DECISION AREAS – process

OPERATIONS design, capacity planning,

MANAGEMENT inventory management ,
scheduling

LESSON 1: OPERATIONS
MANAGEMENT 3 BASIC FUNCTIONS OF BUSINESS
ORGANIZATION
OPERATIONS MANAGEMENT
 Finance
- It is a science and art of  Operations
designing, managing, and  Marketing
improving the systems that
convert inputs (resources) BENEFITS OF EFFECTIVE
into outputs (goods or
OPERATIONS MANAGEMENT
services) in the most
efficient and effective way  Reduced costs
possible.  Improved customer
- Operations Management satisfaction
is a critical field that has a  Increased competitiveness
significant impact on the  Enhanced innovation
success of any
organization.
CRUCIAL ROLE IN VARIOUS
INDUSTRIES
KEY ELEMENTS OF OPER ATIONS
 Manufacturing
MANAGEMENT
 Service industries
INPUTS - raw materials, labor,  Healthcare
equipment, energy, and  Non-profit organizations
information

TRANSFORMATION PROCESS - FACTORS

series of steps that convert inputs 1. Production planning and
into outputs scheduling: Deciding
what to make, when to
OUTPUTS - the finished goods or
make it, and how much,
services delivered to customers
while balancing demand
OBJECTIVES – efficiency, and resource limitations.
effectiveness, responsiveness,
quality and sustainability
 2. Supply chain LESSON 2: PRODUCTION OF GOODS
management: a sequence AND SERVICES
of organizations their
facilities, functions, and - This core function of
activities that are involved operations management
in producing and delivering involves transforming
of its product or service. inputs (raw materials,
Sourcing materials, labor, technology) into
managing inventory, and outputs (finished goods,
coordinating with suppliers services).
to keep the production line
flowing. TRANSFORMATION PROCESS

- To ensure that the desired

3. Quality control: Ensuring
outs are obtained (storing,
consistent quality that
transporting, repairing)
meets customer
Goods and services –
expectations and
occur jointly –
standards.
- The essence of operations
is to add value during the
4. Process improvement:
transformation process.
Continuously analyzing
- ―Value-Added‖ is the
and optimizing processes
difference between the
to eliminate waste and
costs of inputs and price of
improve efficiency.
outputs.

5. Project management:
Leading and coordinating PRODUCTION OF GOODS VS.
teams to deliver projects PROVIDING SERVICES
on time and within budget. Typical differences between
production of goods and
Operations Management and
provision of services
Supply Chain are intrinsically
linked.  Output
SUPPLY CHAIN – It is a sequence  Degree of customer
of organizations – facilities, contact
functions, and activities that are  Labor content of jobs
involved in producing and  Uniformity of inputs
delivering of goods and services.  Measurement of
productivity
  Quality Assurance planning to match supply
 Inventory and demand
 Wages  Process Focus &
 Ability to patent Management
 Managing variations
Characteristi Goods Services  Monitoring and controlling
cs of costs and productivity
Output Tangibl Intangibl  Supply chain
e e management
 Location planning,
Customer Low High
Contact inventory management,
quality control and
Labor Low High
scheduling
Content
 Customer Satisfaction
Unformity of High Low
input DIFFERENCES
Measuremen Easy Difficult
t of  Tangibility
Productivity  Storage and inventory
Opportunity High Low  Customization and
to correct variability
problems  Customer interaction
before  Productivity measurement
delivery
Inventory Much Little
Wages Narrow Wide
Range Range
Patentable Usually Not
Usually

PRODUCTION OF GOODS AND

PROVIDING SERVICES
SIMILARITIES

 Value Creation
 Resource Needs or
forecasting and capacity
LESSON 3: WHY LEARN ABOUT management, and quality
OPERATIONS MANAGEMENT? control.

4. Leadership and
Teamwork: Effective
leadership and teamwork
are fundamental to any
successful organization.
OM provides opportunities
to develop these skills
through project
management, team
coordination, and
communication strategies.

