a vast array of new products and processes. Undoubtedly the computer has had and will continue to have the greatest impact on business organizations. It has truly revolutionized the way companies operate. Technological advances in new materials, new methods, and new equipment have also made their mark on operations. Worker involvement Various companies are pushing the responsibility for decision making and problem solving to lower levels in the organizations. The reasons for this include recognition of the knowledge workers possess about the production process and system. A key to worker involvement is the use of teams of workers who solve problems and make decisions on a consensus basis.

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Some companies are taking drastic measures to improve their performance. The are conceptually starting from scratch inn redesigning their processes. Engineering focuses on significantly improving business processes, such as the steps required to fill a customers request or the steps required to bring a new product to market Environmental Issues.
Pollution control and waste disposal are key issues managers must contend with. There is increasing emphasis on reducing waste, using less toxic chemicals (e.g, lawncare services shifting to environmentally friendly approaches) recycling, making it easier for consumers to recycle products (e.g., including s shipping container for returning used laser printer cartridges) and designing products and parts that can be reused (remanufacturing products such as copying machines.)

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Supply Chain Management organization are increasing their attention to managing the supply chain, from suppliers and buyers of raw materials all the way to final customers Lean Production This new approach to production emerged in the 1990s. It in corporates a number of the recent trends listed here, with an emphasis on quality flexiblity, time reduction, and teamwork. This has led to a flattening of the organizational structure, with fewer levels of management.