Introduction to Operations Management
Lesson Objectives:
At the end of this module, I should be able to:
1. Explain the general approaches to decision-making
2. Identify key issues for today’s business operations
LO1: Explain the general approaches to decision-making
The chief role of an operations manager is that of planner and decision maker and their daily
concerns include costs (budget), quality, and schedules (time). Most decisions involve many
possible alternatives that can have quite different impacts on costs or profits. So, it is of such great
importance for operations manager to make informed decisions.
Operations management professionals make a number of key decisions that affect the entire
organization. Typical operations decisions include:
What: What resources are 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?
Where: Where will the work be done?
How: How will the product or service be designed? How will the work be done? How will resources be
allocated?
Who: Who will do the work?
General Approaches to Decision Making
1. Model - an abstraction of reality; a simplified representation of something. These are
sometimes classified as:
Physical models look like their real-life counterparts. For example, a
child’s car is a model of a real automobile.
Schematic models are more abstract than their physical counterparts
such as graphs and charts, blueprints, pictures, and drawings. The
advantage of these models is that they often relatively simple to
construct and change.
Mathematical models are the most abstract such as numbers,
formulas, and symbols. They do not look at all like their real-life
counterparts. These models are usually easy to manipulate.
These models are used to assist in various decision-making scenarios. Modelling is a key tool used by all
decision makers because these are generally easy to use and less expensive. Nonetheless, the use of
models does not guarantee good decisions. There are certain limitations. Models may be incorrectly applied
and the results misinterpreted.
2. Quantitative Approaches - A decision-making approach that frequently seeks to obtain a
mathematically optimal solution to certain managerial problems. These approaches to
decision making in operations management (and in other functional business areas) have
been accepted because of calculators and computers capable of handling the required
calculations. Computers have had a major impact on operations management. Examples
include linear programming for optimum allocation of scarce resources, PERT (program
evaluation and review technique, and forecasting techniques.
3. Performance Metrics - All managers use metrics to manage and control operations. (metrics
in use include those related to profits, costs, quality, productivity, flexibility, assets,
inventories)
4. Analysis of Trade-offs - A trade-off is giving up one thing in return for something else. It
means analyzing the advantages and disadvantages – the pros and cons – of a course of
action.
For example, what are the things you would consider in making decision whether to speak up in class or
wait to get called on by the instructor? Would you consider the control of the situation? Class
participation? Perception? Image?
5. Degree of Customization – a major influence on the entire organization is the degree of
customization of products or services being offered to its customers. Generally, higher
degrees of customization involve more complexity in terms of production, layout, worker skills
and productivity.
6. Systems Approach - Emphasizes interrelationships among subsystems. It is essential
whenever something is being designed, redesigned, implemented, improved, or otherwise
changed. It’s like seeing an organization as part of larger systems such as the industry where
it belongs, the economic system, and the society and how these systems affect the
organization.
7. Establishing Priorities - In nearly all cases, managers discover that certain issues or items
are more important than others. Recognizing this allows managers to focus their attention to
those efforts that will do the most good.
Typically, a relatively few issues or items are very important, so that dealing with those factors
will generally have a disproportionately large impact on the results achieved. This well-known
effect is referred to as the Pareto Phenomenon. This is one of the most important and
pervasive concepts in operations management.
Pareto phenomenon (Pareto Analysis) states that 20% of the things done in the right manner
produce 80% of the desired results. It works on the concept of first segregating the “vital few”
from the “trivial many” and then working on those “vital few” to achieve the best results.
(source: www.chegg.com)
Meaning, 80% of the results are produced by 20% of causes.
This concept can be applied to every aspect of decision, both professional and personal. That being the
case, you should change the way you set your goals forever!
