Operations Management

Contemporary Concepts and Cases

Chapter One
The Operations Function

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Outline
Why Study Operations Management?
Definitions of Operations Management and
Supply Chains
Decisions at Pizza U.S.A.
Operations Decisions - A Framework
Cross-Functional Decision Making
Operations as a Process
Contemporary Operations Themes
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Why Study Operations Management?

Cross-functional nature of decisions
Operations is a major function in every
organization
Principles of process thinking can be applied
across the business
Operations Management is an interesting and
challenging field of study

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Definition of
Operations Management
The operations function of an
organization is responsible for producing
and delivering goods or services of value
to customers of the organization.
Operations managers make decisions to
manage the transformation process that
converts inputs into desired finished goods
or services.
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Key Points in OM Definition

Decisions:
The operations manager must decide:
Process, quality, capacity, inventory

Function:
Major functional areas in organizations:
Operations, marketing, finance

Process: planning and controlling the

transformation process and its interfaces
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Major Decisions at Pizza USA

A Framework for OM
Process
How to produce & deliver?

Quality
Criteria, measurement & process for achieving?

Capacity
Physical facilities & labor?

Inventory
What, when & how much?

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Definition of Supply Chain

Network of manufacturing and service
operations that supply one another
From raw materials through manufacturing to
the end consumer
Flows of materials, money, and information
Links operations across organizations
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Cross-Functional
Decision Making
Operations as the primary function.
Other primary functions:
Marketing
Finance

Supporting functions: all others

Major cross-functional decision making
relationships (See Table 1.2)

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Operations as a Process

Input

Transformation
(Conversion)
Process

Output

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Operations as a Process

Input

Transformation
Fabrication

Transformation
Assembly

Output

Fabrication: making the parts

Assembly: putting the parts together
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Operations as a Process
(Figure 1.1)
Energy
Materials
Labor
Capital

Transformation
(Conversion)
Process

Goods or
Services

Information
Feedback information for
control of process inputs
and process technology
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Relation of Operations to its

Environment
(Figure 1.2)
SOCIETY
Human
EngineeringMarketing
Resources

Suppliers

Operations transformation system

Accounting Finance

External
Environment

CUSTOMERS

MIS

COMPETITORS

GOVERNMENT
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Contemporary Operations Themes

Service and Manufacturing (differences and
implications)
Customer-Directed Operations
Lean Operations
Integration of Operations withOther Functions
Environmental Concerns and Sustainability
Supply Chain Management
Globalization of Operations

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Environmental Concerns
Volkswagen, Germanys biggest car maker, was
reported to be setting aside DM1 billion ($470m)
to pay for compliance with a European directive
that will come into force in 2007 forcing car
makers to pay for recycling their vehicles. New
cars will be required to be 85% recyclable.
The Economist, 15 February 2001
See: www.arn.nl/english to learn what the Netherlands has
done to implement this directive.
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Globalization: Who took my job?

Early 1990s
Small town near Charlotte, NC
Aluminum smelter closed after 50 years
Only significant industry in town
In many families, several generations had
worked there; now all out of work
Who caused plant to close?
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Mikls Nmeth

WHO!?
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 U.S. production of aluminum dropped

dramatically in the early 1990s because
Russia dumped aluminum on the world
market.
Why? The opening of the Hungarian border
on May 2, 1989 led to the fall of the Berlin
Wall in November 1989
which led to the breakup of the Soviet
Union in 1991
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 which caused Russia to downsize their

military
which gave Russia overcapacity in
aluminum production
which caused Russia to dump aluminum in
the world markets
which led to the closing of U.S. smelters
such as the one near Charlotte, NC.
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Mikls Nmeth
The Hungarian Prime
Minister who opened the
Hungarian border on May
2, 1989
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Moral of the Story

In an age of globalization, you never
know who will be the competition or
who is doing something that will
affect your job or your life.
The aluminum workers in North
Carolina had never heard of Mikls
Nmeth, but he ultimately cost them
their jobs.
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Summary
Why Study Operations Management?
Definition of Operations Management and
Supply Chains
Decisions at Pizza U.S.A.
Operations Decisions - A Framework
Cross-Functional Decision Making
Operations as a System
Contemporary Operations Themes
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End of Chapter One

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