CHAPTER 1
Friday, 3 July 2020 4:32 PM
S U M M A R Y -- Chapter 1 K E Y P O I N T S -- Chapter 1
• The operations function in business organizations is 1. The operations function is that part of every business
responsible for producing goods and providing services. It is a organization that produces products and/or delivers services.
core function of every business. 2. Operations consists of processes that convert inputs into
• Supply chains are the sequential system of suppliers and outputs. Failure to manage those processes effectively will
customers that begins with basic sources of inputs and ends have a negative impact on the organization.
with final customers of the system. 3. A key goal of business organizations is to achieve an economic
• Operations and supply chains are interdependent—one matching of supply and demand. The operations function is
couldn’t exist without the other, and no business organization responsible for providing the supply or service capacity for
could exist without both. expected demand.
• Operations management involves system design and operating 4. All processes exhibit variation that must be managed.
decisions related to product and service design, capacity 5. Although there are some basic differences between services
planning, process selection, location selection, work and products that must be taken into account from a
management, inventory and supply management, production managerial standpoint, there are also many similarities
planning, quality assurance, scheduling, and project between the two.
management. 6. Environmental issues will increasingly impact operations
• The historical evolution of operations management provides decision making.
interesting background information on the continuing 7. Ethical behavior is an integral part of good management
evolution of this core business function. practice.
• The Operations Tours and Readings included in this and 8. All business organizations have, and are part of, a supply
subsequent chapters provide insights into actual business chain that must be managed.
operations.
N O T E S 1 .1 - Introduction N O T E S 1.2 - Production of Goods vs. Providing Services
• Operations - processes that either provide services or create • Goods-service Continuum - products are typically neither
goods and core of a business organization purely service- or purely goods-based
• Goods - physical items that include raw materials, parts,
subassemblies
• Services - are activities that provide some combination of time,
location, form, or psychological value
The collective success or failure of companies’ operations
functions has an impact on the ability of a nation to compete
with other nations, and on the nation’s economy.
• Three Basic Functional Areas
○ Finance - responsible for securing financial resources at
favorable prices and allocating those resources
throughout the organization • Manufacturing vs. Service
▪ budgeting, analyzing investment proposals, 1. Degree of customer contact - services involve a high
and providing funds for operations degree of customer contact
○ Marketing - responsible for assessing consumer 2. Labor content of job - services often have a high degree of
wants and needs, and selling and promoting the labor
organization’s goods or services. 3. Uniformity of inputs - service operations are often subject
○ Operations - responsible for producing the goods or to a higher degree of variability of inputs; manufacturing
providing the services offered by the organization. operations often have a greater ability to control the
variability of inputs
• Operations Management - management of systems or 4. Uniformity of output -
processes that create goods and/or provide services 5. Measurement of productivity - more difficult for service
• Supply Chain - sequence of organizations—their facilities, jobs due largely to the high variations of inputs
functions, and activities—that are involved in producing and 6. Production and delivery -
delivering a product or service 7. Quality assurance - more challenging for services due to
○ External - provide raw materials, parts, equipment, the higher variation in input, and because delivery and
supplies, and/or other inputs to the organization, and consumption occur at the same time; less opportunity to
they deliver outputs that are goods to the organization’s avoid exposing the customer to mistakes
customers 8. Amount of inventory - many services tend to involve less
○ Internal - part of the operations function itself, supplying use of inventory than manufacturing operations; costs of
operations with parts and materials, performing work on having inventory on hand are lower than they are for
products, and/or performing services manufacturing
9. Evaluation of work - manufacturing jobs are often well
paid, and have less wage variation than service jobs
10. Ability to patent design - product designs are often easier
to patent than service designs and some services cannot
Operations and supply chains are intrinsically linked be patented
• The operations function involves the conversion of inputs into
outputs
• Transformation Process
○ Value-added - term used to describe the difference
between the cost of inputs and the value or price of
outputs; value of outputs is measured by the prices that
DSIOPMA Page 1
Friday, 3 July 2020 4:32 PM
S U M M A R Y -- Chapter 1 K E Y P O I N T S -- Chapter 1
• The operations function in business organizations is 1. The operations function is that part of every business
responsible for producing goods and providing services. It is a organization that produces products and/or delivers services.
