CHAPTER 1: Introduction to Operations Management resources and achieves a desired result (Core, Managerial,

Support)
Operations Management- the management of processes that
create goods and/or provide services Example- Airline (Service)
Process- a sequence of activities, usually performed by
more than one person, which uses  Core Processes- include taking customer
resources and achieves a desired result (Core, Managerial, reservations, communication with customers
Support) check and boarding, inflight service, and baggage
Example- Airline (Service)
handling.
Core Processes- include taking customer reservations,
communication with customers  Support Processes- employee recruitment and
check and boarding, inflight service, and baggage handling training, buying and maintaining aircraft, buying
Operations Management- the management of processes fuel and spare parts.
that create goods and/or provide services  Managerial Processes- including forecasting
travel demand, capacity and flight planning,
Process- a sequence of activities, usually performed by location maintenance facilities etc.
more than one person, which uses

A Good- a tangible item Efficiency- operating at a minimum cost and time

Service- an act or work for someone (a customer or client) Effectiveness- achieving the intended goals

Why Study Operations Management?  May be for-profit or non-profit

 Their goals, design, management and
1. A large percentage of a company’s expenses occur in outputs(goods/services) may be similar or
the operations area (purchasing different
materials, paying workforce salaries), more efficient  A typical organization has 3 basic functions:
operations can result in large operations, finance and marketing

increases in profit. Operations

2. A number of management jobs are in operations  The operations function, representing

management- including jobs in manufacturing/service process, manages all the
activities directly related to producing goods or
purchasing, quality assurance, production planning and providing services.
control, scheduling, logistics,  The production of goods or services involved
transforming. converting inputs into finishes
inventory management and many more.
goods or services.
3. Activities in all the other areas of organizations, such as  The production process must be an adaptive
finance, accounting, HR, system- to ensure that the desired outputs are
obtained, measurements should be taken at a
management information systems, and marketing- are all various point (feedback_ and then compared
interrelated with OM with previous establishes standards to
determine whether corrective action is needed
4. Operations innovations lead to marketplace and
(control).
strategic benefits.
 The essence of the operations function is too
Functions Within Organizations adding value during the transformation process.

 Organizations are formed to pursue goals that Value added- is the term used to describe the difference
are achieved more efficiently and between the cost of inputs and the value or price of
outputs
effectively by the concerted efforts of a group of people
rather than by individuals Nonprofits- the value of outputs is their value to society;
the greater the value added, the greater the efficiency of
working alone. these operations

 Structures into departments or functions For- profit- the value of outputs is measure by the prices
 Orgs are devoted to producing goods and/or that customers are willing to pay for those goods or
providing services services.
  Companies use the money generated by value Lead time- the time between placement of an order
added for R+D, investment in new facilities and and the shipment of the completed order to the
equipment, workers’ salaries, and owners’ customer.
profits.
 One way that orgs attempt to become more Other Functions
productive is to critically examine whether any  Management Accounting- supplies management
of their activities adds value- those that do not with information on costs of labor,
add value are wasteful.
o Eliminating or improving such wastes materials and overhead, and provides reports on
decreases the costs of inputs or items such as scrap, downtime and
transformation, thereby increasing the inventories.
value added.
o Ex. Producing an item earlier than o Financial accounting deals with accounts
delivery date, need to pay for storage. payable and receivable and gathers the
Reducing storage time would reduce
transformation cost. This concept is information needed for financial
called just in time. statements.