LO2: Identify key issues for today’s business operations
Key Issues for Today’s Business Operations
There are a number of issues that are high priorities of many business organizations. Although not
every business is faced with these issues, many are. Among the issues are the following:
Economic conditions – recession, slow recovery in various
sectors Innovating – finding new or improved products or services
Quality problems – due to operations failures
Risk Management – financial crises, product recalls, accidents, natural
and man-mad disasters, and economic ups and downs
Cyber-security – need to guard against intrusions from hackers
Competing in a global economy – outsourcing, reducing costs
internally, changing designs, and working to improve
productivity.
The following areas require more in-depth discussions:
▪ Environmental Concerns
Stricter environmental regulations are being imposed. Business organizations are under
increasing pressure to generally operate sustainable processes. Operations management is
central to dealing with these issues. Sometimes referred to as “green initiatives”, the
possibilities include reducing packaging, materials, water and energy use, and the
environmental impact of supply chain, including buying locally.
Examples of companies who put the planet before profits are Cocoon Boutique Hotel, Bambikes,
Echostore, Loudbasstard, and Bazurabags.
Even our local supermarket stores are becoming more aware of the idea of “going green”. Our
Mother Earth is becoming more vulnerable to natural disasters. And one way to help fight the
damage is by being mindful consumers. We should support ventures pursuing sustainable
programs.
So, the next time you buy groceries, bring your eco-bag. The next time you visit your favourite milk tea
shop or coffee shop, bring your stainless straw. Why not?
▪ Ethical Conduct
The need for ethical conduct in business is becoming increasingly obvious given numerous
examples of questionable actions in recent history.
Ethics – a standard of behaviour that guides how one should act in various situations.
Many organizations have developed codes of ethics to guide employees’ or members’ conduct.
The Markula Center for Applied Ethics at Santa Clara University identifies five principles for
thinking ethically:
❖ The Utilitarian Principle – the good done by an action or inaction should outweigh any harm it
causes or might cause.
Example: not allowing a person who has had too much to drink to drive
❖ The Rights Principle – actions should respect and protect the moral rights of
others. Example: not taking advantage of a vulnerable person
❖ The Fairness Principle – equals should be held to, or evaluated, by the same standards.
Example: equal pay for equal work
❖ The Common Good Principle – actions should contribute to the common good of the
community Example: an ordinance on noise abatement
❖ The Virtue Principle – actions should be consistent with certain ideal virtues.
Example – honesty, compassion, generosity, tolerance, fidelity, integrity, and self-control
In making decision, managers must consider how their decisions will affect shareholders,
management, employees, customers, the community at large, and the environment. Finding
solutions and making decisions that will serve the best interest for all the latter is not always
easy. Even managers with the best intentions sometime make mistakes. If mistakes occur,
managers should act responsibly to correct those mistakes as quickly as possible, and to
address any negative consequences.
The Ethisphere Institute recognizes companies worldwide for their ethical leadership. Among
those are Ford Motor Company, Starbucks, Microsoft, and L’Oreal. Do you know these
companies, too?
▪ The Need to Manage the Supply Chain
All business organizations have, and are part of, a supply chain that must be managed. In the
past, most organizations did little to manage their supply chains. Instead, they tended to
concentrate on their own operations and on their immediate suppliers. As a result, supply
chains experienced range of problems from inventory stock outs, late deliveries, and quality
problems. These now make it clear that management of supply chains is essential to business
success. Operations Today!
We cannot deny the fact that our world is constantly changing. Today’s operations management
environment is very different from what it was just a few years ago. Advances in information technology
and global competition have had a major influence on this significant development. Obviously, there
have been – and will continue to be – many benefits from technological advances.
E-business (electronic business) involves the use of the internet to
transact business. It is changing the way business organizations
interact with their customers and their suppliers.
Have you tried buying and selling goods and/or services using the
internet, and transferring money and data to execute these
transactions? Sure, you already did. That is E-commerce, a
consumer-to-business transactions and a product of our ever-
changing business world.
Lean Systems are systems that use minimal amounts of resources
to produce a high volume of high-quality goods with some variety.
Lean systems use a highly skilled workforce and flexible equipment.
The famous Toyota, Nike and Intel were just few of the successful
companies that currently use lean processes.