core function of every business. 2. Operations consists of processes that convert inputs into
• Supply chains are the sequential system of suppliers and outputs. Failure to manage those processes effectively will
customers that begins with basic sources of inputs and ends have a negative impact on the organization.
with final customers of the system. 3. A key goal of business organizations is to achieve an economic
• Operations and supply chains are interdependent—one matching of supply and demand. The operations function is
couldn’t exist without the other, and no business organization responsible for providing the supply or service capacity for
could exist without both. expected demand.
• Operations management involves system design and operating 4. All processes exhibit variation that must be managed.
decisions related to product and service design, capacity 5. Although there are some basic differences between services
planning, process selection, location selection, work and products that must be taken into account from a
management, inventory and supply management, production managerial standpoint, there are also many similarities
planning, quality assurance, scheduling, and project between the two.
management. 6. Environmental issues will increasingly impact operations
• The historical evolution of operations management provides decision making.
interesting background information on the continuing 7. Ethical behavior is an integral part of good management
evolution of this core business function. practice.
• The Operations Tours and Readings included in this and 8. All business organizations have, and are part of, a supply
subsequent chapters provide insights into actual business chain that must be managed.
operations.
N O T E S 1 .1 - Introduction N O T E S 1.2 - Production of Goods vs. Providing Services
• Operations - processes that either provide services or create • Goods-service Continuum - products are typically neither
goods and core of a business organization purely service- or purely goods-based
• Goods - physical items that include raw materials, parts,
subassemblies
• Services - are activities that provide some combination of time,
location, form, or psychological value
The collective success or failure of companies’ operations
functions has an impact on the ability of a nation to compete
with other nations, and on the nation’s economy.
• Three Basic Functional Areas
○ Finance - responsible for securing financial resources at
favorable prices and allocating those resources
throughout the organization • Manufacturing vs. Service
▪ budgeting, analyzing investment proposals, 1. Degree of customer contact - services involve a high
and providing funds for operations degree of customer contact
○ Marketing - responsible for assessing consumer 2. Labor content of job - services often have a high degree of
wants and needs, and selling and promoting the labor
organization’s goods or services. 3. Uniformity of inputs - service operations are often subject
○ Operations - responsible for producing the goods or to a higher degree of variability of inputs; manufacturing
providing the services offered by the organization. operations often have a greater ability to control the
variability of inputs
• Operations Management - management of systems or 4. Uniformity of output -
processes that create goods and/or provide services 5. Measurement of productivity - more difficult for service
• Supply Chain - sequence of organizations—their facilities, jobs due largely to the high variations of inputs
functions, and activities—that are involved in producing and 6. Production and delivery -
delivering a product or service 7. Quality assurance - more challenging for services due to
○ External - provide raw materials, parts, equipment, the higher variation in input, and because delivery and
supplies, and/or other inputs to the organization, and consumption occur at the same time; less opportunity to
they deliver outputs that are goods to the organization’s avoid exposing the customer to mistakes
customers 8. Amount of inventory - many services tend to involve less
○ Internal - part of the operations function itself, supplying use of inventory than manufacturing operations; costs of
operations with parts and materials, performing work on having inventory on hand are lower than they are for
products, and/or performing services manufacturing
9. Evaluation of work - manufacturing jobs are often well
paid, and have less wage variation than service jobs
10. Ability to patent design - product designs are often easier
to patent than service designs and some services cannot
Operations and supply chains are intrinsically linked be patented
• The operations function involves the conversion of inputs into
outputs
• Transformation Process
○ Value-added - term used to describe the difference
between the cost of inputs and the value or price of
outputs; value of outputs is measured by the prices that
DSIOPMA Page 1
