OPERATIONS MANAGEMENT

OPERATIONS MANAGERS throughout the world are producing products and delivering services to provide for the well-being of
society. These products and services take on a multitude of forms.

Examples:

 Rides at Disney land

 Motion pictures of DreamWorks
 The food at Hard Rock Café
 The washing machine of Whirlpool Company

These companies produced thousands, if not millions of complex products every day—TO BE DELIVERED AS THE CUSTOMERS
ORDERED THEM—WHEN THE CUSTOMERS WANT THEM AND WHERE THE CUSTOMERS WANT THEM.

Example: Imagine Hard Rock Café that accommodates most nearly to 35 million guests per year, knowing that this restaurant
provides food for buyers following its business thrust, to serve hot food hot and cold food cold.

What is Operations Management (OM)?

 Operations Management is a discipline that applies to all businesses. Examples are restaurants, factories, theatres,
salons, and others.
 Operations Management also refers to the efficient production of goods and services that requires useful applications
of concepts, tools, and techniques of OM.
 Operations Management also refers to the set of activities that creates value in the form of goods and services by
transforming INPUTS into OUTPUTS
 Production, on the other hand, is the actual creation of goods and services, including ideas and experiences. (Heizer &
Render, 2014)
 In other words, there are organizations in which the creation of goods is apparent. Examples are computers, cars, milk,
rice, etc. There are also those of which the creation of goods is less obvious. Example: haircut, school, airlines, banks,
etc.

OPERATIONS MANAGEMENT
A Framework for Managing Operations
Operation managers are concerned with planning, organizing, and controlling the activities which affect human behavior
through models.

1. PLANNING

Activities that establishes a course of action and guide future decision-making is planning. The operations manager defines the
objectives for the operations subsystem of the organization, and the policies, and procedures for achieving the objectives. This
stage includes clarifying the role and focus of operations in the organization’s overall strategy. It also involves product planning,
facility designing and using the conversion process.

2. ORGANIZING

Activities that establish a structure of tasks and authority. Operation managers establish a structure of roles and the flow of
information within the operations subsystem. They determine the activities required to achieve the goals and assign authority
and responsibility for carrying them out.

3. CONTROLLING

Activities that assure the actual performance in accordance with planned performance. To ensure that the plans for the
operations subsystems are accomplished, the operations manager must exercise control by measuring actual outputs and
comparing them to planned operations management. Controlling costs, quality, and schedules are the important functions
here.
4. BEHAVIOUR

Operation managers are concerned with how their efforts to plan, organize, and control affect human behaviour. They also
want to know how the behaviour of subordinates can affect management’s planning, organizing, and controlling actions. Their
interest lies in decision-making behaviour.

5. MODELS

As operation managers plan, organise, and control the conversion process, they encounter many problems and must make
many decisions. They can simplify their difficulties using models like aggregate planning models for examining how best to use
existing capacity in short-term, break even analysis to identify break even volumes, linear programming and computer
simulation for capacity utilisation, decision tree analysis for long-term capacity problem of facility expansion, simple median
model for determining best locations of facilities etc.

Objectives of Operations Management

CUSTOMER SERVICE

The first objective of operating systems is the customer service to the satisfaction of customer wants. Therefore, customer
service is a key objective of operations management. The operating system must provide something to a specification which
can satisfy the customer in terms of cost and timing. Thus, primary objective can be satisfied by providing the ‘right thing at a
right price at the right time’.

These aspects of customer service—specification, cost and timing—are described for four functions in Table. They are the
principal sources of customer satisfaction and must, the

SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT

Production and operations management concern with the conversion of inputs into outputs, using physical resources, so as to
provide the desired utilities to the customer while meeting the other organizational objectives of effectiveness, efficiency and
adoptability.

Following are the activities which are listed under production and operations management functions:

1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
 7. Materials management
8. Maintenance management.

LOCATION OF FACILITIES

 Location of facilities for operations is a long-term capacity decision which involves a long term commitment about the
geographically static factors that affect a business organization. It is an important strategic level decision-making for an
organization. It deals with the questions such as where our main operations should be based?’
 The selection of location is a key-decision as large investment is made in building plant and machinery. An improper
location of plant may lead to waste of all the investments made in plant and machinery equipment's. Hence, location
of plant should be based on the company’s expansion.

PLANT LAYOUT AND MATERIAL HANDLING

Plant layout refers to the physical arrangement of facilities. It is the configuration of departments, work centres and equipment
in the conversion process. The overall objective of the plant layouts to design a physical arrangement that meets the required
output quality and quantity most economically.

