Intro to OSM

Module 1: Introduction to Operations Management

Learning Objectives

  • LO 1.1 Define the terms operations management and supply chain.

  • LO 1.2 Identify similarities and differences between production and service operations.

  • LO 1.3 Explain the importance of learning about operations management.

  • LO 1.4 Identify the three major functional areas of organizations and explain how they interrelate.

  • LO 1.5 Summarize the two major aspects of process management.

  • LO 1.6 Describe the operations function and the nature of the operations manager’s job.

  • LO 1.7 Explain the key aspects of operations management decision-making.

  • LO 1.8 Briefly describe the historical evolution of operations management.

  • LO 1.9 Describe the current issues in business that impact operations management.

  • LO 1.10 Explain the importance of ethical decision-making.

  • LO 1.11 Explain the need to manage the supply chain.

What is Operations?

  • Definition of Operations: The part of a business organization responsible for producing goods or services.

  • Definition of Operations Management: The management of systems or processes that create goods and/or provide services.

Goods vs. Services

  • 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 travel, Education, Haircut, Legal counsel.

Role of Services in an Economy

  • Supply Chain Definition: A sequence of activities and organizations involved in producing and delivering a good or service.

  • Supply Chain Structure: Includes Suppliers’ suppliers, Direct suppliers, Producer, Distributor, Final customers.

The Transformation Process

  • Inputs: Land, Labor, Capital, Information.

  • Outputs: Goods, Services.

  • Transformation/Conversion Process: Control through Feedback and Value-Added.

    • Feedback: Measurements taken at various points in the transformation process.

    • Control: Comparison of feedback against previously established standards.

Goods-Service Continuum

  • Definition: Products are typically neither purely service nor purely goods-based.

  • Examples:

    • Goods: Automobile Assembly, Steelmaking.

    • Services: Home Remodeling, Retail Sales, Computer Repair.

Similarities and Differences between Production and Service Operations (LO 1.2)

Key Differences in Production of Goods vs. Provision of Services

  1. Degree of customer contact.

  2. Labor content of jobs.

  3. Uniformity of input.

  4. Uniformity of output.

  5. Measurement of productivity.

  6. Production and delivery methods.

  7. Quality assurance processes.

  8. Amount of inventory involved.

  9. Evaluation of work processes.

  10. Ability to patent design elements.

Reasons to Study Operations Management (LO 1.3)

  • Understanding the world, global dependencies, and success/failure of companies.

  • Recognizing the importance of collaboration in organizations.

Basic Functions of the Business Organization (LO 1.4)

  • Key Functional Areas: Marketing, Operations, Finance.

Importance of Operations Management

  • Quote by William Cooper Procter (1887): "The first job we have is to turn out quality merchandise that consumers will buy and keep on buying. If we produce it efficiently and economically, we will earn a profit."

  • Focus on Efficiency, Cost, and Quality.

Example: Smart Trash Containers

  • Function: Compacts trash and signals when full via email.

  • Capacity: 300 pounds per unit, cost $3,800 each.

  • Benefits: Fewer pickups, reduced contamination, dollar savings, sustainability efforts.

Roles of Operations Managers

  • Titles: COO, Hotel/Restaurant Manager, VP of Manufacturing, Customer Service Manager, Plant Manager, Field Service Manager, Supply Chain Manager, Inventory Manager.

  • Overlap with other functions: Budgeting, Economic Analysis, Demand Data, Product Design, Competitor Analysis.

Operations Management Career Opportunities (LO 1.4)

  • Relevant Professional Societies: APICS, ASQ, ISM, INFORMS, POMS, PMI, CSCMP.

Process Management (LO 1.5)

  • Definition of Process: A series of actions that transform inputs into outputs.

  • Three Categories of Business Processes:

    1. Upper-management processes - govern entire organization.

    2. Operational processes - core processes comprising the value stream.

    3. Supporting processes - assist the core processes.

Supply and Demand Dynamics

  • Supply effectively managing demand leads to wasteful losses and customer dissatisfaction.

