Whats is operation management..?

2 CH APTER 1INTRODUCTION TO OPERATIONS MANAGEMENT M any ofyou reading this book may think that you dontknow what operations management (OM) is or that itis not something you are interested in.However,afterreading this chapter you will realize that you already knowquite a bit about operations management.You may evenbe working in an operations management capacity andhave used certain operations management techniques.Youwill also realize that operations management is probablythe most critical business function today.Ifyou want to beon the frontier ofbusiness competition,you want to be inoperations management.Today companies are competing in a very different environment than they were onlya few years ago.To survive they must focus on quality,time-based competition,efciency,international perspectives,and customer relationships.Global competition,e-business,the Internet,and advances in technology require exibility and responsiveness.This new focus has placed operations management in the limelight ofbusiness,becauseit is the function through which companies can achieve this type ofcompetitiveness.Consider some oftodays most successful companies,such as Wal-Mart,SouthwestAirlines,General Electric,Starbucks,Toyota,FedEx,and Procter & Gamble.These com-panies have achieved world-class status in large part due to a strong focus on operationsmanagement.In this book you will learn specic tools and techniques ofoperationsmanagement that have

helped these,and other companies,achieve their success.The purpose ofthis book is to help prepare you to be successful in this newbusiness environment.Operations management will give you an understanding of how to help your organization gain a competitive advantage in the marketplace.Regardless ofwhether your area ofexpertise is marketing,nance,MIS,or opera tions,the techniques and concepts in this book will help you in your businesscareer.The material in this book will teach you how your company can offer prod-ucts and services cheaper,better,and faster.You will also learn that operationsmanagement concepts are far reaching,affecting every aspect ofthe organizationand even everyday life. Finance, Marketing Every business is managed through three major functions:nance,marketing,andoperations management.Figure 1-1 illustrates this by showing that the vice presidentsofeach ofthese functions reports directly to the president or CEO ofthe company.Other business functionssuch as accounting,purchasing,human resources,andengineeringsupport these three major functions.Finance is the function responsi-ble for managing cash ow,current assets,and capital investments.Marketing is re-sponsible for sales,generating customer demand,and understanding customer wantsand needs.Most ofus have some idea ofwhat nance and marketing are about,but what does operations management do? WHAT ISOPERATIONSMANAGEMENT?

WHAT IS OPERATIONS MANAGEMENT? 3 Operations management The business functionresponsible for planning,coordinating,and controllingthe resources needed toproduce a companys goodsand services. Role ofoperationsmanagement To transform organizationalinputs into outputs. Marketing V.P. of Marketing Finance V.P. of FinancePresident or CEO Operations V.P. of OperationsManages: people,equipment,technology,material s, andinformationTo produce: goodsand/orservicesManages: customerdemandsGenerates: sales forgoods andservicesManages: cash flow,current assetsand capitalinvestments FIGURE 1-1 Organizational chartshowing the three majorbusiness functions Operations management (OM) is the business function that plans,organizes,coordinates,and controls the resources needed to produce a companys goodsand services.Operations management is a management function.It involves managingpeople,equipment,technology,information,an d many other resources.Operations management is the

central core function ofevery company.This is true whether thecompany is large or small,provides a physical good or a service,is for prot ornot for prot.Every company has an operations management function.Actually,all the other organizational functions are there primarily to support the operationsfunction.Without operations,there would be no goods or services to sell.Considera retailer such as Gap that sells casual apparel.The marketing function providespromotions for the merchandise,and the nance function provides the neededcapital.It is the operations function,however,that plans and coordinates all theresources needed to design,produce,and deliver the merchandise to the various retaillocations.Without operations,there would be no goods or services to sell to customers.The role ofoperations management is to transform a companys inputs into thenished goods or services.Inputs include human resources (such as workers and man-agers),facilities and processes (such as buildings and equipment),as well as materials,technology,and information.Outputs are the goods and services a company produces.Figure 1-2 shows this transformationprocess. At a factory the transformation is the Inputs HumanResources Facilities& Processes Technologies Materials TheTransformationProcessOutputs Goods ServicesPerformance InformationCustomer Feedback FIGURE 1-2

The transformation process

4 CH APTER 1INTRODUCTION TO OPERATIONS MANAGEMENT physical change ofraw materials into products,such as transforming leather andrubber into sneakers,denim into jeans,or plastic into toys.At an airline it is the ef-cient movement ofpassengers and their luggage from one location to another.At ahospital it is organizing resources such as doctors,medical procedures,and medica-tions to transform sick people into healthy ones.Operations management

is responsible for orchestrating all the resources neededto produce the nal product.This includes designing the product;decidingwhat resources are needed;arranging schedules,equipment,and facilities;managing inventory;controlling quality;designing the jobs to make the product;anddesigning work methods.Basically,operations management is responsible for allaspects ofthe process oftransforming inputs into outputs.Customer feedback andperformance information are used to continually adjust the inputs,the trans-formation process,and characteristics ofthe outputs.As shown in Figure 12,thistrans-formation process is dynamic in order to adapt to changes in the environment.Proper management ofthe operations function has led to success for many compa-nies.For example,in 1994 Dell Inc.was a second-tier computer maker that managedits operations similar to others in the industry.Then Dell implemented a new businessmodel that completely changed the role ofits operations function.Dell developed newand innovative ways ofmanaging the operations function that have become one ofto-days best practices.These changes enabled Dell to provide rapid product delivery of customized products to customers at a lower cost,and thus become an industry leader.Just as proper management ofoperations can lead to company success,improper management ofoperations can lead to failure.This is illustrated by Kozmo.com,a Web-basedhome delivery company founded in 1997.Kozmos mission was to deliver products tocustomerseverything from the latest video to ice creamin less than an hour.Kozmowas technology enabled and rapidly became a huge success.However,the initial successgave rise to overly fast expansion.The company found it difcult to manage the opera-tions

needed in order to deliver the promises made on its Web site.The consequenceswere too much inventory,poor deliveries,and losses in prots.The company rapidly triedto change its operations,but it was too late.It had to cease operations in April 2001.The Web-based age has created ahighly competitive world ofon-line shopping that poses specialchallenges for operations man-agement.The Web can be usedfor on-line purchasing ofevery-thing from CDs,books,and gro-ceries to prescription medicationsand automobiles.Whereas the In-ternet has given consumers exibility,it has also created one of the biggest challenges for companies:delivering exactly what the customer ordered atthe time promised.As we saw with the example ofKozmo.com,making promises on aWeb site is one thing;delivering on those promises is yet another.Ensuring that or-ders are delivered from mouse to houseis the job ofoperations and is much morecomplicated than it might seem.In the 1990s many dot-com companies discovered just how difcult this is.They were not able to generate a prot and went out ofbusi-ness.To ensure meeting promises companies must forecast what customers want andmaintain adequate inventories ofgoods,manage distribution centers and warehouses