Test 1 (Chapter 1-2): Operations Management

Production (4)
The creation of goods and services
Operations Management (4)
Activities that relate to the creation of goods and services through the transformation of inputs and outputs.
Supply Chain (6)
A global network of organizations and activities that supplies a firm with goods and services
10 strategic OM decions (7)
Design of goods and services
Managing quality
Process strategy
Location strategies
Layout strategies
Human resources
Supply-chain management
Inventory management
Services (11)
Economic activities that typically produce an intangible product (such as eduction, entertainment, lodging, government, financial, and health services).
Service sector (12)
The segment of the economy that includes trade, financial, lodging, education, legal, medical, and other professional occupations.
Productivity (13)
The ratio of outputs (goods and services) divided by one or more inputs (such as labor, capital, or management).
Single-factor productivity (14)
Indicates the ratio of one resource (input) to the goods and services produced (outputs)
Multifactor productivity (14)
Indicates the ratio of many or all resources (inputs) to the goods and services produced (output)
Productivity variables (15)
The 3 factors critical to productivity improvement-labor, capital, and the art and science or management.
Knowledge society (16)
A society in which of the labor force has migrated from manuel work based on knowledge
Stakeholders (19)
Those with a vested interest in an organization, including customers, distributors, suppliers, owners, lenders, employees, and community members.
Essential factors in producing goods & services
1) Marketing
2) Production/operations
3) Finance/accounting
Essential factors: marketing
generates demand
Essential factors: Production/operations
Creates the product
Essential functions: Finance/accounting
Tracks how well the organization is doing, pays bills, collects the money
Members of the supply chain:
collaborate to achieve high levels of customer satisfaction, efficiency and competitive advantage.
Why study operations management?
– to know how people organize themselves for productive enterprise.

– to know how goods and services are produced

– To understand what operations managers do

– its a costly part of an organization

What do operation managers do?
design of goods and services
Defines what is required of operations

Determines quality, sustainability, and human resources

Managing quality
determines the customer’s quality expectations

Establish policies and procedures to identify and achieve that quality

process and capacity design
How is a good or service produced?

Commits management to specific technology, quality, resources, and investment.

Location strategy
Nearness to customers, suppliers, and talent.
Layout strategy
Integrate capacity needs, personnel levels, technology, and inventory

Determine the efficient flow of materials, people. and information

Human resources and job design
Recruit, motivate, and retain personnel with the required talent and skills
Supply chain management
Integrate supply chain into the firm’s strategy

Determine what is to be purchased, from whom, and under what conditions.

Inventory management
Inventory ordering and holding decisions

Optimize considering customer satisfaction, supplier capability, and production schedules.

Determine and implement intermediate and short-term schedules

Utilize personnel and facilities while meeting customer demands

Consider facility capacity, production demands, and personnel.
Fredrick W. Taylor
father of scientific management
W. Edwards Deming
– Engineer and physicist

– Credited with teaching Japan quality control methods in post-WW2

– Used statistics to analyze process

– he involved workers in decisions

Frank & Lillian Gilbreth
– Husband & Wife engineering team

– Further developed work measurement methods

– Applied methods to their home & 12 children

Henry Ford
– Ford Motor Company

-First used moving assembly line

– Paid workers very well.

Productivity challenge
Productivity is the ratio of outputs (goods and services) divided by the inputs (resources such as labor and capital)
The economic system
Inputs => Transformation => Outputs => Feedback =>
Measurement problems: Quality
May change while the quantity of inputs and outputs remains constant
Measurement problems: External elements
May cause an increase or decrease in productivity
Measurement problems: Precise units
may be lacking
Maquiladoras (31)
Mexican factories located along the U.S.-Mexico border that receive preferential tariff treatment.
World Trade Organization (32)
An international organization that promotes world trade by lowering barriers to the free flow of goods across borders.
North American Free Trade Agreement (32)
A free trade agreement between Canada, Mexico, and the United States
European Union (32)
A European trade group that has 27 member states.
Mission (34)
The purpose or rationale for an organization’s existence
Strategy (34)
How an organization expects to achieve its missions and goals
Competitive Advantage (35)
The creation of a unique advantage over competitors
Differentiation (36)
Distinguishing the offerings of an organization in a way that the customers perceives as adding value
Experience Differentiation (36)
Engaging a customer with a product through imaginative use of the 5 senses, so the customer “experiences” the product.
Response (37)
A set of values related to rapid, flexible, and reliable performance.
Low-cost leadership (36)
Achieving maximum value, as perceived by the customer.
Resources view (38)
A method managers use to evaluate the resources at their disposal and manage or alter them to achieve competitive advantage.
Value-chain analysis (38)
A way to identify those elements in the product/service chain that uniquely add value. These are areas where the firm adds its unique value through product research, design, human resources, supply-chain management, process innovation, or quality management.
Five forces model (38)
A method of analyzing the five forces in the competitive environment
SWOT Analysis (39)
A method of determining internal strengths and weaknesses and external opportunities and threats.
Key Success factors (40)
Activities or factors that are key to achieving completive advantage
Core competencies (40)
A set of skills, talents, and capabilities in which a firm is particularly strong
Activity map (41)
A graphical link of competitive advantage, KSFs, and supporting activities.
Outsourcing (42)
Transferring a firm’s activities that have traditionally been internal to external suppliers.
Theory of comparative advantage (44)
A theory which states that countries benefit from specializing in (and exploring) goods and services in which they have relative advantage, and they benefit from importing goods and services in which they have a relative disadvantage.
International business (47)
a firm that engages in cross-border transactions
Multinational corporation (47)
A firm that has extensive involvement in international business, owning or controlling facilities in more than one country.
International strategy (47)
a strategy in which global markets are penetrated using exports and licenses
Multidomestic strategy (47)
A strategy in which operating decisions are decentralized to each country to enhance local responsiveness
Global strategy (47)
a strategy in which operating decisions are centralized and headquarters coordinates the standardization and learning between facilities
Transnational strategy (48)
A strategy that combines the benefits of global-scale efficiencies with the benefits of local responsiveness
Reasons to globalize:
1. Improve the supply chain
2. Reduct costs
3. Improve operations
4. Understand markets
5. Improve products
6. Attract and retain global talent
statements tell an organization where it is going
tells the organization how to get there
Strategies for competitive advantage:
1) differentiation
2) cost leadership
3) response
SWOT Analysis
What percent of jobs in the US are OM?
How to improve productivity?
Social Overhead
What is the purpose of NAFTA?
to phase out all trade and tariff barriers among Canada, Mexico, and the U.S.
What are the five forces?
1. immediate rivals
2. potential entrants
3. customers
4. suppliers
5. substitute products
Outsourcing Advantages
When it’s cheaper for us to buy it than to produce it… Outsource

Table 2.2
– Cost savings
– gaining outside expertise
– improving operations & services
– maintaining a focus on core competencies
– accessing outside technology

Outsourcing Disadvantage
It’s risky!
Inadequate planning and analysis
Timely delivery and quality

Table 2.2
– increased logistics & inventory costs
– loss of control
– potential creation of competition
– negative impact on employees
– risk may not happen at once