CHAPTER 1 SUMMARY

1.1.
Goods 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 are activities that provide some combination of time, location, form, or psychological value.
Finance is responsible for securing financial resources at
favorable prices.

Marketing is responsible for assessing consumer wants and

needs, and selling and promoting the organization’s goods or
services.

Operations is responsible for producing the goods or

providing the services offered by the organization.

Operations management is the management of systems or processes that create goods and/or provide
services.

A supply chain is the sequence of organizations—their

facilities, functions, and activities—that are involved in
producing and delivering a product or service.
Therefore, operations and supply chains are
linked together.
Supply chains are both external and internal to the organization.
• external parts of a supply chain provide raw materials, parts, equipment, supplies, and/or other inputs
to the organization, and they deliver outputs that are goods to the organization’s customers.
• internal parts of a supply chain are part of the operations function itself, supplying operations with parts
and materials, performing work on products, and/or performing services.

Transformation processes is where various inputs are placed together to produce an output. Examples are
mixing, storing, transporting, and repairing.

Feedback is the process of ensuring that desired outputs are achieved in each transformation processes.

Control is the process of checking of output, if its achieved its established standard of the product.
Product packages are combination of goods and services.

Value-added is the term used to describe the difference between the cost of inputs and the value or price of
outputs.

Value-added for non-profit organization. The greater the value-added, the greater the effectiveness of the
operations.
Value-added for profit organizations. The greater the value- added, the greater the amount of funds available
for these purposes.

Value can be psychological, like branding.

1.2.
Characteristics of Production of Goods and Providing of Services

1.3.
Lead time is the time between ordering a good or service and receiving it. One of the important factors that
need to be work together by marketing and operations
Operations also communicates with:
a. Legal
b. Accounting
c. Management information systems - concerned with providing management with the information it needs
to effectively manage
d. Personnel or human resources
e. Public relations - responsible for building and maintaining a positive public image of the organization.

1.4.
Process consists of one or more actions that transform inputs into outputs
Three categories of business processes:
1. Upper-management processes. These govern the operation of the entire organization. Examples
include organizational governance and organizational strategy.
2. Operational processes. These are the core processes that make up the value stream. Examples
include purchasing, production and/or service, marketing, and sales.
3. Supporting processes. These support the core processes. Examples include accounting, human
resources, and IT (information technology).
Business process management (BPM) activities include process design, process execution, and process
monitoring.

Process variation refers to differences and fluctuations that occurs in the process or system over the time.
Four sources of variation:
1. The variety of goods or services being offered. Example of this scenario is restaurant.
2. Structural variation in demand. Caused by changes in trends or season which is predictable. Example
of this scenario is every back-to-school, Christmas season (where demands for Christmas tree is high).
3. Random variation. Caused by the natural calamity which is unpredictable. Example is earthquake,
typhoon, and more.
 4. Assignable variation. Caused by defective inputs, increase of workers, and more. Example of this is
hiring new employee which lower the outputs.

1.6.
Operations function are:
1. Forecasting
2. Capacity planning
3. Locating facilities
4. Facilities and layout
5. Scheduling
6. Managing inventories
7. Assuring quality
8. Motivating and training employees

System design involves decisions that relate to system capacity such as designing, establishing, or acquiring
necessary equipment that will be use in the operations. These are usually strategic decision.

System operation involves managing the system to run smoothly and efficiently. These are usually tactical
and operational decisions.

Other areas that is part of operation function.

1. Purchasing - responsible for the procurement of materials, supplies, and equipment.
2. Industrial engineering - often concerned with scheduling, performance standards, work methods,
quality control, and material handling.
3. Distribution- involves shipping goods to warehouses, retail, or to final customers.
4. Maintenance - responsible for maintaining of the equipment or the operation itself.

1.7.
Operations manager make informed decision that affect entire organization.
These are:
Ø What: (Thing) What resources will be needed, and in what amounts?
Ø When: (Time) When will each resource be needed? When should the work be scheduled? When
Ø should materials and other supplies be ordered? When is corrective action needed?
Ø Where: (Place that where will be conducting) Where will the work be done?
Ø How: (Procedural) How will the product or service be designed? How will the work be done (organi-
zation, methods, equipment)? How will resources be allocated?
Ø Who: (Personnel) Who will do the work?

