MIS373 Exam 1 Ch 1

key issues for today's business operations:

1. Economic conditions. The lingering recession and slow recovery in various sectors of the economy has made managers cautious about investment and rehiring workers who had been laid off during the recession. -productivity 2. Innovating. Finding new or improved products or services are only two of the many possibilities that can provide value to an organization. Innovations can be made in processes, the use of the Internet, or the supply chain that reduce costs, increase productivity, expand markets, or improve customer service. 3. Quality problems. The numerous operations failures mentioned at the beginning of the chapter underscore the need to improve the way operations are managed. That relates to product design and testing, oversight of suppliers, risk assessment, and timely response to potential problems. 4. Risk management. The need for managing risk is underscored by recent events that include financial crises, product recalls, accidents, natural and man-made disasters, and economic ups and downs. Managing risks starts with identifying risks, assessing vulnerability and potential damage (liability costs, reputation, demand), and taking steps to reduce or share risks. - internet, e-commerce, e-business 5. Cyber-security. The need to guard against intrusions from hackers whose goal is to steal personal information of employees and customers is becoming increasingly necessary. Moreover, interconnected systems increase intrusion risks in the form of industrial espionage. -supply chain management -management technology 6. Competing in a global economy. Low labor costs in third-world countries have increased pressure to reduce labor costs. Companies must carefully weigh their options, which include outsourcing some or all of their operations to low-wage areas, reducing costs internally, changing designs, and working to improve productivity.

A number of other areas are part of, or support, the operations function. They include purchasing, industrial engineering, distribution, and maintenance.

1. Purchasing: has responsibility for procurement of materials, supplies, and equipment. Close contact with operations is necessary to ensure correct quantities and timing of purchases. The purchasing department is often called on to evaluate vendors for quality, reliability, service, price, and ability to adjust to changing demand. Purchasing is also involved in receiving and inspecting the purchased goods. 2. Industrial engineering: is often concerned with scheduling, performance standards, work methods, quality control, and material handling. 3. Distribution: involves the shipping of goods to warehouses, retail outlets, or final customers. 4. Maintenance: is responsible for general upkeep and repair of equipment, buildings and grounds, heating and air-conditioning; removing toxic wastes; parking; and perhaps security.

limitations of models

1. Quantitative information may be emphasized at the expense of qualitative information. 2. Models may be incorrectly applied and the results misinterpreted. The widespread use of computerized models adds to this risk because highly sophisticated models may be placed in the hands of users who are not sufficiently knowledgeable to appreciate the subtleties of a particular model; thus, they are unable to fully comprehend the circumstances under which the model can be successfully employed. 3. The use of models does not guarantee good decisions.

Businesses are composed of many interrelated processes. Generally speaking, there are 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. Two basic aspects of this for operations and supply chain management are managing processes to meet demand and dealing with process variability.

other key areas require more in-depth discussion: environmental concerns, ethical conduct, and managing the supply chain.

1. environmental concerns: -Sustainability: Using resources in ways that do not harm ecological systems that support human existence. -Sustainability measures often go beyond traditional environmental and economic measures to include measures that incorporate social criteria in decision making. 2. ethics: -a standard of behavior that guides how one should act in various situations. -5 principles: 1. The Utilitarian Principle: The good done by an action or inaction should outweigh any harm it causes or might cause. An example is not allowing a person who has had too much to drink to drive. 2. The Rights Principle: Actions should respect and protect the moral rights of others. An example is not taking advantage of a vulnerable person. 3. The Fairness Principle: Equals should be held to, or evaluated by, the same standards. An example is equal pay for equal work. 4. The Common Good Principle: Actions should contribute to the common good of the community. An example is an ordinance on noise abatement. 5. The Virtue Principle: Actions should be consistent with certain ideal virtues. Examples include honesty, compassion, generosity, tolerance, fidelity, integrity, and self-control. -an ethical framework is a sequence of steps intended to guide thinking and subsequent decisions or actions.

sources of waste

1. inventory 2. Over-Production 3. Waiting Time 4. (Unnecessary) Transportation 5. Over-Processing (Processing waste) 6. Inefficient work methods (Motion) 7. Product Defects 8. Under utilizing worker Skill

Operations also interacts with other functional areas of the organization:

