Fundamentals of Operations Management and Business Functions

Defining Operations Management (OM)

Operations Management (OM) manages the resources and the transformation processes needed to produce the company's products and services. It involves managing people, machines, and information. OM is the business function responsible for planning, coordinating, and controlling the resources needed to produce products and services for a company.

Key Decisions Operations Managers Make

Operations managers must plan the production schedule. This entails deciding how much to produce and in what order. This information is used:

• To make purchasing and staffing decisions.
• Operations managers must manage inventory.
• They must arrange the inventory in the warehouse.
• Operations managers must also manage quality levels.

The Transformation Process

The transformation process involves taking the various inputs and transforming them into outputs.

• Inputs are resources such as: people, facilities and processes, material, technology, and information.
• Outputs are finished goods and services.

Three Major Business Functions

The three major business functions are Finance, Marketing, and Operations.

• Operations entails the production of a product or service and must manage the inputs to production, such as workers' time, materials, and machine time, to create products (e.g., "airplane parts").
• Finance manages the assets, the building used for production, investments, and cash flows related to production.
• Marketing generates sales of the product or service.

Strategic Versus Tactical Decisions

• Strategic decisions are decisions that set the direction for the entire company; they are broad in scope and long-term in nature.
• Tactical decisions are decisions that are specific and short-term in nature and are bound by strategic decisions.

Service and Manufacturing Organizations

Characteristics of Service Organizations (SO)

• Intangible product
• Product cannot be inventoried
• High customer contact
• Short response time
• Labor intensive

Characteristics of Manufacturing Organizations (MO)

• Tangible product
• Product is inventoried
• Low customer contact
• Longer response time
• Capital intensive

Three Historical Milestones in OM

1. The Industrial Revolution: Changed production processes from relying primarily on labor to relying on machine processes.
2. Total Quality Management (TQM): Caused managers to be more focused on quality and preventing defects.
3. Global Competition: Required managers to further increase their focus on quality and efficiency in order to compete in the global market.

Today's Operations Management Environment

Today's OM environment is more global, more service-oriented, and uses more information technology than that of a few years ago. Companies can easily outsource steps of their operation. Now, even service operations are outsourced offshore. Information technology allows companies to cooperate more closely, create tighter supply chains, generate quicker response, and reduce wastage of resources.

Specific Features of the Modern OM Environment

• Greater outsourcing
• Greater use of information technology
• Greater cooperation in the supply chain

Six Basic Steps for Problem-Solving

1. Identify the problem
2. Gather information
3. Clarify the problem
4. Consider possible solutions
5. Select the best option
6. Make a decision and monitor the solution