Intro to Operations Management

Introduction to Operations Management

• Operations management is responsible for producing goods and services within any organization
• Involves managing systems or processes that create these goods and services
• The creation of goods or services involves transforming inputs into outputs
• Inputs such as capital, labor, and information undergo one or more transformation processes, such as storing, assembling, and loading

Functions of Business Organizations

• The three basic functions of business organizations are finance, operations, and marketing

Why Study Operations Management

• The three major functions of business organizations overlap

Finance and Operations Management Cooperation

• Involves exchanging information and expertise in budgeting
• Involves periodically preparing budgets to plan financial requirements
• Budgets may need adjustments, and performance relative to a budget should be evaluated
• Involves economic analysis of investment proposals
• Requires evaluation of alternative investments in plant and equipment, needing input from operations and finance personnel
• Involves funds provision; funding for operations and its timing is crucial when funds are tight, and careful planning helps avoid cash-flow problems

Career Opportunities in Operations Management

• Operations manager
• Production analyst
• Production manager
• Industrial engineer
• Time study analyst
• Inventory manager
• Purchasing manager
• Schedule coordinator
• Distribution manager
• Supply chain manager
• Quality analyst
• Quality manager

The Operations Function

• Involves converting inputs into outputs
• The essence of the operations function is to add value during the transformation process
• Value-added is the difference between the cost of inputs and the value or price of outputs
• Inputs include land, labor, capital, and information
• A transformation/conversion process changes inputs into outputs
• Outputs are goods and services
• Control and feedback loops are present throughout the process

Scope of Operations Management

• The scope of operating management ranges across the entire organization
• Involves product and service design, process selection, technology selection and management
• Involves design of work systems, location planning, facilities planning, and quality improvement of the organization's products or services
• The operations function includes numerous interrelated activities, such as forecasting, capacity planning, and scheduling
• Involves managing inventories, assuring quality, and motivating/training employees
• Involves locating facilities based on manager's decisions

Examples of Types of Operations

• Goods producing; examples includes farming, mining, construction, manufacturing, and power generation
• Storage/transportation; examples include warehousing, trucking, mail service, moving, taxis, buses, hotels, and airlines
• Exchange; examples include retailing, wholesaling, financial advising, renting or leasing, library loans, and stock exchange
• Entertainment; examples include films, radio and television, plays, concerts, and recording
• Communication; examples include newspapers, radio and TV newscasts, telephone, satellites, and the Internet

Role of Operations Manager

• A primary function of an operations manager is to guide the system through decision making
• System design involves decisions related to system capacity and the geographic location of facilities
• Arrangement of departments and placement of equipment within physical structures is part of system design
• Product and service planning as well as the acquisition are components of system design
• System operation involves management of personnel as well as inventory planning and control
• Scheduling, project management, and quality assurance are also part of system operation
• Tactical and operational decisions are involved, with feedback on these decisions involving measurement and control

Operations Management and Decision Making Questions

• What resources will be needed, and in what amounts?
• When will each resource be needed, and when should work be scheduled?
• When should materials and other supplies be ordered, and when is corrective action required?
• Where will the work be done?
• How will the product or service be designed, and how will the work be done (organization, methods, equipment)?
• How will resources be allocated?
• Who will do the work?

Operations Management and Decision Making: Models

• A model is an abstract of reality, a simplified representation classified as physical, schematic, or mathematical
• Physical models resemble real-life counterparts
• Schematic models are abstract and involve graphs, charts, blueprints, pictures, and drawings
• Mathematical models are the most abstract and include numbers, formulas, and symbols

Model Use

• Models play a significant role in operations management decisions and are heavily integrated into the material used
• For each model, understand its purpose and how it is used to generate results
• Know how these results are interpreted and used, as well as the assumptions and limitations that apply

Performance Metric

• All managers use metrics to manage and control operations
• Metrics include those related to profits, costs, and quality
• Metrics also include productivity, assets, inventories, schedules, and forecasting

Trade-Off Analysis

• Operations personnel frequently encounter trade-off decisions
• Decision makers sometimes deal with these decisions by listing advantages and disadvantages to understand the consequences
• Weights may be added to items on the list to reflect the relative importance of various factors, which helps to "net out" potential impacts

Ethics

• Operation managers have the responsibility to make ethical decisions
• Ethical issues arise in providing financial statements and ensuring worker safety
• Ethical issues also arise in honoring warranties, avoiding hidden defects, protecting the environment and being a good neighbor in the local community
• Involves ethical hiring and firing practices and ethical closing of facilities, as well as respecting workers' rights

Trends in Business

• Operation management is primarily concerned with three kinds of technologies
• Product and service technology relates to the discovery and development of new products and services
• Process technology involves methods, procedures, and equipment used to produce goods and services, including processes within an organization and supply chain processes
• Information technology (IT) refers to the science and use of computers and other electronic equipment to store, process, and send information

Summary

• Operation management is responsible for producing goods and services
• It is the core function of every business organization
• Operation management plans and coordinates the use of the organization's resources to convert inputs into outputs
• Operations decisions involve design decisions and operating decisions
• Design decisions are strategic and relate to capacity planning, product design, process design, layout of facilities, and selecting locations for facilities
• Operating decisions relate to quality assurance, scheduling, inventory management, and project management

Summary: Effective Operations Management

• In for-profit organizations, effective operations management can lead to higher productivity, lower cost, higher quality, and other competitive advantages, as well as increased shareholder wealth
• In not-for-profit organizations, effective operation management can lead to lower costs, higher levels of customer service, and more efficient use of resources