1. legal: The legal department must be consulted on contracts with employees, customers, suppliers, and transporters, as well as on liability and environmental issues. 2. management information systems (MIS): concerned with providing management with the information it needs to effectively manage. This occurs mainly through designing systems to capture relevant information and designing reports. MIS is also important for managing the control and decision-making tools used in operations management. 3. accounting: supplies information to management on costs of labor, materials, and overhead, and may provide reports on items such as scrap, downtime, and inventories. 4. personnel/human resources: concerned with recruitment and training of personnel, labor relations, contract negotiations, wage and salary administration, assisting in manpower projections, and ensuring the health and safety of employees. 5. public relations: responsible for building and maintaining a positive public image of the organization. Good public relations provides many potential benefits. An obvious one is in the marketplace. Other potential benefits include public awareness of the organization as a good place to work (labor supply), improved chances of approval of zoning change requests, community acceptance of expansion plans, and instilling a positive attitude among employees.

degree of customization

A major influence on the entire organization is the degree of customization of products or services being offered to its customers. Providing highly customized products or services such as home remodeling, plastic surgery, and legal counseling tends to be more labor intensive than providing standardized products such as those you would buy "off the shelf" at a mall store or a supermarket or standardized services such as public utilities and Internet services. Furthermore, production of customized products or provision of customized services is generally more time consuming, requires more highly skilled people, and involves more flexible equipment than what is needed for standardized products or services. Customized processes tend to have a much lower volume of output than standardized processes, and customized output carries a higher price tag

the historical evolution of operations management: decision models and management science

At first, these quantitative models were not widely used in industry. However, the onset of World War II changed that. The war generated tremendous pressures on manufacturing output, and specialists from many disciplines combined efforts to achieve advancements in the military and in manufacturing. After the war, efforts to develop and refine quantitative tools for decision making continued, resulting in decision models for forecasting, inventory management, project management, and other areas of operations management. During the 1960s and 1970s, management science techniques were highly regarded; in the 1980s, they lost some favor. However, the widespread use of personal computers and user-friendly software in the workplace contributed to a resurgence in the popularity of these techniques.

operations today

Electronic business, or e-business, involves the use of the Internet to transact business. E-business is changing the way business organizations interact with their customers and their suppliers. e-commerce, consumer-business transactions such as buying online or requesting information. However, business-to-business transactions such as e-procurement represent an increasing share of e-business. E-business is receiving increased attention from business owners and managers in developing strategies, planning, and decision making

factors for both managing the production of products and managing services

Forecasting and capacity planning to match supply and demand Process management Managing variations Monitoring and controlling costs and productivity Supply chain management Location planning, inventory management, quality control, and scheduling

managing a process to meet demand

Ideally, the capacity of a process will be such that its output just matches demand. Excess capacity is wasteful and costly; too little capacity means dissatisfied customers and lost revenue. Having the right capacity requires having accurate forecasts of demand, the ability to translate forecasts into capacity requirements, and a process in place capable of meeting expected demand. Even so, process variation and demand variability can make the achievement of a match between process output and demand difficult. Therefore, to be effective, it is also necessary for managers to be able to deal with variation.

establishing priorities

In virtually every situation, managers discover that certain issues or items are more important than others. Recognizing this enables the managers to direct their efforts to where they will do the most good. Typically, a relatively few issues or items are very important, so that dealing with those factors will generally have a disproportionately large impact on the results achieved This well-known effect is referred to as the *Pareto phenomenon: a few factors account for a high percentage of the occurrence of some event(s)

performance metrics

Managers use metrics to manage and control operations. There are many metrics in use, including those related to profits, costs, quality, productivity, flexibility, assets, inventories, schedules, and forecast accuracy.

the scope of operations management

Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and quality improvement of the organization's products or services. The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more. Example of airline company's operations system: -Forecasting such things as weather and landing conditions, seat demand for flights, and the growth in air travel. -Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit. -Locating facilities according to managers' decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs. -Facilities and layout, important in achieving effective use of workers and equipment. -Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers. -Managing inventories of such items as foods and beverages, first-aid equipment, in-flight magazines, pillows and blankets, and life preservers. -Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb service, where the emphasis is on efficiency and courtesy. -Motivating and training employees in all phases of operations.

analysis of trade-offs

Operations personnel frequently encounter decisions that can be described as trade-off decisions. For example, in deciding on the amount of inventory to stock, the decision maker must take into account the trade-off between the increased level of customer service that the additional inventory would yield and the increased costs required to stock that inventory. Decision makers sometimes deal with these decisions by listing the advantages and disadvantages—the pros and cons—of a course of action to better understand the consequences of the decisions they must make.

