WHAT IS OPERATIONS MANAGEMENT?
Production: The creation of goods and services
Operations Management: The set of activities that creates value in the form of goods and services by transforming inputs into outputs.
Operations management is one of three main business functions involved in the creation of goods and services (i.e., Operations Function, Marketing Function, Finance/Accounting Function). These functions all interact and share information with one another, as the diagram on the following page indicates. ROLES AND NTERACTIONS OF THE MAIN BUSINESS FUNCTIONS
SIMPLIFIED VIEW OF THE CREATION OF A GOOD OR SERVICE
What is not apparent in this simple diagram is the wide diversity of inputs, transformation process, and outputs, as indicated on the following page.
TYPES OF INPUTS, TRANSFORMATIONS, AND OUTPUTS
Physical or Chemical – Manufacturing, chemical processing, oil refining, etc.
Locational – Airline companies, trucking companies, package delivery services.
Storage – Warehousing operations, banks.
Exchange – Wholesale and retail operations.
Informational – T.V. news departments, newspapers, computer information services
Educational – Schools, colleges, universities.
Attitudinal – Entertainment industry, movie companies, theme parks.
Physiological – Hospitals and healthcare institutions.
BASIC PRODUCTIVITY EQUATION
A fundamental principle of the transformation process is that value should be added during the transformation process. In that way the value of the output will exceed the value of the input, and the firm will be profitable. If the value of the output is less than the value of the input, one will not be in business very long. This ratio of output to input is called productivity and it provides a yardstick to determine how effective an organization is at transforming inputs to outputs.
Value of Output
Value of Input
While the above fundamental equation measures the ratio of dollars to dollars, this is not the only productivity equation in use. Any parameter that is a measure of output could appear in the numerator, and any parameter that is a measure of input could appear in the numerator. For example:
Productivity = Units Produced/Labor Hours Used
Productivity = Units Produced/Raw Material Dollar Used
Productivity = Units Produced/(Labor $ + Material $ + Energy $)
STRATEGIC VS. TACTICAL DECISIONS IN OPERATIONS
Operations management is responsible for orchestrating all the activities needed to produce the final output (i.e., transform the inputs to outputs). These activities present themselves as a wide array of decisions that must be made. These decisions are often categorized as follows:
MANUFACTURING AND SERVICE DISTINCTIONS
Nature of output
Storability of output
Transportability of output
Number of outlets
Location of outlets
Size of outlets
Use of capital and labor
Measurement of quality
Measurement of productivity
CHARACTERISTICS OF MANUFACTURING AND SERVICE ENTITIES
Nature of Output
Physical, durable product
Intangible, perishable service
Low customer contact
High customer contact
Output can be...
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