Page 584 - Introduction to Business

558 PART 6 Managing Business Operations, Management Information Systems, and the Digital Enterprise

A production system can be modeled as a system that takes inputs and creates
outputs via a transformation process. Exhibit 16.1 illustrates this model.
In this model, the inputs include materials, land, labor, machines and equip-
ment, energy, and information. The outputs represent the desired goods or services.
And the transformation process may consist of one or more of the following trans-
formations:
• Physical, as in manufacturing
• Locational, as in transportation
• Informational, as in consulting
• Psychological, as in entertainment
• Physiological, as in health care
• Exchange, as in retailing
• Storage, as in warehousing

At DaimlerChrysler, for example, the transformation process is physical, and
the outputs are automobiles; at McDonald’s, the transformation process is physical
and exchange, and the outputs are the items in their menu; and at M.D. Anderson
Cancer Center, the transformation process is physiological, and the outputs are
healthy patients. Some of the inputs for DaimlerChrysler are steel, glass, plastics,
production facilities, engineers, and workers. Some of the inputs for McDonald’s
are meat, bread, vegetables, spices, buildings, cooking equipment, and personnel.
Some of the inputs for the M.D. Anderson Cancer Center are medical supplies and
drugs, hospitals, doctors, nurses, staff, medical equipment, and laboratories. In
all three cases, additional inputs are energy and information—car designs for
DaimlerChrysler, recipes for McDonald’s, and medical protocols for the M.D.
Anderson Cancer Center.
operations management The Operations management is the management of the direct resources that are
management of the direct resources involved in the production system of a business organization. Until recently, oper-
that are involved in the production ations management was mostly applied in manufacturing firms and was called
system of a business organization
manufacturing management or production management. To include applications
in service industries, the name was changed to production and operations manage-
ment or just operations management. Following current practice, we will use the
term operations management to include the management of both manufacturing
systems and service systems.
Businesses exist because their products add value to society. In other words, for
a company to succeed, the price of its outputs has to exceed the cost of its inputs.
This difference between prices and costs represents the value added by the firm.
And given that operations management deals with managing the direct resources
in the production system, this business function is naturally positioned to help
companies maximize the value they add to their products.

reality Can you think of a company where operations management is the most
CH ECK important function? When you go to your favorite restaurant, where do
you see operations management in action?

EXHIBIT 16.1

A Production System Model

Transformation
Suppliers Inputs Outputs Customers
process

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