quantitative approaches to decision making

Quantitative approaches to problem solving often embody an attempt to obtain mathematically optimal solutions to managerial problems. Quantitative approaches to decision making in operations management (and in other functional business areas) have been accepted because of calculators and computers capable of handling the required calculations. linear programming forecasting techniques inventory models project models statistical models queuing techniques

elements of supply chain management

Supply chain management is being given increasing attention as business organizations face mounting pressure to improve management of their supply chains. In the past, most organizations did little to manage their supply chains. Instead, they tended to concentrate on their own operations and on their immediate suppliers. key elements: 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; maintaining supplier relations 9. location: determining the location of facilities 10. logistics: Deciding how to best move information and materials

the historical evolution of operations management

Systems for production have existed since ancient times. For example, the construction of pyramids and Roman aquaducts involved operations management skills. The production of goods for sale, at least in the modern sense, and the modern factory system had their roots in the Industrial Revolution.

the historical evolution of operations management: the industrial revolution

The Industrial Revolution began in the 1770s in England and spread to the rest of Europe and to the United States during the 19th century. Prior to that time, goods were produced in small shops by craftsmen and their apprentices. Under that system, it was common for one person to be responsible for making a product, such as a horse-drawn wagon or a piece of furniture, from start to finish. Only simple tools were available; the machines in use today had not been invented. In the earliest days of manufacturing, goods were produced using *craft production*: highly skilled workers using simple, flexible tools produced goods according to customer specifications. Craft production had major shortcomings. Because products were made by skilled craftsmen who custom-fitted parts, production was slow and costly. And when parts failed, the replacements also had to be custom made, which was also slow and costly. Another shortcoming was that production costs did not decrease as volume increased; there were no economies of scale, which would have provided a major incentive for companies to expand. Instead, many small companies emerged, each with its own set of standards. A major change occurred that gave the Industrial Revolution a boost: the development of standard *gauging systems. This greatly reduced the need for custom-made goods. Factories began to spring up and grow rapidly, providing jobs for countless people who were attracted in large numbers from rural areas.

transformation processes

The creation of goods or services involves transforming or converting inputs into outputs. Various inputs such as capital, labor, and information are used to create goods or services using one or more transformation processes (storing, transporting, repairing) To ensure that the desired outputs are obtained, an organization takes measurements at various points in the transformation process (feedback) and then compares them with previously established standards to determine whether corrective action is needed (control).

value added

The essence of the operations function is to add value during the transformation process: Value-added is the term used to describe the difference between the cost of inputs and the value or price of outputs. In nonprofit organizations, the value of outputs (e.g., highway construction, police and fire protection) is their value to society; the greater the value-added, the greater the effectiveness of these operations. In for-profit organizations, the value of outputs is measured by the prices that customers are willing to pay for those goods or services. Firms use the money generated by value-added for research and development, investment in new facilities and equipment, worker salaries, and profits. Consequently, the greater the value-added, the greater the amount of funds available for these purposes. Value can also be psychological, as in branding.

goods continuum

The goods-service combination is a continuum. It can range from primarily goods, with little service, to primarily service, with few goods Because there are relatively few pure goods or pure services, companies usually sell product packages, which are a combination of goods and services. There are elements of both goods production and service delivery in these product packages. This makes managing operations more interesting, and also more challenging.

the historical evolution of operations management: scientific management

The scientific management era brought widespread changes to the management of factories. The movement was spearheaded by the efficiency engineer and inventor Frederick Winslow Taylor, who is often referred to as the father of scientific management. Taylor believed in a "science of management" based on observation, measurement, analysis and improvement of work methods, and economic incentives. He studied work methods in great detail to identify the best method for doing each job. Taylor also believed that management should be responsible for planning, carefully selecting and training workers, finding the best way to perform each job, achieving cooperation between management and workers, and separating management activities from work activities. A number of other pioneers also contributed heavily to this movement, including the following: 1. Frank Gilbreth was an industrial engineer who is often referred to as the father of motion study. He developed principles of motion economy that could be applied to incredibly small portions of a task. 2. Henry Gantt recognized the value of nonmonetary rewards to motivate workers, and developed a widely used system for scheduling, called Gantt charts. 3. Harrington Emerson applied Taylor's ideas to organization structure and encouraged the use of experts to improve organizational efficiency. He testified in a congressional hearing that railroads could save a million dollars a day by applying principles of scientific management. 4. Henry Ford, the great industrialist, employed scientific management techniques in his factories. Ford adopted the scientific management principles espoused by Frederick Winslow Taylor. He also introduced the moving assembly line, which had a tremendous impact on production methods in many industries. -Among Ford's many contributions was the introduction of mass production to the automotive industry, a system of production in which large volumes of standardized goods are produced by low-skilled or semiskilled workers using highly specialized, and often costly, equipment. -Perhaps the key concept that launched mass production was *interchangeable parts: parts of a product made to such precision that they do not have to be custom fitted -A second concept used by Ford was the division of labor, which Adam Smith wrote about in The Wealth of Nations (1776). Division of labor means that an operation, such as assembling an automobile, is divided up into a series of many small tasks, and individual workers are assigned to one of those tasks. Unlike craft production, where each worker was responsible for doing many tasks, and thus required skill, with division of labor the tasks were so narrow that virtually no skill was required.

