Chapter 1.

Introduction to Operations Management

MANF/MANU 370, Production Systems Management II

The University of British Columbia

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 1
 Learning objectives
➢Define the term operations management and identify operations management jobs.
➢Identify the three major functional areas of organizations and describe how they
interact.
➢Describe the scope of operations management and provide an overview of this course,
including differentiating between design and planning/control decisions.
➢Compare production of goods and services.
➢Discuss the operations manager’s job.
➢Describe key aspects of operations management decision making.
➢Briefly describe the historical evolution of operations management.
➢Identify major trends that affect operations management.

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 2
 Chapter outline

➢What is operations management (OM)?

➢Three basic functions within organizations
➢The scope of operations management
➢Differentiating goods and services
➢Operations manager’s job
➢Operations managers and decision making
➢The historical evolution of operations management
➢Major trends

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 3
 What is Operations Management (OM)?

❑ Cycles Devinci is a Canadian

manufacturer of bicycles, founded
in Chicoutimi, Quebec, in 1987.
❑ In addition to a full line of road,
mountain, and hybrid bicycles,
Devinci also manufactures the Bixi
brand of bicycles used in bike
sharing programs in cities such as
Montreal and Toronto.

See http://www.vitalmtb.com/photos/features/Inside-the-Industry-Devinci-
Cycles-Factory-Tour,10452/Slideshow,0/FredLikesTrikes,18548 for a tour of the
Devinci factory.
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 4
 What is Operations Management (OM)?

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

Companies use OM to improve:

➢Efficiency is operating at minimum cost and time.
➢Effectiveness is achieving intended goals (quality and timeliness).

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 5
 Detail the following OM activities for each company

OM Activities Airline company (services) Bicycle factory

(goods)
Forecasting Forecasting demand for flights, and weather and landing conditions. ?
Capacity Deciding the number of planes and where to use them ?
planning
Scheduling Scheduling of planes for flights and for routine maintenance; scheduling ?
of pilots and flight attendants;
Managing Managing inventories of such items as food and beverages and spare ?
inventories parts.
Assuring quality Assuring quality of flight (e.g., maintenance operations). ?

Motivating Employee motivation and training in all phases of operations. ?

employees
Where to locate Location of facilities to provide service, Location of maintenance ?
facilities facilities, and where to locate major and minor hubs.
Buying materials such as fuel, food, bags, and spare parts.
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 6
 OM Activities for bicycle factory

What are the OM Activities for bicycle factory?

➢OM Activities of bicycle factory. This might be primarily an assembly operation:
buying components such as frames, tires, wheels, gears, and other items
from suppliers, and then assembling bicycles. The factory might also do some
of the fabrication work itself (forming frames, making the gears and chains) and
buy mainly raw materials and a few parts and materials such as paint, nuts and
bolts, and tires. Among the key operations management activities in either case
are scheduling production, deciding which components to make and which to
buy, ordering parts and materials, deciding on the style of bicycle (product
design), purchasing new equipment to replace old or worn-out equipment,
maintaining equipment, motivating workers, and ensuring that quality standards
are met.

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 7
 Why Study Operations Management?

➢A large percentage of a company’s expenses occur in OM area (more

efficient operations = more profits).
➢A large number of all jobs are in OM area (e.g., quality assurance, production
planning and control, scheduling, logistics, inventory management).
➢Activities in all other areas( finance, human resources, marketing) are
interrelated with OM activities.
➢Operations innovations lead to marketplace and strategic benefits (Toyota
Production System, Dells’ direct shipping of personal computers,
Walmart’s cross-docking (i.e., goods received from suppliers at a
distribution centre are transferred to retail stores without being stored).

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 8
 Functions Within Organizations
A typical organization (manufacturing or service) has three basic functions.
➢Operations: creates goods and services.
➢Finance: provide funds and the economic analysis of investment proposals.
➢Marketing: assess customer wants and needs and communicate them to others.

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 9
 Three Basic Functions Interact

➢The functions must interact to achieve the

Operations
goals and objectives of the organization.

➢Each functional area makes an important

contribution to organizational success.
Marketing Finance

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 10
 Three Basic Functions: Airline

This shows how the operations function relates to an airline company.

Note: this is an example of how operations applies to a service-based business.

Airline Company

Marketing Finance/
Operations Accounting

Flight Ground Facility

Catering
Operations Support Maintenance

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved. 11
 Operations Function

Value Added
Inputs:
Buildings Outputs:
Transformation/
Labour Goods
conversion
Machines Services
Process
Materials
Information
Feedback
Feedback
Feedback
Control

Note: The production of goods or services involves transforming/converting inputs into finished goods or
services. The production process must be an adaptive system. To ensure that the desired outputs are obtained,
measurements should be taken at various points (feedback), and then compared with previously established
standards to determine whether corrective action is needed (control). 12
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
What is Added Value? (e.g., bread)

Stage of Production Value Value of

Added Product
1. Farmer produces and $0.50 $0.50
harvests wheat
2. Wheat transported to mill $0.16 $0.66
3. Mill produces flour $0.30 $0.96
4. Flour transported to baker $0.16 $1.12
5. Baker produces bread $0.88 $2.00
6. Bread transported to $0.16 $2.16
grocery store
7. Grocery store displays and $0.42 $2.58
sells bread
8. Total Value-Added $2.58
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Transformation Process at a Food Processor

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Transformation Process at a Hospital

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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The Goods-Service Continuum

Note: It is important to mention that goods and services often occur jointly. For example, having the
oil changed in your car is a service, but the new oil is a good. Similarly, house painting is a service,
but the paint is a good. The goods–service package is a continuum. It can range from primarily goods
with little service to primarily service with few goods.
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Types of Operations

Operations Examples
Goods Producing Farming, mining, construction
manufacturing, power generation
Services
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Operations Interfaces

Operations interfaces with a

number of supporting
functions.

