chapter 1_reading assignments and exercises (1)

8/12/2019 Chapter 1_Reading Assignments and Exercises (1)

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Chapter 1---Introduction to Operations Management

After completing this chapter, you should be able to:

1. Define the term operations management.2. Identify the three major functional areas of organizations and describe how they interrelate.

3. Identify similarities and differences between production and service operations.4. Describe the operations function and the nature of the operations manager's job.5. Summarize the two major aspects of process management.

6. Explain the key aspects of operations management decision making.7. Briefly describe the historical evolution of operations management.8. Characterize current trends in business that impact operations management.

Highlights of the chapter include the following:

1. Operations as one of the three main functional concerns of most organizations.

2. The role and job of the operations manager as a planner and decision-maker.

3. Different ways of classifying (and understanding) production systems.

4. System design versus system operation.

5. Major characteristics of production systems.

6. Contemporary issues in operations management.

7. Operations as essentially managerial (planning, staffing, etc.)

8. The historical evolution of production/operations management.

9. Manufacturing operations versus service operations.

Read Chapter 1 and review Chapter 1 Power Points

The Challenges of Managing Services

1. In comparison to manufacturing industry, services have:

a. Less structured jobs.

b. Higher customer contact.

c. Lower worker skills.

d. Low skill entry-level positions.

e. Higher employee turnover.

f. Higher input variability.

2. Because of the factors listed in the answer to question 1, in service industry it is more difficult tocontrol costs and quality resulting in lower productivity. In addition the risk of customerdissatisfaction is greater and employee motivation is lower.

Why Manufacturing Matters


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1. Since the U.S. economy is becoming more service based, the percentage of employment inmanufacturing is declining while the percentage of employment in service industry is increasing.

An agile manufacturer is able to switch quickly and economically from one product to anotherwith very little disruption.

2. Yes, the business leaders and the government officials should be concerned about declining

percentage of manufacturing jobs because of a variety of reasons including the following:a. Manufacturing provides 70% of the U.S. exports.

b. The average compensation for a worker from manufacturing industry is 20% greater than theaverage of all workers in the U.S.

c. Compared to service industry employees, the manufacturing employees are more likely tohave a better benefits package.

d. Productivity growth in manufacturing is much higher than productivity growth in the U.S.economys overall productivity growth.

e. Even though manufacturing employment accounts for a smaller portion of the employmentfor U.S. than the service industry, the manufacturing accounts for more than 50% of the

Research and Development in the United States.

After reviewing the Chapter you should be able to define thefollowing terms:

Glossary

agility The ability of an organization to respond quickly to demands or opportunities.

craft production System in which highly skilled workers use simple, flexible tools to producesmall quantities of customized goods.

division of labor The breaking up of a production process into small tasks, so that each workerperforms a small portion of the overall job.

e-business Use of the Internet to transact business.

e-commerce Consumer-to-business transactions.

ethical framework A sequence of steps intended to guide thinking and subsequent decision oraction.

ethics A standard of behavior that guides how one should act in various situations.

goods Physical items produced by business organizations.

interchangeableparts

Parts of a product made to such precision that they do not have to be customfitted.

lead time The time between ordering a good or service and receiving it.

lean system System that uses minimal amounts of resources to produce a high volume ofhigh-quality goods with some variety.


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mass production System in which low-skilled workers use specialized machinery to produce highvolumes of standardized goods.

model An abstraction of reality; a simplified representation of something.

operationsmanagement

The management of systems or processes that create goods and/ or provideservices.

outsourcing Buying goods or services instead of producing or providing them in-house.

Pareto phenomenon A few factors account for a high percentage of the occurrence of someevent(s).

process One or more actions that transform inputs into outputs.

services Activities that provide some combination of time, location, form, andpsychological value.

six sigma A process for reducing costs, improving quality, and increasing customersatisfaction.

supply chain A sequence of activities and organizations involved in producing and delivering

a good or service.

sustainability Using resources in ways that do not harm ecological systems that supporthuman existence.

system A set of interrelated parts that must work together.

technology The application of scientific discoveries to the development and improvementof goods and services.

value-added The difference between the cost of inputs and the value or price of outputs.

TEST YOUR UNDERSTANDING OF CHAPTER BYANSWERING FOLLOWING QUESTIONS

1. Operations management is

2. What are the three basic functions in business organizations?

1)

2)

3)

3. A supply chain consists of


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4. What is meant by the term value-added?

5. The operations function oversees a transformation or conversion process. Explain briefly.

6. Explain the term goods-service continuum.

7. List some ways that manufacturing and systems and service systems differ.

1)

2)

3)

4)

5)

6)

8. List some similarities of manufacturing and systems and service systems.

1)

2)

3)


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4)

5)

6)

9. What is a process?

10. Give an example of each process category:

Upper management

Operational

Supporting

11. List the basic sources of variation

1)

2)

3)

4)

12. Why is it important to manage variations?

13. Operations management professional make a decisions that affect the entire organization.

Briefly explain each of these categories:

What

When

Where

How

Who

14. What are models, and what are some of the ways they are useful?


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15. Why are performance metrics necessary?

