CM

Chapter 1 Vocabulary: Introduction to Operations Management and Supply Chain Management

LO 1.1 What is operations?

  • The part of a business organization that is responsible for producing goods or services.
  • Operations management defined: the management of systems or processes that create goods and/or provide services.

LO 1.2 Goods vs Services (Goods-Services Continuum)

  • Goods: physical items that include raw materials, parts, subassemblies, and final products.
    • Examples: Automobile, Computer, Oven, Shampoo
  • Services: activities that provide some combination of time, location, form or psychological value.
    • Examples: Air ext{ }Travel, Education, Haircut, Legal ext{ }Counsel
  • Goods-service continuum: products are typically neither purely service- nor purely goods-based; many outputs combine both.

LO 1.2 The Transformation Process

  • Transformation process: inputs are converted into outputs via processing activities.
  • Feedback: measurements taken at various points in the transformation process.
  • Control: comparison of feedback against standards to determine if corrective action is needed.

LO 1.2 Goods-Service Continuum (Tracing examples)

  • Many products sit on a spectrum between goods and services; some are mixed (e.g., computer repair, restaurant meal).

LO 1.2 Illustrations of the Transformation Process (Table 1.2 concepts)

  • Food processing example:
    • Inputs: Raw vegetables; water; energy; labor; building; equipment.
    • Processing: Cleaning; cutting; cooking; packing; labeling.
    • Output: Canned vegetables.
  • Hospital example:
    • Inputs: Doctors; nurses; medical supplies; equipment; laboratories.
    • Processing: Examination; treatment; surgery; monitoring; therapy.
    • Output: Treated patients; medical services.

LO 1.2 Goods vs Services (Table 1.3: Typical Differences)

  • Characteristic: Output | Goods | Services
    • Tangible vs. Intangible:
    • Goods: Tangible
    • Services: Intangible
    • Customer contact:
    • Goods: Low
    • Services: High
    • Labor content of jobs:
    • Goods: Low
    • Services: High
    • Uniformity of input:
    • Goods: High
    • Services: Low
    • Uniformity of output:
    • Goods: High
    • Services: Low
    • Measurement of productivity:
    • Goods: Easy
    • Services: Difficult
    • Opportunity to correct problems before delivery:
    • Goods: High
    • Services: Low
    • Inventory:
    • Goods: Much
    • Services: Little
    • Wages (range):
    • Goods: Narrow range
    • Services: Wide range
    • Patentability:
    • Goods: Usually patentable
    • Services: Not usually

LO 1.3 Why Learn about Operations Management?

  • Every aspect of business affects or is affected by operations.
  • Many service jobs are closely related to operations (financial services, marketing services, accounting services, information services).
  • Through OM and supply chains, you gain:
    • A better understanding of the world you live in.
    • Insights into global dependencies of companies and nations.
    • Reasons why companies succeed or fail.
    • The importance of working with others.

LO 1.4 Basic Functions of the Business Organization

  • Core functions: Marketing, Operations, Finance.
  • Function overlap (examples):
    • Finance & Operations: budgeting; economic analysis of investments; provision of funds.
    • Marketing & Operations: demand data; product/service design; competitor analysis; lead time data.

LO 1.4 OM & Supply Chain Career Opportunities

  • Roles include: Operations manager; Supply chain manager; Production analyst; Schedule coordinator; Production manager; Industrial engineer; Purchasing manager; Inventory manager; Quality manager.

LO 1.4 OM-Related Professional Societies

  • APICS – Association for Operations Management
  • American Society for Quality (ASQ)
  • Institute for Supply Management (ISM)
  • Institute for Operations Research and the Management Science (INFORMS)
  • The Production and Operations Management Society (POMS)
  • Project Management Institute (PMI)
  • Council of Supply Chain Management Professionals (CSCMP)

LO 1.5 Process Management

  • Process: one or more actions that transform inputs into outputs.
  • Three Categories of Business Processes:
    • Upper-management processes: govern the operation of the entire organization.
    • Operational processes: core processes that make up the value stream.
    • Supporting processes: support the core processes.
  • Supply and demand relationship (illustration of process flow):
    • Sales & Marketing → Supply > Demand (Wasteful/Costly)
    • Supply < Demand → Opportunity Loss / Customer Dissatisfaction
    • Ideal: Supply = Demand

LO 1.5 Process Variation

  • Four sources of variation:
    • Variety of goods or services offered: the greater the variety, the greater the variation in production or service requirements.
    • Structural variation in demand: generally predictable; important for capacity planning.
    • Random variation: natural variation present in all processes; generally cannot be influenced.
    • Assignable variation: identifiable sources; can be reduced or eliminated by analysis and corrective action.
  • Variations can cause costs, delays, shortages, poor quality, and inefficient work systems.

