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Introduction to Operations and Supply Chain Management

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Introduction to Operations and Supply Chain Management

Operations management designs, operates, and improves productive systems—systems for getting work done. Operations is often defined as a transformation process. As shown in Figure 1.1, inputs (such as material, machines, labor, management, and capital) are transformed into outputs (goods and services). Requirements and feedback from customers are used to adjust factors in the transformation process, which may in turn alter inputs. In operations management, we try to ensure that the transformation process is performed efficiently and that the output is of greater value than the sum of the inputs. Thus, the role of operations is to create value. The transformation process itself can be viewed as a series of activities along a value chain extending from supplier to customer. The transformation process can be

  • physical, as in manufacturing operations;
  • locational, as in transportation or warehouse operations;
  • exchange, as in retail operations;
  • physiological, as in health care;
  • psychological, as in entertainment; or
  • informational, as in communication.

[pic 1]

The four primary functional areas of a firm are marketing, finance, operations, and human resources. As shown in Figure 1.2, for most firms, operations is the technical core or “hub” of the organization, interacting with the other functional areas and suppliers to produce goods and provide services for customers.

[pic 2]


Craft production: the process of handcrafting products or services for individual customers. Every piece was unique, hand-fitted, and made entirely by one person.

Division of labor: dividing a job into a series of small tasks each performed by a different worker. The specialization of the workers on limited, repetitive tasks allowed them to become very proficient at those tasks and further encouraged the development of specialized machinery.

Interchangeable parts: the standardization of parts initially as replacement parts enabled mass production. This meant the factory needed a system of measurements and inspection, a standard method of production, and supervisors to check the quality of the worker’s production.

Scientific management: the systematic analysis of work methods. Frederick W. Taylor approached the management of work as a science. Based on observation, measurement, and analysis, he identified the best method for performing each job. Once determined, the methods were standardized for all workers, and economic incentives were established to encourage workers to follow the standards. Taylor’s philosophy became known as scientific management.

Mass production: the high-volume production of a standardized product for a mass market.

Quality revolution: an emphasis on quality and the strategic role of operations. The quality revolution brought with it a realization that production should be tied to consumer demand.

Lean production: a system that prizes flexibility (rather than efficiency) and quality (rather than quantity).

Supply chain management: managing the flow of information, products, and services across a network of customers, enterprises, and suppliers.


Competitiveness: the degree to which a nation can produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens. The most common measure of competitiveness is productivity. Increases in productivity allow wages to grow without producing inflation, thus raising the standard of living. Productivity growth also represents how quickly an economy can expand its capacity to supply goods and services.

Productivity: the ratio of output to input. Productivity is calculated by dividing units of output by units of input.

[pic 3]

Single-factor productivity compares output to individual inputs, such as labor hours, investment in equipment, material usage, or square footage. Multifactor productivity relates output to a combination of inputs, such as (labor _ capital) or (labor _ capital _ energy _ materials). Capital can include the value of equipment, facilities, inventory, and land. Total factor productivity compares the total quantity of goods and services produced with all the inputs used to produce them. These productivity formulas are summarized in Table 1.2.

[pic 4]


Strategy: provides direction for achieving a mission. Strategy is how the mission of a company is accomplished. It unites an organization, provides consistency in decisions, and keeps the organization moving in the right direction.

Senior management, with input and participation from different levels of the organization, develops a corporate strategic plan in concurrence with the firm’s mission and vision, customer requirements (voice of the customer), and business conditions (voice of the business). The strategic plan focuses on the gap between the firm’s vision and its current position. It identifies and prioritizes what needs to be done to close the gap, and it provides direction for formulating strategies in the functional areas of the firm, such as marketing, operations, and finance. It is important that strategy in each of the functional areas be internally consistent as well as consistent with the firm’s overall strategy.

Strategy formulation consists of five basic steps:

1. Defining a primary task

2. Assessing core competencies

3. Determining order winners and order qualifiers

4. Positioning the firm

5. Deploying the strategy

[pic 5]


The primary task represents the purpose of a firm—what the firm is in the business of doing. It also determines the competitive arena. The primary task is usually expressed in a firm’s mission statement. Mission statements clarify what business a company is in. Mission statements are the “constitution” for an organization, the corporate directive, but they are no good unless they are supported by strategy and converted into action.



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