Fundamentals of Operations Management

Chapter 1: Introduction to Operations

Management

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1.0 Learning Objectives
In this chapter, we will:

• Explore the key current trends in Operations Management.

• Define operations management and its core functions within a
business.
• Explain the role of operations management in transforming inputs
(materials, labour) into outputs (goods, services) for a business.
• Explain why a business student should study Operations Management.
• Identify some of the Professional Organizations involved in Operations
Management.
• Describe the phases of Operations Management history.
• Discuss how producing goods is different from performing services.
1.1 Operations Management
Operations management is the management of the processes that transform
inputs into goods and services that add value for the customer.

• It is the foundation for any

organization, ensuring efficient
resource utilization in producing
the products we rely on daily.
• The role of operations
management is to design, plan,
direct, and improve all the Figure 1.1.1: “Operations Management in Everyday Life, London,
Ontario” by Sanaz Habib CC BY-NC-SA
activities involved in producing
goods or services.
1.1 Producing Goods and Services
In operations management, both the production of goods and the delivery of
services play crucial roles.
Key Differences Include
Nature of Output: Goods are tangible; services are intangible.

Customer Interaction: Services involve more direct contact; manufacturing rarely involves
customer visits to the production facility.
Labor Content: Services require more labor than manufacturing.

Input Variability: Services face greater variability due to unique customer needs;
manufacturing inputs are more standardized.
Quality Measurement: Manufacturing quality is technically straightforward; service quality is
subjective.
Productivity Measurement: Manufacturing productivity is easier to measure; services are harder to
quantify.
Inventory Handling: Manufacturing can store goods; services cannot store capacity.
1.2 Transformation Processes
A transformation process is any activity or group of activities that takes one
or more inputs, transforms and adds value to them, and provides outputs for
customers or clients.

• Organizations often need to Manufacture

Service
transform three types of input: The physical creation
Treatment of
customers, storage of
of products, e.g.
materials, information, and automobiles
products, e.g.
hospitals, warehouses
customers.
• These transformation processes Supply
Transport
can be grouped into four Change in ownership
The movement of
materials/customers,
of goods, e.g. retail
categories: Manufacture, e.g. taxi services
Service, Supply, and Transport.
Figure 1.2.1: Categories of transformation processes.
1.2 Transformation Processes (cont.)
• The overall transformation can be described as the macro-operation.
• The more detailed transformations within this macro-operation
are micro-operations.

Figure 1.2.2: “Macro and Micro Operations (transformation processes)” by The Open University, CC BY-NC-SA 4.0. Mods:
re-coloured by Fanshawe College
1.3 The Operations Function

• Every organization has a fundamental function related to producing

goods and services. This involves resource procurement, conversion
into outputs, and distribution to users.
• The effectiveness of operations significantly impacts customer
satisfaction.
• Operations management is concerned with designing, managing, and
improving the systems that create the organization‘s goods or services.
1.3 Fundamental Functional Areas

• A typical organization has four fundamental functional areas:

operations, marketing and sales, finance, and human resources.

Marketing & Human

Operations Finance
Sales Resources
• Oversees • Ensures • Hires and trains • Ensures that
creation and customer’s employees; funds for
implementation values are met oversees materials,
of product or and represented compensations, supplies,
service in product or benefits, etc. payroll, etc. are
service always
accessible
1.4 Why study Operations Management?

More Opportunities
• Typically, the biggest department, with
many job openings
Focus on Company over Job Title
• Focus on finding a great company culture
and worry less about the specific job title
• With a good work ethic, you can likely get
promoted to your desired role later.
Figure 1.4.1: Operations Management. Microsoft (2024).
1.4 What is Operational Innovation?
• It’s about finding new ways to run the business – fulfilling orders,
developing products, providing customer service, and more.
• Businesses want to do the right things (effectiveness) in the best way
possible (efficiency).
• Effectiveness: This means making choices and taking actions that
benefit the business and, most importantly, add value for the customer.
Think of it as picking the winning strategy.
• Efficiency: It’s about doing things well, but without wasting resources.
This means finding ways to streamline tasks and avoid unnecessary
steps that cost time or money. Think of it as getting the job done
smartly.
1.5 Development of Operations Management
• Operations have evolved significantly over time, particularly in
manufacturing. There are three major phases – craft manufacturing,
mass production, and the modern period.
Craft Mass The Modern
Manufacturing Production Period

• Skilled artisans • Outputting • Introduction of

made unique large quantities flexible
products for of standardized specialization,
individual goods at lower lean production,
customers costs mass
customization,
and agile
manufacturing
1.5 Fourth Industrial Revolution (4IR)
• The Fourth Industrial
Revolution (4IR) builds upon
the innovations of the Third
Industrial Revolution, also
known as the digital revolution.
• Leverages four key technology
categories: Connectivity,
Data, and Computational
Power, Analytics and
Intelligence, Human–
Machine Interaction, and
Advanced Engineering.
Figure 1.5.1: “Industrial Revolution” by Sanaz Habib CC BY-NC-SA
1.6 Key Trends in Operations Management
• IT is vital in facilitating
• Source materials and set
commerce between
up manufacturing in
Globalization Technology businesses (B2B) or
countries with lower
between businesses and
costs.
consumers.

• Balance profit with social

• Increased trade volume
and environmental gains,
Supply Chain facilitated more supply
Sustainability emphasizing fair labor,
Expansion sources and new
closed-loop supply chains,
markets for businesses.
and life cycle analysis.

• Accelerated digital
• Allowed businesses to advances, reduced
sell to other businesses Recent (Post- personal connections, and
E-Commerce
or customers online. Covid) Trends increased scrutiny of social
and environmental impacts.
1.7 Chapter Summary & Review

• Defines operations management as transforming inputs into valuable outputs

(goods and services) and highlights its role in efficient resource utilization.
• Stresses the importance for business students to understand and improve
organizational systems.
• Covers historical phases from craft manufacturing to mass production and the
modern period.
• Differentiates between tangible, standardized goods and intangible, customer-
interactive services.
• Highlights the interconnectedness of operations with marketing, finance, and
human resources for organizational success.
• Discusses recent trends like globalization, e-commerce, technology,
sustainability, and the impact of COVID-19 on business practices.