MAN 341

Production
(Operations)
Management
COURSE INTRODUCTION
 OM in the Organization

Secure financial resources It is what firms do Assessing Customer

needs and wants that
Analyze investment Production of goods
will be met by performing
opportunities & provide funds and service
Operations

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 What is Operations
Management?
Classical Definition of OM:

“The cost effective design & management of systems

that produce goods and services in order to achieve
the organizational goals.”

Key words: cost-effective, goods and services,

organizational goals

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Operations: It is what firms
do!!!
Firms perform “Value-Adding Transformation Processes”

Operations
Manager

Value-added: The difference between the cost of inputs

and the value or price of outputs
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 An Alternative Definition of OM
(Cachon and Terwiesch)
• Operations management deals with how firms can design
their operations (manufacturing, pricing, transportation, etc.) to
better match supply with demand.
• A firm can achieve this better match through the
implementation of the rigorous models and the operational
strategies of operations management.

Operations Management

Supply
= Demand

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 Examples of Supply–Demand
Mismatches

Air Travel Retailing

Supply Seats on specific flight Consumer electronics

Demand Travel for specific time and Consumers buying a new video
destination system

Supply
exceeds Empty seat High inventory costs;
demand few inventory turns

Demand
Overbooking; customer has to take Foregone profit opportunity;
exceeds
supply different flight (profit loss) consumer dissatisfaction

Actions to
match supply Forecasting; inventory
Dynamic pricing; booking policies
and demand management models

About 30% of all seats fly empty; Per unit inventory costs for
Managerial a 1–2% increase in seat utilization consumer electronics retailing
importance makes difference between profits commonly exceed net profits.
and losses

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 Why is matching supply with
demand difficult?
• The short answer is that demand can vary, either in predictable or
unpredictable ways, and supply is inflexible.

• On average an organization might have the correct amount of

resources (people, product, and/or equipment), but you may have
them
– in the wrong place,
– at the wrong time,
– and/or in the wrong quantity.

• Furthermore, shifting resources across locations or time is costly.

For example,
– flight crew is unwilling to change their regular flight schedules,
– retailers cannot afford to immediately move product from one
location to another.

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 Why study Operations
Management?
• OM at the core of all business organizations
– Firms exist to create value. Marke
Legal ting
– Value creation occurs through
products/services.
Operations
Finance HR

• Effective Operations Management leads to MIS

competitive advantage.
– Dell vs. HP-Compaq, Gateway
– Toyota vs. Ford, GM
– Amazon 1 2 vs. Barnes & Noble
– Southwest vs. Delta, American

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 This course
• Two Modules
Module 1. Firm-level Analysis
• Process Management & Improvement
• Customer Service Management (Waiting line Analysis)
• Planning
• Quality Management
• Project Management

Module 2. Multi-firm Analysis

• Supply Chain Management
• Inventory Management

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 Terms and Concepts to note
• OM focuses on processes
– A process is a systematic series of actions directed
towards an end

• In this course, we will learn how to:

– Describe processes
– Manage processes under variability
– Improve processes

• Focus on value-addition in a process

• Models as tools to analyze a problem

– Abstraction of reality

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 A Brief History of
Operations Management
 How did we get here?
Major Changes in Operations Management
• 1776,
– Adam Smith
– “The Wealth of Nations”
– Division of Labor
– Liberal Economics

• 1910’s, Frederick Winslow Taylor ,

– “The Principles of Scientific Management”
– Time-and-motion studies
– Find the best way to do the work
– Work standards
– Critics: Human beings are not machines.

• 1920’s to 1950’s:
– Taylor’s Scientific Management

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 An Example of Scientific
Management
• Automobile Industry - Ford’s Model T
- Moving Assembly Line
- Mass production
- Interchangeable parts
- Division of labor

- “People can have the Model T in any color--so

long as it's black.”

Henry Ford (1920s)

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 How did we get here?
Major Changes in Operations Management

• 1950’s to 1980’s:
– Mathematical Planning Tools
– Use of Computers: Material Requirements Planning (MRP)
• 1980’s: The Toyota (Lean) Production System.
– Lean Manufacturing
– Supply Chain Management
– Custom Production
– Quality
• 2000’s: Globalization and Information Technology
– Managing global supplier, production and distribution networks
• Outsourcing and off-shoring
– Role of information technology (internet, e-commerce)
• Direct Sales
– Flexible Supply Chains
• Mass Customization

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 Next Class

• Operations Management Strategy and

Competitiveness
• Southwest Airlines example

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