Operations Management: A Philippine Perspective

Preface

Part I: Introduction and Strategy

Chapter 1: Operations Management: An Overview

Chapter 2: Operations Strategy

Part II: Process and Capacity

Chapter 3: Process Analysis and Design

Chapter 4: Project Management

Chapter 5: Capacity Planning

Chapter 6: Facility Location and Layout

Part III: Quality and Lean Systems

Chapter 7: Quality Management

Chapter 8: Lean Systems and Six Sigma

Part IV: Supply Chain and Inventory

Chapter 9: Supply Chain Management

Chapter 10: Inventory Management

Part V: Forecasting and Scheduling

Chapter 11: Enterprise Resource Planning (ERP)

Chapter 12: Forecasting

Chapter 13: Operations Scheduling

Part VI: Modern Issues in Operations

Chapter 14: Sustainability and Ethics in Operations

Chapter 15: Globalization and Technology

Online Sources

Operations Management: A Philippine Perspective

Preface

Operations Management (OM) is a dynamic and critical field that underpins the success of any organization, regardless of its size or industry. It encompasses the design, operation, and improvement of the systems that create and deliver a company's primary products and services. In an increasingly interconnected and competitive global landscape, understanding and mastering operations management principles is not merely advantageous but essential for sustainable growth and competitive advantage.

This textbook is specifically designed for college students in the Philippines, aiming to provide a comprehensive and contextualized understanding of operations management. While drawing upon universal OM theories and best practices, it uniquely integrates examples, case studies, and discussions rooted in the vibrant and diverse Philippine business environment. From the bustling markets of Metro Manila to the innovative BPO hubs and emerging manufacturing sectors, the Philippines offers a rich tapestry of operational challenges and successes. By highlighting these local contexts, this textbook seeks to make complex OM concepts more relatable and applicable, preparing students to become effective and strategic operations professionals in the Philippine setting and beyond. The curriculum guides students from foundational concepts to advanced topics, ensuring a holistic learning experience supported by practical application and critical thinking exercises.

Part I: Introduction and Strategy

Chapter 1: Operations Management: An Overview

Operations management (OM) stands as a cornerstone of modern business, orchestrating the intricate processes that transform inputs into valuable outputs. It is the discipline concerned with the efficient control, organization, and strategic management of resources to create goods and services.¹ This field embraces a systematic approach, integrating various management procedures and techniques to ensure optimal performance and value delivery.

What is Operations Management?

At its essence, operations management involves the development and execution of business strategies aimed at maximizing the flow of information and productivity within an organization.³ It requires continuous oversight of daily activities and processes, coupled with constant analysis to discern what methods are effective and what require adjustment. Unlike project management, which has a defined beginning and end, operations management is an ongoing, cyclical process focused on the day-to-day functioning and improvement of an organization's core activities.³

The functions of operations management are multi-tiered, impacting various aspects of a business. These functions typically include strategy development, where data and information are analyzed to chart a course toward organizational objectives. Forecasting, another critical function, involves predicting the financial future of an organization by assessing current resources, projected earnings, and external factors like inflation or consumer demand. Operations managers are also deeply involved in supply chain management, overseeing the transformation of raw materials into final products and ensuring efficient movement of goods. Lastly, quality control is paramount, as operations managers continuously inspect processes and products to ensure adherence to brand standards and customer expectations.³

To excel in this field, an operations manager must possess a blend of both hard and soft skills. Hard skills include complex problem-solving, which involves determining how various departments can collaborate efficiently.

Management of material resources is another key hard skill, focusing on optimizing the use of existing equipment and facilities or acquiring new ones cost-effectively. Systems analysis and evaluation are daily responsibilities, requiring the ability to continuously adjust systems for better results. Complementing these are soft skills such as persuasion, vital for gaining support for organizational visions, and time management, crucial for maintaining the pace of organization-wide processes and achieving speed objectives.³

The Strategic Role of Operations

Operations management plays a pivotal strategic role by ensuring the efficient flow of processes from the acquisition of inputs to the delivery of outputs, thereby guaranteeing high-quality products and services.⁴ This strategic function involves the astute allocation of resources to precisely meet customer needs, and it inherently overlaps with other critical business functions such as marketing, finance, and human resources.⁵

Organizations compete in the marketplace by emphasizing certain competitive priorities, which operations management directly supports. These priorities include:

Cost: Achieving cost leadership means aiming for the lowest operational costs to offer the most competitive prices. This is often accomplished through economies of scale, where increased production volume leads to a lower cost per unit, and through highly efficient resource utilization.⁵

Quality: This involves consistently meeting or exceeding customer expectations. For tangible goods, quality can be defined by fitness for purpose, the excellence of design, and durability. For services, it pertains to the level of customization offered, the reliability of the service provider, and the professionalism of the delivery.⁵

