Chapter One Summary
Operations Management is responsible for creating value in the form of goods and services. The objective of operations management is to balance supply with demand. Operations Management works in conjunction with both finance and marketing. An operation is the act of converting inputs into outputs. It is concerned with value-added, which is the difference between the cost of inputs and the value or the price of outputs.

The Scope of Operations Management: Operations management is used in producing goods or services. Systems design deals with the layout of facilities. An example is what equipment is necessary to produce a certain capacity. Purchasing involves buying the materials or equipment, managers need evaluate the quality of materials and equipment. Overlooking poor quality of materials can delay project completion and add costs, due to reworking and overtime pay. Industrial engineering handles variances. The methods used to make the products and the product should be uniform and up to standards. Operations managers need to make sure distribution of goods are sent out to their final locations in a timely manner. Maintenance is responsible for keeping the facility running. This may include disposing of scrap, lubing up machines, or keeping security on premises to reduce theft. Operations management can have any number of responsibilities, ranging from product and service design, to making sure machines are operating correctly. Operations management is also responsible for forecasting, capacity planning, scheduling , managing inventories, assuring quality, motivating employees, deciding where to locate facilities and many more issues to help run the organization efficiently and effectively.

Process Management Process management is essential to operations management, and is the central role of all management roles. Process management transforms inputs into outputs . In addition, a business process is composed of three categories: Upper-management processes, Operational processes, and Supporting processes. A major business process may consist of any sub-processes, and each one of them have their own goals that contribute to the overall process. Business processes form a sequence of suppliers and customers. Managers establish the amount of capacity of a process needed to meet demand.

Supply Chains A supply chain is a sequence of activities and organizations having some role in providing a product to a customer. Supply chains typically link many different facilities and activities as raw materials are secured, work-in-process is finished, and final output is distributed. Supply chain management integrates the activities of these differing operations, addressing issues such as forecasting, purchasing and logistics.
A simple product supply chain consists of suppliers, direct suppliers, producers, distributors, and final customers. Supply chain management also can include partners outside the firm when goods and services are outsourced. Outsourcing has many risks and benefits that must be explored before a company decides to outsource part of its operations. Valued-added is the difference between the cost of inputs and the value or price of outputs. Therefore, a higher value-added is beneficial for a company.

Current Issues Managers must contend with ever changing globalization, quality and process improvement, the management of technology, and agility. Three issues that have a major impact are supply chain management, e-commerce, and the Internet. (Not enough information)

Key Trends and Issues in Business The environment constantly changes so organizations need to adapt and change as their environment does. Globalization and new technologies have stimulated changes in organizations. This varies from how they communicate with other organizations to the manner in which they penetrate other country's markets. The Internet is a great tool that many choose to use as an advantage. E-business is the use of the Internet for business transactions, and e-commerce is consumer-to-business transactions. Three technologies that can have major impacts on costs, productivity and competitiveness are: 1) product and service technology, 2) process technology, and 3) information technology. Information Technology is very important because it is the manner in which businesses store, process, and send information.

Industrial Revolution The Industrial Revolution can also be referred to as the "historical evolution of operations management." Before the 18th century, companies relied on workers (humans) to produce the product, the use of craft production. At the start of the 18th century, several developments of the machine increased production levels. The new machine power lead to the creation of various methods such as: mass production, interchangeable parts, and division of labor. All of the following methods revolutionized the way goods were manufactured, along with creating a boom in the economy and increasing the success of businesses throughout the country.

It also led to the creation of Scientific Management. This form of management focused on developing the most efficient work methods that would produce the greatest output (assembly lines). Managers were responsible for planning, training, and implementing each step of the production process. Although this style was not very popular with employees, it increased profits and production for the company. Pioneers such as Fredrick Winslow Taylor, Frank Gilbreth, and Henry Ford all developed scientific management and helped to further the progress of the industrial revolution.

Basic Functional Areas: Business organizations typically have three basic functional areas: finance, marketing, and operations. Finance is responsible for securing financial resources at favorable prices and allocating those resources throughout the organization; this includes budgeting, analyzing investment proposals, and providing funds for operations. Marketing and operations are the primary or "line" functions. Marketing is responsible for assessing consumer wants and needs, and selling/promoting the organization's goods or services. Operations is responsible for producing the goods or providing the services offered by the organization.



