Chapter 1: Operations and Productivity
Concept of Operation Management
The techniques of OM apply throughout the world to virtually all productive enterprises. It doesn’t matter if the application is in an office, a hospital, a restaurant, a department store, or a factory—the production of goods and services requires operations management. And the efficient production of goods and services requires effective applications of the concepts, tools, and techniques of OM Production is the creation of goods and services.
Operations management (OM) is the set of activities that creates value in the form of goods and services by transforming inputs into outputs. Activities creating goods and services take place in all organizations. In manufacturing firms, the production activities that create goods are usually quite obvious. In an organization that does not create a tangible good or product, the production function may be less obvious. We often call these activities services. The services may be “hidden” from the public and even from the customer. The product may take such forms as the transfer of funds from a savings account to a checking account, the transplant of a liver, the filling of an empty seat on an airplane, or the education of a student. Regardless of whether the end product is a good or service, the production activities that go on in the organization are often referred to as operations or operations management.
Organizing to produce goods and services
To create goods and services, all organizations perform three functions. These functions are the necessary ingredients not only for production but also for an organization’s survival.
They are
1. Marketing, which generates the demand, or at least takes the order for a product or service (nothing happens until there is a sale).
2. Production/operations, which creates, produces, and delivers the product.
3. Finance/accounting, which tracks how well the organization is doing, pay the bills, and collects the money.
The Supply Chain
A supply chain for a bottle of Coke requires a beet or sugar cane farmer, a syrup producer, a bottler, a distributor, and a retailer, each adding value to satisfy a customer. Only with collaborations between all members of the supply chain can efficiency and customer satisfaction be maximized. The supply chain, in general, starts with the provider of basic raw materials and continues all the way to the final customer at the retail store.
Through the three functions—marketing, operations, and finance—value for the customer is created. However, firms seldom create this value by themselves. Instead, they rely on a variety of suppliers who provide everything from raw materials to accounting services. These suppliers, when taken together, can be thought of as a supply chain.
A global network of organizations and activities that supplies a firm with goods and services.
Why study OM?
We
study OM for four reasons:
- OM is
one of the three major functions of any organization, and it is integrally
related to all the other business functions. All organizations market (sell),
finance (account), and produce (operate), and it is important to know how the
OM activity functions. Therefore, we study how people organize themselves for
productive enterprise.
- We
study OM because we want to know how goods and services are produced. The
production function is the segment of our society that creates the products and
services we use.
- We
study OM to understand what operations managers do. Regardless of your job in
an organization, you can perform better if you understand what operations
managers do. In addition, understanding OM will help you explore the numerous
and lucrative career opportunities in the field.
- We study OM because it is such a costly part of an organization. A large percentage of the revenue of most firms is spent in the OM function. Indeed, OM provides a major opportunity for an organization to improve its profitability and enhance its service to society.
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