OVERVIEW OF OPERATION MANAGEMENT

1. Differentiate Operation Management and Production Management

2. Concepts of Operations & Core functions of operation in an organization
3. Operation Management & Supply Chain Defined
4. Transformation Process & Combination Continuum
5. Typical differences & Similarities between production of goods and provision of services
6. Functional areas in Organization that interacts with operation
7. Managing a Process to Meet Demand & Process Variation
8. Scope of Operation Management
9. General Approaches on Decision-making
10. Operations Today & Key Issues in the Current Business Operations

Operation Management (OM) vs Production Management (PM)

OM techniques which are enabling the achievement of operational

objectives in an operation system which include both manufacturing
sector as well as service sector
PM refers to the manufacturing sector but not the service sector

Operations are part of business organizations that are responsible in producing

goods and/or services. Goods are physical items that include raw materials,
parts, subassemblies such as motherboards that go into computers, and final
products such as cell phones and automobiles. Services are activities that
provide some combination of time, location, form, or psychological value. The
collective success or failure of companies’ operations functions has an impact on
the ability of a nation to compete with other nations, and on the nation’s
economy.

The ideal situation for a business organization is to achieve an economic match of supply and demand. Having excess supply or
excess capacity is wasteful and costly; having too little means lost opportunity and possible customer dissatisfaction. The key
functions on the supply side are operations and supply chains, and sales and marketing on the demand side. While the operations
function is responsible for producing products and/or delivering services, it needs the support and input from other areas of the
organization.

Business organizations have three basic functional areas: finance, marketing, and operations.

Operations management is the management of systems or processes that create goods and/or provide services.

Supply chains are the sequential system of suppliers and customers that begins with
basic sources of inputs and ends with final customers of the system. Operations and
supply chains are interdependent—one couldn’t exist without the other, and no
business organization could exist without both.

The creation of goods or services involves transforming or converting inputs into

outputs. For profit organizations, the value of outputs is measured by the prices that
customers are willing to pay for
those goods or services. Firms use
the money generated by value-
added for research and
development, investment in new
facilities and
equipment, worker salaries, and profits. Consequently, the greater the value-
added, the greater the amount of funds available for these purposes. Value can
also be psychological, as in branding. Many factors affect the design and
management of operations systems. Among them are the degree of involvement
of customers in the process and the degree to which technology is used to
produce and/or deliver a product or service. The greater the degree of customer
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involvement, the more challenging it can be to design and manage the operation. Technology choices can have a major impact on
productivity, costs, flexibility, and quality and customer satisfaction.

The goods–service combination is a

continuum. It can range from primarily
goods, with little service, to primarily
service, with few goods. Because there are
relatively few pure goods or pure services,
companies usually sell product packages,
which are a combination of goods and
services. There are elements of both goods
production and service delivery in these
product packages. This makes managing
operations more interesting, and also more
challenging.

Typical differences between production of

goods and provision of services

Typical similarities between production of goods and provision of services

1. Forecasting and capacity planning to match supply and demand -
2. Process management -
3. Managing variations -
4. Monitoring and controlling costs and productivity -
5. Supply chain management -
6. Location planning, inventory management, quality control, and scheduling -

Through learning about operations and supply chains, there is a better

understanding of the global dependencies of companies and nations, some of the
reasons that companies succeed or fail, and the importance of working with others.
Working together successfully means that all
members of the organization understand not
only their own role, but they also understand the roles of others. In practice, there is
significant interfacing and collaboration among the various functional areas, involving
exchange of information and cooperative decision making.

Finance and operations management personnel cooperate by exchanging information and

expertise in such activities as the following:
1. Budgeting -
2. Economic analysis of investment proposals -
3. Provision of funds -

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Marketing’s focus is on selling and/or promoting the goods or services of an organization. Marketing is also responsible for assessing
customer wants and needs, and for communicating those to operations people (short term) and to design people (long term). That
is, operations need information about demand over the short to intermediate term so that it can plan accordingly, while design
people need information that relates to improving current products and services and designing new ones. Marketing, design, and
production must work closely together to successfully implement design changes and to develop and produce new products.
Marketing can provide valuable insight on what competitors are doing. Marketing also can supply information on consumer
preferences so that design will know the kinds of products and features needed; operations can supply information about capacities
and judge the manufacturability of designs. Operations will also have advance warning if new equipment or skills will be needed for
new products or services. Finance people should be included in these exchanges in order to provide information on what funds
might be available (short term) and to learn what funds might be needed for new products or services (intermediate to long term).
One important piece of information marketing needs from operations is the manufacturing or service lead time in order to give
customers realistic estimates of how long it will take to fill their orders. Thus, marketing, operations, and finance must interface on
product and process design, forecasting, setting realistic schedules, quality and quantity decisions, and keeping each other informed
on the other’s strengths and weaknesses.

