CBME 101- OPERATIONS MANAGEMENT W/ TQM Services are activities that provide some combination of time, location, form, or

psychological value.
MODULE 1
Examples of goods and services are found all around you. Every book you
LESSON 1- INTRO TO OPERATIONS MGT read, every video you watch, every e-mail or text message you send, every
telephone conversation you have, and every medical treatment you receive
LESSON 2- PRODUCTION OF GOODS VERSUS involves the operations function of one or more organizations. so does everything
PROVIDING SERVICES you wear, eat, travel in, sit on, and access the Internet with .

LESSON 3- WHY LEARN ABOUT OPERATION MGT 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.
1.1 INTRODUCTION 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
Operations is that part of a business organization that is responsible for
responsible for producing products and/or delivering services, it needs the support
producing goods and/or services.
and input from other areas of the organization.
The outcome of the business operation is the harvesting of value from assets owned
If you are a retail business, as the owner of a retail business, your daily goal is to
by the business.
stock the items customers want at a price they’re happy to pay. For the operations,
Assets can be either physical or intangible. Operation is the work of managing the that means perfecting your inventory.
inner workings of your business so it runs as efficiently as possible. Whether make
Take a look at the records from last season. What is selling well, what’s sitting,
a products, sell products, or provide services, every small business owner has to
unwanted, on the shelves? Can you negotiate lower prices or better terms from
oversee the design and management of behind-the-scenes work.
your vendors? Would your customers be willing to pay more for any of the items
The specific definition of operations will depend on your industry and the stage of you sell?
your business is in.
While some of the answers will be obvious when you crunch the number and
Sometimes, improving operations means thinking strategically about your system results, another operational update might be to be implemented a software program
and processes. Other times, it means seeing part of the on-the-ground work to bring that can be manage and optimize your inventory in real time so you can address
every aspect of a project, from tiny to huge, to reality. these questions.
Goods are physical items that include raw materials, parts, subassemblies such as
mother boards that go into computers, and final products such as cell phones and
automobiles.

CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 1

 Supply Chain is the sequence of organizations—their facilities,
functions, and activities—that are involved in producing and delivering a product
In a food business. Food businesses have been more challenging inventory
or service.
problems than retailers, since the product is perishable. At a restaurant, operations
applies not just to food stuffs, but also purchasing, preparation, and cost of food, The sequence begins with basic suppliers of raw materials and extends all
beverages and labor. You’ll also be concerned with customer service and customer the way to the final customer, as seen in Figure 1.2 . Facilities might include
experience at your restaurant. warehouses, factories, processing centers, offices, distribution centers, and retail
outlets. Functions and activities include forecasting, purchasing, inventory
Additional explanation:
management, information management, quality assurance, scheduling, production,
distribution, delivery, and customer service.

Business organizations have three basic functional areas, as depicted in

Figure 1.1: finance, marketing, and operations. It doesn’t matter whether the
Supply chain management is the management of the flow of goods and services
business is a retail store, a hospital, a manufacturing firm, a car wash, or some
and includes all processes that transform raw materials into final products. It
other type of business; all business organizations have these three basic functions.
involves the active streamlining of a business's supply-side activities to maximize
Finance is responsible for securing financial resources at favorable prices customer value and gain a competitive advantage in the marketplace.
and allocating those resources throughout the organization, as well as budgeting,
SCM represents an effort by suppliers to develop and implement supply chains that
analyzing investment proposals, and providing funds for operations.
are as efficient and economical as possible. Supply chains cover everything from
Marketing is responsible for assessing consumer wants and needs, and production to product development to the information systems needed to direct
selling and promoting the organization’s goods or services. these undertakings.

Operations is responsible for producing the goods or providing the Figure 1.2 a simple product supply chain
services offered by the organization.

To put this into perspective, if a business organization were a car, operations

would be its engine. And just as the engine is the core of what a car does, in a
business organization, operations is the core of what the organization does.

