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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:
2. The role and job of the operations manager as a planner and decision-maker.
4. System design versus system operation.
6. Contemporary issues in operations management.
8. The historical evolution of production/operations management.
9. Manufacturing operations versus service operations.
Reading: The Challenges of Managing Services
1. In comparison to manufacturing industry, services have:
a. Less structured jobs.
b. Higher customer contact.
2. Because of the factors listed in the answer to question 1, in service industry it is more difficult to
control costs and quality resulting in lower productivity. In addition the risk of customer
dissatisfaction is greater and employee motivation is lower.
Reading: Why Manufacturing Matters
1. Since the U.S. economy is becoming more service based, the percentage of employment in
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2. Yes, the business leaders and the government officials should be concerned about declining
percentage of manufacturing jobs because of a variety of reasons including the following:
a. Manufacturing provides 70% of the U.S. exports.
b. The average compensation for a worker from manufacturing industry is 20% greater than the
average of all workers in the U.S.
Operations Tour: Wegmans Food Markets
1. Customers judge the quality of a supermarket based on:
a. Quality of individual products.
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.
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.
3. Wegmans uses technology to track inventory and manage its supply chain, which lessens the risk
of occurrences of out-of-stock events, and to maintain freshness in its meat and produce
departments.
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Answers to Discussion and Review Questions
1. The term production/operations management relates to the management of systems or processes
2. The three primary functions are operations, finance, and marketing. Operations is concerned with
3. The operations function consists of all activities that are directly related to producing goods or
providing services. It is the core of most business organizations because it is responsible for the
creation of an organization’s goods or services. Its essence is to add value during the
transformation process (the difference between the cost of inputs and value and price of outputs).
4. Among the important differences between manufacturing and service operations are:
a. The nature and consumption of output.
b. Uniformity of input.
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 necessary materials
for generating the power to operate and build the machines that were much stronger and more
durable than the simple wooden ones they replaced.
c. Parts of a product made to such precision that each part would fit any of the identical items
bring produced. It meant that individual parts would not have to be custom made because
they were standardized.
6. a. The service sector now accounts for more than 70 percent of jobs in the U.S. and that figure
continues to increase.
Chapter 01 – Introduction to Operations Management
c. Farm products are an example of non-manufacturing goods because there is no production
and the products naturally grow without human intervention.
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,
insurance costs, etc.
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,
and landscaping.
Mass production: involves producing a few standardized goods at high volume of output with low
skilled workers utilizing specialized equipment. The main advantage is low cost, efficient
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11. Workers may not like to work in a lean production environment because there are fewer
12. a. Matching supply and demand is an important objective for every business
organization. Undersupply can result in dissatisfied customers, potential loss of
business, and opportunity costs. Oversupply can potentially result in additional cost to store the
excess, the need to sell the excess for a reduced cost, or the cost to dispose of
the excess.
13. There are four basic sources of variation:
1. The variety of goods or services being offered: The greater the variety of goods and
services, the greater the variation in production or service requirements.
2. Structural variation in demand, such as trends and seasonal variations. These are
generally predictable. They are particularly important for capacity planning.
Variations can be disruptive to operations and supply chain processes, interfering with optimal
functioning. Variations result in additional cost, delays and shortages, poor quality, and inefficient work
systems. Poor quality and product shortages or service delays can lead to dissatisfied customers and
damage an organization’s reputation and image.
14. The reasons for doing unethical things vary from person to person and from one situation to
another. Some of the possible reasons are listed below:
a. The decision-maker cannot recognize his or her action as unethical because of a lack of
morals or understanding or lack of sensitivity towards a given issue.
d. The decision-maker does not think he or she will be caught.
e. The self-interest of the decision-maker outweighs the ethical considerations.
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.
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. Answers will vary.
Critical Thinking Exercise
1. There are many implications due to the differences between service and manufacturing operations.
For example, in a service firm, since the degree of customer contact is high, we have to make sure
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
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3. Innovations might be product or service related, or process related. These typically
involve added cost and time for training and possibly new equipment or equipment changes, and
4. a. Business people make unethical decisions for a variety of reasons including the following:
1. Pressure from superiors
2. Pressure for stakeholders
3. Not being informed
4. Keeping the company afloat
Memo Writing Exercise
1. Having a joint meeting with Marketing and Finance will allow:
a. Different departments to have a mutual understanding of each others’ roles and functions.
b. Enable the firm to break down barriers between departments.
c. Enable the departments to cooperate on problems of mutual interest.
2. The following factors must be considered:
a. The cost of the new network.
d. The features and capabilities of the new network as compared to the old one.
e. The perceived customer end user satisfaction.
g. The cost and available features of other competing similar networks.
3. An environmentally responsible manufacturing company’s response to the situation would be:
a. We need to inform our neighbors about what happened.
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d. We need to investigate the reasons why the spill occurred so that it will not happen again.
4. In the short run, the cleanup will most likely have an adverse affect on our profits. However, in
the long run the investigation/clean up will provide us with the following:
a. Environmentally conscious reputation/image.
Case: Hazel
1. a. Timing: not too late but not too soon.
2. a. Number of yards, number of mowers, number of workers, time to mow a given area, regular
maintenance, weather, length of growing season, time between necessary mowing.
b. Mowers, parts, fuel, lubricants, fertilizer, chemicals, tools, etc.
e. Oil change, blade sharpening, motor tune-up, mower and filter clean up, etc.
3. a. Responsibility, possibly security, fringe benefits, regularity of work hours, can’t pass the
buck to someone else, decision-making, etc.
more employees in the area of Web design, computer programmers, etc.
4. a. Advantages
1) Could increase the business because less time would be required between mowing to
keep the grass shorter and reduce the amount of clippings.
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1) It may complicate and/or increase the cost of the clean-up operations.
5. Yes, since Hazel promised the part-time workers bonus of $25 for good ideas and since this idea
appears to hold promise, Hazel should honor her promise and pay the student $25. However, in
the future she might want to make the bonus offer contingent on continuing employment at the
6. a. Weather, worker absences due to illness, vacations, extra requests from customers,
new customers, and lost customers.
7. Use hand tools instead of power tools, and recycle grass clippings. Factors to take into
account include cost savings, quality, risk of injury, job completion times, training,
reduction in pollution (air and noise), and energy savings.
Enrichment Module I: Mathematical Models
Mathematical models represent and solve problems by using a system of mathematical symbols,
expressions and relationships. One of the main reasons for building mathematical models is that the
experimentation with the model enables the decision-maker to analyze the model and make inferences
about a problem without actually manipulating the real situation or problem. Therefore, the
experimentation with the mathematical model rather than the actual problem or situation is less time
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The value of a mathematical model depends on how closely it approximates the real problem. However, it
is not desirable for mathematical models to include relationships or details that are not closely related 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–
In developing a mathematical model, we generally consider the following:
1. a mathematical function that describes the problem’s objective.
3. relevant assumptions.
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.
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.
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Enrichment Module II: Environmentally Responsible Manufacturing
Environmental concerns have traditionally not been a major concern of operations managers. However,
partially as a result of the efforts of Environmental Protection Agency (EPA), there has been increased
regulation of manufacturers (i.e., 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.