Model is an abstraction of reality, a simplified representation of something.

Three kinds of model
1. Physical models look like their real-life counterparts. Visual correspondence of reality. Examples are
miniature of a something.
2. Schematic models are more abstract. Most of these are simple to construct and change. Use for
planning. Example are graphs, charts, or blueprints.
3. Mathematical models are the most abstract. They are easily to manipulate through input of numbers
or symbols. Use for analysis or predictions. Examples are numbers or formulas.

Models are beneficial because they:

1. Are generally easy to use and less expensive than dealing directly with the actual situation.
2. Require users to organize and sometimes quantify information and, in the process, often indicate areas
where additional information is needed.
3. Increase understanding of the problem.
4. Enable managers to analyze what-if questions.
5. Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem.
 6. Enable users to bring the power of mathematics to bear on a problem.

Quantitative approaches is used to solve managerial decisions with the help of mathematical formula.
Computers have impact on operations management because of managerial decisions.

Performance metrics are used to manage and control the operations. There are different kinds of metrics
used such as metrics fro profits, cost, quality, and more.

Trade-off analysis is a decision-making approach that involves evaluating the advantages and disadvantages
of different options. It requires weighing the benefits of one option against its costs or drawbacks.

Degree of customization is Process of providing products and services that is customized according to
customer’s want. These are home remodeling or plastic surgeries. Customized are usually time consuming,
required specialized skills, and lower volume of output.

System Perspective
System can be defined as a set of interrelated parts that must work together in order to run the business.

Establishing priorities
Pareto phenomenon is dealing with few issues or items that can have disproportionately impact the
organization itself. Also called 80/20 rule.

1.8.
Industrial Revolution
• During 18th century, the steam engine was made.
• Also, goods were produced using crafts production.
• Craft production is which highly skilled workers use simple, flexible tools to produce small quantities of
customized goods.
• Economies of scale is when a company grows and produces more, its costs per unit decrease. This
happens because fixed costs are spread over a larger output.
Ø Example: Imagine a bakery that produces 100 loaves of bread vs. 1000 loaves. The cost of
rent, equipment, and staff remains the same, but the bakery can spread these costs over
more loaves, reducing the cost per loaf.

Scientific Management
• The movement was led by Frederick Winslow Taylor, father of scientific management.
• He believed in “science of management”
• He emphasized in maximizing output.
Other notable pioneers:
• Frank Gilbreth was an industrial engineer. Father of Motion Study. He developed principles of motion
economy that could be applied to incredibly small portions of a task.
• Henry Gantt recognized the value of nonmonetary rewards to motivate workers, Gnatt charts a widely
used system for scheduling.
• Harrington Emerson applied Taylor’s ideas to organization structure and improve organizational
efficiency. He testified in a congressional hearing that railroads could save a million dollars a day by
applying principles of scientific management.
• Henry Ford employed scientific management in factories. Great industrialist.
Ford introduced the idea of mass production. Where system large volumes of standardized goods are
produced.
Two concepts used by Ford in producing large quantity of car, which led to success:
1. Interchangeable parts, attributed to Eli Whitney, components of a product that are manufactured to
precise specifications, allowing them to be swapped or replaced with identical parts without requiring
adjustments.
2. Division of labor, wrote in The Wealth of Nations by Adam Smith, where the production process are
break down into small parts, so that each worker perform small portion of the output.
With these concept, it leads to Human Relations Movement.
Human Relations Movement
Notable persons:
1. Lillian Gilbreth: Studied worker fatigue and human factor in work. (Wife of the Frank Gilbreth)
2. Elton Mayo: Conducted Hawthorne studies, highlighting the importance of worker motivation.
3. Abraham Maslow: Developed motivational theories.
4. Frederick Hertzberg: Refined Maslow's theories.
5. Dougl- as McGregor: Developed Theory X and Theory Y.
6. William Ouchi: Developed Theory Z.