Finance  Management information systems- concerned

with providing management with the
 Function secures funds at favorable terms and information it needs to manage effectively. This
allocates those funds throughout the occurs through computer and communication
organization. systems that capture relevant info and prepare
 Finance and OM personnel cooperate by results.
exchanging information and expertise in actives  Purchasing- has responsibility for procurement
such as: of materials, supplies, equipment and services.
o Provision of funds- the necessary  Personnel/HR- department is concerned with
funding of operations and the amount recruitment and training of personnel, labor
and timing of funding can be important relations, contract negotiations, wage and salary
and even critical when funds are tight- administration and ensuring H+S of employees.
careful planning can help avoid cash  Manufacturing Engineering- responsible for the
flow problems. machines and equipment needed in the
o Economic analysis of capital producing process.
investment proposals- evaluation of  Maintenance- responsible for the upkeep and
alternative investments in plant and repair of equipment, buildings and groups.
equipment requires inputs from both  Product Design- manufacturing companies are
operations and finance people. done by design engineers but in other
companies it could be done by people such as
Marketing architects.
 Includes sales, is responsible for receiving  Logistics- involves the transportation of raw
customer wants/needs and feedback, and for material to the plant.
communication them to operations and to The Scope of Operations Management
produce design (usually engineers).
 Operations uses forecast demand/sales to  A primary function of operations management is
purchase material and schedule production, decision making
while product design people use the information o Certain decision affects the design of the
to improve the quality of current goods and systems, and others are
services, and to design new ones. planning/control.
 Marketing/sales, product design. And operations  Design decisions are usually strategic and long-
must work closely together to successfully term, whereas planning decisions are tactical
implement produce design changes and to and medium-term and control decisions are
design changes and to develop and produce new short term.
products.
  Design involves produce, productions process, Quantitative Techniques- are methods that focus an
capacity, facility location, layout, buying objective measurements and analysis of numbers in order
equipment, and work/job. to draw conclusions- they include deterministic and
 OM is more involved in day-to-day operation statistical. Examples:
decisions and planning than design.
o Optimization- a popular technique is
Differentiation Production of Goods and Services linear programming, which is widely
used for optimal allocation of scarce
 Production of goods results in a tangible output, resources.
such as automobile- anything that we can see or o Queuing techniques- for analyzing
touch. situation in which waiting lines form
 Production industries include manufacturing, o Inventory techniques- to control
construction, agriculture, forestry, fisheries, inventories.
mining, and oil and gas. o Project scheduling technique- for
 Services, imply acts- majority fall into these planning, coordinating and controlling
categories: government services, large scale projects.
wholesale/retail, finance and insurance, real o Forecasting techniques- to forecast
estate rental and leasing, healthcare,
demand.
professional services, personal services etc.
o Statistical Techniques- for quality
 Production of goods and performance services
control Heuristic- a quick way to find
are often similar in many design and
a good solution.
planning/control decisions. They differ in:
o Customer contact, use of inventories, Heuristic- a quick way to find a good solution
and demand variability.
o Uniformity of inputs. Trade Off- is a balance achieved between two
o Labor content of jobs. incompatible features- a compromise.
o Uniformity of outputs. o Ex. Deciding on the amount of
o Measurement of productivity. inventory to stock, the manager may
o Quality assurance consider the tradeoff between the
increased level of customer services
The Operations Managers Job
that the additional inventory would
 OM manger has the ultimate responsibility for yield and the increases cost of holding
the creation of goods and performance of that inventory in storage System- is a
services. set of interrelated parts that must
 OM oversee vary tremendously from work together Pareto Phenomenon- a
organization to organization, largely because of few factors account for a high
the different goods or services produced. percentage of results achieved Ethics-
are moral principles that govern a
Operations Managers and Decision Making person’s behavior.
 Work safety, Product safety, The environment,
 The OM exerts considerable influence over the
Closing facilities.
degree to which the goals and objective.
the organization are realized The Historical Evolutions of Operation Management

Model- an abstraction of reality, a simplified Craft Production- highly skilled workers using simple,
representation of something flexible tools to produce small quantities of customized
goods.
o Physical (ionic), mathematics
(symbolic), statistical.  Major shortcomings- production was slow and
o Models ignore the unimportant costly, when parts failed, the replacements also
details so that attention can be had to be custom made, which was also slow
concentrated on the most important and costly- production costs did not decrease as
aspects of a problem, this increasing volume increased.
the opportunity to understand
problem and find its solution.
Economies of scale- the economic conditions that favor Business Analytics- software used to build analysis
larger plants and machines/equipment by causing models and simulations to create scenarios, understand
minimum average unit cost to decease as size increases. realities and predict future states.