5. Career Opportunities:
CONT’D : WHY LEARN ABOUT
Understanding OM opens
OPERATIONS MANAGEMENT
doors to a wide range of
1. Systems Thinking: OM exciting career paths.
equips you with the ability
to see the big picture and LESSON 4: CAREER OPPORTUNITIES
understand how different IN OPERATIONS MANAGEMENT
parts of an organization
TRADITIONAL ROLES
interconnect
 Production Planner:
2. Problem-Solving Skills: Orchestrate production
OM teaches you to identify schedules, manage
and address challenges in inventory, and ensure
operational processes. smooth flow of materials
through the production
3. Data Analysis: In today's process.
data-driven world,
understanding how to  Supply Chain Manager:
interpret and utilize data is
Oversee the network of
crucial. OM teaches you suppliers, distributors, and
essential data analysis
transportation providers,
skills, including
ensuring efficient and cost-
forecasting, inventory
effective delivery of goods.
 Project Manager: Plan, PROFESSIONAL SOCIETIES
execute, and control
projects within budget and  APICS (American
timeframe, leading teams Production and
and coordinating Inventory Control
resources. Society): The world's
largest professional
 Quality Control Manager: society for supply chain
Implement and monitor and operations
quality control measures, management, offering
ensuring consistency and certifications, resources,
adherence to standards and networking
throughout the production opportunities.
process.
 The Production and
 Operations Analyst: Operations Management
Gather and analyze data Society (POMS): A
to identify areas for leading academic society
improvement in focused on research and
operational efficiency, cost advancement of
reduction, and process knowledge in operations
optimization. management, providing
publications, conferences,
 Inventory Control and webinars.
Specialist: Manage  American Society for
inventory levels to Quality (ASQ): Dedicated
minimize costs while to promoting quality
ensuring sufficient stock to principles and practices,
meet demand. offering certifications,
training programs, and
 Logistics Coordinator: networking opportunities
Optimize transportation for quality professionals.
routes and scheduling,
ensuring timely and  Institute for Supply
costeffective delivery of Chain Management
goods. (ISCM): Focuses on
advancing supply chain
management knowledge
and practices, offering
 certifications, research, solutions to organizations
and networking looking to improve their
opportunities. operational efficiency,
supply chain management,
and overall performance.
EMERGING ROLES: roles are
often driven by new technologies,  Robotics Process
changing customer demands, and Automation (RPA)
globalization Specialist: develops and
implements RPA solutions
 Data Scientist in
to automate routine tasks.
Operations Data
Analysts: Utilize data In SUMMARY, OM offers valuable
analytics and machine knowledge and skills that empower
learning to improve to :
forecasting, optimize
processes, and predict 1. Understand how
potential challenges. organizations function and
create value.
 Sustainability Manager: 2. Analyze and solve
Integrate sustainability complex operational
principles into operational problems.
processes, minimizing 3. Make data-driven
environmental impact and decisions for continuous
promoting resource improvement.
efficiency. 4. Lead and collaborate
effectively within teams.
 E-commerce Operations 5. Pursue diverse and
Manager: Oversee the rewarding career
online fulfillment process, opportunities.
ensuring seamless
customer experience from
order placement to LESSON 5: PROCESS
delivery.
PROCESS
 Operations Consultant - It is one or more actions
or Supply Chain that transforms inputs into
Optimization Specialist: outputs
Provide expert advice and
PROCESS MANAGEMENT 3 CATEGORIES OF PROCESS
MANAGEMENT
- It is a broad term
encompassing various 1. Upper-management
methodologies and processes – govern the
techniques used to operation of the entire
analyze, design, organization
implement, and
continuously improve the 2. Operational process –
processes that core processes that make
organizations use to up the value team
accomplish their goals. (purchasing, production,
mktg, sales)
KEY ASPECTS OF PROCESS
3. Supporting processes –
MANAGEMENT
support the core
Process identification and processes (Accounting,
analysis: Mapping out the existing HR, IT)
processes, understanding their
steps, and identifying areas for
2 MAJOR ASPECTS OF PROCESS
improvement
MANAGEMENT
Process design and 1. Managing a process to
optimization: Streamlining meet demand – output
processes to eliminate waste, matches demand.
reduce errors, and increase
efficiency. 2. Process Variation

