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Chapter 8

Managing Operations
and Supply Chains

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 Learning Objectives
8-1 Define operations management.
8-2 Differentiate between operations and manufacturing.
8-3 Explain how operations management differs in manufacturing
and service firms.
8-4 Describe the elements involved in planning and designing an
operations system.
8-5 Specify some techniques managers may use to manage the
logistics of transforming inputs into finished products.
8-6 Assess the importance of quality in operations management.
8-7 Propose a solution to a business’s operations dilemma.

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 The Nature of Operations Management 1

Operations management—the development and

administration of the activities involved in transforming
resources into goods and services.
Historically, it has been called “production” or “manufacturing”.
• Change from “production” to “operations” recognizes the increasing
importance of organizations that provide services and ideas.
• Term “operations” represents an interest in viewing the operations
function as a whole rather than simply as an analysis of inputs and
outputs.

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 The Nature of Operations Management 2

Manufacturing.
• Activities and processes used in making tangible products; also
called production.

Production.
• Activities and processes used in making tangible products; also
called manufacturing.

Operations.
• Activities used in making both tangible and intangible products.

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 The Nature of Operations Management 3

The Transformation Process.

• The transformation process converts inputs into products.
• Inputs are resources such as labor, money, materials, and
energy.
• Products are the goods, services, and ideas that result from the
conversion of inputs.
• Transformation may take place through one or more processes.

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 The Transformation Process

Blaze Pizza’s inputs are components such as pepperoni, mozzarella,

mushrooms, onions, and sausage, while its products are customized
pizzas.

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 Figure 8.1 The Transformation Process of
Operations Management

Access the text alternative for these images.

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 Figure 8.2 Inputs, Products, and Transformation
Processes in the Manufacture of Oak Furniture

Access the text alternative for these images.

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 The Nature of Operations Management 4

Operations Management in Service Businesses.

• Services require different transformation processes.
• Services require high customer-contact.
• Ideal service provider is high tech and high touch.
• Service product is generally intangible and even perishable.

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 Table 8.1 Characteristics of Services

Service Characteristics Examples

Intangibility Going to a concert or sports event such
as baseball, basketball, or football
Inseparability of production Going to a chiropractor; air travel;
and consumption veterinary services
Perishability Seats at a speaker’s presentation
Customization Haircut; legal services; tax consultation
Customer contact Restaurants; retailing such as Macy’s

Sources: Adapted from Valerie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Delivering
Quality Service: Balancing Customer Perceptions and Expectations (New York: Free Press, 1990); K.
Douglas Hoffman and John E.G. Bateson, Essentials of Services Marketing (Mason, OH; Cengage
Learning, 2001); Ian P. McCarthy, Leyland Pitt, and Pierre R. Berthon, “Service Customization
Through Dramaturgy,” Mass Customization, 2011, pp. 45–65.

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 The Nature of Operations Management 5

Service versus Tangible Product.

• Services require more customer contact.
• Performance of a service typically occurs at the point of
consumption.

Uniformity of Inputs.
• Service providers have less control over the amount of
variability of resources.
• Services are more customized to each customer.

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 The Nature of Operations Management 6

Uniformity of Product.
• The human element is inherent in providing services, therefore,
each service is performed differently.

Labor Required.
• Services are more labor-intensive due to the high level of
customer contact.

Measurement of Productivity.
• Intangibility of the service product makes measurement more
difficult.

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 POLLING QUESTION 1

Historically, there have been other names for operations

management such as production and _____.
A. supply chain management.
B. logistics management.
C. Manufacturing.
D. IT management.

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 Planning and Designing Operations
Systems 1

Planning the Product.

Determine what consumers want, usually through marketing
research.
Product development can be a lengthy, expensive process.
• Most companies work to reduce development time and costs.
• Some firm develop products jointly.

Create a workable design; transformation process.

• Research and development.

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 Planning and Designing Operations
Systems 2

Designing the Operations Processes.

Standardization.
• Making identical, interchangeable components or even complete
products.
• Usually costs less than a custom-designed product.

Modular design.
• Building an item in a self-contained unit or module that can be
combined or interchanged to create different products.
• Often produced as integrated units; failure of one unit usually means
entire component must be replaced.

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 Planning and Designing Operations
Systems 3

Designing the Operations Processes.

Customization.
• Making products to meet a customer’s particular needs or wants.
• Mass customization.

Blockchain.
• Secure, public database that records all transactions and is spread
across multiple computers.
• Difficult to tamper with.
• Growing rapidly.

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 Planning and Designing Operations
Systems 4

Planning Capacity.
Capacity—the maximum load an organizational unit can carry or
operate.
The unit of measure could be a worker or machine, a department,
a branch, or an entire plant.
Capacity can be stated in terms of inputs or products.
Operations managers need to plan for capacity needs.
• Too low; unmet demand and lost customers.
• Too high; higher operating costs.

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 Planning and Designing Operations
Systems 5

Planning Facilities.
Location.
• Proximity to market.
• Availability of raw materials, transportation, power, and labor.
• Climatic influences and community characteristics.
• Taxes and inducements.

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 Planning and Designing Operations
Systems 6

Planning Facilities.
Facility Layout.
• Fixed-position layout.
• Project organization.
• Process layout.
• Intermittent organization.
• Product layout.
• Continuous manufacture organizations.

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 Planning and Designing Operations
Systems 7

Planning Facilities.
Technology.
• Computer-assisted design (CAD).
• Computer-assisted manufacturing (CAM).
• Drones, Robotics, and AI.
• Flexible manufacturing.
• Computer-integrated manufacturing (CIM).