PRODUCT DESIGN

 Product design deals with conversion of ideas into reality. Every business organization have to design, develop and
introduce new products as a survival and growth strategy. Developing the new products and launching them in the
market is the biggest challenge faced by the organizations.
 The entire process of need identification to physical manufactures of product involves three functions: marketing,
product development, manufacturing. Product development translates the needs of customers given by marketing into
technical specifications and designing the various features into the product to these specifications. Manufacturing has
the responsibility of selecting the processes by which the product can be manufactured. Product design and
development provides link between marketing, customer needs and expectations and the activities required to
manufacture the product.

PROCESS DESIGN

Process design is a macroscopic decision-making of an overall process route for converting the raw material into finished
goods. These decisions encompass the selection of a process, choice of technology, process flow analysis and layout of the
facilities. Hence, the important decisions in process design are to analyse the workflow for converting raw material into
finished product and to select the workstation for each included in the workflow.

PRODUCTION PLANNING AND CONTROL

Production planning and control can be defined as the process of planning the production in advance, setting the exact route
of each item, fixing the starting and finishing dates for each item, to give production orders to shops and to follow up the
progress of products according to orders.

Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from
where we are, to where we want to go. It makes it possible for things to occur which would not otherwise happen.

Routing may be defined as the selection of path which each part of the product will follow, which being transformed from raw
material to finished products. Routing determines the most advantageous path to be followed from department to department
and machine to machine till raw material gets its final shape.

Scheduling determines the programme for the operations. Scheduling may be defined as ‘the fixation of time and date for each
operation’ as well as it determines the sequence of operations to be followed.

Dispatching is concerned with the starting the processes. It gives necessary authority so as to start a particular work, which has
already been planned under ‘Routing’ and ‘Scheduling’.

Quality Control (QC) may be defined as ‘a system that is used to maintain a desired level of quality in a product or service’. It is
a systematic control of various factors that affect the quality of the product. Quality control aims at prevention of defects at the
source, relies on effective feed back system and corrective action procedure.
The main objectives of quality control are:
 To improve the companies income by making the production more acceptable to the customers i.e., by providing long life,
greater usefulness, maintainability, etc.
 To reduce companies cost through reduction of losses due to defects.
 To achieve interchangeability of manufacture in large scale production.
 To produce optimal quality at reduced price.
 To ensure satisfaction of customers with productions or services or high quality level, to build customer goodwill,
confidence and reputation of manufacturer.
 To make inspection prompt to ensure quality control.
 To check the variation during manufacturing.

MATERIALS MANAGEMENT

Materials management is that aspect of management function which is primarily concerned with the acquisition, control and
use of materials needed and flow of goods and services connected

with the production process having some predetermined objectives in view.

The main objectives of materials management are:

 To minimise material cost.

 To purchase, receive, transport and store materials efficiently and to reduce the related cost.
 To cut down costs through simplification, standardisation, value analysis, import substitution, etc.
 To trace new sources of supply and to develop cordial relations with them in order to ensure continuous supply at
reasonable rates.
 To reduce investment tied in the inventories for use in other productive purposes and to develop high inventory turnover
ratios.

MAINTENANCE MANAGEMENT
In modern industry, equipment and machinery are a very important part of the total productive effort. Therefore, their idleness
or downtime becomes are very expensive. Hence, it is very important that the plant machinery should be properly maintained.

The main objectives of maintenance management are:

1. To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost.
2. To keep the machines and other facilities in such a condition that permits them to be used at their optimal capacity
without interruption.
3. To ensure the availability of the machines, buildings and services required by other sections of the factory for the
performance of their functions at optimal return on investment.

Organization to Produce Goods and Services

To create goods and services, all organizations perform three functions:

1. Marketing-which generates the demand or at least takes order for a product or service
2. Production/operation- which creates the products
3. Finance/accounting-which tracks how well the organization is doing, pays the bills, and collects money

Types of Operations
1. Goods manufacturing (Examples: The Lego Group (toy- maker), Tupperware Brands Corporation (plastic container
manufacturer), L Brands Inc. (textile producer), DJC Furniture (furniture producer), Mars Inc. (candy maker), Meiji Co.
(confectioner), Magnolia Bread Company LLC (food artisan), Del Monte Foods (processes food , and producer)

2. Transportation and warehousing (Examples: XPO Logistics, Ninjas Van, 2GO Express, J.B Hunt Transport Services, C.H.
Robinson Worldwide, JRS Express, Penske Logistics, Lineage Logistics, LBC, and FedEx Logistics)
3. Communication (Example: AT &T Inc., China Mobile Ltd., Verison Communications Inc., Vodafone Group Pic, Nippon
Telegraph & Telephone Corporation, Softbank Group Corp., China Telecom, Globe Telecom Inc., Smart Communications Inc.,
and Philippine Long Distance Telephone Company (PLDT) Inc.