Goods and Services Goods are referred to as physical (tangible) products, such as computers or bicycles because you can touch them. Services are abstract and they are actions that are provided by people, like healthcare and education. More interaction with customers is required by the service side. There are more variables involved in services than there are in goods. Goods are usually manufactured under specific conditions, and services have a wide range of possibilities. Services, such as, haircuts, gym training, and product troubleshooting are always different depending on the customer, which makes it harder to tend to the customers' needs. Operations run smoother while manufacturing goods, as opposed to services. Because of this, it is harder to measure how productive employees are in the service department. The value of a good is not realized as fast as a service is. There is a time gap between the production and the sale of a good, where as the value of a service is usually realized soon after. Various companies patent certain goods so that competitors cannot replicate their product. Unfortunately, services cannot be patented, which cause other companies to imitate companies with the best services.

Other Important Trends Companies have switched from ignoring operations strategy to recognizing the importance of incorporating strategies into their business decisions. Companies have reduced the number of workers and have made their companies operate more efficiently by placing an emphasis on cost control and productivity improvement. Companies use revenue management to manipulate prices and influence demand to maximize revenues. Hotels, theme parks and airliners are key examples of companies using revenue management to their benefit. Six sigma is a process of reducing costs, improving quality, and increasing customer satisfaction. Lean production was first incorporated into businesses in the 1990's in an effort to make production more efficient. It uses a highly skilled workforce and flexible equipment to accomplish an increasing level of quality with less resources compared to mass production which uses space, inventory, and workers to produce a comparable amount of output. These workers have higher expectations than in traditional systems. This also leads to more anxiety and stress among workers in the organization.



Practice Questions

1) Which of the following functional areas are part of a business organization? (p. 4)
A) Accounting
B) Marketing
C) Operations
D) All of the above
E) None of the above
Answer: D

2) Which of the following are major trends that affect an organization? (p 26)
A) Globalization
B) Outsourcing
C) Ethical behavior
D) The Internet
E) All of the above
Answer: E


3) Which of the following activities is important in achieving effective use of workers and equipment? (page 11)
A) Forecasting
B) Facilities and Layout
C) Locating Facilities
D) Assuring quality
E) Scheduling
Answer:B

4) Which of the following is NOT part of a Simple Product Supply Chain? (p. 5)
A) Direct Suppliers
B) Final Customers
C) Management
D) Producer
E) Distributor
Answer: C

5) Which of the following would NOT be considered a model used by decision makers in operations management? (pg. 18)
A) Mathematical
B) Physical
C) Supply
D) Schematic
E) None of the above
Answer: C

6) Which of following is NOT a supporting function in Operations interface? (page 16)
A) Legal
B) MIS
C) Accounting
D) Marketing
E) Financing
Answer:E

7) Which of the following would be considered an input when converting inputs into outputs during the transformation process? (page 6)
A) Land
B) Capital
C) Raw Materials
D) Facilities
E) All of the above
Answer:E

8) Which of the following is considered an output during the transformation process? (pg. 6)
A) Processes
B) High service percentage
C) Finances
D) Equipment
E) All of the above
Answer: B

9) Measurements taken at various points in the transformation process for control purposes are called: p.g. 5
A) feedback
B) control charts
C) tracking
D) cost control
E) productivity measurement
Answer: A

10) Which type of variation is the result of a deliberate choice of a business? p.g. 11
A) assignable
B) variety
C) random
D) seasonal
E) none of the above
Answer: B

11) Who is considered the "father of scientific management": p.g. 22
A) Frank Gilbreth
B) Professor Ouskel
C) Frederick Winslow Taylor
D) Henry Ford
E) Pareto
Answer: C

12) The key concept that launched mass production was: p.g. 23
A) modular design
B) interchangeable parts
C) low-skilled workers
D) high demand for products
E) all of the above
Answer: B

13) I:The operations and sales functions are line functions, and all other functions are support functions.
II: A systems approach refers to the systems in an organization, such as its accounting system or transportation system. p.g. 12 & 13
A) I is true, II is true
B) I is true, II is false
C) I is false, II is true
D) I is false, II is false
Answer:B

14) The Industrial Revolution led to which of the following methods? (Page 22-24)
A) Craft Production
B) Mass Production
C) Interchangeable Parts
D) Division of Labor
E) All of the above
Answer: E