LO 1.6 The Scope of Operations Management

  • OM scope spans the organization and includes interrelated activities such as:
    • Forecasting
    • Capacity planning
    • Locating facilities
    • Facilities and layout
    • Scheduling
    • Managing inventories
    • Ensuring quality
    • Motivating employees
    • And more

LO 1.6 Role of the Operations Manager

  • The OM function includes all activities directly related to producing goods or delivering services.
  • Primary function: guide the system by decision making in two broad areas:
    • System design decisions
    • System operation decisions

LO 1.6 System Design Decisions

  • System design decisions include:
    • Capacity
    • Facility location
    • Facility layout
    • Product and service planning
    • Acquisition and placement of equipment
  • Characteristics:
    • Typically strategic; usually long-term commitment of resources
    • Determine the parameters of system operation

LO 1.6 System Operation Decisions

  • System operation decisions are typically tactical/operational:
    • Management of personnel
    • Inventory management and control
    • Scheduling
    • Project management
    • Quality assurance
  • OM spends more time on system operation decisions but retains a vital stake in system design

LO 1.7 Operations Management and Decision Making

  • Most OM decisions involve many alternatives with different cost/profit impacts.
  • Typical decisions address: What, When, Where, How, Who:
    • What: what resources are needed and in what amounts
    • When: when each resource is needed; scheduling; when to order
    • Where: where the work will be done
    • How: how the product/service will be designed and how work will be done; resource allocation
    • Who: who will do the work

LO 1.7 General Approach to Decision Making: Modeling

  • Modeling is a key decision tool:
    • Model = an abstraction/simplification of reality
  • Common features of models:
    • They simplify real-life phenomena
    • They omit unimportant details to focus on important aspects
  • Types of models:
    • Physical model – e.g., miniature airplane
    • Schematic model – e.g., drawing of a city
    • Mathematical model – e.g., inventory optimization

LO 1.7 Understanding Models

  • Keys to using a model effectively:
    • What is its purpose?
    • How is it used to generate results?
    • How are results interpreted and used?
    • What are the model’s assumptions and limitations?

LO 1.7 Benefits of Models

  • Benefits include:
    1) Generally easier to use and less expensive than real systems
    2) Require users to organize/quantify information
    3) Increase understanding of the problem
    4) Enable what-if analysis
    5) Provide a consistent evaluation tool and standardized format
    6) Bring the power of mathematics to bear on problems

LO 1.7 Model Limitations

  • Limitations include:
    • Quantitative emphasis may overlook qualitative factors
    • Models can be misapplied or misinterpreted
    • Risk increases with sophisticated computerized models in uninformed hands
    • Use of models does not guarantee good decisions

LO 1.7 Quantitative Approaches

  • A common approach aims for a mathematically optimal solution, often via computer calculations.
  • Often used in conjunction with qualitative approaches

LO 1.7 Metrics and Trade-Offs

  • Performance metrics used by managers include:
    • Profits
    • Costs
    • Quality
    • Productivity
    • Flexibility
    • Inventories
    • Schedules
    • Forecast accuracy
  • Trade-offs: giving up one thing to gain another (e.g., more inventory to increase customer service level)

LO 1.7 Systems Perspective

  • System: a set of interrelated parts that must work together.
  • The business is a system with subsystems: Marketing, Operations, Finance.
  • Systems perspective emphasizes interrelationships; the whole is greater than the sum of parts.
  • The organization’s output and objectives take precedence over any single subsystem’s goals.

LO 1.7 Establishing Priorities

  • In most cases, some issues are more important than others.
  • Pareto Phenomenon: a few factors account for a high percentage of occurrences; focus on the critical few factors.