the historical evolution of operations management: the influence of japanese manufacturers

Their approaches emphasized quality and continual improvement, worker teams and empowerment, and achieving customer satisfaction. The Japanese can be credited with spawning the "quality revolution" that occurred in industrialized countries, and with generating widespread interest in lean production.

process variation

Variation occurs in all business processes. It can be due to variety or variability. For example, random variability is inherent in every process; it is always present. In addition, variation can occur as the result of deliberate management choices to offer customers variety. 4 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: These variations, which include trends and seasonal variations, are generally predictable. They are particularly important for capacity planning. 3. Random variation: This natural variability is present to some extent in all processes, as well as in demand for services and products, and it cannot generally be influenced by managers. 4. Assignable variation: These variations are caused by defective inputs, incorrect work methods, out-of-adjustment equipment, and so on. This type of variation can be reduced or eliminated by analysis and corrective action. 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 can damage an organization's reputation and image. An important aspect of being able to deal with variation is to use metrics to describe it. Two widely used metrics are the mean (average) and the standard deviation: 1. The standard deviation: quantifies variation around the mean. 2. The mean and standard deviation are used throughout this book in conjunction with variation. So, too, is the normal distribution.

key decisions of operations management professionals

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? An operations manager's daily concerns include costs (budget), quality, and schedules (time).

the historical evolution of operations management: the human relations movement

Whereas the scientific management movement heavily emphasized the technical aspects of work design, the human relations movement emphasized the importance of the human element in job design. Lillian Gilbreth, a psychologist and the wife of Frank Gilbreth, worked with her husband, focusing on the human factor in work. Many of her studies dealt with worker fatigue. In the following decades, there was much emphasis on motivation. Elton Mayo conducted studies at the Hawthorne division of Western Electric. His studies revealed that in addition to the physical and technical aspects of work, worker motivation is critical for improving productivity. Abraham Maslow developed motivational theories, which Frederick Hertzberg refined. Douglas McGregor added Theory X and Theory Y. These theories represented the two ends of the spectrum of how employees view work. Theory X, on the negative end, assumed that workers do not like to work, and have to be controlled—rewarded and punished—to get them to do good work. This attitude was quite common in the automobile industry and in some other industries, until the threat of global competition forced them to rethink that approach. Theory Y, on the other end of the spectrum, assumed that workers enjoy the physical and mental aspects of work and become committed to work. The Theory X approach resulted in an adversarial environment, whereas the Theory Y approach resulted in empowered workers and a more cooperative spirit. William Ouchi added Theory Z, which combined the Japanese approach with such features as lifetime employment, employee problem solving, and consensus building, and the traditional Western approach that features short-term employment, specialists, and individual decision making and responsibility.

model

an abstraction of reality, a simplified representation of something focus on the most important aspects of the real-life system & omit unimportant details classified as physical, schematic, or mathematical: 1. Physical models: look like their real-life counterparts. Examples include miniature cars, trucks, airplanes, toy animals and trains, and scale-model buildings. The advantage of these models is their visual correspondence with reality. 2. Schematic models: are more abstract than their physical counterparts; that is, they have less resemblance to the physical reality. Examples include graphs and charts, blueprints, pictures, and drawings. The advantage of schematic models is that they are often relatively simple to construct and change. Moreover, they have some degree of visual correspondence. 3. Mathematical models: are the most abstract: They do not look at all like their real-life counterparts. Examples include numbers, formulas, and symbols. These models are usually the easiest to manipulate, and they are important forms of inputs for computers and calculators.

operations strategy: lean systems

are so named because they use much less of certain resources than typical mass production systems use—space, inventory, and workers—to produce a comparable amount of output. Lean systems use a highly skilled workforce and flexible equipment. In effect, they incorporate advantages of both mass production (high volume, low unit cost) and craft production (variety and flexibility). And quality is higher than in mass production.

process

consists of one or more actions that transform inputs into outputs. In essence, the central role of all management is process management.

operations strategy: working with fewer resources

due to layoffs, corporate downsizing, and general cost cutting is forcing managers to make trade-off decisions on resource allocation, and to place increased emphasis on cost control and productivity improvement.