15) Accounting, human resources, and IT are considered: (Page 10)
A) Upper-management processes
B) Operational processes
C) Supporting processes
D) Business processes
E) All of the above
Answer: C

16) High goods percentages such as houses, automobiles, clothing, computers, and machines best relate to what part in the operations function? (Page 6)
A) Inputs
B) Conversion Process
C) Outputs
D) Innovating
E) None of the above
Answer: C

17) What originator contributed to the concept of "interchangeable parts?" (Page 25)
A) Adam Smith
B) Eli Whitney
C) Henry Gantt
D) George Dantzig
E) None of the above
Answer: B

18) A Six Sigma Process includes all of the following except: (Page 28)
A) Reducing costs
B) Improving quality
C) Increasing customer satisfaction
D) Reducing the number of employees
E) All of the above are included
Answer: D

19) Which of the following terms relates to the idea that "the whole is greater than the sum of its individual parts"? (Page 20)
A) Systems Management
B) Conversion Process
C) Modular Design
D) Pareto phenomenon
E) Model
Answer: A

20) As outsourcing _ , organizations are spending _ amounts on various supply-related activities such as packaging and moving. (Page 29)
A) decreases, increasing
B) increases, decreasing
C) decreases, decreasing
D) increases, increasing
E) None of the above
Answer: D


21) Which of the following is Operations Management Technology not concerned with? p.g. 26 N.M.
A)Product & Service Technology
B)Process Technology
C) Globalization technology
D)Information Technology
E)All of the above
Answer: C

22) Which of the following models is most abstract? p.g. 18
A) Physical Models
B) Schematic Models
C) Mathematical Models
D) Quantitative Model
E) Statistical Model
Answer: C

23) What is the main goal of a company?
A) Obtain the highest profit
B) Find solutions that will be in the best interests of stakeholders
C) Produce as many products as possible
D) A and C
E) None of the above
Answer: B

24) Which one of these are important trends? p.g. 28
A) Operations Strategy
B) Revenue Management
C) Lean Production
D) Working with fewer resources
E) None of the above
Answer: E

25) All of these result from lean production except: p.g. 28
A) Flattening of organizational structure
B) Emphasis on Quality
C) Time Reduction
D) Product Liability
E) Teamwork
Answer: D


26) Which of the following is the correct order of supply chain?( pg5)
A)Direct suppliers--producer--distributor--suppliers' suppliers--final customers
B)Suppliers' suppliers--distributor--direct suppliers--producer--final customers
C)Suppliers' suppliers--Direct suppliers--producer--distributor--final customers
D) Final customers--Suppliers' suppliers--direct suppliers--producer--distributor
E)Suppliers' suppliers--final customers--direct suppliers--distributor--producer
Answer:C


27) Which one of the following is a major trend in business? (p26)
A) Management of supply chains
B) Outsourcing
C) Agility
D) Ethical behavior
E) None of the above
Answer:E


28) Which of the following is not a key element of supply chain management?(p31)
A)Purchasing
B) Suppliers
C) Location
D) Logistics
E) Managers decision
Answer: E


29)Which one of the following statements is FALSE?(p26)
A) e-business involves the use of the Internet to transact business
B)E-commerce involve consumer-business transactions
C)System is a set of interrelated parts that do not work together
D)Pareto phenomenon- a few factors account for a high percentage of the occurrence of some events.
E) All of the above are true.
Answer:C


30) Why are models beneficial to managers? (P19)
A) they decrease understanding of the problem
B) they enable managers to analyze "What If?" questions
C) they are generally hard to use and more expensive than dealing directly with the actual situation
D) they serve as a inconsistent tool for evaluation
E) All of the above
Answer:B

31) What is craft production? (P22)
A) A series of steps designed to shorten lead times.
B) A concept developed by the Japanese which emphasizes quality improvement.
C) Highly skilled workers producing customized goods. (Production is low)
D) A way to take advantage of interchangeable or standardized parts.
E) Production costs decreasing as volume increases: Economies of Scale
Answer: C

32) What concept did Adam Smith write about in The Wealth of Nations? (P24)
A) Division of Labor
B) Interchangeable Parts
C) Principles of Scientific Management
D) Moving Assembly Line
E) All of the above
Answer: A

33) What company is most historically recognized for their use of mass production? (P23)
A) General Electric
B) Commonwealth Edison
C) Ford
D) Toyota
E) None of the Above
Answer: C

34) What is the importance of provision of funds? ( Pg 19)
A) careful planning can amount to lesser problems with cash-flow.
B) to alter investments in plants and equipment
C) to fund operations and create necessary time means for funding layouts
D) Both a and c
E) Both a and b
ANSWER: D

35) Which country influenced US manufacturing? p.g. 25 .
A)China
B)Japan
C) Germany
D) All of the above
E)Both b and c
ANSWER: B N.M.