Lead time refers to the time between ordering a good or service and receiving it

Operations also interacts with other functional areas of the organization, including legal,
management information systems (MIS), accounting, personnel/human resources, and
public relations. The legal department must be consulted on contracts with employees,
customers, suppliers, and transporters, as well as on liability and environmental issues.
Accounting supplies information to management on costs of labor, materials, and overhead,
and may provide reports on items such as scrap, downtime, and inventories. Management
information systems (MIS) is concerned with providing management with the information it
needs to effectively manage. This occurs mainly through designing systems to capture
relevant information and designing reports. MIS is also important for managing the control and decision-making tools used in
operations management. The personnel or human resources department is concerned with recruitment and training of personnel,
labor relations, contract negotiations, wage and salary administration, assisting in manpower projections, and ensuring the health
and safety of employees. Public relations has responsibility for building and maintaining a positive public image of the organization.
Good public relations provide many potential benefits. An obvious one is in the marketplace. Other potential benefits include public
awareness of the organization as a good place to work (labor supply), improved chances of approval of zoning change requests,
community acceptance of expansion plans, and instilling a positive attitude among employees.

A key aspect of operations management is process management. A

process consists of one or more actions that transform inputs into
outputs. In essence, the central role of all management is process
management. Businesses are composed of many interrelated
processes. Generally speaking, there are three categories of business
processes:
1. Upper-management processes -
2. Operational processes -
3. Supporting processes -

Business processes form a sequence of suppliers and customers. Business process management (BPM) activities include process
design, process execution, and process monitoring. Two basic aspects of this for operations and supply chain management are
managing processes to meet demand and dealing with process variability.

Managing a Process to Meet Demand. Ideally, the capacity of a process will be such that its output just matches demand. Excess
capacity is wasteful and costly; too little capacity means dissatisfied customers and lost revenue. Having the right capacity requires
having accurate forecasts of demand, the ability to translate forecasts into capacity requirements, and a process in place capable of
meeting expected demand. Even so, process variation and demand variability can make the achievement of a match between
process output and demand difficult.

Process Variation. Variation occurs in all business processes. It can be due to variety or variability. For example, random variability
is inherent in every process; it is always present. In addition, variation can occur as the result of deliberate management choices to
offer customers variety. There are four basic sources of variation:
1. Variety of goods or services being offered - 3. Random variation -
2. Structural variation in demand - 4. Assignable variation -

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Variations can be disruptive to operations and supply chain processes, interfering with optimal functioning. Variations result in
additional cost, delays and shortages, poor quality, and inefficient work systems. Poor quality and product shortages or service
delays can lead to dissatisfied customers and can damage an organization’s reputation and image. It is not surprising, then, that the
ability to deal with variability is absolutely necessary for managers.

The scope of operations management. Operations management people are involved in

product and service design, process selection, selection and management of technology,
design of work systems, location planning, facilities planning, and quality improvement of
the organization’s products or services.

The operations function includes many interrelated activities, such as forecasting, capacity
planning, scheduling, managing inventories, assuring quality, motivating employees,
deciding where to locate facilities, and more.

The type of operation may vary from one business to another but
operations may only be either service operation or producer of goods which
have common activities. And in both businesses, the success of the
business depends on short- and long-term planning which emphasize the
decision-making capabilities of operation manager that can affect the design
of the system or the operation of the system.

System design involves

decisions that relate to
system capacity, the
geographic location of
facilities, arrangement of
departments and
placement of equipment
within physical
structures, product and service planning, and acquisition of equipment. These
decisions usually, but not always, require long-term commitments. Moreover,
they are typically strategic decisions.

System operation involves management of personnel, inventory planning and

control, scheduling, project management, and quality assurance. These are
generally tactical and operational decisions.

Feedback on these decisions involves measurement and control. In many instances, the operations manager is more involved in day-
to-day operating decisions than with decisions relating to system design. However, the operations manager has a vital stake in
system design because system design essentially determines many of the parameters of system operation.

Operations management professionals make a number of key decisions that affect the entire organization. These include the
following:

What : What resources will be needed, and in what amounts?

When : When will each resource be needed? When should the work be scheduled? When should materials and other supplies be
ordered? When is corrective action needed?
Where : Where will the work be done?
How : How will the product or service be designed? How will the work be done (organization, methods, equipment)? How will
resources be allocated?
Who : Who will do the work? An operations manager’s daily concerns include costs (budget), quality, and schedules (time).

General approaches to decision making, including the use of models, quantitative methods, analysis of trade-offs, establishing
priorities, ethics, and the systems approach. Models are often a key tool used by all decision makers.

1. A model is an abstraction of reality, a simplified representation of something.

a. Physical models - b. Schematic models - . c. Mathematical models -

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2. Quantitative Approaches – a. Linear programming - ; b. Queuing techniques - ; c. Project models - ; d. Forecasting techniques
- ; e. Statistical models -
3. Analysis of trade-offs -
4. Establishing priorities -
Pareto phenomenon -
5. Ethics -
6. Systems approach -

Operations Today. Advances in information technology and

global competition have had a major influence on
operations management. Electronic business, or e-
business , involves the use of the Internet to transact
business which change the way business organizations
interact with their customers and their suppliers. E-
commerce, consumer–business transactions such as buying
online or requesting information. Technology refers to the
application of scientific discoveries to the development and
improvement of goods and services. It can involve
knowledge, materials, methods, and equipment. The term
high technology refers to the most advanced and developed
machines and methods.

