The Operations Function

This chapter is aimed at providing an overall framework for the textbook, the field of operations management (OM), and a brief introduction of supply chain management. The chapter provides a framework that serves as a beneficial way of organizing students’ understanding of major operations management decisions: process, quality, capacity, and inventory. The cross-functional view of operations management and supply chain management is also introduced in this chapter to provide relevance for the course. When operations management is related to marketing and finance, as a major business function, the students more readily understand the role of operations in business.

In teaching this chapter, I highlight the four decision areas in the OM field and the importance of cross-functional decision making. I also spend some time discussing the importance of both services and manufacturing, and how business operations are managed within larger, multi-organization supply chains. I introduce the concept of contingencies and explain that the textbook includes information of when particular OM activities are ‘best practices’ and when they are not. Finally, I illustrate major OM decisions using the Pizza U.S.A. example, as well as in other types of businesses. Students may find the typical jobs in OM from Monster.com (in an Chapter 1 Operations Leader box) interesting.

Some of the references that might be particularly helpful for different perspectives of the field are the books by Jacobs, Chase and Aquilano (2010), Heizer and Render (2010), and Stevenson (11. The book by Wren (2011) provides historical background on the evolution of management thought.

Answers to Questions

1.Operations management is ubiquitous, that is, present in every organization. Daily, we come in contact with various goods and services produced by the transformation of inputs to outputs under the control of operations managers. Operations are a core business function along with marketing and finance. All decisions are cross-functional in nature. You will be interacting with the operations function no matter what career you choose. Much of what is learned related to operations management can be applied to other functions, not just operations.

2.Operations management is a broader term than production management, encompassing service organizations as well as manufacturing. Operations management is also a more recent term replacing the earlier term production management.

3.The difference between operations and supply chain management is operations management focuses on decisions to manage the transformation process that converts inputs into desired finished goods or services. These decisions are intended to maximize the value inherent in goods or services to customers through the entire supply chain. Supply chain management relates to the network of manufacturing and service operations that supply each other from raw materials through manufacturing to the ultimate customer. The supply chain consists of the flows of materials, money, and information along the entire chain of purchasing, production, and distribution. The supply chain links many different organizations in order to satisfy customer needs.

4.The key decisions make by purchasing managers relate to the purchasing function which sources inputs into the transformation process of the organization from other for-profit and nonprofit organizations. This might include finding the best suppliers, as well on ongoing purchasing of inputs from those suppliers. In contrast, logistics managers make decisions relating to the logistic functions which are typically responsible for the movement of goods and/or services across organizations. This could include arranging for transportation of goods and tracking of the locations of materials.

5.Responsibilities differ among operations, marketing and finance managers. A marketing manager identifies demand for goods or services and develops the market, whereas the operations manager assures supply of the products or services. The finance manager acquires and allocates the capital resources for the other functions. Similarities in the three functions include managerial decision making and shared organizational goals.

6.Operations, marketing, and finance are primary functions of the organization. Human resourses, information systems, and accounting are supporting functions that provide resources and services for the three primary functions. The operations manager applies resources, analysis and information provided by supporting functions and integrates them into decision making. The focus of the operations manager is on decision making rather than on analytic methods.

7.a.The purpose of a college library is to make information available to students and faculty for research and studying. The output is the bundle of services provided along with facilitating goods: Internet, books, microfilms, catalogs and indices.

Process — facility layout considering book stacks, reference rooms, shelf access vs. microfilm, computer access on site and from off site, degree of computer use and procedures for accessing and circulating information; job design and performance evaluation are handled by senior librarians and supervisors within departments: circulation, reference, acquisitions, documents.

Quality — standards of the college library profession are adopted; quality measures include: ratio of consulting staff hours to students, rate of new book and other material purchases, number of complaints, student satisfaction.

Capacity — forecasting of library user needs contributes to decisions on building size, volume of space for study and materials, print acquisitions, computer work stations, staff hiring and scheduling of shifts.

Inventory — decisions concerning the number of books, microfilms, periodicals, etc. to stock.

b.The purpose of a hotel is to attract and satisfy overnight guests and conventioneers. The output is the bundle of services and goods provided: overnight accommodations, maid service, room service, television, pool, bar, coffee shop.

Process — a set of processes for reserving and payment of rooms, housekeeping, restaurant, recreation services, and ongoing study of service methods; the people who implement these processes including receptionists, accountants, housekeepers, and maintenance workers.

Quality — hotel industry standards and the market positioning of the hotel (first class vs. budget) determine standards; quality measures include number of return visitors, conventions booked, and ratings by industry evaluators.

Capacity — number of units and beds; appropriate size for restaurant, bar and convention halls; staffing for housekeeping, restaurant and office.

Inventory — goods to meet requirements for room upkeep (towels, sheets, etc.), convention catering (glasses, dishes, food), restaurant and bar.

c.The purpose of a small manufacturing firm is to provide customers with a quality product at a reasonable price. The output consists of not only the physical good but also any services that accompany the good, such as assistance in selecting the good (the shopping process) or a warranty.

