The scope of operations management ranges across the organization. Operations management people are involved in product and service design, process selection, selection and management of technology, design of work systems, location planning, facilities planning, and quality improvement of the organizations products or services.
The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing inventories, assuring quality, motivating employees, deciding where to locate facilities, and more.
We can use an airline company to illustrate a service organizations operations system. The system consists of the airplanes, airport facilities, and maintenance facilities, sometimes spread out over a wide territory. Most of the activities performed by management and employees fall into the realm of operations management:
Forecasting such things as weather and landing conditions, seat demand for flights, and the growth in air travel.
Capacity planning, essential for the airline to maintain cash flow and make a reasonable profit. (Too few or too many planes, or even the right number of planes but in the wrong places, will hurt profits.)
Scheduling of planes for flights and for routine maintenance; scheduling of pilots and flight attendants; and scheduling of ground crews, counter staff, and baggage handlers.
Managing inventories of such items as foods and beverages, first-aid equipment, in-flight magazines, pillows and blankets, and life preservers.
Assuring quality, essential in flying and maintenance operations, where the emphasis is on safety, and important in dealing with customers at ticket counters, check-in, telephone and electronic reservations, and curb service, where the emphasis is on efficiency and courtesy.
Motivating and training employees in all phases of operations.
Locating facilities according to managers decisions on which cities to provide service for, where to locate maintenance facilities, and where to locate major and minor hubs.
Now consider a bicycle factory. This might be primarily an assembly operation: buying components such as frames, tires, wheels, gears, and other items from suppliers, and then assembling bicycles. The factory also might do some of the fabrication work itself, forming frames, making the gears and chains, and buy mainly raw materials and a few parts and materials such as paint, nuts and bolts, and tires. Among the key management tasks in either case are scheduling production, deciding which components to make and which to buy, ordering parts and materials, deciding on the style of bicycle to produce and how many, purchasing new equipment to replace old or worn out equipment, maintaining equipment, motivating workers, and ensuring that quality standards are met.
|A worker is making the bottom bracket lug for a Trek OCLV carbon road bike at Trek Bicycle Company in Waterloo, Wisconsin, world headquarters for Trek. Trek is a world leader in bicycle products and accessories, with 1,500 employees worldwide. Designers and engineers incorporate the most advanced technology into Trek products, resulting in award-winning bikes and components.|
Courtesy of Trek Bicycle Corporation.
Obviously, an airline company and a bicycle factory are completely different types of operations. One is primarily a service operation, the other a producer of goods. Nonetheless, these two operations have much in common. Both involve scheduling activities, motivating employees, ordering and managing supplies, selecting and maintaining equipment, satisfying quality standards, andabove allsatisfying customers. And in both businesses, the success of the business depends on short- and long-term planning.
The operations function consists of all activities directly related to producing goods or providing services. Hence, it exists both in manufacturing and assembly operations, which are goods-oriented, and in areas such as health care, transportation, food handling, and retailing, which are primarily service-oriented.Table 1.4 provides examples of the diversity of operations management settings.
|TABLE 1.4||Examples of types of operations|
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A primary function of an operations manager is to guide the system by decision making. Certain decisions affect the design of the system, and others affect the operation of the system.
System design involves decisions that relate to system capacity, the geographic location of facilities, arrangement of departments and placement of equipment within physical structures, product and service planning, and acquisition of equipment. These decisions usually, but not always, require long-term commitments. Moreover, they are typically strategic decisions. System operation involves management of personnel, inventory planning and control, scheduling, project management, and quality assurance. These are generally tactical and operational decisions. Feedback on these decisions involves measurement and control. In many instances, the operations manager is more involved in day-to-day operating decisions than with decisions relating to system design. However, the operations manager has a vital stake in system design because system design essentially determines many of the parameters of system operation. For example, costs, space, capacities, and quality are directly affected by design decisions. Even though the operations manager is not responsible for making all design decisions, he or she can provide those decision makers with a wide range of information that will have a bearing on their decisions. Table 1.5 provides additional insights on operations management.
There are also a number of other areas that are part of the operations function. They include purchasing, industrial engineering, distribution, and maintenance.
|TABLE 1.5||Design and operating decisions|
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Purchasing has responsibility for procurement of materials, supplies, and equipment. Close contact with operations is necessary to ensure correct quantities and timing of purchases. The purchasing department is often called on to evaluate vendors for quality, reliability, service, price, and ability to adjust to changing demand. Purchasing is also involved in receiving and inspecting the purchased goods.
Industrial engineering is often concerned with scheduling, performance standards, work methods, quality control, and material handling.
Distribution involves the shipping of goods to warehouses, retail outlets, or final customers.
Maintenance is responsible for general upkeep and repair of equipment, buildings and grounds, heating and air-conditioning; removing toxic wastes; parking; and perhaps security.
