LESSON 1.

OPERATIONS MANAGEMENT
MANAGEMENT
Act of getting people together to accomplish desired goals and objectives efficiently and
effectively.
Why study management?
- The better you can work with people, the more successful you will be in both your
personal and professional lives.
Basic management functions
1. Planning (setting objectives) – thinking ahead and anticipating the future, plans for
creation of products and services, how many, what to use etc.
2. Organizing – delegating task and allocating resources
3. Staffing – choosing the best people to perform specific tasks
4. Leading – influencing people to achieve objectives
5. Controlling – establishing and implementing mechanism such as identifying gaps in
order to make sure that the objectives are met (quality control)
Production – the creation of goods and services
Operations management – set of activities that creates value in form of goods and services
by transforming inputs into outputs.
It is concerned with the planning, organizing, and operating the production of goods and
services
1. The collection of people, technology, and systems within a company that has primary
responsibility for providing the organization’s product and services.
2. The management of the direct resources that are required to produce and deliver an
organization’s goods and services
3. A discipline and profession that studies and practices the process of planning,
designing, and operating production systems and subsystems to meet goals of
organization.
4. The business function for planning, coordinating, and controlling the resources needed
to produce a company’s products and services.
5. The management of conversion process that transforms inputs into outputs in the form
of finished goods and services.
Relationship to other areas in organization
 Marketing – generates demand
 Finance/accounting – tracks how well the organization is doing, pays bills, collects the
money
 HR department. Training, Hiring, Motivation
 Production/operations – creates the product

Why study OM?

- Operations management is one of four major functions of any organizations
- Know how goods and services are produced
- Understand what operations managers do
- Costly part of an organization

SIGNIFICANT EVENTS
 1. COST FOCUS – maximization of resources, minimizing cost
2. Quality – examine quality of products and services. Consumers aim for self-contentment
and quality
3. Customization – based on preferences of consumers

Heritage of OM
 Division of labor (Adam Smith 1776; Charles Babbage 1852)
 Monitor the work efficiency
 Organizational chart
 Standardized parts (Whitney 1800)
 Identical part of the product that can be used an alternative (eg. Battery)
 Scientific Management (Taylor 1881) - efficiency
 Coordinated assembly line (Ford/ Sorenson/Avery 1913)
 Process and capacity design
 Flow of transaction (arrangement)
 Gantt charts (Gantt 1916)
 Scheduling of activities to ensure that objectives met before or on deadline
 Motion study (Frank and Lillian Gilbreth 1922)
 8 seconds ni Jollibee
 Breaks
 Identify the capacity of workers and company to produce products

 Quality control (Shewhart 1924; Deming 1950)

 Computer (Atanasoff 1938)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 Adjustable based on quantity/quality and time (Xerox machine, ATM machine)
 Baldrige Quality Awards (1980)
 Identify quality of the business
 To measure the quality of business as well to promote it to the public
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Compete internationally
 Internet (1995)

FREDERICK W. TAYLOR – Father of Scientific Management

- Born 1858; died 1915
- In 1881, as a chief engineer for Midvale steel, he studies about how tasks are done and
created efficiency principles

Management should take more responsibility for:

1. Matching employees to right job
2. Providing the proper training
3. Providing proper work methods and tools
4. Establishing legitimate incentives for work to be accomplished.
FRANK AND LILIAN GILBRETH
- Husband and wife engineering team
- Further developed work measurement methods
- Motion studies

HENRY FORD
- Born 1863; died 1947
- In 1903, created Ford Motor Company
- In 1913, first used moving assembly line (unfinished product moved by conveyor past
work station
- He paid workers very well (5 dollars/day) – 1911

CHARACTERISTICS OF GOODS AND SERVICES

Goods Services
1. Tangible 1. Intangible product
2. Production usually separate from 2. Produced and consumed at the same
consumption time
3. Can be inventoried 3. Often unique
4. Low customer interaction 4. High consumer interaction
5. Inconsistent product definition
6. Often knowledge-based

NEW CHALLENGES IN OM
 FROM TO
1. Local or national focus 1. Global focus
2. Batch shipments 2. Just-in-time
3. Low bid purchasing 3. Supply chain partnering
4. Lengthy product development 4. Rapid product development, alliances
5. Standard products 5. Mass customization
6. Job specialization 6. Empowered employees, teams
7. Low-cost focus 7. Environmentally sensitive production

Local or national focus Low-cost, reliable worldwide Global focus

communication and
transportation networks

Batch(large) Short product life cycles and Just-in-time shipments

shipments cost of capital put pressure on
reducing inventory

Low-bid purchasing Quality emphasis requires that Supply-chain partners,

suppliers be engaged in product Enterprise Resource
improvement Planning,
e-commerce

Lengthy product Shorter life cycles, Internet, Rapid product development,

development rapid international alliances, collaborative
communication, computer-aided designs
design, and international
collaboration

Standardized products Affluence and worldwide Mass customization with

markets; increasingly flexible added emphasis on quality
production processes

Job specialization Changing socio culture milieu; Empowered employees,

increasingly a knowledge and teams, and lean production
information society

Low-cost focus Environmental issues, ISO Environmentally sensitive

14000, increasing disposal production, green
costs manufacturing, recycled
materials, remanufacturing

Ethics and Social Responsibility

1. Developing safe quality products
2. Maintaining clean environment
3. Providing safe workplace
 4. Honoring community commitments

TEN CRITICAL DECISION AREAS IN OPERATION MANAGEMENT

1. Service and product design.

- The process of deciding on the unique characteristics and features of the company's
product.