LO 1.8 Historical Evolution of Operations Management

  • Key stages:
    • The Industrial Revolution
    • Scientific Management
    • The Human Relations Movement
    • Decision Models and Management Science
    • The Influence of Japanese Manufacturers

LO 1.8 The Industrial Revolution

  • Pre-industrial: Craft production using highly skilled workers and flexible tools for small quantities of customized goods.
  • Origins and key milestones:
    • Began in 1770s (England) – early shift toward mechanization
    • Division of labor by Adam Smith (1776)
    • Application of rotative steam engine (1780s)
    • Cotton gin and interchangeable parts by 1792
  • Management theory and practice did not advance much during this period

LO 1.8 Scientific Management

  • Led by Frederick Winslow Taylor: a "science of management" based on observation, measurement, analysis, and improvement of work methods; economic incentives.
  • Management responsibilities include planning, selecting/training workers, identifying best methods, promoting cooperation, and separating management from work.
  • Emphasis: maximizing output

LO 1.8 The Human Relations Movement

  • Emphasized the human element in job design.
  • Key figures: Lillian Gilbreth (psychology applications); Elton Mayo (Hawthorne studies, motivation); Abraham Maslow (needs hierarchy); Frederick Herzberg (Two-Factor Theory); Douglas McGregor (Theory X/Y); William Ouchi (Theory Z).

LO 1.8 Decision Models & Management Science

  • Pioneers and contributions:
    • F.W. Harris – inventory ordering model ( 1915 )
    • Dodge, Romig, and Shewart – sampling and quality control procedures ( 1930s )
    • Tippett – statistical sampling theory ( 1935 )
    • Operations Research (OR) groups – warfare applications
    • George Dantzig – linear programming ( 1947 )

LO 1.8 The Influence of Japanese Manufacturers

  • Refined and developed management practices that increased productivity.
  • Credited with fueling the “quality revolution” and the development of Just-in-Time production

LO 1.8 Table 1.5: Historical Summary (highlights)

  • 1776: Division of labor – Adam Smith
  • 1790: Interchangeable parts – Eli Whitney
  • 1911: Principles of scientific management – Frederick W. Taylor; Motion study and industrial psychology – Frank & Lillian Gilbreth
  • 1912: Scheduling chart – Henry Gantt
  • 1913: Moving assembly line – Henry Ford
  • 1915: Inventory ordering model – F. W. Harris
  • 1930: Hawthorne studies – Elton Mayo; Quality control methods by Dodge, Romig, Romig, Tippett
  • 1940: Operations research applications in warfare – OR groups
  • 1947: Linear programming – George Dantzig
  • 1951: Commercial digital computers (Sperry Univac, IBM)
  • 1950s: Automation
  • 1960s: Quantitative tool development; Industrial dynamics – Jay Forrester
  • 1975: Emphasis on manufacturing strategy – W. Skinner
  • 1980s: Lean production, time-based competition, quality emphasis – Ohno, Shingo, Toyota; Deming, Juran, Ishikawa
  • 1990s: Internet and supply chain management
  • 2000s: Applications, service providers, outsourcing

LO 1.9 Operations Today

  • Trends include: Technology management; Global competition; Working with fewer resources; Revenue management; Agility

LO 1.10 Key Issues for Operations Managers Today

  • Economic conditions; Innovating; Quality problems; Risk management; Cyber-security; Competing in a global economy

LO 1.10 Sustainability and Ethical Issues

  • Sustainability: using resources without harming ecological systems; measures often include social criteria beyond environmental/economic metrics.
  • Impacts all areas of business: product/service design; consumer education; disaster prep/response; supply chain waste management; outsourcing decisions.
  • Ethical issues in OM include: financial statements; worker safety; product safety; quality; environment; community; hiring/firing; closing facilities; workers’ rights

LO 1.11 The Need for Supply Chain Management

  • Past weakness: organizations managed only their own operations and immediate suppliers, leading to oscillating inventories, stockouts, late deliveries, and quality problems.
  • Key supply chain issues:
    1) Need to improve operations
    2) Rising outsourcing
    3) Higher transportation costs
    4) Competitive pressures
    5) Globalization
    6) Growth of e-business
    7) Complexity of supply chains
    8) Need to manage inventories

Text Alternatives (contextual notes)

  • Inputs in the transformation process include land, labor, capital, and information; these inputs undergo transformation to produce goods and services; feedback and control ensure measurement and adjustments throughout the process.
  • Goods-service continuum (text description): major shares of service exist in areas like surgery, creative work (e.g., songwriting), and software development; equal goods/service mix in computer repair and restaurant meals; goods-heavy areas include home remodeling, retail sales, automobile assembly, and steelmaking.