4. Entertainment and recreation (Examples: Comcast Corporation, CBS Corporation, Dish Network Corporation, Netflix Inc.,
Time Warner Inc., Viacom Inc., Dalian Wanda, AT & T Entertainment Group, SM entertainment Co., and JYP Publishing Corp.

5. Financial (Examples: T. Rowe Price Group Inc. (asset management firm), Travellers Companies Inc. (insurance company).
Prudential Financial Inc. (investment management firm), MetLife Inc. (annuities/ employee benefits program operator),
Intercontinental Exchange (financial and commodity market operator), Aon plc. (Commercial risk and reinsurance broker).
Marsh & McLennon Companies Inc., (investment advisor), Charles Schwab Corporation (stockbroker), PNC Financial Services
Group Inc. (bank holder). and S&P Global Inc. (financial information and analytics company)

Why do we study Operations Management?

1. OM is one of the three primary functions of any business organization (see the organization to produce goods and
services), and it is integrally related to all other business functions. It means we study OM to understand how people can
organize themselves for productive purposes.
2. We study OM because it answers questions like how goods and services are produced
3. We study this course to understand what operations managers do and realize how lucrative careers may include exploring
opportunities in the field
4. We study OM because it is such a costly part of an organization. Operations Management is in itself the COST OF GOODS in
the statement of income and expenses. Remember that every extra centavo saved will add to every extra centavo profit.

What Operations Managers Do?

All operations managers perform the essential functions of the management process (Panning, Organizing. Directing, and
Controlling). They apply this management process to the decisions they undertake in OM functions, and at the same time, they
use the concepts, techniques, and tools in OM in doing so.

10 Operations Management Decisions

The following are the different decisions perform by OM managers as their primary responsibility carried out in an
organization:

1. Design of goods and services. Defines much of what is required of operations in each of the OM decisions. For instance,
product design usually determines the lower limits of cost and the upper limits of quality and significant implications for
sustainability and the human resources required.
2. Managing quality. Determines the customer’s quality expectations and establishes policies and procedures to identify and
achieve that quality.
3. Process and capacity design. Determines how a good or service is produced (e.g., the production) and commits
management to a specific technology, quality, human resources, and capital investments that determine much of the firm’s
basic cost structure.
4. Location strategy. Requires judgments regarding nearness to customers, suppliers, and talents, while considering costs,
infrastructure, logistics, and government.
5. Layout strategy. Requires integrating capacity needs, personnel levels, technology, and inventory requirements to
determine the efficient flow of materials, people, and information.
6. Human resources and job design. Determines how to recruit, motivate, and retain personnel with the required talent and
skills. People are an integral and expensive part of the complete system design.
7. Supply-chain management. Decides how to integrate the supply chain into the firm’s strategy, including decisions that
determine what is to be purchased, from whom, and under what conditions.
8. Inventory management. Considers inventory ordering and holding decisions and how to optimize them as customer
satisfaction, supplier capability, and production schedules are considered.
9. Scheduling. Determines and implements intermediate-and short-term schedules that effectively and efficiently utilize both
personnel and facilities while meeting customer demands.
10. Maintenance. Requires decisions that consider facility capacity, production demands, and personnel necessary to maintain
a reliable and stable process.

Operations for Goods and Services

 Manufacturers produce a tangible product, while services products are often intangible. Many products are a combination
of a good and a service, which complicates the definition of a service. Many have difficulty in generating a consistent
purpose. Because definitions vary, much of the data and statistics generated about the service sector are inconsistent.
However, we define services as repair and maintenance, government, food and lodging, transportation, insurance, trade,
financial, real estate, education, legal, medical, entertainment, and other professional occupations.
 The operation activities for both goods and services are often very similar. For instance, both have quality standards, are
designed and produced on a schedule that meets customer demand. And are made in a facility where people are
employed. However, some significant differences do between goods and services. We should also point out that in services
and almost all goods are a mixture of service and a tangible product. Even services such as consulting may require an
actual report. Similarly, the sale of most goods includes a service.

