Chapter 01 – Introduction to Operations Management
CHAPTER 01
INTRODUCTION TO OPERATIONS MANAGEMENT
Teaching Notes
Many students come to this course with negative feelings, perhaps because they have heard that the
course includes a certain amount of quantitative material (which many feel uncomfortable with), or
perhaps because the course strikes them as “how to run a factory.” Others seem to have very little idea
about what operations management is. I view the initial meeting with my classes, and this first chapter, as
opportunities to dispel some of these notions, and to generate enthusiasm for the course.
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.
10. The need to manage the supply chain.
Reading: Why Manufacturing Matters
1. Given that the U.S. economy is becoming more service based, the percentage of employment in
2. The government could offer companies tax incentives for purchasing new equipment or for hiring
3. Manufacturing innovation is important because it requires high value-added knowledge work that
supports future innovation. Second, innovation generates high-paying jobs. Third, innovation is
important because it improves productivity, thereby slowing the outsourcing of jobs to lower
wage countries.
Chapter 01 – Introduction to Operations Management
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This approach provides the advantages of low-cost manufacturing in China and the flexibility provided by
the suppliers in Romania and Turkey. The disadvantage of this approach is that transportation times for
U.S. retailers still will be longer than the transportation times faced by Zara’s and H & M.
A second approach could be that U.S retailers find low-cost, flexible suppliers just across the border in
Mexico. The advantages of this approach include low wages and shorter transportation times. The
primary disadvantages to this approach involve the time and expense of locating new suppliers.
Additionally, the U.S. retailers might have to lend considerable support developing the capabilities of
these suppliers.
Operations Tour: Wegmans Food Markets
1. Customers judge the quality of a supermarket based on:
2. a. Customer satisfaction is the major key to the success of any operation; without it, the
company cannot survive.
b. Forecasting allows the company to plan the workforce levels, purchase quantities, inventory
levels, and capacity.
c. Capacity planning allows the company to balance the trade-off between shortages and excess
inventories and between waiting lines and idle time.
d. A good location can have a significant impact in attracting customers, thus improving sales.
e. Planning and controlling levels of inventory will assist with avoiding stockouts and avoiding
excess inventory levels.
f. Good layout of the store can assist in maximizing customer service and sales by strategically
directing customers through the store. An effective layout can also improve the efficiency of
the operations.
g. Effective scheduling of company workers and work hours can improve both customer service
and efficiency. An effective schedule provides convenient store hours, minimal customer
waiting lines, and minimal employee idle time.
3. Wegmans uses technology to track inventory and manage its supply chain, which lessen the risk
of occurrences of out-of-stock events, and to maintain freshness in its meat and produce
departments.
Chapter 01 – Introduction to Operations Management
Answers to Discussion and Review Questions
1. The term operations management relates to the management of systems or processes that create
goods and/or provide services. These processes involve the planning, coordination, and execution
2. The three primary functions are operations, finance, and marketing. Operations is concerned with
3. The operations function consists of all activities that are related directly to producing goods or
4. Among the important differences between manufacturing and service operations are:
a. The nature and consumption of output.
5. a. The Industrial Revolution began in the 1770s in England, and spread to the rest of Europe and
to the U.S. in the late eighteenth century and the early nineteenth century. A number of
inventions such as the steam engine, the spinning Jenny, and the power loom helped to bring
about this change. There were also ample supplies of coal and iron ore to provide the
Chapter 01 – Introduction to Operations Management
6. a. The service sector now accounts for more than 70 percent of jobs in the U.S. and that figure
continues to increase.