Process Variation (LO 1.5)

Four Sources of Variation

  1. Variety of goods/services: Greater variety increases production variation.

  2. Structural variation in demand: Predictable and important for capacity planning.

  3. Random variation: Natural presence in all processes; non-manageable.

  4. Assignable variation: Variation with identifiable sources; can be reduced or eliminated.

Impacts of Variation

  • Disruptions can result in additional costs, delays, poor quality, and inefficient systems.

Scope of Operations Management (LO 1.6)

  • Encompasses interrelated activities such as forecasting, capacity planning, facility location/layout, scheduling, inventory management, and quality assurance.

Role of the Operations Manager (LO 1.6)

  • Directly relates to the activities of producing goods and services, encompassing decision-making in system design and operation.

System Design Decisions

  • Related to:

    • Capacity

    • Facility location/layout

    • Product/service planning

    • Acquisition/placement of equipment.

System Operation Decisions

  • Includes tactical and operational aspects:

    • Personnel management

    • Inventory control

    • Scheduling

    • Quality assurance.

  • Operations manager typically engages more in system operation decisions.

Operations Management Decision Making (LO 1.7)

Key Decision Areas

  • What resources are needed and in what amounts?

  • When will each resource be needed?

  • Where will the work be done?

  • How will the product or service be designed and executed?

  • Who will carry out the work?

General Approach to Decision Making

  • Modeling: Key tool for decision-makers; represents abstractions of reality to support analysis and decisions.

Benefits of Models in Decision Making

  1. Easier and less expensive than real systems.

  2. Organize and quantify information.

  3. Increase understanding of the problem.

  4. Facilitate “What if?” analyses.

  5. Provide a standardized evaluation tool.

  6. Leverage mathematics for problem-solving.

Limitations of Models in Decision Making

  1. May prioritize quantitative over qualitative information.

  2. Risk of incorrect application leading to misinterpretation.

  3. Does not guarantee sound decisions.

Quantitative Approaches to Decision-Making

  • Incorporate metrics to evaluate and control operations, focusing on:

    • Profits

    • Costs

    • Quality

    • Productivity

    • Flexibility

    • Inventories

    • Schedules

    • Forecast accuracy.

  • Trade-Off Analysis: Understanding sacrifices made for gains, e.g., holding more inventory.

Systems Perspective on Operations Management (LO 1.7)

  • Definition of System: Interrelated parts working together.

  • The organization as a system composed of subsystems (Marketing, Operations, Finance).

  • The premise of systems theory: the whole is greater than the sum of its parts.

Establishing Priorities (LO 1.7)

  • Pareto Phenomenon: Some factors significantly impact events; prioritize efforts accordingly.

Historical Evolution of Operations Management (LO 1.8)

  • Key Movements:

    1. Industrial Revolution: Shift to mechanized production.

    2. Scientific Management: Emphasized efficiency and observation by Frederick Winslow Taylor.

    3. Human Relations Movement: Focused on employee psychology and motivation.

    4. Decision Models and Management Science: Use of mathematical models in operations research.

    5. Influence of Japanese Manufacturers: Advanced management practices that improved productivity and quality.

Contemporary Operations Management Issues (LO 1.9)

  • Key Issues: Economic conditions, innovation demands, risk management, cybersecurity, quality problems, global competition.

Current and Ethical Considerations in Operations (LO 1.10)

Environmental Concerns

  • Definition: Sustainability in resource utilization without ecological harm.

  • Expectations for businesses include:

    • Product/service design considerations.

    • Education programs for consumers.

    • Strategies for disaster preparedness and supply chain waste management.

Ethical Issues in Operations Management

  • Areas potentially impacted by ethics include:

    • Financial statements and accuracy.

    • Worker safety and rights.

    • Product and environmental safety.

    • Community impacts and hiring practices.

Supply Chain Management Needs (LO 1.11)

Past Concerns

  • Lack of management beyond immediate operations led to problems:

    • Oscillating inventory levels.

    • Stockouts.

    • Quality issues.

  • Current Supply Chain Issues Include:

    1. Effects of COVID-19.

    2. Operational improvements required.

    3. Outsourcing challenges.

    4. Rising transportation costs.

    5. Competitive pressures and globalization effects.

    6. The importance of e-business in supply chain management.

    7. Managing complexities in supply chains.

    8. Inventory management importance.