Operations management is primarily concerned with three kinds of technology which has a major impact on costs, productivity, and
competitiveness.
1. Product and service technology - 2. Process technology - 3. Information technology -

Management of technology is high on the list of major trends, and it promises to be high well into the future.

Competitive pressures and changing economic conditions have caused business organizations to put more emphasis on the
following:
1. Operations strategy - 4. Process analysis and improvement -
2. Working with fewer resources - 5. Agility -
3. Revenue management - 6. Lean production -

Lean system. System that uses minimal amounts of resources to produce a high volume of high quality goods with some variety

Keys Issues in the current business operations. 1. Economic conditions - ; 2.

Innovation - ; 3. Quality problems - ; 4. Risk management - ; 5. Competing in a
global economy - ; 6. Environment - ; 7. Ethical Conduct -

5 Principles on Ethical Conduct: a. Utilitarian Principle - ; b. Rights Principle - ; c.

Fairness Principle - ; d. Common Good Principle - ; e. Virtue Principle -

The Need to Manage the Supply Chain. Supply chain management is being
given increasing attention as business organizations face mounting pressure to
improve management of their supply chains. In the past, most organizations did
little to manage their supply chains. Instead, they tended to concentrate on their
own operations and on their immediate suppliers. Moreover, the planning,
marketing, production and inventory management functions in organizations in
supply chains have often operated independently of each other. As a result,
supply chains experienced a range of problems that were seemingly beyond the
control of individual organizations. The problems included large oscillations of
inventories, inventory stock-outs, late deliveries, and quality problems. The
major decision areas in supply chain management are location, production,
distribution, and inventory

Supply chain is a sequence of activities and organizations involved in producing and delivering a good or service. Two types of
decisions are relevant to supply chain management—strategic and operational. The strategic decisions are the design and policy

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decisions. The operational decisions relate to day-to-day activities: managing the flow of material and product and other aspects of
the supply chain in accordance with strategic decisions.

OPERATIONS PERFORMANCE
1. Defining competitiveness and How it Influences Marketing & Operations; Reasons why organization fail
2. Strategic Versus Tactical Operations Decisions
3. Operation strategy and its formulation; New strategies to consider
4. Productivity & Factors that Affects Productivity; How to Improve Productivity

COMPETITIVENESS

Marketing influences competitiveness in several ways:

1. Identifying consumer wants and/or needs -
2. Price and quality -
3. Advertising and promotion -

Operations has a major influence on competitiveness through:

1. Product and service design - 6. Inventory management -
2. Cost of an organization’s output - 7. Supply chain management -
3. Quality - 8. Service -
4. Quick response - 9. Managers and workers -
5. Flexibility -

Why Some Organizations Fail

1. Neglecting operations strategy -
2. Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threats -
3. Putting too much emphasis on short-term financial performance at the expense of research and development -
4. Placing too much emphasis on product and service design and not enough on process design and improvement -
5. Neglecting investments in capital and human resources -
6. Failing to establish good internal communications and cooperation among different functional areas -
7. Failing to consider customer wants and needs -

STRATEGY -

Organization strategies -
Functional strategies -
 Mission -
 Mission statement -
 Goals -
 Strategies -

There are three basic business strategies:

1. Low cost - 2. Responsiveness - 3. Differentiation from competitors -

Operations decisions include decisions that are strategic in nature, meaning that they have long-term consequences and often
involve a great deal of expense and resource commitments. Strategic operations decisions include the following:
 facility location decisions,
 the type of technologies that the organization will use,
 determining how labor and equipment are organized,
 how much long-term capacity the organization will provide to meet customer demand.

Tactics –
The following are some tactical decisions:
 workforce scheduling -
 establishing quality assurance procedures -
 contracting with vendors -
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  managing inventory -
Strategic and tactical operations decisions determine how well the organization can accomplish its goals. They also provide
opportunities for the organization to achieve unique competitive advantages that attract and keep customers.
Operation strategy -

Strategy Formulation -

SWOT analysis Strengths and Weaknesses –

Threats and Opportunities –

Environmental scanning. Events and trends that present the threats or opportunities for the organization.

Internal Factors External Factors Quality – based strategies focus on satisfying customer by
- human resources - economic conditions integrating quality into all phases of the organization
- facilities and equipment - political conditions
- financial resources - legal environment Time – based strategies focus on reducing the time required to
- customers - technology accomplish various activities in the process
- products and services - competition
- technology - markets PRODUCTIVITY relates to the effective use of resources, and it has a
- suppliers direct impact on competitiveness.
- patents, labor relations,
company and product Factors that affect productivity
image, distribution 1. Methods
channels, distributors, 2. Capital
maintenance of the 3. Quality
facilities, access to 4. Technology
resources and markets 5. Management

How to Improve Productivity?