Operations management is responsible for managing that core. Hence,

Suppliers- delivers raw materials to be used in producing another product/raw
operations management is the management of systems or processes that create
materials
goods and/or provide services.
Supplier’s supplier- needs another supplier to produce raw materials
Operations and supply chains are intrinsically linked, and no business Direct suppliers- supplies products on what producer needs
organization could exist without both. Distributor- distributes finished product from the manufacturer to the end
consumers/costumers.
CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 2
Supply chains are both external and internal to the organization. One useful way of categorising different types of transformation is into:

The external parts of a supply chain provide raw materials, parts, manufacture – the physical creation of products (for example cars)
equipment, supplies, and/or other inputs to the organization, and they deliver
transport – the movement of materials or customers (for example a taxi service)
outputs that are goods to the organization’s customers.
supply – change in ownership of goods (for example in retailing)
The internal parts of a supply chain are part of the operations function
itself, supplying operations with parts and materials, performing work on products, service – the treatment of customers or the storage of materials (for example
and/or performing services. hospital wards, warehouses).

To ensure that the desired outputs are obtained, an

organization takes measurements at various points in the
TRANSFORMATION PROCESS transformation process (feedback) and then compares
The creation of goods or services involves transforming or converting them with previously established standards to determine
inputs into outputs. Various inputs such as capital, labor, and information are used whether corrective action is needed (control). Figure 1.4
to create goods or services using one or more transformation processes (e.g., depicts the conversion system.
storing, transporting, repairing).

A transformation process is any activity or group of activities that takes one or

more inputs, transforms and adds value to them, and provides outputs for
customers or clients. Where the inputs are raw materials, it is relatively easy to
identify the transformation involved, as when milk is transformed into cheese and
butter. Where the inputs are information or people, the nature of the transformation
may be less obvious. For example, a hospital transforms ill patients (the input) into INPUT
INPUT
healthy patients (the output). SS CUSTOMER
CUSTOMER
FEEDBACK
FEEDBACK
(5M’S
(5M’S
))
Often all three types of input – materials, information and customers – are MAN
MAN
transformed by the same organisation. For example, withdrawing money from a MONE
MONE
bank account involves information about the customer's account, materials such as YY TRANSFORM
TRANSFORM OUTPUT
ATION OUTPUT
MACH
MACH ATION GOODS/SE
cheques and currency, and the customer. Treating a patient in hospital involves not PROCESS
PROCESS GOODS/SE
INE
INE RVICES
RVICES
only the ‘customer's’ state of health, but also any materials used in treatment and
METH
METH quality control
information about the patient. OD
OD
MATE
MATE
RIAL
RIAL PERFORMA
PERFORMA
CBME 101 – OPERATIONS MANAGEMENT NCE
W/
NCE TQM BY: MR. JASTIN R. SORIA 3
CONTROL
CONTROL
Transformed Resources. The resources that are treated, transformed or convert in the
process

The actual physical materials we put into the transformation process. The transformation
process can be building something, manufacturing.

The materials, information customers and the transformed resources or the 5 ms, when we
bring this thins together into the process of transformation. The transformation process
can be building something, manufacturing.

we create an output. This are the goods and services we offer to the people

Transformation processes include:

changes in the physical characteristics of materials or customers

changes in the location of materials, information or customers

changes in the ownership of materials or information

storage or accommodation of materials, information or customers

changes in the purpose or form of information

changes in the physiological or psychological state of customers.

Figure 1.4 TRANSFORMATION PROCESS

Table 1.1 provides some examples of inputs, transformation processes, and

outputs. Although goods and services are listed separately in Table 1.1, it is
important to note that goods and services often occur jointly. For example, having
the oil changed in your car is a service, but the oil that is delivered is a good.
Similarly, house painting is a service, but the paint is a good.

CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 4

The goods–service combination is a continuum. It can range from primarily goods,
with little service, to primarily service, with few goods. Figure 1.5 illustrates this
continuum. Because there are relatively few pure goods or pure services,
companies usually sell product packages, which are a combination of goods and
services.

Figure 1.5 The Good Service Continuum

CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 5

ESSENCE OF OPERATIONS FUNCTION 1.2 PRODUCTION OF GOODS VERSUS
The essence of the operations function is to add value during the transformation process: PROVIDING SERVICES
Value-added is the term used to describe the difference between the cost Production of goods results in a tangible output, such as an automobile,
of inputs and the value or price of outputs. eyeglasses, a golf ball, a refrigerator—anything that we can see or touch. It may
In nonprofit organizations, the value of outputs (e.g., highway construction, take place in a factory, but it can occur elsewhere.
police and fire protection) is their value to society; the greater the value-added, the Although goods and services often go hand in hand,
greater the effectiveness of these operations. there are some very basic differences between the two,
In for-profit organizations, the value of outputs is measured by the prices that differences that impact the management of the goods
customers are willing to pay for those goods or services. portion versus management of the service portion. There
are also many similarities between the two.
Firms use the money generated by value-added for research and development,
investment in new facilities and equipment, worker salaries, and profits. For example, farming and restaurants produce
Consequently, the greater the value-added, the greater the amount of funds nonmanufactured goods. Delivery of service, on the
available for these purposes. other hand, generally implies an act. A physician’s
examination, TV and auto repair, lawn care, and the
Value can also be psychological, as in branding. Many factors affect projection of a film in a theater are examples of services.
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 The majority of service jobs fall into these categories:
used to produce and/or deliver a product or service. The greater the degree of Professional services (e.g., financial, health care, legal).
customer involvement, the more challenging it can be to design and manage the
operation. Technology choices can have a major impact on productivity, costs, Mass services (e.g., utilities, Internet, communications).
flexibility, and quality and customer satisfaction.
Service shops (e.g., tailoring, appliance repair, car wash, auto
repair/maintenance).
Personal care (e.g., beauty salon, spa, barbershop).
Government (e.g., Medicare, mail, social services, police, fire).
Education (e.g., schools, universities).
Food service (e.g., catering).
Services within organizations (e.g., payroll, accounting,
maintenance, IT, HR, janitorial).

CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 6

 Retailing and wholesaling. Shipping and delivery (e.g., truck, Measurement of productivity can be more difficult for service jobs
railroad, boat, air). due largely to the high variations of inputs. Thus, one doctor might
have a higher level of routine cases to deal with, while another
Residential services (e.g., lawn care, painting, general repair,
might have more-difficult cases. Unless a careful analysis is
remodeling, interior design).
conducted, it may appear that the doctor with the difficult cases has
Transportation (e.g., mass transit, taxi, airlines, ambulance). a much lower productivity than the one with the routine cases.

Travel and hospitality (e.g., travel bureaus, hotels, resorts). Quality assurance is usually more challenging for services due to
the higher variation in input, and because delivery and consumption
Miscellaneous services (e.g., copy service, temporary help). occur at the same time. Unlike manufacturing, which typically
Manufacturing and service are often different in terms of what is done but quite occurs away from the customer and allows mistakes that are
similar in terms of how it is done. identified to be corrected, services have less opportunity to avoid
exposing the customer to mistakes.
Consider these points of comparison:
Inventory. Many services tend to involve less use of inventory than
Degree of customer contact. Many services involve a high degree of manufacturing operations, so the costs of having inventory on hand
customer contact, although services such as Internet providers, are lower than they are for manufacturing. However, unlike
utilities, and mail service do not. When there is a high degree of manufactured goods, services cannot be stored. Instead, they must
contact, the interaction between server and customer becomes a be provided “on demand.”
“moment of truth” that will be judged by the customer every time
the service occurs. Wages. Manufacturing jobs are often well paid, and have less wage
variation than service jobs, which can range from highly paid
professional services to minimum-wage workers.
Labor content of jobs. Services often have a higher degree of labor Ability to patent. Product designs are often easier to patent than
content than manufacturing jobs do, although automated services are service designs, and some services cannot be patented, making them
an exception. easier for competitors to copy.
Uniformity of inputs. Service operations are often subject to a
higher degree of variability of inputs. Each client, patient, customer,
There are also many similarities between managing the production of products and
repair job, and so on presents a somewhat unique situation that
managing services.
requires assessment and flexibility. Conversely, manufacturing
operations often have a greater ability to control the variability of When there are important service considerations, these are
inputs, which leads to more-uniform job requirements. Measurement highlighted in separate sections. Here are some of the primary factors for both:
of productivity.
a. Forecasting and capacity planning to match supply and
demand.

CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 7

 b. Process management. Table 1.3 Typical Differences between production of goods and provision of services.

c. Managing variations.
1.3 WHY LEARN ABOUT OPERATIONS
d. Monitoring and controlling costs and productivity.
MANAGEMENT?
e. Supply chain management.
Whether operations management is your major or not, the skill set you gain
f. Location planning, inventory management, quality control, and studying operations management will serve you well in your career. There are many career-
scheduling. related reasons for wanting to learn about operations management, whether you plan to
Note that many service activities are essential in goods-producing companies. These work in the field of operations or not. This is because every aspect of business affects or is
include training, human resource management, customer service, equipment repair, affected by operations.
procurement, and administrative services. Operations and sales are the two-line functions in a business organization. All
Table 1.3 provides an overview of the differences between production of goods and service other functions—accounting, finance, marketing, IT, and so on—support the two-line
operations. Remember, though, that most systems involve a blend of goods and services. functions.

Among the service jobs that are closely related to operations are:

financial services (e.g., stock market analyst, broker, investment banker, and
loan officer),

marketing services (e.g., market analyst, marketing researcher, advertising

manager, and product manager),

accounting services (e.g., corporate accountant, public accountant, and budget

analyst), and

information services (e.g., corporate intelligence, library services, management

information systems design services).

A common complaint from employers is that college graduates come to them

very focused, when employers would prefer them to have more of a general knowledge of
how business organizations operate.

Apart from the career-related reasons is a not so obvious one: Through learning about
operations and supply chains, you will have a much better understanding of the world you
live in, 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

CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 8

practice, there is significant interfacing and collaboration among the various 3. Provision of funds. The necessary funding of operations and the
functional areas, involving exchange of information and cooperative decision amount and timing of funding can be important and even critical
making. when funds are tight. Careful planning can help avoid cash-flow
problems.
For example, although the three primary functions in business organizations
perform different activities, many of their decisions impact the other areas of the Operations also interacts with other functional areas of the organization,
organization. Consequently, these functions have numerous interactions, as including legal, management information systems (MIS), accounting,
depicted by the overlapping circles shown in Figure 1.6. personnel/human resources, and public relations, as depicted in Figure 1.7.

Legal department must be consulted on contracts with employees,

Finance and operations management personnel cooperate by exchanging customers, suppliers, and transporters, as well as on liability and environmental
information and expertise in such activities as the following: issues.
1. Budgeting. Budgets must be periodically prepared to plan financial Accounting supplies information to management on costs of labor,
requirements. Budgets must sometimes be adjusted, and performance materials, and overhead, and may provide reports on items such as scrap,
relative to a budget must be evaluated. downtime, and inventories.
2. Economic analysis of investment proposals. Evaluation of Management information systems (MIS) is concerned with
alternative investments in plant and equipment requires inputs from providing management with the information it needs to effectively manage. This
both operations and finance people. 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.

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 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 have responsibility for building and maintaining a
positive public image of the organization. Good public relations provide many
potential benefits.

-END OF WEEK 1-

CBME 101 – OPERATIONS MANAGEMENT W/ TQM BY: MR. JASTIN R. SORIA 10