7. Models provide an abstraction and simplification of reality. Mathematical models are the most
abstract and most used in operations management. These models are used to assist in various
8. Degree of customization has important implications throughout a business organization.
9. a. Initial cost, convenience, parking, taxes, time, repairs, upkeep, etc.
b. Cost, technology, productivity, convenience, software applicability, etc.
c. Initial cost, repairs, warranty, upkeep, monthly payments and interest, dependability,
10. Craft production: involves producing high variety of customized goods, low volume output with
skilled workers, and utilizing general-purpose equipment. The main advantage is the flexibility to
produce a wide variety of outputs providing many choices for the need of customers. The main
disadvantage is its inability to produce at low cost. Examples: tailoring, machine shop, print shop,
Chapter 01 – Introduction to Operations Management
15. Value added is defined as the difference between the cost of inputs before the transformation
process and the value or the price of output after the transformation process. In a manufacturing
16. Outsourcing can result in lower costs, the ability to take advantage of others’ expertise, and allow
17. Sustainability refers to service and production processes that use resources in ways that do not
harm ecological systems that support both current and future human existence. Business
organizations are increasingly facing sustainability regulations as well as pressures from
environmental groups to act responsibly toward the environment. Some organizations are
capitalizing on their “green” efforts in their advertising.
Taking Stock
1. When we decide to take an action there are usually consequences of that action and advantages
and disadvantages of taking that action. In other words, before we make a decision, we must
2. It is important for the various functional areas to collaborate because collaboration will lead to
improved communication among the departments (functions) that in turn will improve the
3. Product and service technology allows a company to develop new products faster. Process
technology enables a company to improve methods, procedures, and equipment used to produce
goods and to provide services. Information technology enables companies to process large
quantities of data quickly, to identify and track goods, to obtain point-of-sale data, and to
communicate documents electronically to suppliers and customers.
Critical Thinking Exercises
1. There are many implications due to the differences between service and manufacturing
operations. For example, in a service firm, because the degree of customer contact is high, we
2. That would depend on whether supply was too large or too small. If there is over capacity, try to
increase demand through advertising and/or price reductions. If output (goods) can be stored, and
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is not desirable for mathematical models to include relationships or details that are not related closely to
the core problem. In many cases, the real-world problem contains an overwhelming amount of detail. In
designing models, one needs to make sure that the important factors and conditions affecting the real-
world problem are incorporated while the unnecessary or less important details associated with the
problem are excluded. In other words, the mathematical model does not have to provide an exact or a very
1. a mathematical function that describes the problem’s objective.
2. definition of variables.
3. relevant assumptions.
4. constraints or restrictions placed on the problem.
5. model inputs.
6. preparation of the data for the model (specification of the values of all uncontrollable inputs).
Mathematical modeling consists of the following steps:
1. Model Building: Development of the model including the specification of the controllable
variables, environmental conditions, assumptions, and mathematical statement of the model.
2. Data Gathering/Preparation: Collecting and preparing the data required by the model for easy
execution (solution) of the real-world problem.
3. Model Solution: Determining the values of decision variables.
4. Model Testing: Repeated execution of the model under different scenarios to make sure that it is
accurate.
5. Model Implementation: Application of the model to a real-world problem.
6. Model Analysis and Redevelopment: Assessment of the model and making necessary changes
based on the results of model solution, model testing, and implementation.
7. Preparation of Managerial Report: Summarization of the pertinent information in simple terms for
the appropriate stakeholders.
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Enrichment Module II: Environmentally Responsible Manufacturing
Environmental concerns traditionally have not been a major concern of operations managers. However,
partially because of the efforts of the Environmental Protection Agency (EPA), there has been increased
regulation of manufacturers (e.g., the American Clean Air Act). In addition, the expectations of the
public, employees, and customers are forcing industries to develop less polluting and more
environmentally conscious ways of manufacturing that emphasize waste prevention, elimination, and
reduction. Environmentally responsible manufacturing involves emphasizing pollution control and
reduction of waste. Recycling of products and designing of products and parts that can be reused is a
major part of environmentally responsible manufacturing. Manufacturing companies are learning that
effective operations management includes environmental responsibility. As a result, many companies are
considering the environmental impact of their decisions much more than they used to.