1. Develop productivity measures for all operations
2. Look at the system as a whole in deciding which operations are most critical.
3. Develop methods for achieving productivity improvements
4. Establish a reasonable goal
5. Make it clear that management supports and encourages productivity improvement.
6. Measure improvements and publicize them
7. Don’t confuse productivity with efficiency.

FORECASTING
1. Forecast defined – Nature & Importance; Common Features & Elements of Forecasts; Forecast and Supply Chain
2. Forecasting Techniques – Qualitative & Quantitative
3. Forecast Based on Time-Series Data and Its Underlying Behaviors

Forecasts -

 Businesses make plans for future operations based on anticipated future demand. Anticipated demand is derived from two
possible sources, actual customer orders and forecasts
 Two aspects of forecasts are important. One is the expected level of demand; the other is the degree of accuracy that can be
assigned to a forecast
 Forecasts are made with reference to a specific time horizon. The time horizon may be fairly short or somewhat.
 Short-term forecasts –
 Long-term forecasts -

Common Features of Forecasts

1. Underlying causal system that existed in the past will continue to exist in the future
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 2. Forecasts are not perfect; actual results usually differ from predicted values; the presence of randomness precludes a
perfect forecast.
3. Forecasts for groups of items tend to be more accurate than forecasts for individual items because forecasting errors
among items in a group usually have a canceling effect
4. Forecast accuracy decreases as the time period covered by the forecast—the time horizon —increases. Generally speaking,
short-range forecasts must contend with fewer uncertainties than longer-range forecasts, so they tend to be more
accurate.

Elements of Good Forecasts

1. Timely
2. Accurate
3. Reliable & consistently
4. Expressed in meaningful units
5. Should be in writing.
6. Simple to understand and use.
7. Cost-effective

Forecasts & the Supply Chain. Accurate forecasts are very important for the supply
chain. Inaccurate forecasts can lead to shortages and excesses throughout the supply
chain

Forecasting Techniques
1. Qualitative Techniques
 Judgmental forecasts -.
a. Executive opinions - ; b. Salesforce opinions - ; c. Consumer surveys - ; d. Delphi Method -
2. Quantitative Techniques
a. Time-series forecasts -
b. Associative models -

Forecasting
Approaches Description
Techniques
Consumer surveys Questioning consumers on future plans
Direct-contact Joint estimates obtained from salespeople or customer service people
Qualitative composites
(Judgement Executive opinion Finance, marketing, and manufacturing managers join to prepare forecast
/Opinion) Series of questionnaires answered anonymously by knowledgeable people; successive
Delphi technique
questionnaires are based on information obtained from previous surveys
Outside opinion Consultants or other outside experts prepare the forecast
Time series
- Naive Next value in a series will equal the previous value in a comparable period
- Moving averages Forecast is based on an average of recent values
Quantitative - Exponential Sophisticated form of weighted moving average
(Statistics) smoothing
Associative models:
- Simple regression Values of one variable are used to predict values of a dependent variable
- Multiple regression Two or more variables are used to predict values of a dependent variable
Forecast based on Time-Series Data. A time series is a time-ordered sequence of observations taken at regular intervals. The data
may be measurements of demand, earnings, profits, shipments, accidents, output, precipitation, productivity, or the consumer price
index.

Underlying Behaviors on Time-Series Data

1. Trend - 2. Seasonality - 3. Cycles - 4. Irregular variations - 5. Random variations -

A naive forecast -
Focus Forecasting -
Techniques for Seasonality. Seasonal variations in time-series data are regularly repeating upward or downward movements in
series values that can be tied to recurring events.
 Seasonality may refer to regular annual variations. Familiar examples of seasonality are weather variations and vacations or
holidays
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 The term seasonal variation is also applied to daily, weekly, monthly, and other regularly recurring patterns in data.

Techniques for Cycles

PRODUCT & SERVICE DESIGN
1. Activities and responsibilities of product and service design
2. Reasons for Product and Service Design or Redesign; Main Sources of Design Ideas
3. Legal Considerations, Ethical Considerations, Human Factors, Cultural Factors, Environmental Factors and Other Factors to
Consider on the Issues in Designing Products
4. Phases in the Product Design and Development; Designing for Production & Services
5. Overview of Service Design and Phases in the Service Design Process

Product and service design is a key factor in satisfying the customer. To be successful in product and service design, organizations
must be continually aware of what customers want, what the competition is doing, what government regulations are, and what new
technologies are available.

Activities and responsibilities of product and service design

1. Translate customer wants and needs into product and service requirements
2. Refine existing products and services.
3. Develop new products and/or services.
4. Formulate quality goals.
5. Formulate cost targets.
6. Construct and test prototypes.
7. Document specifications.
8. Translate product and service specifications into process specifications.

