Operations Management

Operations management concerns the coordination of human resources, equipment, facilities, information, energy, and materials with the goal of providing a product, a service, or some combination of both. The value creation aspect of a business is often described as a transformation process and is defined by a set of inputs and outputs. For example, the inputs to an oil refinery consist of crude oil, equipment, and workforce, and the primary output is gasoline. The operation in this example would be considered a physical transformation process that creates value by converting crude oil into gasoline. Most manufacturing operations involve physical transformation processes through such activities as fabrication, assembly, blending, and chemical alteration. In contrast, service operations provide intangible outputs. Examples of service operations (and their associated transformation processes) include airlines (locational), hospitals (physiological), schools (informational), theme parks (entertainment), banks (financial), and department stores (exchange).

The management of operations involves decisions that are characterized as strategic, tactical, or operational. Strategic decisions represent long-term decisions focused on how a business will ultimately create value. Such decisions are often expensive and time-consuming to implement or change. They begin with such broad issues as defining product or service offerings, thereby effectively establishing what role a business shall play and how it will play it. Strategic decisions also include manufacturing process or [Page 400]service delivery system design, facility location and capacity, supply chain partnerships, outsourcing decisions, and large-scale technology decisions. Tactical decisions are considered medium-term decisions mostly concerned with planning. They include planned levels of workforce, capacity planning, materials acquisition planning, equipment maintenance and replacement, and inventory planning. Operational decisions (also referred to as control decisions) are short term in nature and include materials and inventory control, workforce scheduling, task assignment and scheduling, quality processes management, and order/customer flow management.