Theories
1. Theory X: Assumes workers dislike work, need control, and require rewards/punishment. (Negative
spectrum)
2. Theory Y: Assumes workers enjoy work, are committed, and empowered. (Positive Spectrum)
3. Theory Z: Combines Japanese and Western approaches, featuring lifetime employment, employee
problem-solving, and consensus building.

Decision models and Management Science

Notable figure:
1. F. W. Harris developed one of the first models in 1915: a mathematical model for inventory order size.
2. three coworkers at Bell Telephone Labs—(1) H. F. Dodge, (2) H. G. Romig, and (3) W. Shewhart—
developed statistical procedures for sampling and quality control.
3. L.H.C. Tippett conducted studies that provided the groundwork for statistical sampling theory.

Japanese Manufacturers
• W. Edwards Deming, (2) J. Juran, (3) K. Ishikawa they focused on improving the quality and
improving the productivity.
• These lead to “quality revolution” that generate lean production.

1.9. Operation Today

E-business - the use of electronic technology to facilitate business transactions. Broader term

E-commerce - is consumer–business transac- tions, such as buying online or requesting information.

Focused on transaction that takes place online.

Technology - is application of scientific discoveries to the development and improvement of products and
services and operations processes

Three kinds of technology used in operations management:.

1. Product and service technology - refers to the discovery and development of new products and
services.
2. Process technology - refers to methods, procedures, and equipment used to produce goods and
provide services. Also used technology for supply chain processes.
3. Information technology (IT) - refers to the science and use of computers and other elec- tronic
equipment to store, process, and send information.

Revenue management - is a method used by some companies to maximize the revenue they receive from
fixed operating capacity by influencing demand through price manipulation. Also called as Yield Management

Six Sigma - is process for reducing costs, improving quality, and increasing customer satisfaction. Also called
as process analysis and improvement

Agility - is the ability of an organization to respond quickly to demands or opportunities. Flexible system that
can adapt to the changes in demand or services.
Lean system - that uses minimal amounts of resources to produce a high volume of high-quality goods with
some variety. Create value that maximizes efficiency.
Also, they are taught to stop an operation if they discover a defect,

1.10. Key Issues in Economy Today

1. Economic conditions
2. Innovating
3. Quality problems
4. Risk management
5. Cyber-security
6. Competing in a global economy

7. Environmental concerns.
• Sustainability - is the way of using resources in ways that do not harm ecological systems that support
human existence.
8. Ethical Conduct
• Ethics - is a standard of behavior that guides how one should act in various situations
• Markula Center for Applied Ethics that identifies 5 for thinking ethically:
1. Utilitarian Principle: The good done by an action or inaction should outweigh any harm it
causes or might cause. (Happiness)
2. Rights Principle: Actions should respect and protect the moral rights of others. (Focused on
rights)
3. Fairness Principle: Equals should be held to, or evaluated by, the same standards. (Equality)
4. Common Good Principle: Actions should contribute to the common good of the community.
5. Virtue Principle: Actions should be consistent with certain ideal virtues. (Character
development)
• Ethical framework - is sequence of steps intended to guide thinking and subse- quent decision or
action.
9. The need to manage supply chain
• Outsourcing - is buying goods or services instead of producing or providing them in-house.

Elements of supply chain

1. Customers - Determining what products and/or services customers want
2. Forecasting - Predicting the quantity and timing of customer demand
3. Design - Incorporating customers, wants, manufacturability, and time to market
4. Capacity planning - Matching supply and demand
5. Processing - Controlling quality, scheduling work
6. Inventory - Meeting demand requirements while managing the costs of holding inventory
7. Purchasing - Evaluating potential suppliers, supporting the needs of operations on purchased goods
and services
8. Suppliers - Monitoring supplier quality, on-time delivery, and flexibility; 15 maintaining supplier relations
9. Location - Determining the location of facilities
10. Logistics - Deciding how to best move information and materials