The Heritage of OM
Operations Management is a field that is very young compared to finance and marketing. Its history is rich and exciting. Most
of the organization’s jobs are found in the area. In as far as its history is concerned; its development was contributed by various
individuals and groups who, during their time of study and observations were recorded. Some of which are the following:

1. Eli Whitney (1800). He is credited with the popularization of interchangeable parts through standardization and quality
control.

2. Frederick W. Taylor (1881). He is known as the father of scientific management. He contributed to personnel selection,
planning, scheduling, motion study, and ergonomics. One of his contributions was his belief that the government should be
much more resourceful and aggressive in improving work methods.

Another of Taylor’s contributions was the belief that management should assume more responsibility for:

 Matching employees to the right job.

 Providing proper training
 Providing proper work methods and tools
 Establishing legitimate incentives for work to be accomplished.

3. Walter Shewhart (1924). Quality control is another historically significant contribution to the field of OM. Shewhart’s
knowledge in statistics and quality assurance made its indelible imprint in the history of OM

4. Operations Management will continue to progress with contributions from other disciplines, including industrial
engineering, statistics, management, and economics, all improving decision making.

5. Innovation from the physical sciences (biology, anatomy, chemistry, and physics) has also contributed to advances in OM.
These innovations include new adhesives, faster-integrated circuits, gamma rays to sanitize food products, and higher quality
glass for iPhones and plasma TVs. Innovation in products in products and processes often depends on advances in the physical
sciences.

6. Other significant contributions to OM have come from information technology, which we define as the systematic processing
of data to yield information. With information technology, reducing costs and accelerating communication problems are
addressed.
 Differences Between Goods and Services

The Productivity Challenge

The creation of goods and services requires changing resources into goods and services. The more efficient we make in
this change, the more productive we are, and the more value is added to the right and service provided.

Productivity is the ratio of outputs, generally expressed in terms of the number of goods and services and the inputs or
the resources used to produce goods and services like labor, capital, management, etc. The operations manager’s job is to
enhance (improve) this ratio of outputs and inputs.

The improvement can be made in two ways: reducing inputs while keeping output constant or increasing output while
maintaining stable inputs. Both represent productivity improvement

Productivity Measurement

The call for all organizations is to improve levels of productivity. This means improving productivity also to enhance efficiency.

To measure productivity, we use the formula:

P = Units Produced

Input used

Using the formula, if units of produced are 1000 units and labor-hours used are 250, then 4 units per
labor hour is productivity.

Productivity = 1,000 = 4 units per labor-hours

250

The use of one resource input to measure productivity is known as the single factor productivity. However, a broader view of
productivity is multifactor productivity, including all inputs (e.g., capital, labor, material, energy). Multifactor productivity is also
known as total factor productivity. Multifactor productivity is calculated by combining the input unit, as shown below:
Computing Single–Factor and Multifactor Productivity
Example: Collins Title Ltd. Want to evaluate its labor and multifactor productivity with a new computerized title search system.
The company has a staff of four, each working 8 hours per day for (for a payroll cost of $604/day) and overhead expenses of
$400 per day. Collins processes and closes on 8 titles each day. The new computerized title-search system will allow the
processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now
$800 per day.

Labor productivity has increased has increased from .25 to .4375. The change is (.4375 - .25) / .25= 0.75 or a 75% increase in
labor productivity. Multifactor productivity has increased from .0077 to .0097. This change is (.0097 -. 0077) / .0077 = 0.26 or
26% increase in multifactor productivity.

Productivity and the Service Sector

The service sector provides a unique challenge to the accurate measurement of productivity and productivity improvement.
The traditional analytical framework of economic theory is based primarily on goods-producing activities. Consequently, most
published financial data relating to goods production. But the data indicates that, as our current service economy has
increased in size, we have had slower growth in productivity

SUMMARY
Operations, marketing, and finance/ accounting are the three basic functions of all business organizations. The operations
function is responsible for creating goods and services. Much of the progress, therefore, of organizations depends on how
operations tools, concepts, and techniques are used effectively and efficiently. Operations Managers are the essential character
in improving the well-being of society since they play a productive function in the organization. Productivity improvements and
sustainable environments are challenging to achieve, but operations managers continue to challenge themselves to create
goods and services necessary to answer the demands of the market.