Business organizations have three basic functional areas:

finance: responsible for securing financial resources at favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment proposals, and providing funds for operations. marketing: responsible for assessing consumer wants and needs, and selling and promoting the organization's goods or services operations: responsible for producing the goods or providing the services offered by the organization. To put this into perspective, if a business organization were a car, operations would be its engine. And just as the engine is the core of what a car does, in a business organization, operations is the core of what the organization does. Operations management is responsible for managing that core. Hence operations management is the management of systems or processes that create goods and/or provide services.

operations strategy: process analysis and improvement

includes cost and time reduction, productivity improvement, process yield improvement, and quality improvement and increasing customer satisfaction. This is sometimes referred to as a *Six Sigma process: Process improvement can result in improved quality, cost reduction, and time reduction.

___ & ___ are the two line functions in a business organization

operations and sales

the role of the operations manager

operations consists of all activities directly related to producing goods or providing services role is to guide the system by decision making (system design decisions & system operation decisions)

goods

physical items that include raw materials, parts, subassemblies such as motherboards that go into computers, and final products such as cell phones and automobiles.

operations strategy: agility

refers to the ability of an organization to respond quickly to demands or opportunities. It is a strategy that involves maintaining a flexible system that can quickly respond to changes in either the volume of demand or changes in product/service offerings. This is particularly important as organizations scramble to remain competitive and cope with increasingly shorter product life cycles and strive to achieve shorter development times for new or improved products and services.

system operation decisions

tactical decisions: management of personnel inventory management control scheduling project management quality assurance

technology

technology refers to the application of scientific knowledge to the development and improvement of goods and services. It can involve knowledge, materials, methods, and equipment. high technology refers to the most advanced and developed machines and methods. Operations management is primarily concerned with three kinds of technology: product and service technology, process technology, and information technology (IT). All three can have a major impact on costs, productivity, and competitiveness. 1. Product and service technology: refers to the discovery and development of new products and services. This is done mainly by researchers and engineers, who use the scientific approach to develop new knowledge and translate that into commercial applications. 2. Process technology: refers to methods, procedures, and equipment used to produce goods and provide services. They include not only processes within an organization but also supply chain processes. 3. Information technology (IT): refers to the science and use of computers and other electronic equipment to store, process, and send information. Information technology is heavily ingrained in today's business operations. This includes electronic data processing, the use of bar codes to identify and track goods, obtaining point-of-sale information, data transmission, the Internet, e-commerce, e-mail, and more. 4. Management of technology: is high on the list of major trends, and it promises to be high well into the future. For example, computers have had a tremendous impact on businesses in many ways, including new product and service features, process management, medical diagnosis, production planning and scheduling, data processing, and communication

supply chain

the sequence of organizations—their facilities, functions, and activities—that are involved in producing and delivering a product or service. The sequence begins with basic suppliers of raw materials and extends all the way to the final customer. Facilities might include warehouses, factories, processing centers, offices, distribution centers, and retail outlets. Functions and activities include forecasting, purchasing, inventory management, information management, quality assurance, scheduling, production, distribution, delivery, and customer service. The value of the product increases as it moves through the supply chain. The 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. The 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.

eliminate waste - the 5S's

1. Sort/Segregate: keep only what is needed in the work area, remove waste. 2. Simplify/Straighten/Set-in-Order: improve work flow and reduce wasted motion. 3. Shine/Sweep: clean daily, use cleaning to inspect work area. 4. Standardize: know the process, remove variations from processes - using standard procedures, apply best practices 5. Sustain/Self-discipline: review work, maintain correct procedures, implement standards maintain quality, train employees Two additional Ss 6. Safety: built into practices 7. Support/Maintenance: use preventative maintenance. Reduce variability and unplanned downtime

Manufacturing and service are often different in terms of what is done but quite similar in terms of how it is done. Consider these points of comparison:

1. Degree of customer contact: When there is a high degree of contact, the interaction between server and customer becomes a "moment of truth" that will be judged by the customer every time the service occurs. 2. Labor content of jobs: Services often have a higher degree of labor content than manufacturing jobs do, although automated services are an exception. 3. Uniformity of inputs: Service operations are often subject to a higher degree of variability of inputs. Each client, patient, customer, repair job, and so on presents a somewhat unique situation that requires assessment and flexibility. Conversely, manufacturing operations often have a greater ability to control the variability of inputs, which leads to more-uniform job requirements. 4. Measurement of productivity: Measurement of productivity can be more difficult for service jobs due largely to the high variations of inputs. Thus, one doctor might have a higher level of routine cases to deal with, while another might have more difficult cases. Unless a careful analysis is conducted, it may appear that the doctor with the difficult cases has a much lower productivity than the one with the routine cases. 5. Quality assurance: is usually more challenging for services due to the higher variation in input, and because delivery and consumption occur at the same time. Unlike manufacturing, which typically occurs away from the customer and allows mistakes that are identified to be corrected, services have less opportunity to avoid exposing the customer to mistakes. 6. Inventory: Many services tend to involve less use of inventory than manufacturing operations, so the costs of having inventory on hand are lower than they are for manufacturing. However, unlike manufactured goods, services cannot be stored. Instead, they must be provided "on demand." 7. Wages: Manufacturing jobs are often well paid, and have less wage variation than service jobs, which can range from highly paid professional services to minimum-wage workers. 8. Ability to patent: Product designs are often easier to patent than service designs, and some services cannot be patented, making them easier for competitors to copy.

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.

Finance and operations management personnel cooperate by exchanging information and expertise in such activities as the following:

1. Budgeting: Budgets must be periodically prepared to plan financial requirements. Budgets must sometimes be adjusted, and performance relative to a budget must be evaluated. 2. Economic analysis of investment proposals: Evaluation of alternative investments in plant and equipment requires inputs from both operations and finance people. 3. Provision of funds: The necessary funding of operations and the amount and timing of funding can be important and even critical when funds are tight. Careful planning can help avoid cash-flow problems.

managing the supply chain to achieve schedule, cost, and quality goods

A primary function of an operations manager is to guide the system by decision making. Certain decisions affect the design of the system, and others affect the operation of the system. -System design: involves decisions that relate to system capacity, the geographic location of facilities, arrangement of departments and placement of equipment within physical structures, product and service planning, and acquisition of equipment. These decisions usually, but not always, require long-term commitments. -System operation: involves management of personnel, inventory planning and control, scheduling, project management, and quality assurance. These are generally *tactical and *operational decisions. Feedback on these decisions involves *measurement and *control. In many instances, the operations manager is more involved in day-to-day operating decisions than with decisions relating to system design. However, the operations manager has a vital stake in system design because *(system design essentially determines many of the parameters of system operation).

a systems approach

A system: is a set of interrelated parts that must work together. In a business organization, the organization can be thought of as a system composed of subsystems (e.g., marketing subsystem, operations subsystem, finance subsystem), which in turn are composed of lower subsystems. The systems approach: emphasizes interrelationships among subsystems, but its main theme is that the *whole is greater than the sum of its individual parts. Hence, from a systems viewpoint, the output and objectives of the organization as a whole take precedence over those of any one subsystem.

operations strategy: revenue management

a method used by some companies to maximize the revenue they receive from fixed operating capacity by influencing demand through price manipulation. Also known as yield management, it has been successfully used in the travel and tourism industries by airlines, cruise lines, hotels, amusement parks, and rental car companies, and in other industries such as trucking and public utilities.

operations strategy: lean production

a new approach to production, emerged in the 1990s. It incorporates a number of the recent trends listed here, with an emphasis on quality, flexibility, time reduction, and teamwork. This has led to a flattening of the organizational structure, with fewer levels of management.

services

activities that provide some combination of time, location, form, or psychological value. act-oriented

tangible output

anything we see or touch

system design decisions

capacity facility location facility layout product and service planning typically strategic decisions: require long-term commitment of resources, determine parameters of system operation

the transformation process: conversion of inputs into outputs

ch. 1 slide 5

manufacturing:

goods-oriented

manufacturing or service lead time

needed by marketing from operations in order to give customers realistic estimates of how long it will take to fill their orders

what is operations

production of goods/services

what is operations management

the management of systems or processes that create goods/services affects companies' ability to compete