Process implementation and

control: Putting the improved 4 BASIC SOURCES OF
process into action, monitoring its VARIATIONS
performance, and making 1. The variety of goods or
adjustments as needed. services being offered
- The greater the variety of
Continuous improvement:
goods the greater variation
Regularly evaluating and refining
in production or service
processes to ensure they remain
requirements
effective and adaptable to
changing needs.
 2. Structural variation in  Process selection
demand  Selection and
- These are variations that management of
includes trends and technology
seasonal variations  Design of work systems
 Location planning
3. Random variation  Facilities planning
- Natural variability is
 Quality improvement
present to some extent in
all processes that cannot System Design – involves
generally influence by the decisions that relate to system
managers capacity, the geographic location
of facilities, the arrangement of
4. Assignable variation departments and the placement of
- Variations are caused by equipment within physical
defective inputs, incorrect structures, product and service
work methods, out of planning and acquisition of the
adjustment equipment (typically strategic
equipment….etc decisions)

System Operations – involves

BENEFITS OF PROCESS
management of personnel,
MANAGEMENT
inventory planning, and controlling,
 Increased efficiency and scheduling, project management,
productivity and quality assurance.
 Improved quality and
consistency Primary function – guide the
 Enhanced customer system by decision making
satisfaction
Tactical
 Greater responsiveness
and agility Operational
 Reduced risk and
improved compliance Measurement and control

LESSON 6: THE SCOPE OF SUPPORT FUNCTIONS

OPERATIONS MANAGEMENT
 Purchasing –
 Product and service procurement
design
  Industrial engineering – minimize environmental
schedule impact and promote
 Distribution – logistics resource efficiency.
 Maintenance –
responsible for general  Digital Operations
upkeep and the repair of Transformation:
equipment Leveraging technology
and data analytics to drive
OPERATIONS MANAGER – key automation, improve
figure in the system. decision-making, and
create new business
 Lean Operations: A models.
methodology focused on
eliminating waste and LESSON 7: OPERATIONS
optimizing value in both
MANAGEMENT AND DECISION
goods and service
MAKING
production.
- OM provides the
 Service Operations framework and tools for
Management: analyzing situations,
Understanding the unique evaluating options, and
challenges of managing choosing the best course
intangible offerings like of action to achieve
healthcare, education, and operational goals.
consulting services.
HOW OPERATONS MANAGEMENT
 Global Operations
INFORMS DECISION-MAKING
Management: Navigating
the complexities of 1. Data Analysis: OM
operating across different provides robust data about
cultures, legal systems, processes, inventory,
and geographical costs, and customer
boundaries. trends. This data informs
decisions about resource
 Sustainability in allocation, production
Operations: Integrating scheduling, capacity
environmental and social planning, and pricing
responsibility into strategies.
operational processes to
 2. Modeling and facility location, technology
Simulation: OM utilizes investments, outsourcing,
various models and and new product
simulations to predict the development. OM provides
outcomes of different data and analysis to
decisions. This helps support these strategic
assess risks, compare choices.
scenarios, and make
informed choices with 2. Tactical Decisions:
greater certainty Shorter-term decisions
about production
3. Process Optimization: scheduling, inventory
OM focuses on management, workforce
streamlining processes to allocation, and quality
eliminate waste and control. OM offers tools
inefficiencies. By and models to optimize
understanding the flow of these tactical decisions in
operations, decision- real-time.
makers can identify areas
for improvement and 3. Operational Decisions:
implement changes that Day-to-day choices about
optimize outcomes. routing orders, managing
machine downtime,
4. Risk Management: OM resolving production
helps identify and mitigate issues, and handling
potential risks in the customer inquiries. OM
supply chain, production empowers staff to make
process, and other quick and informed
operational areas. This decisions at the
allows for proactive operational level.
decision-making to
minimize disruptions and
ensure smooth operations. MODEL – an abstraction of reality
, a simplified representation of
something
TYPES OF DECISIONS FACILITATED
BY OPERATIONS MANAGEMENT  Physical models – look
1. Strategic Decisions: like their real –life
Long-term choices about counterparts
  Schematic models – - Enable users to bring the
more abstract that physical power of mathematics to
counterparts. Less bear n a problem
resemblance to physical
reality LIMITATIONS

