Page 587 - Introduction to Business

CHAPTER 16 Managing Business Operations 561

Sometimes the competitive dimensions price or cost, quality, and time are com-
plementary, and sometimes they lead to trade-offs. When they are complementary,
we may find that a company, by improving its quality—say, reducing the number of
defective products from 10 to 5 percent—also improves its production cost, as
defective products lead to waste, and its production time, as defective products
need to be reworked and hence increase the lead time. When they lead to trade-offs,
we may find a company where improving one dimension yields negative conse-
quences in another dimension. For example, improving quality may lead to a
higher cost, or decreasing time may lead to a higher cost and lower quality. Whether
the competitive dimensions are complementary or lead to trade-offs is dependent
on the situation of each firm and it is the subject of more advanced material.

reality In what way is operations management helping FedEx be a competitive
CH ECK company? In what way is operations management helping Coca-Cola
be a competitive firm?

Historical Development of Operations Management

LEARNING OBJECTIVE 4
Describe the historical development of operations management.
Production systems are as old as mankind. The Great Wall of China, the Egyptian
pyramids, the Greek Parthenon, and the aqueducts and roads of the Roman Empire
are all proof of human ingenuity organized for production. However, the way
ancient people produced products was quite different from the modern factory sys-
tem. Production was done by highly skilled workers using simple, flexible tools.
These workers spent many years in apprenticeship programs, learning all the intri-
cacies of producing goods or providing services. Items were produced in small
quantities and according to customer specifications. Even so, no two products were
the same. This type of production system is called craft production because of the craft production or cottage system
craftsmanship involved, or the cottage system because products were produced in Production done by highly skilled
workers using simple, flexible tools,
homes or cottages. Craft production had major shortcomings. Because products
where items were produced in small
were produced by skilled workers who custom-fitted parts, production was slow quantities and according to customer
and expensive. And when one of the parts failed, the replacement for that part had specifications
to be custom-made. Another disadvantage was that production costs did not
decrease with volume—there were no economies of scale—and hence there was no
incentive for companies to expand their operations.
The Industrial Revolution that started in England in the 1700s forever changed
the cottage approach to production. In 1764, James Watt invented the steam
engine, which substituted machine power for human power. The 1776 publication
of Adam Smith’s The Wealth of Nations promoted the division of labor, in which an division of labor The idea of dividing
operation, such as assembling an automobile, is divided up into a series of many production operations into a series of
many small tasks, where workers are
small tasks, and workers assigned to one task. Unlike craft production, where each
assigned to perform one of these tasks
worker was responsible for doing many tasks and thus required skill, with the
division of labor the tasks were so narrow that virtually no skill was required.
Consequently, the factories of the late 1700s had available machines and a way of
planning and controlling the work of production workers.
The Industrial Revolution spread from England to the rest of Europe and even-
tually to the United States. In 1800, American inventor Eli Whitney introduced the
concept of interchangeable parts to President Thomas Jefferson with a demonstra-
tion in which he selected musket parts at random, assembled them, and then fired
the musket. The approach prevalent at that time was to handcraft every musket
with its customized parts. By the middle 1800s, the old cottage system of producing

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