CHAPTER

Introduction to
Operations Management 1

Reid & Sanders, Operations Management

© Wiley 2002
 Learning Objectives

• Define operations management (OM)

• Explain the role of OM in business
• Describe the differences between service &
manufacturing operations
• Describe the type of decisions made in OM
• Identify major historical developments &
current trends in OM
• Describe the information flows between
operations & other business functions
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 OM Defined

Operations management:
The business function responsible for
planning, coordinating, and controlling
the resources needed to produce a
company’s products and services

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Simplified Organizational Chart

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 Information Flows

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 Information Flows
To & From Operations

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The Role of OM in the Business

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 Value Added Defined

Value Added by Process

Transformation
Inputs in $$ Outputs in $$$
Process

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 Service - Manufacturing

Services: Manufacturing:
• Intangible product • Tangible product
• No inventories • Can be inventoried
• High customer • Low customer
contact contact
• Short response time • Capital intensive
• Labor intensive • Long response time

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Service-Manufacturing Continuum

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 OM Decisions

• Strategic decisions:
– Decisions that set the direction for the
entire company.
– Broad in scope & long-term in nature
• Tactical decisions:
– Short-term & specific in nature
– Bound by the strategic decisions

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 Example

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 Major Historical Developments
Industrial Revolution Late 1700s
Scientific Management Early 1900s
Human Relations Movement 1930s to 1960s
Management Science Mid-1900s
Computer Age 1970s
Just-In-Time Systems 1980s
Total Quality Management (TQM) 1980s
Reengineering 1980s
Flexibility 1990s
Time-based Competition 1990s
Supply Chain Management 1990s
Global Competition 1990s
Environmental Issues 1990s
Electronic Commerce Late 1990s – Early 21st Century
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 Industrial Revolution
Late 1700s

• Replaced traditional craft methods

• Substituted machine power for labor
• Major contributions:
– James Watt (1764): steam engine
– Adam Smith (1776): division of labor
– Eli Whitney (1790): interchangeable parts

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 Scientific Management
Early 1900s

• Separated ‘planning’ from ‘doing’

• Management’s job was to discover
worker’s physical limits through
measurement, analysis & observation
• Major contributors:
– Fredrick Taylor: stopwatch time studies
– Henry Ford: moving assembly line

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 Human Relations Movement
1930s to 1960s

• Recognition that factors other than

money contribute to worker productivity
• Major contributions:
– Understanding of the Hawthorn effect:
Study of Western Electric plant in Hawthorn, Illinois intended
to study impact of environmental factors (light & heat) on
productivity, but found workers responded to management’s
attention regardless of environmental changes
– Job enlargement
– Job enrichment
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 Management Science
Mid-1900s

• Developed new quantitative techniques

for common OM problems:
– Major contributions include: inventory
modeling, linear programming, project
management, forecasting, statistical
sampling, & quality control techniques
– Played a large role in supporting American
military operations during World War II

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 Computer Age
1970s

• Provided the tool necessary to support the

widespread use of Management Science’s
quantitative techniques – the ability to
process huge amounts of data quickly &
relatively cheaply
• Major contributions include the development
of Material Requirements Planning (MRP)
systems for production control

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 Developments: 1980s
Japanese Influence

• Just-In-Time (JIT):
– Techniques designed to achieve high-volume
production using coordinated material flows,
continuous improvement, & elimination of waste
• Total Quality Management (TQM):
– Techniques designed to achieve high levels of
product quality through shared responsibility & by
eliminating the root causes of product defects
• Business Process Reengineering:
– ‘Clean sheet’ redesign of work processes to
increase efficiency, improve quality & reduce costs
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 Developments: 1990s

• Flexibility:
– Offer a greater variety of product choices on a
mass scale (mass customization)
• Time-based competition:
– Developing new product designs & delivering
customer orders more quickly than competitors
• Supply Chain Management
– Cooperating with suppliers & customers to reduce
overall costs of the supply chain & increase
responsiveness to customers

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 Developments: 1990s

• Global competition:
– International trade agreements open new markets for
expansion & lower barriers to the entry of foreign
competitors (e.g.: NAFTA & GATT)
– Creates the need for decision-making tools for facility
location, compliance with with local regulations,
tailoring product offerings to local tastes, managing
distribution networks, …
• Environmental issues:
– Pressure from consumers & regulators to reduce, reuse
& recycle solid wastes & discharges to air & water
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 Electronic Commerce

• Internet & related technologies enable new

methods of business transactions:
– E-tailing creates a new outlet for retail goods &
services with global access and 24-7 availability
– Internet provides a cheap network for coordinating
supply chain management information
• Developing influence of broadband & wireless

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 The End

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