Flexibility: This refers to an organization's agility in adapting to dynamic market conditions. This includes the ability to quickly change product mix, adjust production volumes, or introduce new products in response to shifting customer demands. Flexibility acts as a potent competitive tool, especially in unpredictable environments.⁶

Delivery: This priority focuses on the speed and dependability of providing products or services. It involves minimizing lead times—the time from order placement to delivery—and consistently adhering to promised delivery schedules.⁶

While these competitive priorities are sometimes perceived as requiring trade-offs, a sophisticated understanding reveals that synergies can often be achieved. For instance, implementing lean manufacturing practices can simultaneously reduce operational costs and enhance product quality by eliminating waste and streamlining processes. Similarly, increased operational flexibility can lead to faster and more reliable delivery times by enabling quicker responses to demand fluctuations. The pursuit of these priorities is not a zero-sum game but rather a complex, multi-objective optimization challenge where the strategic alignment of operations can yield simultaneous improvements across multiple dimensions. This necessitates a continuous effort to balance and leverage these priorities to gain a sustainable competitive advantage in a turbulent market.⁷

Historical Context and Evolution of Operations Management

The field of operations management has undergone a profound transformation, evolving from rudimentary production methods to highly sophisticated, technology-driven systems. Its roots trace back to the Industrial Revolution, which laid the foundational principles for modern industrial practices.⁸

Key historical milestones include:

Early Innovators (18th-19th Centuries): Adam Smith introduced the concept of the division of labor in The Wealth of Nations (1776), emphasizing specialization to boost productivity. Eli Whitney's development of interchangeable parts in 1798 revolutionized mass production by allowing for easier assembly and repair. Frederick Winslow Taylor formalized the scientific approach to industrial efficiency with The Principles of Scientific Management (1911), advocating for time studies and a clear division between management planning and worker execution. Henry Ford further revolutionized manufacturing in 1913 with the assembly line, dramatically improving efficiency and productivity.⁸ Henry Gantt's creation of the Gantt chart in the 1910s provided a visual tool for project scheduling that remains widely used today.⁸

Mid-22nd Century Developments: The mid-20th century marked a significant shift with the emergence of quality management and lean production. Pioneers like W. Edwards Deming introduced concepts that evolved into Total Quality Management (TQM), emphasizing continuous improvement and customer focus. Taiichi Ohno's work at Toyota led to the development of Just-In-Time (JIT) production, a core principle of lean manufacturing focused on waste reduction.⁸

Information Age and Digital Transformation (Late 20th - Early 21st Centuries): The 1960s saw the introduction of Computer-Aided Design (CAD) and Manufacturing (CAM), revolutionizing product design and production processes. Material Requirements Planning (MRP) systems emerged in the 1970s, improving inventory management and production planning by calculating material needs based on demand forecasts. The 1990s witnessed the adoption of Enterprise Resource Planning (ERP) systems, which integrated various business functions—such as finance, human resources, and supply chain—to enhance overall operational efficiency and provide real-time visibility across departments. The 2000s brought the rise of e-commerce and digital supply chain management, transforming inventory management and customer order fulfillment through extensive networks.⁸

Globalization and Service Economy Shift: Operations management expanded beyond traditional manufacturing as globalization led to complex international supply chains, requiring coordination across multiple countries and cultures. Simultaneously, the shift towards service-oriented economies in developed nations broadened the application of OM principles to industries like healthcare and finance, emphasizing service quality and customer experience management.⁸

This historical progression demonstrates a continuous drive towards greater efficiency, quality, and responsiveness, fundamentally shaping how organizations manage their operations today.

Philippine Context: Early Operations and the Evolution of Industries in the Philippines

The operational landscape of the Philippines has evolved significantly, mirroring global trends while retaining unique local characteristics. Historically, the Philippine economy was rooted in agriculture and traditional crafts, where operations were largely manual and localized. Over centuries, these foundational activities gradually transformed, laying the groundwork for modern manufacturing and service sectors.

A prime example of this evolution is the diversified conglomerate San Miguel Corporation (SMC). Established in 1890 as a single brewery, SMC's journey reflects a long history of operational adaptation and strategic growth within the Philippine context.¹⁰ Its initial success as a brewery led to early modernization efforts in the 1900s, incorporating electric conveyors and automatic machines to boost efficiency.¹²

This early operational refinement was a precursor to its extensive diversification, which included vertical integration into related businesses like cultivating barley and even building its own power plant to secure critical inputs and reduce external dependencies.¹²

Today, SMC's operations span a vast array of industries, including food and beverages, packaging, fuel and oil, energy, and infrastructure, making it one of