Reasons for Product and Service Design or Redesign

1. Economic 4. Competitive
2. Social and demographic 5. Cost or availability
3. Political, liability, or legal 6. Technological

Main Sources of Design Ideas

1. Customer input can come from surveys, focus groups, complaints, and unsolicited suggestions for improvement
2. Input from suppliers, distributors, and employees can be obtained from interviews, direct or indirect suggestions, and
complaints.
3. Competitors’ products and services
 Reverse engineering. Dismantling and inspecting a competitor’s product to discover product improvements.
4. Research and development (R&D) -
 Basic research has the objective of advancing the state of knowledge about a subject, without any near-term
expectation of commercial applications.
 Applied research has the objective of achieving commercial applications.
 Development converts the results of applied research into useful commercial applications.

Legal Considerations in Designing Products

1. Government agencies
2. Bans on cyclamates, red food dye, phosphates, and asbestos have sent designers scurrying back to their drawing boards to
find alternative designs that were acceptable to both government regulators and customers.
3. Automobile pollution standards and safety features
4. Toy design to remove sharp edges, small pieces that can cause choking, and toxic materials
5. Government regulations on construction, requiring the use of lead-free paint, safety glass in entranceways, access to public
buildings for individuals with disabilities, and standards for insulation, electrical wiring, and plumbing.
6. Product liability is the responsibility of a manufacturer for any injuries or damages caused by a faulty product because of
poor workmanship or design
7. Uniform Commercial Code

Ethical Considerations in Designing Products

1. Pressure to speed up the design process and to cut costs
2. Give the customers the value they expect
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 3. Make health and safety a primary concern.

Human Factor Issues in in Designing Products

1. Safety & Liability
2. Adding new features of the products

Cultural Factor Issues in in Designing Products

- Cultural differences of different countries or region affects product designs

Environmental Factor Issues in Designing Products

1. Cradle-to-grave assessment (life cycle analysis)
2. End-of-life programs
3. Reducing environment impacts and costs saving
 Value analysis –
4. Reuse of parts of returned products
 Remanufacturing -
5. Recycling -

Other Factors to Consider in Designing a Products

1. Product or service life cycles
 Wide variations exist in the amount of time a particular product or service takes to pass through a given phase of its life cycle:
some pass through various stages in a relatively short period; others take considerably longer. Often it is a matter of the basic
need for the item and the rate of technological change
2. Standardization
3. Product or service reliability
4. Range of operating conditions

Phases in the Product Design and Development

1. Feasibility analysis – 5. Design review -
2. Product specifications - 6. Market test -
3. Process specifications - 7. Product introduction -
4. Prototype development - 8. Follow-up evaluation -

Designing for Production

1. Concurrent engineering - 3. Production capabilities -
2. Computer-assisted design (CAD) - 4. Component Commonality -

Designing for Service. Service refers to an act, something that is done to or for a customer or client. It is provided by a service
delivery system, which includes the facilities, processes, and skills needed to provide the service. Many services are not pure
services, but part of a product bundle —the combination of goods and services provided to a customer wherein the service
component in products is increasing. The ability to create and deliver reliable customer-oriented service is often a key competitive
differentiator. (Successful companies combine customer-oriented service with their products)

Overview of Service Design. Service design begins with the choice of a service strategy, which determines the nature and focus of
the service, and the target market.

System design involves development or refinement of the overall service package. Service package refers to the physical resources
needed to perform the service, the accompanying goods, and the explicit and implicit services included.

Two key issues in service design:

1. Degree of variation in service requirements
2. Degree of customer contact and customer involvement in the delivery system (

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STRATEGIC CAPACITY PLANNING FOR PRODUCTS & SERVICES
1. Capacity planning & Capacity defined; Reasons why organization were involved in capacity planning
2. Importance of Capacity Planning (Decision); Design Capacity & Effective Capacity
3. Determinants of Effective Capacity

Capacity planning -
Capacity -.

Reasons why organization were involved in capacity planning

1. changes in demand 3. changes in the environment
2. changes in technology 4. perceived threats or opportunities
 Overcapacity causes operating costs that are too high, while under-capacity causes strained resources and possible loss of
customers.

Importance of Capacity Planning (Decision)

1. Capacity decisions have a real impact on the ability of the organization to meet future demands for products and services.
(insufficient supplies, resulting in lost sales and unhappy customers)
2. Capacity decisions affect operating costs.
3. Capacity is usually a major determinant of initial cost (the greater the capacity of a productive unit, the greater its cost)
4. Capacity decisions often involve long-term commitment of resources (once decisions are implemented, those decisions may be
difficult or impossible to modify without incurring major costs)
5. Capacity decisions can affect competitiveness.
6. Capacity affects the ease of management
7. Globalization has increased the importance and the complexity of capacity decisions. (Far-flung supply chains and distant
markets add to the uncertainty about capacity needs)
8. Planning in advance for substantial financing and other resources needed

