Operations and supply management (OSM)Design, operation, and improvement of the systems that create and deliver the firm's primary products and services. is defined as the design, operation, and improvement of the systems that create and deliver the firm's primary products and services. Like marketing and finance, OSM is a functional field of business with clear line management responsibilities. This point is important because operations and supply management is frequently confused with operations research and management science (OR/MS) and industrial engineering (IE). The essential difference is that OSM is a field of management, whereas OR/MS is the application of quantitative methods to decision making in all fields and IE is an engineering discipline. Thus, while operations and supply managers use the decision-making tools of OR/MS (such as critical path scheduling) and are concerned with many of the same issues as IE (such as factory automation), OSM's distinct management role distinguishes it from these other disciplines.

As Exhibit 1.1 shows, OSM is concerned with the management of the entire system that produces a good or delivers a product. Producing a product such as a cell phone, or providing a service such as a cellular phone account, involves a complex series of transformation processes. Exhibit 1.1 is a supply network for an original equipment manufacturer (OEM) such as Nokia, the Finnish maker of cell phones. To actually produce the phones and get them to the customer, many transformations must take place. For example, the suppliers purchase raw materials and produce the parts for the phone. The Nokia manufacturing plant takes these parts and assembles the various popular cell phone models. Orders for the phones are taken over the Internet from all the distributor, dealer, and warehouse sites around the world. Local retailers work directly with customers in setting up and managing the cell phone accounts. OSM is concerned with managing all of these individual processes as effectively as possible.