Scientific Management- applying science to observe, Major Trends

measure, analyze, and improve work methods including
1. The internet and Ecommerce
the use of economic incentives.
2. Technology
Moving assembly line- a type of assembly line in which
the product is pulled alone the line at a fixed speed while 3. Globalization-worldwide movement toward economic,
the workers assemble its parts. financial, trade and operations integration

Mass Production- system in which lower- skilled workers 4. Supply chains

use specialized machinery to produce high volumes of
standardized goods. 5. Sustainability

Companies! must! be!

competitive! to! sell! their!
goods! and! services! in!
the!
marketplace.!
Competitiveness!is!an!
important!factor!in!
determining!whether!
a!company!prospers,!
barely!gets!by,!or!fails.!
Business!organizations!
compete!
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combination! of! price,!
delivery! time,! and!
product! or! service!
differentiatio
Chapter 01 Introduction to Operations
4. Operations, marketing, and finance function
Management independently of each other in most
organizations.
1. As a service business, the operations management FALSE
activities of an airline companyanalysis 5. The operations function exists only in firms that are
have nothing in common with the operations management goods-oriented.
activities within a bicycle FALSE
manufacturing company.
FALSE 6. Operations management pertains almost exclusively to
2. Operations managers are responsible for managing the management of manufacturing
activities and resources that produce operations.
goods and/or provide services. FALSE
TRUE 7. Value-added refers to the cost of the inputs required to
3. Effectiveness refers to achieving intended goals whereas produce goods and services.
efficiency refers to minimizing FALSE
cost and time. 8. As long as a product is ready in advance of when
TRUE customers demand it, the timing of when
a product is manufactured does not influence the value- 9. Storing an item earlier than the scheduled delivery date
added. is an example of a value adding
FALSE
9. Storing an item earlier than the scheduled delivery date activity.
is an example of a value adding
activity. FALSE
FALSE
10. Management information systems (MIS) are concerned
1. As a service business, the operations management
with providing management with
activities of an airline company analysis
the information it needs to effectively manage.
have nothing in common with the operations management
activities within a bicycle TRUE
manufacturing company. 11. Operations management involves both system design
and planning/control decisions.
FALSE
TRUE
2. Operations managers are responsible for managing
activities and resources that produce 12. System design decisions have very little impact on
planning/control decisions.
goods and/or provide services.
FALSE
TRUE
13. An example of an operations control decision is the
3. Effectiveness refers to achieving intended goals
choice of location.
whereas efficiency refers to minimizing
FALSE
cost and time.

TRUE
14. Scheduling jobs is a system design decision and not a
planning decision.
4. Operations, marketing, and finance function
FALSE
independently of each other in most
15. Design decisions are usually strategic and long term,
organizations.
while planning decisions are tactical
FALSE
and medium term.
5. The operations function exists only in firms that are
TRUE
goods-oriented.
16. Managing inventory levels is considered a
FALSE
planning/control operations decision area.

TRUE
6. Operations management pertains almost exclusively to
17. A basic difference between manufacturing and service
the management of manufacturing
organizations is that services are
operations.
action-oriented and manufacturing is goods-oriented.
FALSE
TRUE
7. Value-added refers to the cost of the inputs required to
18. Service involves a much higher degree of customer
produce goods and services.
contact than the production of goods.
FALSE
TRUE
8. As long as a product is ready in advance of when
19. Service often requires a higher labor content, whereas
customers demand it, the timing of when
the production of goods is more
a product is manufactured does not influence the value-
capital intensive.
added.
TRUE
FALSE
20. Measurement of productivity in service is more FALSE
straightforward than in goods production
30. Prior to the Industrial Revolution, goods were
due to the high degree of uniformity of inputs. produced primarily by craftsmen or their

FALSE apprentices using custom made parts.

21. Models are simplified representations of something TRUE

and thus ignore important aspects of a
31. Frederick Taylor spearheaded the scientific
situation. management movement in America.

FALSE TRUE

22. Quantitative techniques are often quick and practical 32. The Human Relations Movement, which emphasized
techniques for many decisions. the importance of the human

FALSE element in job design, was replaced by the more technical

aspects of Scientific Management.
23. A systems approach emphasizes interrelationships
among subsystems, but its main theme FALSE

is that the whole is greater than the sum of its individual 33. The moving assembly line introduced by Henry Ford is
parts. an example of the development of

TRUE mass production based on large volumes of standardized

goods produced using low or semi-
24. Queuing techniques are useful for analyzing situations
in which waiting lines form. skilled workers and highly specialized equipment.