 Quantitative information
 Mathematical Models –
may be emphasized at
do not look like at all like
the expense of
their real life counterparts
qualitative information.
(numbers, formula,
- Embody an attempt to
symbols)
obtain mathematically
PURPOSE optimal solutions to
managerial problems
- How it is used to generate
results  Models may be
- How are the results incorrectly applied and
interpreted and used the results
- Assumptions and misinterpreted.
limitations - Managers use metrics to
manage and control
BENEFITS operations. – related to
profits, costs, quality,
- Easy to use and less
productivity, flexibility,
expensive
assets, inventories,
- Requires users to organize
schedules and forecast
and sometimes quantify
accuracy.
information , and in the
process, often indicate
 The use of models does
areas where traditional
not guarantee good
information is needed
decisions.
- Increase understanding of
- Analysis of trade-offs
the problem
(listing the pros and cons)
- Enable managers to
analyze what –if questions
 Degree of customization
- Serve as consistent tool
- Impact goes beyond
for evaluation and
operations and supply
standardized format for
chains. It affects
analyzing problems
marketing, sales,
 accounting, finance and cost-effective course of
information systems. action

 A systems perspective 3. Data Overload: With vast

- A system can be defined amounts of data available,
as a set of interrelated it can be difficult to identify
parts that must work and analyze the most
together. relevant information. OM
tools and techniques help
 Establishing priorities extract key insights and
(Like Pareto phenomenon) optimize data-driven
- A few factors account for decision-making.95
a high percentage of the
occurrence of some BUILDING EFFECTIVE DECISION-
events(s) MAKING SKILLS IN OM
- Quantitative Analysis
CHALLENGES IN OPERATIONS - Critical Thinking
MANAGEMENT DECISION-MAKING - Problem-Solving
1. Uncertainty and - Communication
Volatility: Market
fluctuations, supply chain LESSON 8: HISTORICAL EVOLUTION
disruptions, and OF OPERATIONS MANAGEMENT
unexpected events can
PRE-INDUSTRIAL REVOLUTION
complicate accurate
(BEFORE 18TH CENTURY)
forecasting and decision-
making. OM emphasizes 1. Craft Production:
agility and adaptability to Operations were primarily
cope with such manual and craft-based.
uncertainties. Skilled artisans produced
goods by hand, often
2. Cost-Benefit Analysis: working independently or
Balancing short-term costs in small groups. This
with long-term benefits can period was characterized
be challenging. OM by low productivity and
models and simulations high variability in quality.
help evaluate trade-offs
and determine the most
 2. Agricultural Economy: studies to optimize labor
The focus was more on productivity.
agricultural production,
with limited operations EARLY 20TH CENTURY
management in
1. Fordism: Henry Ford
manufacturing.
implemented assembly
INDUSTRIAL REVOLUTION line production,
(LATE 18TH TO EARLY 19TH revolutionizing mass
CENTURY) production with the Model
T. This approach reduced
1. Mass Production: The costs and made products
Industrial Revolution more affordable.
marked a shift from hand
production to machine- 2. Quality Control: The
based manufacturing. The early 20th century also
introduction of steam saw the development of
engines and statistical quality control,
mechanization pioneered by Walter
revolutionized production Shewhart. This laid the
processes. foundation for modern
quality management
2. Factory System: practices.
Factories became the
centers of production, with MID-20TH CENTURY
workers performing
1. Operations Research:
specialized tasks. The
During World War II,
concept of the assembly
operations research
line emerged, significantly
emerged as a discipline to
increasing efficiency and
improve military logistics
output.
and resource allocation.
After the war, these
3. Scientific Management
techniques were applied to
(Taylorism): Frederick
business operations.
Winslow Taylor introduced
principles of scientific
2. Lean Manufacturing:
management,
Post-war Japan,
emphasizing efficiency,
particularly Toyota,
standardization, and time
developed the Toyota
 Production System (TPS), 21ST CENTURY
which introduced lean
manufacturing principles 1. Supply Chain
like Just-In-Time (JIT) Management (SCM): The
production, waste focus shifted to managing
reduction, and continuous entire supply chains, from
improvement (Kaizen). raw materials to end
customers. SCM
LATE 20TH CENTURY integrates operations
management with
1. Total Quality logistics, procurement, and
Management (TQM): In distribution.
the 1980s and 1990s,
TQM became a dominant 2. Sustainability and CSR:
philosophy, emphasizing Modern operations
customer satisfaction, management increasingly
continuous improvement, considers sustainability,
and employee ethical practices, and
involvement. corporate social
responsibility (CSR) in
2. Globalization: As decision-making.
companies expanded
globally, operations 3. Industry 4.0: The
management had to adapt integration of digital
to managing complex technologies, such as the
supply chains across Internet of Things (IoT),
multiple countries. artificial intelligence (AI),
and big data analytics, is
3. Information Technology: transforming operations
The advent of computers management into a more
and information systems connected and intelligent
revolutionized operations, system.
enabling better planning,
scheduling, and inventory
management.
CURRENT TRENDS 7. Process technology –
methods, procedures and
1. Agile and Flexible equipment used to
Operations: In response produce goods and
to rapidly changing services
markets, businesses are
adopting agile 8. Information technology –
methodologies to increase science and use of
flexibility and computers and other
responsiveness. electronic equipment to
2. Digital Transformation: store, process and send
The ongoing digital information.
transformation is leading
to smarter factories,  Management of
autonomous systems, and technology
real-time data-driven
decision-making.  Globalization

