1.OM. Chapter 1

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Operations Management

Dr. TRAN QUYNH LE


Industrial Systems Engineering Department
Mechanical Engineering Faculty
Ho Chi Minh City University of Technology (HCMUT)–
VNUHCM
CHAPTER 1: Introduction to
Operations Management

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LEARNING OUTCOME

After completing this chapter, you should be able to:

• Define basic functions of an organization.

• Explain definitions in operations production management

• Identify similarities and differences between production and


service operations.

• Explain important decisions in production and operations


management.

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1.1 INTRODUCTION
• Operations is that part of a business organization that is responsible for
producing goods and/ or services.

• Goods: Physical items produced by business organizations.

• Services: Activities that provide some combination of time, location, form, and
psychological value

• Operations management: The management of systems or processes that create


goods and/or provide services

• Supply chain: A sequence of organizations—their facilities, functions, and


activities—that are involved in producing and delivering a product or service

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1.1 INTRODUCTION
• The three basic functions of business organizations

Organization

Finance Operations Marketing

• Securing financial • Producing the goods or • Assessing consumer wants and


resources at favorable providing the services needs
prices offered by the • Selling and promoting the goods
• Allocating resources organization or services
throughout the
organization

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PRODUCTION & OPERATION
Value-added

Input Transformation Outputs


• Land process • Goods
• Labor • Services
• Capital Measurement and
• Information Feedback
Control
Measurement and Measurement and
Feedback Feedback

The operations function involves systems for converting inputs into outputs

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1.1 INTRODUCTION
• Illustrations of the transformation process

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1.2 PRODUCTION OF GOODS VERSUS PROVIDING SERVICES
• Production of goods results in a tangible output, such as an automobile,
eyeglasses, a golf ball, a refrigerator—anything that we can see or touch.

• The delivery of a service generally implies an act: TV and auto repair, lawn
care, and the projection of a film in a theater, healthcare, Shipping and
delivery

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1.2 PRODUCTION OF GOODS VERSUS PROVIDING SERVICES

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1.3 SCOPE OF OPERATIONS MANAGEMENT
• The operation functions includes many interrelated activities such as:

✓ Forecasting
✓ Capacity planning
✓ Locating facilities
✓ Facilities and layout
✓ Scheduling
✓ Managing inventories
✓ Assuring quality
✓ Motivating and training employees

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1.4 TYPE OF OPERATIONS

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING
• Most decisions involve many possible alternatives that can have quite different
impacts on costs or profits.

• Typical operations decisions include:


✓ What: What resources will be needed, and in what amounts?
✓ When: When will each resource be needed? When should the work be
scheduled? When should materials and other supplies be ordered? When is
corrective action needed?

✓ Where: Where will the work be done?


✓ How: How will the product or service be designed? How will the work be done
(organization, methods, equipment)? How will resources be allocated?

✓ Who: Who will do the work?

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

GENERAL APPROACH TO DECISION MAKING


• Models

• Quantitative Approaches

• Performance Metrics

• Analysis of Trade-Offs

• Degree of Customization

• A Systems Perspective

• Establishing Priorities

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

a) Models
• Model are often a key tool used by all decision makers.

• A model is an abstraction of reality, a simplified representation of something.

• Models are sometimes classified

✓ Physical model: look like their real-life counterparts. Ex: miniature cars, trucks,
airplanes, toy animals and trains, and scale-model buildings

✓ Schematic model: look less like their real-life counterparts than physical
model. Ex: include graphs and charts, blueprints, pictures, and drawings

✓ Mathematical model: do not look at all like their real-life counterparts.


Examples include numbers, formulas, and symbols

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

a) Models
• 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.

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

a) Models
• Models have certain limitations:

1. Quantitative information may be emphasized at the expense of qualitative


information.

2. Models may be incorrectly applied and the results misinterpreted.

3. The use of models does not guarantee good decisions

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

b) Quantitative Approaches

• Quantitative approaches to problem solving often embody an attempt to obtain


mathematically optimal solutions to managerial problems

✓ linear programming,
✓ Queuing techniques
✓ Inventory models
✓ Forecasting techniques
✓ Statistical model
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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

d) Analysis of Trade-Offs

• A Trade-off is giving up one thing in return for something else

• Carrying more inventory in order to achieve a higher level of customer service

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

e) Degree of Customization

• The extent of customization in products or services has a significant impact on an entire


organization

• Offering highly customized products or services => involves more labor, time, skilled
personnel, and flexible equipment

• Customized processes typically have lower output volume but command higher prices

• The level of customization not only influences operations and supply chains but also
extends its impact to marketing, sales, accounting, finance, and information systems.

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

f) A Systems Perspective

• System: a set of interrelated components that work together

• The organization as a system with various subsystems (e.g., marketing, operations,


finance).

• The systems approach highlights interrelationships, emphasizing that the whole is greater
than the sum of its parts

• When designing, redesigning, implementing, improving, or changing something, a systems


perspective is essential.

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1.5 OPERATIONS MANAGEMENT AND DECISION MAKING

g) Establishing Priorities

• In virtually every situation, certain issues or items are more important than others

• Pareto Phenomenon: 80% of problems are caused by 20% activities

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