Design capacity –
Effective capacity –

Determinants of Effective Capacity

1. Facilities a. design of facilities b. locational factors c. layout of the work area e. environmental
factors.
2. Product and Service Factors.
a. Product or service design can have a tremendous influence on capacity
b. Products or service mix rendered also must be considered since different items will have different rates of output
3. Process Factors -.
a. Quantity capabilities b. Quality capabilities
4. Human Factors.
a. Job content - tasks that make up a job e. Compensation
b. Job design - variety of activities involved f. Learning rates
c. Training & experience g. Absenteeism and labor turnover
d. Motivation
5. Policy Factors.
6. Operational Factors
a. Scheduling d. Maintenance policies
b. Materials management e. Equipment breakdowns
c. Quality assurance
7. Supply Chain Factors –
a. External Factors a. Product standards b. Safety regulations c. Unions d. Pollution control standard

Challenges of Planning Service Capacity

1. Convenience for customers 2. Timing of demand 3. Demand volatility presents problems for capacity
planners
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Factors to consider when deciding whether to operate in-house or outsource
1. Available capacity. 4. Nature of demand
2. Expertise. 5. Cost
3. Quality considerations. 6. Risks
DECISION THEORY
1. Overview of Decision making; Characteristics of Decision Theory Approach & Decision Theory Approach Process
2. Decision process; Causes of Poor Decisions of a Manager; Categories of Decision Certainty

Decision making -

Characteristics of Decision Theory Approach

1. Possible future conditions that will have a bearing on the results of the decision.
2. List of alternatives for the manager to choose from.
3. Known payoff for each alternative under each possible future condition
 Payoff - Evaluation of the alternatives differs according to the degree of certainty associated with the possible future conditions.

Decision Theory Approach Process

1. Identify the possible future conditions
2. Develop a list of possible alternatives, one of which may be to do nothing.
3. Determine or estimate the payoff associated with each alternative for every possible future condition
4. If possible, estimate the likelihood of each possible future condition.
5. Evaluate alternatives according to some decision criterion

Decision process
1. Identify the problem. 5. Select the best alternative.
2. Specify objectives and criteria for a solution. 6. Implement the solution.
3. Develop suitable alternatives. 7. Monitor to see that desired result is achieved
4. Analyze and compare alternatives.

Causes of Poor Decisions of a Manager

1. Skipping step during the implementation of decision
2. Making quick decisions or a failure to recognize the consequences of a poor decision.
3. Manager’s ego
4. Unwillingness to admit a mistake
5. Bounded rationality
6. Departmentalize decisions

Operations management decision environments are classified according to the degree of certainty present. There are three basic
categories were as follows: (Categories of Decision Certainty)
1. Certainty
 Determine the best alternative in the payoff table on the previous page for each of the cases: It is known with certainty that
demand will be ( a ) low, ( b ) moderate, ( c ) high. Choose the alternative with the highest payoff.
2. Risk
3. Uncertainty
Decision criteria under Uncertainty
a. Maximin alternative b. Maximax c. Laplace d. Minimax regret

Decision tree -
.

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PROCESS SELECTION & FACILITY LAYOUT
1. Overview of Process Selection; Process Selection Strategy & Demand Driven; Process Types
2. Product and Service Profiling; Influences of Technology on Process Selection; Process Strategy
3. Facilities Layout - Importance; Common Reasons for Redesign; Basic Types of Facilities Layout
4. Cellular production

Processes convert inputs into outputs; they are at the core of operations management. But the impact of process selection goes
beyond operations management: It affects the entire organization and its ability to achieve its mission, and it affects the
organization’s supply chain

Process selection -.

Forecasts, product and service design, and technological considerations all influence
capacity planning and process selection. Moreover, capacity and process selection are
interrelated which affect facility and equipment choices, layout, and work design.

Process Selection Strategy. How an organization approaches process selection is

determined by the organization’s process strategy. Key aspects includes a. Capital intensity - b. Process flexibility

Process choice is demand driven. The two key questions in process selection are:
1. How much variety will the process need to be able to handle?
2. How much volume will the process need to be able to handle?

Process Types
1. Job Shop - 2. Batch 3. Repetitive. 4. Continuous.

Job Shop Batch Repetitive Continuous

Description Customized goods or Semi-standardized goods or Standardized goods Highly standardized
services services or services goods or services
Advantages Able to handle a wide Flexibility; easy to add or Low unit cost, high Very efficient, very high
variety of work change products or services volume, efficient volume
Disadvantages Slow, high cost per Moderate cost per unit, Low flexibility, high Very rigid, lack of
unit, complex planning moderate scheduling cost of downtime variety, costly to change,
and scheduling complexity very high cost of
downtime

All of these process types (job shop, batch, repetitive, and continuous) are typically ongoing operations. However, some situations
are not ongoing but instead are of limited duration. In such instances, the work is often organized as a project.

Project -
Product and Service Profiling -
Influences of Technology on Process Selection. Technology and technological innovation often have a major influence on business
processes. Technological innovation refers to.
Technology refers
The term high technology refers
 Process technology is
 Information technology (IT)
 Automation is

Process Strategy. In practice, decision makers choose flexible systems for either of two reasons:
1. Demand variety or uncertainty exists about demand.
2. Overcome through improved forecasting.

