The chief role of an operations manager is that of planner and decision maker. In this capacity, the operations manager exerts considerable influence over the degree to which the goals and objectives of the organization are realized. Most decisions involve many possible alternatives that can have quite different impacts on costs or profits. Consequently, it is important to make informed decisions.

Operations management professionals make a number of key decisions that affect the entire organization. These include the following:

What: What resources will be needed, and in what amounts?

When: When will each resource be needed? When should the work be scheduled? When should materials and other supplies be ordered? When is corrective action needed?

Where: Where will the work be done?

How: How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will resources be allocated?

Who: Who will do the work?

Throughout this book, you will encounter the broad range of decisions that operations managers must make, and you will be introduced to the tools necessary to handle those decisions. This section describes general approaches to decision making, including the use of models, quantitative methods, analysis of trade-offs, establishing priorities, ethics, and the systems approach. Models are often a key tool used by all decision makers.

Models

A modelAn abstraction of reality; a simplified representation of something. is an abstraction of reality, a simplified representation of something. For example, a child’s toy car is a model of a real automobile. It has many of the same visual features (shape, relative proportions, wheels) that make it suitable for the child’s learning and playing. But the toy does not have a real engine, it cannot transport people, and it does not weigh 2,000 pounds.

Other examples of models include automobile test tracks and crash tests; formulas, graphs and charts; balance sheets and income statements; and financial ratios. Common statistical models include descriptive statistics such as the mean, median, mode, range, and standard deviation, as well as random sampling, the normal distribution, and regression equations.

Models are sometimes classified as physical, schematic, or mathematical:

Physical models look like their real-life counterparts. Examples include miniature cars, trucks, airplanes, toy animals and trains, and scale-model buildings. The advantage of these models is their visual correspondence with reality.

Schematic models are more abstract than their physical counterparts; that is, they have less resemblance to the physical reality. Examples include graphs and charts, blueprints, pictures, and drawings. The advantage of schematic models is that they are often relatively simple to construct and change. Moreover, they have some degree of visual correspondence.

Mathematical models are the most abstract: They do not look at all like their real-life counterparts. Examples include numbers, formulas, and symbols. These models are usually the easiest to manipulate, and they are important forms of inputs for computers and calculators.

The variety of models in use is enormous. Nonetheless, all have certain common features: They are all decision-making aids and simplifications of more complex real-life phenomena. Real life involves an overwhelming amount of detail, much of which is irrelevant for any particular problem. Models omit unimportant details so that attention can be concentrated on the most important aspects of a situation.

Because models play a significant role in operations management decision making, they are heavily integrated into the material of this text. For each model, try to learn (1) its purpose, (2) how it is used to generate results, (3) how these results are interpreted and used, and (4) what assumptions and limitations apply.

The last point is particularly important because virtually every model has an associated set of requirements that indicate the conditions under which the model is valid. Failure to satisfy all of the assumptions (i.e., to use a model where it isn’t meant to be used) will make the results suspect. Attempts to apply the results to a problem under such circumstances can lead to disastrous consequences.

Managers use models in a variety of ways and for a variety of reasons. Models are beneficial because they

1. Are generally easy to use and less expensive than dealing directly with the actual situation.
2. Require users to organize and sometimes quantify information and, in the process, often indicate areas where additional information is needed.
3. Increase understanding of the problem.
4. Enable managers to analyze “What if ?” questions.
5. Serve as a consistent tool for evaluation and provide a standardized format for analyzing a problem.
6. Enable users to bring the power of mathematics to bear on a problem.

This impressive list of benefits notwithstanding, models have certain limitations of which you should be aware. The following are three of the more important limitations:

1. Quantitative information may be emphasized at the expense of qualitative information.
2. Models may be incorrectly applied and the results misinterpreted. The widespread use of computerized models adds to this risk because highly sophisticated models may be placed in the hands of users who are not sufficiently knowledgeable to appreciate the subtleties of a particular model; thus, they are unable to fully comprehend the circumstances under which the model can be successfully employed.
3. The use of models does not guarantee good decisions.

Quantitative Approaches

Quantitative approaches to problem solving often embody an attempt to obtain mathematically optimal solutions to managerial problems. Linear programming and related mathematical techniques are widely used for optimum allocation of scarce resources. Queuing techniques are useful for analyzing situations in which waiting lines form. Inventory models are widely used to control inventories. Project models such as PERT (program evaluation and review technique) and CPM (critical path method) are useful for planning, coordinating, and controlling large-scale projects. Forecasting techniques are widely used in planning and scheduling. Statistical models are currently used in many areas of decision making.

In large measure, quantitative approaches to decision making in operations management (and in other functional business areas) have been accepted because of calculators and high-speed computers capable of handling the required calculations. Computers have had a major impact on operations management. Moreover, the growing availability of software packages for quantitative techniques has greatly increased management’s use of the computer.

Because of the emphasis on quantitative approaches in operations management decision making, it is important to note that managers typically use a combination of qualitative and quantitative approaches, and many important decisions are based on qualitative approaches.

Performance Metrics

All managers use metrics to manage and control operations. There are many metrics in use, including those related to profits, costs, quality, productivity, assets, inventories, schedules, and forecast accuracy. As you read each chapter, note the metrics being used and how they are used to manage operations.