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 Planning and Designing Operations
Systems 8

Sustainability and Manufacturing.

Sustainability deals with conducting activities in such a way as to
provide for the long-term well-being of the natural environment,
including all biological entities.
Sustainability issues increasingly important to stakeholders and
consumer.
• Pollution of land, air, water.
• Climate change.
• Waste management.
• Deforestation; protection of biodiversity; urban sprawl.
• Genetically modified foods.

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 Managing the Supply Chain 1

Supply chain management—connecting and integrating all

parties of the distribution system in order to satisfy
customers.
• Procurement.
• Logistics.
• Inbound logistics.
• Outbound logistics.
• Third-party logistics.

AI and blockchain are moving rapidly across supply chain

functions.

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 Managing the Supply Chain 2

Procurement.
• Purchasing—the buying of all materials needed by the
organization; also called purchasing.
• Aim is to obtain items of desired quality in the right quantities at
the lowest possible cost.
• Companies may be able to make some component parts more
economically and efficiently.
• Can arrange to lease the item from another company.
• What the firm does depends on cost, product availability, and
supplier reliability.

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 Managing the Supply Chain 3

Managing Inventory.
Inventory—all raw materials, components, completed or partially
completed products, and pieces of equipment a firm uses.
• Basic types of inventory.
• Finished-goods inventory.
• Work-in-process inventory.
• Raw materials inventory.

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 Managing the Supply Chain 4

Managing Inventory.
Inventory control—the process of determining how many
supplies and goods are needed and keeping track of quantities on
hand, where each item is, and who is responsible for it.
• Economic order quantity (EOQ) model.
• Just-in-time (JIT) inventory management.
• Material-requirements planning (MRP).

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 POLLING QUESTION 2

Which inventory management system minimizes inventory by

providing a near-continuous flow of items from suppliers to
the production facility?
A. Economic order quantity.
B. Just-in-time.
C. Materials-requirements planning.
D. Outsourcing.

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 Managing the Supply Chain 5

Outsourcing—the contracting of manufacturing or other

tasks to independent companies.
• Globalization requires supply chain managers to improve speed
and balance resources.
• Linked with competitive advantage.
• May raise negative public opinion.

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 Table 8.2 Top Outsourcing Providers

Company Services
KPMG Auditing, tax services, and advisory services
Accenture Management consulting, technology, and outsourcing
Canon Business Business process services, document management,
Process Services and managed workforce services
CBRE Commercial real estate services
Xceed Financial services

Source: International Association of Outsourcing, The Global Outsourcing 100, 2021,

[Link] (accessed March 5, 2021).

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 Managing the Supply Chain 6

Routing and Scheduling.

Routing—the sequencing of operations through which the product
must pass.
• Sequence depends on the product specifications.

Scheduling—the assignment of required tasks to departments or

even specific machines, workers, or teams.

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 Managing the Supply Chain 7

Routing and Scheduling.

Program Evaluation and Review Technique (PERT).
• Identifies all the major activities required to complete a project.
• Arranges them in a sequence or path.
• Determines the critical path.
• Path that requires the longest time from start to finish.
• Estimates the time require for each event.

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 Figure 8.3 A Hypothetical PERT Diagram
for a McDonald’s Big Mac

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 Managing Quality 1

Quality reflects the degree to which a good or service meets

the demands and requirements of customers.
Determining quality can be difficult because it depends on
customers’ perceptions.
Quality is especially difficult to measure for services.
• Companies must define important quality characteristics that can be
measured.

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 Managing Quality 2

Malcom Baldridge National Quality Award.

• Given each year to companies that meet rigorous standards of
quality.
• The criteria are:

1. Leadership.
2. Information and analysis.
3. Strategic planning.
4. Human resource development and management.
5. Process management.
6. Business results customer focus and satisfaction.
7. Customer focus and satisfaction.

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 Managing Quality 3

Quality control.
• Process an organization uses to maintain its established quality
standards.

Total quality management (TQM).

• Philosophy that uniform commitment to quality in all areas of the
organization will promote a culture that meets customers’
perceptions of quality.

Statistical process control.

• System in which management collects and analyzes information
about the production process to pinpoint quality problems in the
production system.

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 Managing Quality 4

International Organization for Standardization (ISO).

ISO 9000.
• A series of quality assurance standards designed to ensure the
customer’s quality standards are met.

ISO 14000.
• Comprehensive set of environmental standards that encourages a
cleaner and safer world.

ISO 19600.
• A comprehensive set of guidelines for compliance management that
addresses risks, legal requirements, and stakeholder needs.

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 Managing Quality 5

Inspection.
• Reveals whether a product meets quality standards.
• Inspecting finished items determines quality level.
• Inspecting work-in-process items finds defects before the
product is completed so corrections can be made.

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 Managing Quality 6

Sampling.
• Usually desirable to test only a sample of the products.
• If sample passes, inspector may assume all items in the lot also
pass inspection.
• There will always be a risk of making an incorrect conclusion.
• Likely to be used with inspection tests are destructive.

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 POLLING QUESTION 3

Nevaeh is the General Manager of Salad Supreme. The

owner has instructed her to evaluate the of quality of
restaurant operations. In your opinion, which topic should be
of greatest concern?
A. Wait time.
B. Service.
C. Food quality.
D. Cleanliness and appearance.

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 Integrating Operations and Supply Chain
Management
Managing various partners is important because
stakeholders hold the firm responsible.
Firms can adopt a Global Supplier Code of Conduct and
ensure it’s communicated.
Supply chain and procurement managers must work together
to make operational decisions.
Must regularly audit suppliers and take action where
necessary.

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