The operations manager is the key figure in the system: He or she has the ultimate responsibility for the creation of goods or provision of services.
The kinds of jobs that operations managers oversee vary tremendously from organization to organization largely because of the different products or services involved. Thus, managing a banking operation obviously requires a different kind of expertise than managing a steelmaking operation. However, in a very important respect, the jobs are the same: They are both essentially managerial. The same thing can be said for the job of any operations manager regardless of the kinds of goods or services being created.
The importance of operations management, both for organizations and for society, should be fairly obvious: The consumption of goods and services is an integral part of our society. Operations management is responsible for creating those goods and services. Organizations exist primarily to provide services or create goods. Hence, operations is the core function of an organization. Without this core, there would be no need for any of the other functionsthe organization would have no purpose. Given the central nature of its function, it is not surprising that more than half of all employed people in this country have jobs in operations. Furthermore, the operations function is responsible for a major portion of the assets in most business organizations.
The service sector and the manufacturing sector are both important to the economy. The service sector now accounts for more than 70 percent of jobs in the United States, and it is growing in other countries as well. Moreover, the number of people working in services is increasing, while the number of people working in manufacturing is not. (See Figure 1.4.) The reason for the decline in manufacturing jobs is twofold: As the operations function in manufacturing companies finds more productive ways of producing goods, the companies are able to maintain or even increase their output using fewer workers. Furthermore, some manufacturing work has been outsourced to more productive companies, many in other countries, that are able to produce goods at lower costs. Outsourcing and productivity will be discussed in more detail in this and other chapters.
|FIGURE 1.4||U.S. manufacturing versus service employment, 1940-2005|
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Source: U.S. Bureau of Labor Statistics.
Many of the concepts presented in this book apply equally to manufacturing and service. Consequently, whether your interest at this time is on manufacturing or on service, these concepts will be important, regardless of whether a manufacturing example or service example is used to illustrate the concept.
The following reading gives another reason for the importance of manufacturing jobs, and the reading after that lists some challenges in managing service operations.
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| Why Manufacturing Matters||READING|
The U.S. economy is becoming more and more service based. The percentage of employment in manufacturing continues to decrease while the percentage employed in services continues to increase. However, it would be unwise to assume that manufacturing isnt important to the economy, or that service is more important. Lets see why.
In a press release issued by the office of the White House press secretary, a number of key points were made:
- Over 18 million workers are employed in manufacturing jobs.
- Manufacturing accounts for over 70 percent of the value of U.S. exports.
- The average full-time manufacturing workers total compensation package is about 20 percent greater than the average of all workers in the United States. Compared to service workers, manufacturing workers are more likely to have access to benefits such as health and life insurance, disability, retirement plans, and vacation and sick leave.
- Productivity growth in manufacturing in the last five years has been more than double that of the U.S. economy at large due to the investments made in technology development and diffusion.
- Manufacturing industries are the economys most prolific creators and disseminators of technology, accounting for more than half the total R&D performed.
Additional insight comes from testimony before a California Senate committee:
- While service jobs range from highly paid to minimum wage, California manufacturing workers earn an average of about $25,000 a year more than workers in service jobs.
- When a California manufacturing job is lost, an average of 2.5 service jobs also disappear.
- Why do you suppose the percentage of workers employed in manufacturing in the United States is decreasing?
- Should business leaders and government officials be concerned when manufacturing jobs are lost?
Source: Why Manufacturing Matters to the U.S. Economy, Press release, Office of the White House Press Secretary, February 5, 2000; from testimony given by Dorothy Rothrock, vice president of the California Manufacturers & Technology Association, before a California Senate committee, October 10, 2002.
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| The Challenges of Managing Services||READING|
Services can pose a variety of managerial challenges for managerschallenges that in manufacturing are either much less or nonexistent. And because services represent an increasing share of the economy, this places added importance to understanding and dealing with the challenges of managing services. Here are some of the main factors:
- Jobs in service environments are often less structured than in manufacturing environments.
- Customer contact is usually much higher in services.
- In many services, worker skill levels are low compared to those of manufacturing workers.
- Services are adding many new workers in low-skill, entry-level positions.
- Employee turnover is often higher, especially in the low-skill jobs.
- Input variability tends to be higher in many service environments than in manufacturing.
- Service performance can be adversely affected by workers emotions, distractions, customers attitudes, and other factors, many of which are beyond managers control.
Because of these factors, quality and costs are more difficult to control, productivity tends to be lower, the risk of customer dissatisfaction is greater, and employee motivation is more difficult.
- What managerial challenges do services present that manufacturing does not?
- Why does service management present more challenges than manufacturing?
Discussion and Review Questions 3, 4, 8, 9
Taking Stock 1