TRUE TRUE

34. The impact of globalization for manufacturing

companies has seen reduced reliance on
25. It is essential to use the systems approach when
something is being designed, redesigned, long international supply chains because of the increasing
cost to ship components and
implemented, improved, or otherwise changed.
finished goods to foreign markets.
TRUE
FALSE
26. A systems approach is to concentrate on efficiency
within a subsystem and thereby 35. The transformation process and feedback is useful in
the control of manufacturing
achieve overall efficiency.
operations but does not apply to service operations.
FALSE
FALSE
27. Many operations management decisions can be
described as trade-offs. 36. One responsibility of marketing is to identify customer
wants and needs and
TRUE
communication them to operations.
28. The Pareto phenomenon is one of the most important
and pervasive concepts that can be TRUE

applied at all levels of management.

TRUE 37. One important piece of information sales needs from

operations is the manufacturing lead

time in order to give customers realistic estimates of how

29. Operations managers, who usually use quantitative long it will take to fill their orders.
approaches, have no responsibility to
TRUE
make ethical decisions.
 38. Quality assurance is less challenging in services, as C. scheduling.
services primarily produce
D. motivating employees and training.
intangibles.
E. preparing financial statements.
FALSE
47. All of the following are reasons for studying
operations management EXCEPT:

39. The operations manager has the ultimate responsibility A. A large percentage of a company's expenses occur in
for the creation of goods or the operations management activities

performance of services. that are at the core of all business organizations.

TRUE B. Activities in all of the other areas of business

organizations, such as accounting and
40. Business analytics uses software to build models which
in turn support decision making. marketing are interrelated with operations management
activities.
TRUE
C. Many management jobs are in operations management-
41. North American management practices have had a related areas, such as production
significant impact on Japanese
planning, inventory management, and more.
manufacturers.
D. The study of operations management applies to
FALSE manufacturing, however, it is of little use

in service organizations.
42. Lean production systems operate with lower amounts E. Operations innovations lead to marketplace and
of inventory, so emphasis is placed strategic benefits.
on anticipating when problems might occur before they
arise.
48. The three primary functions that exist in most business
TRUE organizations are:
43. Major trends that affect operations are only A. manufacturing, production, and operations.
considered once strategies and tactics
B. operations, marketing, and finance.
are in place.
C. operations, accounting, and marketing.
FALSE
D. operations, production, and finance.
44. Concerns about global warming and pollution have
caused governments to impose stricter E. operations, sales and accounting

environmental regulations on businesses. 49. The three major functions of business organizations:

TRUE A. perform different but related activities.

45. The difference between goods and services is that B. are related indirectly only.
goods are mostly intangible and
C. must work together, but not very closely.
services are mostly tangible.
D. function independently of each other.
FALSE
E. perform similar and related activities.
Multiple Choice Questions

46 . Operations management encompasses all of the

following EXCEPT: 50. Which of the following is not a type of service
operations?
A. buying materials.
A. Retail trade
B. capacity planning.
B. Transportation and warehousing
C. Fabrication of metals C. the difference between cost of inputs and the value or
price of outputs.
D. Banking
D. the extra profit obtained from increased productivity.
E. Hotels and restaurants
E. the ratio of outputs compared to inputs.

54. Economic analysis of investment proposals, and

51. Measurements taken at various points in the provision of funds are activities
transformation process for control purposes
associated with the:
are called:
A. operation function.
A. plans.
B. marketing function.
B. directions.
C. purchasing function.
C. controls.
D. finance function.
D. feedback.
E. industrial engineering function.
E. proposals.

52. Measuring process outputs at various points in order

to compare outputs to previously 55. The marketing function's main concern is with:

established standards to determine if corrective action is A. producing goods or providing services.

needed is called:
B. assessing customer wants and needs.
A. planning and directing.
C. procuring materials, supplies, and equipment.
B. directing and conversion.
D. performing economic analysis of investment proposals.
C. feedback and control.
E. securing monetary resources.
D. controlling and leading.
56. Planning decisions are usually __________ and
E. leading and transformation. __________ term.

A. strategic; long

53. Value-added refers to: B. tactical; medium

A. the cost of inputs. C. forecasting; short

B. the price of outputs. D. strategic; short

E. tactical; long