Operations Management Chapter 1

Chapter 1: Operations and Productivity

• Operations Management (OM) involves activities that create value in goods and services by transforming inputs into outputs
• Production is the creation of goods
• Services are activities that provide value to customers without tangible products
• Operations managers have specific roles and responsibilities

What is Operations Management?

• Definition: Managing resources to efficiently and effectively produce and deliver goods and services
• Example: A car factory uses materials, labor, and machines to make cars; efficient operations management ensures the optimal use of resources for high-quality cars
• Key Points: every activity in a company is part of operations; even companies making physical goods use services (like customer service or logistics)

Main Organizational Functions

• Marketing: Understands and promotes products/services; example: surveys to determine consumer preferences for new smartphone models
• Operations: Manages the production or service delivery process; ensures the daily targets are met while maintaining quality, example: Ensuring a factory meets daily production targets while maintaining quality
• Finance/Accounting: Manages budgets, funds and allocates resources. Example: Creating a budget for a company-wide expansion project

Interrelationship Example

• Marketing identifies a demand for reusable straws
• Operations sources materials and oversees manufacturing
• Finance secures funding and monitors costs

Organizational Structures

• Banks: Check clearing, vault management, loan and mortgage marketing
• Airlines: Flight scheduling and maintenance; reservation and pricing
• Manufacturing: Supply chain, assembly; product promotions and sales
• Increasing firm size leads to the crucial need for IT and HR for efficient operations

Why Study Operations Management?

• Understand goods/service production methods
• Recognition of OM as a major organizational cost (efficient operations reduce waste and improve profits)
• Development of skills valuable in various roles (e.g., sales professionals coordinating with operations, financial analysts analyzing resource allocation)

Ten Critical Decisions in Operations Management

• Service/Product Planning: defining the service or product
• Quality Management: setting quality standards
• Processes and Production Capacity Design: planning efficient production methods
• Location Planning: selecting the best facilities' location for ease of logistics
• Layout Design: optimizing resource arrangement for efficiency
• Human Resource/Job Design: workforce management, training etc.
• Supply Chain Management: coordinating suppliers for timely delivery of materials
• Inventory Management: determining optimal inventory levels to avoid shortages or excesses
• Scheduling: allocating resources for deadlines
• Maintenance: ensuring that equipment and facilities operate as planned

Characteristics of Goods vs. Services

• Goods: Tangible, can be inventoried, lower customer interaction
• Services: Intangible, produced and consumed simultaneously, high customer interaction

Productivity Concepts

• Definition: Ratio of outputs (goods/services) to inputs (resources used)

Improving Productivity

• Example: Starbucks reducing transaction times through improvements in their service process (e.g., implementing new technologies)

Efficiency vs. Effectiveness

• Efficiency: completing tasks in the most resource-efficient way
• Effectiveness: completing tasks that create value

Challenges in Operations Management

• Shifting from local to global markets
• Emphasizing just-in-time delivery to reduce inventory costs
• Increasing demand for mass customization and sustainable practices