3. E-Business – the use of

 Working with fewer
electronic technology to
resources
facilitate business
transactions
 Revenue Management
(price manipulation)
4. E-commerce – consumer
to business transactions
 Process analysis and
5. Technology – application
improvement
of scientific discoveries to
the development and
 Six Sigma – a process for
improvement of products
reducing costs, improving
and services and
quality, and increasing
operations processes.
customer satisfaction
6. Product and service
 Agility – ability of an
technology – discovery
organization to respond
and development of new
quickly to demands and
products and services
opportunity
  Lean system – a system  Rights Principle: Actions
that uses minimal amount should respect and protect
of resources (space, the moral rights of others.
inventory, workers…)to
produce a high volume of  Fairness Principle:
quality goods with some Equals should be held to,
variety or evaluated by, the same
standards.
LESSON 10: ETHICAL CONDUCT
 Common Good
Principle: Actions should
KEY ISSUES FOR TODAY’S
contribute to the common
BUSINESS OPERATIONS good of the community
 Economic conditions
 Innovations  Virtue Principle: Actions
 Quality problems should be consistent with
 Risk management certain ideal virtues ethical
 Cyber-security framework is a sequence
 Competing in a global of steps intended to guide
economy thinking and subsequent
 Environmental decisions or actions
Concerns
Ethical issues arise in many
 Sustainability – using
aspects of operations
resources in ways that do
management, including:
not harm ecological
systems that support Financial statements: accurately
human existence representing the organization’s
 Ethical Conduct financial condition.

ETHICS – a standard of behaviour Worker safety: providing

that guides how one should act in adequate training, maintaining
various situations equipment in good working
condition, maintaining a safe
 Utilitarian Principle: The working environment.
good done by an action or
inaction should outweigh Product safety: providing
any harm it causes or products that minimize the risk of
might cause injury to users or damage to
property or the environment.
Quality: honoring warranties, deliveries, and quality
avoiding hidden defects. problems. These and other
issues now make it clear
The environment: not doing that management of
things that will harm the supply chains is essential
environment. to business success. The
other issues include the
The community: being a good
following:
neighbor.

Hiring and firing workers:  The need to improve

avoiding false pretenses (e.g., operations
promising a long-term job when
that is not what is intended).  Increasing levels of
outsourcing
Closing facilities: taking into
account the impact on a  Increasing transportation
community, and honoring costs
commitments that have been
made.  Competitive pressure

Workers’ rights: respecting

 Increasing globalization
workers’ rights, dealing with
workers’ problems quickly and
 Increasing importance of
fairly.
e-business

LESSON 11: THE NEED TO MANAGE

 The complexity of supply
THE SUPPLY CHAIN
chains

THE NEED TO MANAGE T HE SUPPLY  The need to manage

CHAIN inventories

- Supply chains experienced

 The need to deal with
a range of problems that
trade wars.
were seemingly beyond
the control of individual
organizations. The
problems included large
oscillations of inventories,
inventory stockouts, late
ELEMENTS OF SUPPLY CHAIN Operations management
MANAGEMENT
- It involves system design
and operating decisions
related to product and ser-
vice design, capacity
planning, process
selection, location
selection, work
management, inventory
and supply management,
SUMMARY production planning,
quality assurance,
The operations function in scheduling, and project
business organizations management.