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 The Scope of Operations Management

Note: System design is vital because

• Capacity many of the parameters (and limitations)
Designing • Location of the system operation are decided by
Decisions • Equipment design.
We have already noted that operations
management is responsible for the
creation of goods and services. This
• Personnel encompasses acquisition of resources and
Planning/ • Inventory the conversion of raw material into
Control • Scheduling outputs using one or more transformation
Decisions • Quality assurance processes. This involves designing,
planning, scheduling, executing, and
controlling the activities/operations that
make up the processes.
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 The Scope of Operations Management
Decision area Basic question
Forecasting What will the demand be?
Product/ service design What customers want? How to improve products/services?
Capacity How much capacity will be needed?
Process What processes should be used?
Layout What is the best arrangement for the departments?
Work/Job Design How to improve work methods?
Quality How to define quality? How to improve it?
Supply Chain Management Which supplier to choose?
Inventory Management How much to order?
Aggregate planning How much capacity will be needed over the medium term?
JIT systems How to coordinate production and purchasing?
Scheduling How to schedule jobs, staff?

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Goods vs. Services:

Production of goods and performance of services are often similar in many design and
planning/control decisions. However, they differ in:

Differences Goods Services

(Produce a car) (Teach a class)

Output Tangible Intangible

Customer contact Low High
Uniformity of input High Low
Labour content Low High
Uniformity of output High Low
Measurement of Easy Difficult
productivity
Quality assurance Easy Difficult
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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Goods vs. Services in Canada
Percentage of total labour force by industry: Both service and the goods-producing industries are
important to the economy. However, services have been growing faster and now account for more
than 79 percent of jobs in Canada.

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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Operations Managers and Decision Making
1. Models: an abstraction of reality, a
simplified representation of something;
they must ignore the unimportant details
1. Models so that attention can be concentrated on
the most important aspects.
2. Quantitative 2. Quantitative Techniques: Linear
6. Ethics Programming, Queuing technique,
techniques
Inventory techniques, Project Scheduling.
3. Trade Offs: Factor Rating approach
4. Systems Approach: the output and the
5. Establishing 3. Analysis of trade- objective of the organization as a whole
Priorities offs takes precedence over those of any one
subsystem.
5. Establishing priorities: Pareto
Phenomenon.
4. Systems approach 6. Ethics: worker safety, product safety,
clean environment.
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Models
A model is an abstraction of reality which is used to support the decision process.
Models ignore the unimportant details so that attention can be concentrated on the most
important aspects of a problem, thus increasing the opportunity to understand a problem and
find its solution.

Physical

Mathematical Schematic

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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Quantitative Approaches

Quantitative techniques are methods that focus on objective measurements

and analysis of numbers in order to draw conclusions.

▪ Linear programming
▪ Queuing techniques
▪ Inventory techniques
▪ Project scheduling techniques
▪ Statistical techniques for quality control

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Analysis of Trade-Offs
A trade-off is a balance achieved between two incompatible features—a compromise. For
example, (a) in deciding on the amount of inventory to stock, the manager may take into
account the trade-off between the increased level of customer service (availability) that the
additional inventory would yield and the increased cost of holding that inventory in
storage.

Decision on amount of inventory to stock

• Increased cost of holding inventory

vs.
• Level of customer service

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Systems Approach and Establishing Priorities

How do we identify the vital few?

In every situation, managers discover that certain elements are more important
than others. Recognizing this fact of life enables the managers to direct their
efforts to where they will do the most good and to avoid wasting time and energy
on insignificant elements.

Pareto Phenomenon
▪ A few factors account for a high percentage of the occurrence of
some event(s).
▪ 80/20 Rule - 80% of problems are caused by 20% of the
activities.

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Ethical Issues
Ethics are moral principles that govern a person’s behavior. Operations managers, like all managers,
have the responsibility to make ethical decisions.
Financial
statements

Hiring/firing Worker
workers safety

Product
Community
safety

Environment Quality

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
28
Chapter Summary

➢Operations management is responsible for planning and coordinating the use of the
organization’s resources to convert inputs into outputs.

➢The operations function is one of three primary functions of organizations; the

other two are marketing and finance. The operations function is present in both
service- and goods-producing organizations.

➢Operations decisions involve design decisions and planning/control decisions.

Design decisions relate to capacity planning, product design, processes design,
layout of facilities, and selecting locations for facilities. Planning/control decisions
relate to quality assurance, production planning, scheduling and control, inventory
management, and project management.

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 Chapter Summary
➢Service differs from goods production in customer contact and labour content, lack
of inventories, variation in inputs and outputs, and difficulties in productivity
measurement and quality assurance.

➢Operations managers plan, organize, control, and direct the operations of an

organization.

➢They use models, quantitative techniques, trade-off analysis, systems approach,

priorities, and ethics in decision making.

➢Operations management evolved through craft, mass, and lean production systems.

➢Major trends currently are e-commerce, technology, globalization, supply chains,

and sustainability.
Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
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 Learning Checklist

 Define the term operations management and describe what an operation

manager might do.
 Identify the three major functional areas of organizations and describe
how they interact.
 Differentiate between design and operations decisions.
 Compare goods versus services.
 Describe key aspects of the operations managers job and their role and
involvement in decision making.
 Briefly describe the historical evolution of operations management.
 Identify current trends that affect operations management.

Stevenson, W. J , Hojati, M., & Cao, J. (2018). Operations Management, 6th Canadian Edition, McGraw-Hill Ryerson. McGraw-Hill Ryerson Limited, All rights reserved.
31