 What is Operations Management?

 Why Study OM?

 Production vs. Service Organizations.
 Operations Management Decisions.
 Heritage of OM.
 Recent Developments & Challenges.
 Productivity.
 Operations management is the management of
systems that produce goods and provide
services.
 It includes planning, designing and operating
systems to achieve goals of the organization.

 Book definition (not as good): The set of

activities that creates goods and services
by transforming inputs into outputs.

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 Inputs Process Outputs
Land,
Labor, Goods
Capital, Production or Service and
Materials, System Services
Equipment,
Management

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 Production Service
 Auto factories  Hospitals
(assembly plants)
 Airlines
 Job shops
(printing)  Movie theaters
 Fast food  Grocery stores
restaurants

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 OM is one of three major functions of
any organization (Marketing, Finance,
and Operations).
 We should know how goods and
services are produced.
 OM is such a costly part of an
organization.
 Jobs!

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 Operations.
 Creates product or service.

 Marketing.
◦ Generates demand.

 Finance/Accounting.
 Obtains funds &
tracks money.

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 Tangible product.
 Consistent inputs and
outputs.
 Production separate from
consumption.
 Can be inventoried.
 Low customer interaction.

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 Intangible product.
 Variable inputs and outputs
(people!).
 Production and consumption
at same place and time.
 No inventories.
 High customer interaction.

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 Automobile
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
% of Product that is a Good % of Product that is a Service
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1-
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Marketing Finance/
Operations
Accounting

Manufacturing Production Quality

Purchasing
Control Control

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Marketing Finance/
Operations
Accounting

Flight Ground Facility

Catering
Operations Support Maintenance

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 Product & service design.
 Quality management.
 Process design.
 Capacity & location of facilities.
 Layout of facilities.
 Human resources & Job design.
 Supply-chain management.
 Inventory management.
 Scheduling.
 Maintenance.

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 Knowledge of production and service
processes.

 Knowledge of basic OM principles.

 Analytical Tools:
◦ Forecasting
◦ Decision-Making
◦ Linear Programming
◦ Break-even analysis
◦ Inventory control
◦ Waiting lines (queueing)

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 Prior to 1700’s - Most products custom-made on a
small scale with local distribution.
 Local craftsmen.
 Products were handmade and unique.

 Industrial Revolution
 Mechanized production and distribution.
 Allowed mass production and wider distribution.
 Fostered division of labor.

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 Key developments:
 Steam engine (1769).
 Interchangeable parts (1798).
 Machine tools (1798).

 Results:
 Production increased.
 Prices decreased.
 Workers replaced by machines.
 Need to manage complex production systems.

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 Study production systems scientifically to
improve them (beginning in 1880’s).
 There are ‘scientific laws’ for production
systems that can be used to improve (optimize)
production.
 Work smarter, not harder.

 Management is responsible for productivity.

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 Operations Management.

 Industrial Engineering.

 Social and psychological factors.

 Operations Research/Management Science

(Mathematical modeling).
 Logistics.

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 Born 1765; died 1825.

 Invented cotton ‘gin’.

 Received government contract

to make 10,000 muskets (1798).

 Showed machine tools could

make standardized parts.

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 Information technology: (computers, bar codes,
EDI, internet, wireless, etc.)
 Just-In-Time systems.
 Quality emphasis.
 Service economy.
 Globalization.
 Environmental concerns.
 Security.

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80%
U.S. Employment, % Share

Services

40%

Industry

Farming
0
1850 1900 1950 2000

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Sector % of Jobs
Professional Services 24
Retail & Wholesale 21
Utilities & transportation 7
Other Services (finance, real estate, hospitality, etc.) 21
Agriculture 2
Manufacturing, construction and mining 25

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 Used to measure of process improvement.
 Amount of output relative to input.
Units produced
Productivity =
Inputs used

 Productivity increases improve standard of living.

 From 1889 to 1973, U.S. productivity increased at a 2.5%
annual rate.

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 Amount of output (????) per input (????).
 Output:
◦ Number of meals served?
◦ Number of tables served?
◦ Number of satisfied customers?
 Input:
◦ Lbs. of food?
◦ Number of employees?
◦ Number of tables?

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 Units produced
Productivity =
Inputs used
 Output is easy to measure with one product.
 Input may have many components.
 Parts and subassemblies.
 Labor.
 Equipment.
 Knowledge.
 etc.
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 Output
Productivity = Labor + material + energy +
capital + miscellaneous

 Use a common measure to combine different

inputs - usually $.

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 Quality of output should be considered.
◦ If you produce more, but of lower quality, does
productivity rise?

 External elements may change

productivity.
◦ Wireless communication may raise productivity.

 Precise units of measure may be lacking.

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 Units produced
Productivity =
Inputs used

 What is output?
 How is it measured?

 What is input?
 How is it measured?

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 A builder of new homes?

 An automobile mechanic?

 A hospital?

 A fire department?

 A restaurant?

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