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Strategic Resource Organization: Facilities Layout
Layout refers

Importance of Facilities Layout

1. Require substantial investments of money and effort;
2. Involve long-term commitments (which makes mistakes difficult to overcome);
3. Have significant impact on the cost and efficiency of operations.

Common Reasons for Redesign of Facilities Layouts

1. Inefficient operations 5. Changes in the volume of output or mix of outputs
2. Morale problems 6. Changes in methods or equipment
3. Changes in the design of products or services, 7. Introduction of new products or services
4. Changes in environmental or other legal requirements, 8. Accidents or safety hazards,

Basic Types of Facilities Layout

1. Product layouts - 2. Process layouts (functional layout) - 3. Fixed-position layouts are
 Intermittent processing refers

Cellular production.
 Process type and layout are a function of expected demand volume and the degree of customization that will be needed.
 Process design is critical in a product-focused system, whereas managing is critical in a process-focused system

WORK DESIGN & MEASUREMENT

1. Job Design, its Approaches & Specialization; Ergonomics & its Domain
2. Quality of Work Life; Quality of Work Life. Impact of Working Conditions on Job Design

Job design (job specifications or job description) -

Approaches to Job Design 1. Efficiency school 2. Behavioral school
Behavioral Approaches to Job Design a. Job enlargement b. Job rotation c. Job enrichment
Specialization refers to

SPECIALIZATION IN BUSINESS
Advantages
Management Employees
1. Simplifies training 1. Low education and skill requirements
2. High productivity 2. Minimum responsibilities
3. Low wage costs 3. Little mental effort needed
Disadvantages
1. Difficult to motivate quality 1. Monotonous work
2. Worker dissatisfaction, possibly resulting in absenteeism, 2. Limited opportunities for advancement
high turnover, disruptive tactics, poor attention to quality 3. Little control over work
4. Little opportunity for self-fulfillment

Ergonomics refers to
3 Domains of Ergonomcs 1. Physical 2. Cognitive 3. Organizational

Quality of Work Life. Impact of Working Conditions on Job Design. People work for a variety of reasons: work to earn a living,
seeking self-realization, status, physical and mental stimulation, and socialization which affects not only workers’ overall sense of
well-being and contentment, but also worker productivity.
1. Working Conditions (physical factors)
2. Compensations
Approaches:
a. Time-based system – b. Output-based (incentive) system –. c. Knowledge-based pay –.

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LOCATION PLANNING & ANALYSIS
1. Reasons Why Organizations Need to Make Location Decisions; Supply Chain Considerations
2. Options to Consider in Location Planning; Major Influences on Location Decision Locally & Globally

Reasons Why Organizations Need to Make Location Decisions

1. Marketing strategy - 2. Expansion – 3. Depletion of materials – 4. Shift in markets and its cost -

Supply Chain Considerations. Supply chain management must consider the determining number and location of suppliers,
production facilities, warehouses, and distribution centers which involve a long-term commitment of resources, risks, benefits and
accessing customer markets that has a significant impact on costs, revenues, and responsiveness.

Options to Consider in Location Planning

1. Expand an existing facility.
2. Add new locations while retaining existing ones..
3. Shut down at one location and move to another.

Major Influences on Location Decision Locally

1. Location of raw materials 5. Site-related factors
2. Labor supply. 6. Transportation
3. Market considerations 7. Environmental/legal
4. Community-related factors 8. Climate and weather

Major Influences on Location Decision Globally (that could be a positive and negative influences)
1. Labor costs 4. Language differences
2. Abundance of raw materials 5. Cultural differences
3. Potential markets for a firm’s products or services 6. Political instability

MANAGEMENT OF QUALITY
1. Overview of Quality & Philosophies of Quality Gurus; Dimensions of Product & Service Quality
2. Determinants of Quality - Benefits of Good Quality & Consequences of Poor Quality; Quality Certifications
3. Total quality management (TQM) – Philosophies & Approach; Quality Tools & Methods for Generating Ideas

Quality refers to
Philosophies of Quality Gurus

Walter Shewhart Father of Statistical Quality control; developed control charts for analyzing the output of processes to
determine when corrective action was necessary
W. Edwards assist the Japanese in improving quality and productivity. The cause of inefficiency and poor quality is the
Deming system, not the employees. management’s responsibility to correct the system to achieve the desired
results.
Joseph M. Juran taught Japanese manufacturers how to improve the quality of their goods, quality as fitness-for-use; quality
defects are management controllable; commitment of management to continual improvement.
Quality Management Trilogy
1. Quality planning is necessary to establish processes that are capable of meeting quality standards
2. Quality control is necessary in order to know when corrective action is needed
3. Quality improvement will help to find better ways of doing things
Armand it is the customer who defines quality
Feigenbaum
Philip B. Crosby concept of zero defects and popularized the phrase “Do it right the first time.”
Kaoru Ishikawa development of the cause-and-effect diagram (also known as a fishbone diagram) for problem solving and
the implementation of quality circles, which involve workers in quality improvement. He was the first quality
expert to call attention to the internal customer —the next person in the process, the next operation, within
the organization
Genichi Taguchi Taguchi loss function, which involves a formula for determining the cost of poor quality. An important part
of his philosophy is the cost to society of poor quality.