- It is responsible for The historical evolution of

producing goods and operations management
providing services. It is a
core function of every - It provides interesting
business. background information on
the continuing evolution of
Supply chains this core business
function.
- These are the sequential
system of suppliers and The Operations Tours and
customers that begins with Readings
basic sources of inputs
and ends with final - It included in this and
customers of the system. subsequent chapters
provide insights inte actual
- Operations and supply business operations.
chains are
interdependent-one
couldn't exist without the
other, and no business
organization could exist
without both.
CHAPTER 2: COMPETITI VENESS,  Inventory Management-
STRATEGY AND PRODUCTIVITY matching supply with
demand
- An important factor in
determining whether the  Supply Chain
company prospers, barely Management –
gets by, or fail. coordinating internal and
- Describe how effectively external operation
the organization meets the
wants and needs of  Service – after sales
costumers relative to activities
others that offer similar
goods and services.  Managers and workers –
must be competent and
HOW OPERATIONS INFLUENCE motivated.
COMPETITIVENESS?
 Product and service MISSION
design – innovation and
time to market - is the reason for the
organizations’ existence
 Cost – productivity that - Usually expressed as
leads to cost reduction mission statement
- Answer the question
 Location – cost and ―What business should we
convenience to customers be in?‖
- Basis for organizational
 Quality – satisfaction of goals
customers’ needs and
STRATEGIES
wants
- Guides the organization by
 Quick response – quick providing direction for,
delivery of new products alignment of, the goals
and strategies of functional
 Flexibility – ability to areas
respond to change - Can be the main reason
for the success and failure
of the organization
Three basic business strategies:

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

GOALS

- Serve as foundation for

SWOT ANALYSIS
the development of
organizational strategies - Environment scanning
analysis
TACTICS
- Link between strategy and
- Methods and actions used operations strategy
to accomplish strategies
- More specific than
ENVIRONMENTAL SCANNING
strategies
- Provide guidance and - Monitoring of events and
direction for carrying out trends that present threats
actual operations. or opportunities for a
company
CORE COMPETENCIES
ORDER QUALIFIERS
- Special attributes or
abilities possessed by an - Characteristics that
organization that give its customers perceive as
competitive advantage minimum standards of
acceptability for a product
to be considered for
purchase

ORDER WINNERS

- Characteristics of a
product that cause it to be
perceived as better than
its competitors
 TIME-BASED STRATEGIES

 Focus on reducing the

time required to
accomplish various
activities
 Reducing time, costs are
generally less, productivity
is higher, quality trends to
OPERATIONS STRATEGY be higher, product
innovations appear,
- Narrower in scope, dealing customer service is
primarily with the improve.
operations aspect of the
organization.
IMPLICATIONS OF ORGA NIZATION
- Relates to products,
STRATEGY FOR OPERATIONS
processes, methods,
operating resources, MANAGEMENT
quality, cost, lead time and  Variations for operations
scheduling. and supply chain are
minimal
STRATEGIC OPERATIONS  Performance of customize
MANAGEMENT DECISION AREAS works
 Give opportunity to
compete in price
QUALITY-BASED STRATEGIES

 Focus on maintaining and BALANCED SCORECARD

improving quality of the  Top-down management
product system that organization
 Effort to improve poor can use to clarify their
quality, catch up with the vision and strategy and
competition, maintain transform them into action.
existing image of high  The idea was to move
quality. away from purely financial
perspective and integrate
other perspective such as
customers, internal
 business processes and HOW TO COMPUTE PRODU CTIVITY
learning and growth.
 Develop by Robert Kaplan
and David Norton in early
1990s

FACTORS THAT AFFECT

PRODUCTIVITY
- METHODS
- CAPITAL
- QUALITY
PRODUCTIVITY - TECHNOLOGY
- MANAGEMENT
- A measure of the effective
use of resources
IMPROVING PRODUCTIVI TY
- Usually expressed as the
ratio of output into input 1. Develop productivity
measures for all
IMPORTANT IMPLICATIONS OF operations.
PRODUCTIVITY
2. Look at the system as a
Non-profit Organization whole in deciding which
operations are most
- higher productivity means
critical.
lower cost

Profit-based Organization 3. Develop methods for

achieving productivity
- important factor in improvements
determining how
competitive a company is 4. Establish reasonable goals
for improvement
Nation
5. Clear management
- the rate of productivity
supports that encourage
growth is a great
productivity improvement
importance
 6. Measure improvement and - These are plans for
publicize them. achieving organizational
goals. They provide focus
SUMMARY for decision making.