36) When dealing with trends, which one of theses can be used as a business advantage? pg 24
A)E-commerce and e-business
B) Virtualization
C) Social networking sites
D) Product and Service Technology?
*note although all of these can be applied to the question, only A and D are mentioned in the book.


37) What are the three functions of business organizations?
a) distribute, supply, finalize
b) finance, operations, marketing
c) finance, operations, management
d) operations, marketing, management
Answer is b. (found on page 4)

38) Variations that are caused by defective inputs, incorrect work methods, and out of adjustment equipment are known as:
a) random variations
b) structural variations
c) assignable variations
d) operational variation
Answer is c. (found on page 11)

39) An oil change is an example of a _ .
A) Uniformity of input
B) Uniformity of output
C) Good
D) Service
E) A & C
ANSWER: D (PAGE 6: 9th edition)


42) Which one of the following is neither an input nor an output in the food transformation process? (9th ed. page 6)
A)Energy
B)Water
C)Labor
D)Cleaning
E)Canned Vegetables
Answer: D

43)Which is not a basic function of a business organization? (9th ed. page 4)
A)Operations
B)Accounting
C)Marketing
D)Finance
E) All of the above
Answer: B

44) What is E-Commerce? (9th ed. page 25)
A)Use of the internet to conduct business
B)Business-to-Business transactions (B2B)
C)Consumer-to-Business transactions (C2B)
D)All of the above
Answer: d

45) What is Agility? (9th ed. page 27)
A)Ability to respond to demands or opportunities at a rapid pace.
B)Ability to switch markets quickly.
C)The reducing of inputs while maintaining the same level of outputs.
D)System where workers use simple, flexible tools to produce small quantities of customized goods.
E)None of the Above
Answer: a

46 )Product packages are a combination of goods and services. (9th ed. page 4)
A)True
B)False
Answer: a


47) Which of the following would not generally be considered an aspect of operations management?
A) Work methods
B) Secure financial resources
C) Maintain quality
D) Product or service design
E) Manage inventories

Answer: Secure Financial Resources (Pg.9)

48) Which of the following is not a typical question asked by an operations manager?

A) How much capacity will be needed in the months ahead?
B) What is a satisfactory location for a new facility?
C) Which products/services should be offered?
D) How to motivate employees?
E) How much to sell a product for?
Answer: How much to sell a product for? pg.12

49) Which of the following is not generally considered to be an advantage of using models for decision making?
A) Providing a systematic approach to problem solving.
B) Emphasizing quantitative information.
C) Providing an exact representation of reality.
D) Enabling managers to answer "what if" questions
E) Requiring users to be specific about objectives

Answer: Providing an exact representation of reality. (pg. 15)

50) Which comes last in the development of manufacturing techniques?
A) Lean production.
B) Division of labor.
C) Mass production.
D) Craft production.

E) Interchangeable parts

Answer: Lean Production pg. 28

51) Which one of these is specifically related to the globalization of business?
A) agility
B) the reduction of tariffs
C) craft production
D) physical models.
E) Pareto phenomenon

Answer: B
pg.27

52) _ is responsible for the general up keeping and repair of land and equipment. (pg. 11)
A) Storage
B) Maintenance
C) Distribution
D) Budgeting
E) Management
Answer: B

53) Which of the following means giving something up to do another thing? (p.16)
A) System approach
B) Process selection
C) Trade off
D) Outsourcing
E) Managing inventories
Answer: C

54) Which of the following incorporates advantages in both mass production and craft production. (p.28)
A) Operating production
B) Quality-based strategy
C) Project production
D) Lean production
E) None of the above
Answer: D

55) Product designs are often _ to patent than service designs. (p.8)
A) easier
B) harder
C) faster
D) slower
E) unable
Answer: A

56) The father of "motion science" was: (p.26)
A) Frederick W. Taylor
B) Jay Forrester
C) F.W. Harris
D) Henry Ford
E) Frank Gilbreth
Answer: E