16. What are trade-off decisions?

17. What is a systems approach, and why is a systems approach useful?

18. Why is degree of customization a factor in operations management?

19. Why is there a need for the various functional areas of an organization to collaborate?


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Operations is that part of a business organization that is responsible for producinggoods and/or services. Goods Phys ica l i tems produced by bus iness

organizations. are physical items that include raw materials, parts, subassemblies

such as motherboards that go into computers, and final products such as cell phones

and automobiles. Services Act i v it i es tha t p rov ide some comb ina tion o f t ime ,

location, form, and psy cholo gical value. are activities that provide some combination

of time, location, form, or psychological value. Examples of goods and services arefound all around you. Every book you read, every video you watch, every e-mail yousend, every telephone conversation you have, and every medical treatment you

receive involves the operations function of one or more organizations. So doeseverything you wear, eat, travel in, sit on, and access the Internet with. The operationsfunction in business can also be viewed from a more far-reaching perspective: Thecollective success or failure of companies' operations functions has an impact on theability of a nation to compete with other nations, and on the nation's economy.

The ideal situation for a business organization is to achieve a match of supply and demand.Having excess supply or excess capacity is wasteful and costly; having too little means lostopportunity and possible customer dissatisfaction. The key functions on the supply side areoperations and supply chains, and sales and marketing on the demand side.

While the operations function is responsible for producing products and/or delivering services, itneeds the support and input from other areas of the organization. Business organizations have threebasic functional areas, as depicted inFigure 1.1:finance, marketing, and operations. It doesn't

matter whether the business is a retail store, a hospital, a manufacturing firm, a car wash, or someother type of business; all business organizations have these three basic functions.

Finance is responsible for securing financial resources at favorable prices and allocating thoseresources throughout the organization, as well as budgeting, analyzing investment proposals, andproviding funds for operations. Marketing and operations are the primary, or line, functions.Marketing is responsible for assessing consumer wants and needs, and selling and promoting theorganization's goods or services. Operations is responsible for producing the goods or providing theservices offered by the organization. To put this into perspective, if a business organization were acar, operations would be its engine. And just as the engine is the core of what a car does, in abusiness organization, operations is the core of what the organization does. Operations

management is responsible for managing that core. Hence, operations management The

management of systems o r processes that create goods and/or provide serv ices. is themanagement of systems or processes that create goods and/or provide services.

Operations and supply chains are intrinsically linked and no business

organization could exist without both. A supply chain A sequence o f ac t i v it i es

and organizat ions invo lved in produc ing and d el iver ing a good or serv ice. is the

sequence of organizationstheir facilities, functions, and activitiesthat are
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involved in producing and delivering a product or service. The sequence beginswith basic suppliers of raw materials and extends all the way to the final customer,as seen inFigure 1.2.Facilities might include warehouses, factories, processingcenters, offices, distribution centers, and retail outlets. Functions and activitiesinclude forecasting, purchasing, inventory management, information management,quality assurance, scheduling, production, distribution, delivery, and customer

service.Figure 1.3provides another illustration of a supply chain: a chain thatbegins with wheat growing on a farm and ends with a customer buying a loaf ofbread in a supermarket. Notice that the value of the product increases as it movesthrough the supply chain.

FIGURE 1.1The three basic functions of business organizations

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FIGURE 1.2A simple product supply chain

Supply chains are both external and internal to the organization. The external parts of a supplychain provide raw materials, parts, equipment, supplies, and/or other inputs to the organization, andthey deliver outputs that are goods to the organizations customers. The internal parts of a supplychain are part of the operations function itself, supplying operations with parts and materials,performing work on products and/or services, and passing the work on to the next step in theprocess.

The creation of goods or services involves transforming or converting inputs into outputs. Variousinputs such as capital, labor, and information are used to create goods or services using one ormore transformation processes(e.g., storing, transporting, repairing). To ensure that the desiredoutputs are obtained, an organization takes measurements at various points in the transformationprocess (feedback) and then compares them with previously established standards to determinewhether corrective action is needed (control).Figure 1.4depicts the conversion system.

Table 1.1provides some examples of inputs, transformation processes, and outputs. Althoughgoods and services are listed separately inTable 1.1,it is important to note that goods and servicesoften occur jointly. For example, having the oil changed in your car is a service, but the oil that isdelivered is a good. Similarly, house painting is a service, but the paint is a good. The goodsservicecombination is a continuum. It can range from primarily goods, with little service, to primarily service,

with few goods.Figure 1.5illustrates this continuum. Because there are relatively few pure goods orpure services, companies usually sellproduct packages,which are a combination of goods andservices. There are elements of both goods production and service delivery in these productpackages. This makes managing operations more interesting, and also more challenging.