Competition
- Strategies must take into
- It is the driving force in account present and future
many organizations. It may customer wants, as well as
involve price, quality, the organization’s
special features or strengths and
services, time, or other weaknesses, and threats
factors. and opportunities.

- To develop effective - These can run the gamut

strategies for business, it from what competitors are
is essential for doing, or are likely to do,
organizations to determine to technology, supply
what combinations of chain management, and e-
factors are important to business.
customers, which factors
Organizations
are order qualifiers, and
which are order winners. - It generally have overall
Moreover, managers must strategies that pertain to
be constantly on the the entire organization,
lookout for changes in and strategies that pertain
internal or external to each of the functional
conditions that could areas.
necessitate a change in
strategy. Functional strategies

- It is essential that goals - These are narrower in

and strategies be aligned scope and should be
with the organization’s linked to overall strategies.
mission.
Time-based strategies and
quality-based strategies
Strategies
- These are among the most
widely used strategies
business organizations
 employ to serve their 1. Competitive pressure
customers and to become
more productive. - It is often means that
business organizations
Balanced Scorecard approach must frequently assess
their competitors’
- Which can be helpful for strengths and
transforming strategies weaknesses, as well as
into actions, and the their own, to remain
implications of competitive.
organization strategy for
operations management. 2. Strategy formulation

Productivity - It is critical because

strategies provide direction
- It is a measure of the use for the organization, so
of resources. There is they can play a role in the
considerable interest in success or failure of a
productivity both from an business organization.
organizational standpoint
and from a national 3. Functional strategies and
standpoint. supply chain strategies

Business organizations - It need to be aligned with

the goals and strategies of
- They want higher the overall organization.
productivity because it
yields lower costs and 4. The three primary business
helps them to become strategies
more competitive. Nations
want higher productivity - These are low cost,
because it makes their responsiveness, and
goods and services more differentiation.
attractive, offsets
5. Productivity
inflationary pressures
associated with higher - It is a key factor in the cost
wages, and results in a of goods and services.
higher standard of living Increases in productivity
for their people. can become a competitive
advantage.
6. High productivity FEATURES COMMON TO ALL
FORECASTS
- It is particularly important
for organizations that have - Forecasts are not perfect;
a strategy of low costs. actual results usually differ
from predicted values; the
CHAPTER 3: FORECASTI NG presence of randomness
precludes a perfect
FORECAST forecast. Allowances
should be made for
- It is an estimate about the
forecast errors.
future value of a variable
such as demand.
- Forecasts for groups of
ANTICIPATED DEMAND items tend to be more
accurate than forecasts for
- It is derived from two individual items because
possible sources, actual forecasting errors among
customer orders and items in a group usually
forecasts. have a canceling effect.
Opportunities for grouping
TWO ASPECTS OF FORECASTS may arise if parts or raw
materials are used for
1. The expected level of
multiple products or if a
demand
product or service is
demanded by a number of
2. The degree of accuracy
independent sources.
- It can be assigned to a
forecast (i.e., the potential
- Forecast accuracy
size of forecast error).
decreases as the time
TWO USES FOR FORECASTS period covered by the
forecast—the time horizon
1. To help managers plan the increases.
system
- Generally speaking, short-
2. To help them plan the use range forecasts must
of the system. contend with fewer
uncertainties than longer-
range forecasts, so they
tend to be more accurate.
 2. Collaborative planning

ELEMENTS OF A GOOD 3. Forecasting with major

FORECAST supply chain partners.