Process — the process of securing the raw materials, transforming and assembling them into a finished good, packaging the product, and arranging for its delivery to customers; job design and establishment of employee benefits.

Quality — definition of quality standards for the manufactured goods, measurement of deviations from design standards, inspection and control of quality of input materials, prevention of defects.

Capacity — number of units the facility is capable of producing per unit time, size of inventory storage, hiring of workers and scheduling of shifts.

Inventory — raw material inputs, work-in-process, and finished goods, used to smooth production and meet customer needs.

8.a.Operation — college library

Inputs — librarians, staff, library facilities and equipment, energy, capital.

Transformation process — organizing information, arranging materials for access, interacting with library users.

Outputs — students and faculty provided with research and study materials.
b.Operation — hotel

Inputs — facilities, staff, materials for housekeeping and food preparation, communications equipment, energy, capital.

Transformation process — taking reservations, check-in and check-out procedures, cleaning rooms, and providing other services.

Outputs — customers satisfied with lodging and related services.

c.Operation — small manufacturing firm

Inputs — raw material, workers, supervisors, management, warehouse,
manufacturing facilities and equip­ment, energy, capital.

Transformation process — ordering raw materials, transforming and assembling raw materials into final product, packaging product, taking supply orders.

Outputs – the product and customers satisfied with the way the product appears and operates.

9.The decision-making view of operations management categorizes and defines decision making for the operations function according to a given framework. The framework used here, which conforms quite closely to the assignment of management responsibilities within operations includes the decision areas of Process, Quality, Capacity, and Inventory.

The process view defines operations management as the management of a transformation system. This system converts inputs, such as energy, materials, labor, capital, and information, into outputs, in the form of goods and services, via the process technology.

Both views are useful as both include goods and services, and both assign to management the responsibility for managing the transformation process in the firm. The difference in the views is one of emphasis: decision making activities by managers versus process design related to transformation systems.

10.Answers will depend on the specific sources obtained by students.

11.Answers will vary depending on the specific WSJ issue or Internet site.

12.Because the operations system is in constant interaction with its environment, changes in the environment may necessitate adaptations by the transformation system. Management may alter the inputs, outputs, controls, or the transformation system itself.

Demand changes may cause operations managers to hire or lay off staff,
initiate or restrict overtime, change facilities capacity, increase or decrease equipment capacity, or expand or tighten inventories.

New pollution control laws may cause operations managers to change process technologies, facilities location decisions, or quality standards.

The changing value of the dollar may cause operations managers to expand or decrease production of various product lines, change facilities location decisions, increase or decrease inventories, or change capacity decisions. This is particularly true of product lines subject to foreign competition or raw materials that are affected by currency changes.

Price changes may cause operations managers to increase or decrease production volume, change product mix, increase or decrease inventories, or change quality levels.

13.Answers will vary depending on the specific sources used.

14.Students are expected to choose one or two themes from contemporary operations themes: service and manufacturing, customer-directed operations, lean operations, integration of operations with other functions, environmental concerns, supply chain management, globalization of operations, and the contingency view. Then they need to provide some critical characteristics of these trends and to explain what their impact is on operations. Answers will vary widely among students.

15. Work of any type typically represents a process and many processes have similarities. From an operations perspective, these processes are designed to convert inputs into outputs and follow a sequence of repeatable steps.

a. Acquisition of another company: When acquiring another company, the sequence of steps includes finding firms suitable for acquisition, investigating the firm in detail for its strengths and weaknesses, then deciding that the firm should be acquired, making an offer, doing due diligence and finally concluding the acquisition. Each acquisition has a variety of inputs in terms of information, labor and capital invested in order to achieve the output which is a desirable acquisition of another company.

b. Closing the books at the end of the year: Closing the books requires reconciling all of the accounting entries and insuring accuracy of the books. The process includes cutting off all cash revenues and cash expenses at midnight of the closing date, looking for adjustments that must be made for unpaid invoices and sales coming back, updating all journal entries, producing an income statement and balance sheet for year end and insuring back-up data is available to support all journal entries.

c. Marketing research for a new product: Market research may be conducted in a variety of ways, but it provides a prospective customer with a product concept (either physically or conceptually) and assesses the likelihood of market acceptance based upon customer responses to a variety of questions. Market research can employ various instruments such as field or phone interviews, field testing, focus groups, panels, etc. Regardless of the tools employed, market research is aimed at determining potential market acceptance of the product.

d. Design of an information system: Designing an information system requires knowledge of customer (internal or external) requirements. Once customer requirements are understood, a prototype can be developed, tested, redesigned based upon feedback, and if successful, a system developed for implementation. Regardless of the purpose of the information system, a universal set of process steps is commonly followed.

e. Hiring of a new employee: Whether this individual will be employed in finance, accounting, human resources, operations, or some other functional discipline within a firm, a common process of employment is typically undertaken. It is initiated with a job posting, an interview(s), followed by possible skill testing, a hiring decision, training, possible mentoring of work, and frequent evaluations of performance.