FIGURE 1.3A supply chain for bread
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FIGURE 1.4The operations function involves the conversion of inputs into outputs

Table 1.2provides some specific illustrations of the transformation process.The essence of the operations function is to add valueduring the transformation process:Value-

added The difference between the cost of inp uts and the value or price of outpu ts. is the term used

to describe the difference between the cost of inputs and the value or price of outputs. In nonprofitorganizations, the value of outputs (e.g., highway construction, police and fire protection) is theirvalue to society; the greater the value-added, the greater the effectiveness of these operations. In

for-profit organizations, the value of outputs is measured by the prices that customers are willing topay for those goods or services. Firms use the money generated by value-added for research anddevelopment, investment in new facilities and equipment, worker salaries, andprofits.Consequently,the greater the value-added, the greater the amount of funds available for these purposes. Valuecan also be psychological, as in branding.

TABLE 1.1Examples of inputs, transformation, and outputs
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elsewhere. For example, farming produces nonmanufacturedgoods. Delivery of service, on theother hand, generally implies an act.A physician's examination, TV and auto repair, lawn care, andthe projection of a film in a theater are examples of services. The majority of service jobs fall intothese categories:

TABLE 1.2Illustrations of the transformation process

p. 8Professional services (e.g., financial, health care, legal).

Mass services (e.g., utilities, Internet, communications).

Service shops (e.g., tailoring, appliance repair, car wash, auto repair/maintenance).

Personal care (e.g., beauty salon, spa, barbershop).

Government (e.g., Medicare, mail, social services, police, fire).

Education (e.g., schools, universities).

Food service (e.g., restaurants, fast foods, catering, bakeries).

Services within organizations (e.g., payroll, accounting, maintenance, IT, HR, janitorial).

Retailing and wholesaling.

Shipping and delivery (e.g., truck, railroad, boat, air).

Residential services (e.g., lawn care, painting, general repair, remodeling, interior design).

Transportation (e.g., mass transit, taxi, airlines, ambulance).

Travel and hospitality (e.g., travel bureaus, hotels, resorts).

Miscellaneous services (e.g., copy service, temporary help).

Manufacturing and service are often different in terms of whatis done but quite similar in termsof howit is done.

Consider these points of comparison:


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Degree of customer contact.Many services involve a high degree of customer contact, althoughservices such as Internet providers, utilities, and mail service do not. When there is a high degreeof contact, the interaction between server and customer becomes a moment of truth that will beudged by the customer every time the service occurs.

Labor content of jobs.Services often have a higher degree of labor content than manufacturingobs do, although automated services are an exception.

Uniformity of inputs.Service operations are often subject to a higher degree of variability ofinputs. Each client, patient, customer, repair job, and so on presents a somewhat unique situationthat requires assessment and flexibility. Conversely, manufacturing operations often have a greaterability to control the variability of inputs, which leads to more-uniform job requirements.

Measurement of productivity.Measurement of productivity can be more difficult for service jobsdue largely to the high variations of inputs. Thus, one doctor might have a higher level of routinecases to deal with, while another might have more-difficult cases. Unless a careful analysis isconducted, it may appear that the doctor with the difficult cases has a much lower productivity thanthe one with the routine cases.

Quality assurance.Quality assurance is usually more challenging for services due to the highervariation in input, and because delivery and consumption occur at the same time. Unlikemanufacturing, which typically occurs away from the customer and allows mistakes that areidentified to be corrected, services have less opportunity to avoid exposing the customer tomistakes.

p. 9Inventory.Many services tend to involve less use of inventory than manufacturing operations, sothe costs of having inventory on hand are lower than they are for manufacturing. However, unlikemanufactured goods, services cannot be stored. Instead, they must be provided on demand.

Wages.Manufacturing jobs are often well paid, and have less wage variation than service jobs,which can range from highly paid professional services to minimum-wage workers.

Ability to patent.Product designs are often easier to patent than service designs, and someservices cannot be patented, making them easier for competitors to copy.

There are also many similarities between managing the production of products and managingservices. In fact, most of the topics in this book pertain to both. When there are important serviceconsiderations, these are highlighted in separate sections. Here are some of the primary factors forboth:

a. Forecasting and capacity planning to match supply and demand.

b. Process management.

c. Managing variations.


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d. Monitoring and controlling costs and productivity.

e. Supply chain management.

f. Location planning, inventory management, quality control, and scheduling.

Note that many service activities are essential in goods-producing companies. These includetraining, human resource management, customer service, equipment repair, procurement, andadministrative services.

Table 1.3provides an overview of the differences between production of goods and serviceoperations. Remember, though, that most systems involve a blend of goods and services.
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