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 Taiichi Ohno and developed the philosophy and methods of kaizen, a Japanese term for continuous improvement
Shigeo Shingo

Determinants of Quality
1. Quality of design refers to 3. Ease of use and user instructions are important
2. Quality of conformance refers to 4. Service after delivery
Benefits of Good Quality
Dimensions of Product Dimensions of Service
1. Enhanced reputation for quality
Quality Quality
2. Ability to command premium prices
1. Performance — 1. Convenience —
3. Increased market share
2. Aesthetics — 2. Reliability
4. Greater customer loyalty
3. Special features — 3. Responsiveness —
5. Lower liability costs
4. Conformance — 4. Time —
6. Fewer production or service problems
5. Reliability — 5. Assurance —
6. Durability — 6. Courtesy —
Consequences of Poor Quality
7. Perceived quality — 7. Tangibles —
1. Loss of business. 3. Productivity.
8. Serviceability — 8. Consistency —
2. Liability. 4. Costs.
9. Consistency — 9. Expectations —
Quality Certifications. International Organization for Standardization (ISO) promotes worldwide standards for the improvement of
quality, productivity, and operating efficiency through a series of standards and guidelines.
 ISO 9000 / ISO 14000 / ISO 24700.

Total quality management (TQM) refers to

Key philosophies of TQM
1. Never-ending push to improve
2. Involvement of everyone in the organization
3. Goal of customer satisfaction – meeting or exceeding customer expectations

Aspects of TQM Approach (Problem Solving & Process Improvement)

Plan-do-study-act (PDSA) cycle (Shewhart cycle or the Deming wheel) refers to
Basic Steps Cycle: 1. Plan. 2. Do. 3. Study. 4. Act.
Process Improvement is a
Basic Steps Cycle:
1. Map the process
a. Collect information about the process; identify each step in the process.
b. Prepare a flowchart that accurately depicts the process.
2. Analyze the process
3. Redesign the process
Six sigma –
DMAIC (define-measure-analyze-improve-control) is a
Quality Tools
1. Flowchart – 5. Scatter diagram –
2. Check sheet – 6. Control chart –
3. Histogram – 7. Cause-and-effect diagram –
4. Pareto chart –

Methods for Generating Ideas

1. Brainstorming - 2. Quality circles - 3. Benchmarking –

INVENTORY MANAGEMENT
1. Overview of Inventory Management & Inventory defined; Objective of Inventory Management
2. Types & Functions of Inventories; Consequences of Poor Inventory Management; Inventory Control and Its Problems
3. Requirements for Effective Inventory Management; Inventory Counting Systems
4. Relevant Costs to Inventory Management; Operation Strategy on Inventory Management

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 Inventory management is a.
 An inventory is a.
 Effective inventory decisions depend on having good inventory records, good cost information, and good estimates of demand.

Objective of Inventory Management

1. Level of customer service 2. Costs of ordering and carrying inventories
Types of inventory.
1. Raw materials and purchased parts.
2. Partially completed goods, called work-in-process (WIP).
3. Finished-goods inventories (manufacturing firms) or merchandise (retail stores).
4. Tools and supplies.
5. Maintenance and repairs (MRO) inventory.
6. Goods-in-transit to warehouses, distributors, or customers (pipeline inventory).

Functions of Inventory
1. To meet anticipated customer demand. 5. To take advantage of order cycles
2. To smooth production requirements 6. To hedge against price increases
3. To decouple operations. 7. To permit operations
4. To reduce the risk of stock-outs 8. To take advantage of quantity discounts.

Consequences of Poor Inventory Management

1. Hampers operations 3. Increases operating costs
2. Diminishes customer satisfaction 4. Under- and overstocking of items.

Inventory Control – is a

Problems arising in Inventory Control 1. Order level – 2. Order quantity –

Requirements for Effective Inventory Management

1. A system to keep track of the inventory on hand and on order.
2. A reliable forecast of demand that includes an indication of possible forecast error.
3. Knowledge of lead times and lead time variability.
4. Reasonable estimates of inventory holding costs, ordering costs, and shortage costs.
5. A classification system for inventory items

Inventory Counting Systems

1. Periodic inventory system –
2. Perpetual inventory system (continuous review system) –
a. Two-bin system –
b. Universal product code (UPC) –
c. Point-of-sale (POS) systems –
d. Radio frequency identification (RFID) tags are

Relevant Costs to Inventory Management.

1. Purchase cost –
2. Holding (carrying) cost –
3. Ordering costs –
4. Setup costs –
5. Shortage costs -

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