2. Quality management.
- The act of overseeing all activities and tasks that must be accomplished to maintain a
desired level of excellence. (Investopedia)

3. Process and capacity design. flow of works

- Process Capacity. It refers to the production capacity of workers or machines, and is
usually expressed by "hours". The Process Capacity of workers is called human
capacity, while that of machines is called machine capacity.
- Design capacity is the theoretical maximum output of a system in a given period under
ideal conditions.
4. Location.
- The process of determining a geographic site for a firm's operations.

5. Layout design. –
- Concerns the physical placement of resources such as equipment and storage facilities.
The layout is designed to facilitate the efficient flow of customers or materials through
the manufacturing or service system.

6. Human resources, job design.

- Job design is the process of organizing work into the tasks required to perform a
specific job.

7. Supply-chain management. identify how the product will be distributed to consumer

- Coordination, management and strategy that drives the flow of data, information,
resources and materials to deliver the best product and service to all stakeholders in the
process of converting raw goods to a salable product and delivering it to the ultimate
customer

8. Inventory management.
- It refers to the process of ordering, storing, using, and selling a company's inventory.

9. Scheduling – schedule of workforce

- Prescribing of when and where each operation necessary to manufacture the product is
to be performed.

10. Maintenance.
- It involves keeping track of assets and parts. The purpose is to ensure that production
proceeds efficiently and the minimum number of resources are wasted.
TERMINOLOGIES:

1. JIT (Just-in-Time)
- The just-in-time (JIT) inventory system is a management strategy that aligns raw-
material orders from suppliers directly with production schedules.
- Companies employ this inventory strategy to increase efficiency and decrease waste by
receiving goods only as they need them for the production process, which reduces
inventory costs. This method requires producers to forecast demand accurately.

2. Material Resource Planning.

- A system for trying to figure out the materials and items needed to manufacture a given
product.

3. Standardized product.
- A product that conforms to specifications resulting from the same or equivalent technical
requirements.

4. Scientific management.
- Using scientific methods to determine and standardize the one best way of doing a job.
A clear division of tasks and responsibilities. High pay for high-performing employees.

5. Gantt chart
- is a type of bar chart that illustrates a project schedule, named after its inventor, Henry
Gantt (1861–1919), who designed such a chart around the years 1910–1915

6. Computer aided design (CAD 1970).

- The use of computers (or workstations) to aid in the creation, modification, analysis, or
optimization of a design.

7. Flexible manufacturing system (FMS 1975).

- Designed to react and adapt to changes within the production process, including any
unexpected issues or problems.

8. Computer integrated manufacturing (CIM) (1990).

- Manufacturing approach of using computers to control the entire production process.

9. Baldrige Quality Award.

- The Malcolm Baldrige National Quality Award was established by Congress to promote
improved quality of goods and services in U.S. companies and organizations

COMPETITIVEVESS, STRATEGY, AND PRODUCTIVITY IN OPERATION MANAGEMENT

Competitiveness
- Ability and performance of a firm to sell and supply goods and services in a given
market in relation of the performance of other firms.
 - How effectively an organization meet the wants and needs and to win over customers to
become their product or service of choice
Competitive advantage
- Leverage or edge a business has over its competitors which gained by offering clients
better and greater value
- Each organization must have a deep understanding about the behavior of customers
and what drives them to make purchases
Companies must scan environment internally and externally such as the strengths and
weakness and purchasing decision of customers to suit and satisfy their preferences and
tastes.
Core competencies
- Resources and capabilities that comprise the strategic advantages of a business
- Characteristics of a business to stand out from competition
- Identifying and exploiting core competencies are important for established company to
stay competitive
- People, physical assets, patents, brand equity, capital
Example
- McDonalds has standardization which serves fries precisely in the same taste and
texture.
- Apple has style, beauty and interfaces gives them an edge over competitors
Competitiveness in Operation Management
1. Product and Service Design
- features of the product or service can be a key to consumer buying decisions which
includes the innovation and the time-to-market for a new products and services.
2. Cost
- Productive is an important determinant of cost wherein the higher the productivity the
company has the higher their cost advantage over their competitors
3. Location
- Depending on the cost and convenience for the customers
4. Quality
- Refers to materials, workmanship, design, and service in terms of how well the
consumer think a product or services will satisfy them
- Consumers are generally willing to pay more for a product they perceive with higher
quality than other competitors
5. Quick response
- Quickly bringing new or improved products to the market
- Quickly deliver and quickly handling complaints
6. Flexibility
- Ability to respond to changes like alterations in design features, volume demanded,
- High flexibility can be a competitive advantage in a changeable environment
7. Inventory management
- effective matching supplies with demand
8. Supply chain management
- coordinating with sellers to achieve timely and cost-effective delivery of goods
9. Service
- After sales service, customers perceive as value added such as warranty, delivery, and
technical support. Because of this, the company was rated by customers which shows
their competency. Highly rated company tended to be more profitable and grow faster.
10. Managers and workers
- People and the heart and soul of the business, because without them the business can’t
run so they must be competent and stay motivated especially when communicating with
consumers because it can produce positive image and potentially a competitive
advantage.