Analysis of Trade-Offs

Operations personnel frequently encounter decisions that can be described as trade-off decisions. For example, in deciding on the amount of inventory to stock, the decision maker must take into account the trade-off between the increased level of customer service that the additional inventory would yield and the increased costs required to stock that inventory. In selecting equipment, a decision maker must evaluate the merits of extra features relative to the cost of those extra features. And in the scheduling of overtime to increase output, the manager must weigh the value of the increased output against the higher costs of overtime (e.g., higher labor costs, lower productivity, lower quality, and greater risk of accidents).

Throughout this book you will be presented with decision models that reflect these kinds of trade-offs. Decision makers sometimes deal with these decisions by listing the advantages and disadvantages—the pros and cons—of a course of action to better understand the consequences of the decisions they must make. In some instances, decision makers add weights to the items on their list that reflect the relative importance of various factors. This can help them “net out” the potential impacts of the trade-offs on their decision.

A Systems Approach

A systems viewpoint is almost always beneficial in decision making. A systemA set of interrelated parts that must work together. can be defined as a set of interrelated parts that must work together. In a business organization, the organization can be thought of as a system composed of subsystems (e.g., marketing subsystem, operations subsystem, finance subsystem), which in turn are composed of lower subsystems. The systems approach emphasizes interrelationships among subsystems, but its main theme is that the whole is greater than the sum of its individual parts. Hence, from a systems viewpoint, the output and objectives of the organization as a whole take precedence over those of any one subsystem. An alternative approach is to concentrate on efficiency within subsystems and thereby achieve overall efficiency. But that approach overlooks the fact that organizations must operate in an environment of scarce resources and that subsystems are often in direct competition for those scarce resources, so that an orderly approach to the allocation of resources is called for.

A systems approach is essential whenever something is being designed, redesigned, implemented, improved, or otherwise changed. It is important to take into account the impact on all parts of the system. For example, if the upcoming model of an automobile will add antilock brakes, a designer must take into account how customers will view the change, instructions for using the brakes, chances for misuse, the cost of producing the new brakes, installation procedures, recycling worn-out brakes, and repair procedures. In addition, workers will need training to make and/or assemble the brakes, production scheduling may change, inventory procedures may have to change, quality standards will have to be established, advertising must be informed of the new features, and parts suppliers must be selected.

Global competition and outsourcing are increasing the length of companies’ value chains, making it more important than ever for companies to use a systems approach to take the “big picture” into account in their decision making.

Establishing Priorities

In virtually every situation, managers discover that certain factors are more important than others. Recognizing this enables the managers to direct their efforts to where they will do the most good and to avoid wasting time and energy on insignificant factors.

Consider owning and operating an automobile. It has many parts and systems that can malfunction. Some of these are critical: The automobile would not function or would be dangerous to operate without them. Critical items include the engine and drive train, steering, brakes, tires, electrical system, and cooling system. In terms of maintaining and repairing the car, these items should receive the highest priority if the goal is to have safe, reliable transportation.

There are other items that are of much less importance, such as scratches in the paint, minor dents, a missing piece of chrome, and worn seatcovers. In terms of transportation, these should receive attention only after other, more important items have been attended to.

Between these two extremes lies a range of items of intermediate priority. These should be given attention corresponding to their importance to the overall goal. The list might include soft tires, weak battery, wheel alignment, noisy muffler, body rust, inoperative radio, and headlights out of adjustment.

Obviously, certain parts of an automobile are more critical to its operation than others. The same concept applies to management. By recognizing this and setting priorities, a manager will be in a position to manage more effectively.

It is axiomatic that a relatively few factors are often most important, so that dealing with those factors will generally have a disproportionately large impact on the results achieved. This is referred to as the Pareto phenomenonA few factors account for a high percentage of the occurrence of some event(s)., which means that all things are not equal; some things (a few) will be very important for achieving an objective or solving a problem, and other things (many) will not. The implication is that a manager should examine each situation, searching for the few factors that will have the greatest impact, and give them the highest priority. This is one of the most important and pervasive concepts in operations management. In fact, this concept can be applied at all levels of management and to every aspect of decision making, both professional and personal.

Ethics

The financial difficulties of companies such as Enron, WorldCom, Global Crossings, Adelphia, Arthur Andersen, and ImClone Systems brought into question ethical standards and behavior of high-ranking company officials.

In making decisions, managers must consider how their decisions will affect shareholders, management, employees, customers, the community at large, and the environment. Finding solutions that will be in the best interests of all of these stakeholders is not always easy, but it is a goal that all managers should strive to achieve. Furthermore, even managers with the best intentions will sometimes make mistakes. If mistakes do occur, managers should act responsibly to correct those mistakes as quickly as possible, and to address any negative consequences.

Operations managers, like all managers, have the responsibility to make ethical decisions.

Ethical issues arise in many aspects of operations management, including

• Financial statements: accurately representing the organization’s financial condition.
• Worker safety: providing adequate training, maintaining equipment in good working condition, maintaining a safe working environment.
• Product safety: providing products that minimize the risk of injury to users or damage to property or the environment.
• Quality: honoring warranties, avoiding hidden defects.
• The environment: not doing things that will harm the environment.
• The community: being a good neighbor.
• Hiring and firing workers: avoiding false pretenses (e.g., promising a long-term job when that is not what is intended).
• Closing facilities: taking into account the impact on a community, and honoring commitments that have been made.
• Workers’ rights: respecting workers’ rights, dealing with workers’ problems quickly and fairly.

Many organizations have developed codes of ethics to guide employees’ or members’ conduct.

Discussion and Review Questions  3, 4, 7, 14

Experiential Learning Exercise