1. The forecast should be

4. Information sharing
timely.
among partners

2. The forecast should be

5. Increasing supply chain
accurate, and the degree
visibility by allowing
of accuracy should be
supply chain partners to
stated.
have real-time access
to sales and inventory
3. The forecast should be
information
reliable; it should work
consistently.
6. Rapid communication
about poor forecasts,
4. The forecast should be
as well as about
expressed in meaningful
unplanned events that
units
disrupt operations (e.g.,
flooding, work
5. The forecast should be in
stoppages), and
writing
changes in plans.

6. The forecasting technique

should be simple to STEPS IN THE FORECASTING
understand and use PROCESS

7. The forecast should be 1. Determine the purpose of

cost-effective the forecast.

FORECASTING AND THE 2. Establish a timehorizon.

SUPPLY CHAIN
3. Obtain, clean, and analyze
To reduce the likelihood of
appropriate data.
shortages and overages :

1. Striving to develop the 4. Select a forecasting

best possible forecasts. technique.

5. Make the forecast.

 6. Monitor the forecast errors ASSOCIATIVE MODEL

APPROACHES TO - A forecasting technique

FORECASTING that uses explanatory
variables to predict future
QUALITATIVE METHODS demand.

- It consist mainly of TIME SERIES

subjective inputs, which
often defy precise - It is a time-ordered
numerical description sequence of observations
(executive options, sales taken at regular intervals
person opnios, consumer
surverys, etc..) BEHAVIOURS AFFECTING THE
TIME SERIES
QUANTITATIVE METHODS
TREND
- It involve either the
projection of historical data - It is a long-term upward or
or the development of downward movement in
associative models that data.
attempt to utilize causal
SEASONALITY
(explanatory) variables to
make a forecast - It is a short-term regular
variations related to the
JUDGMENTAL FORECASTS
calendar or time of day.
- A forecasts that use
CYCLE
subjective inputs such as
opinions from consumer - It is a wavelike variations
surveys, sales staff, lasting more than one
managers, executives, and year.
experts.
IRREGULAR VARIATION
TIME-SERIES FORECASTS
- It is caused by unusual
- A forecasts that project circumstances, not
patterns identified in reflective of typical
recent time-series behavior.
observations.
RANDOM VARIATIONS OTHER FORECASTING
METHODS
- It is a residual variations
after all other behaviors FOCUS FORECASTING
are accounted for.
- It is based on a ―best
NAIVE FORECAST recent performance‖ basis.
This approach, called
It is a forecast for any period that focus forecasting,
equals the previous period’s actual wasdeveloped by Bernard
value. T. Smith.

TECHNIQUES FOR AVERAGING DIFFUSION MODELS

1. MOVING AVERAGE - It is when new products or

- It is a technique that services are introduced,
averages a number of historical data are not
recent actual values, generally available on
updated as new values which to base forecasts.
become available. Instead, predictions are
based on rates of product
2. WEIGHTED MOVING adoption and usage
AVERAGE spread from other
- It is similar to a moving established products,
average, except that it using mathematical
typically assigns more diffusion models.
weight to the most recent
values in a time series. TECHNIQUES FOR TREND

3. EXPONENTIAL - It is an analysis of trend

SMOOTHING involves developing an
- It is a weighted averaging equation that will suitably
method based on the describe trend (assuming
previous forecast plus a that trend is present in the
percentage of the forecast data). The trend
error. component may be linear,
or it may not. A simple plot
of the data often can
reveal the existence and
nature of a trend.
TREND technique works all the
time.
- It is adjusted exponential - Moreover, all forecasts
smoothing : Variation of include a certain degree of
exponential smoothing inaccuracy, and
used when a time series alloygance should be
exhibits a linear trend. made for this. The
techniques generally
SUMMARY
assume that the same
FORECASTS underlying causal system
that existed in the past will
- These are vital inputs for continue to exist in the
the design and the future.
operation of the productive
systems because they QUALITATIVE TECHNIQUES
help managers anticipate
- It includes consumer
the future.
surveys, salesforce
FORECASTING TECHNIQUES estimates. executive
opinions, and manager
- It can be classified as and staff opinions.
qualitative or
quantitative. TWO MAJOR QUANTITATIVE
APPROACHES
QUALITATIVE TECHNIQUES
TIME-SERIES TECHNIQUES
- It rely on judgment,
experience, and expertise - It rely strictly on the
to formulate forecasts examination of historical
data; predictions are made
QUANTITATIVE TECHNIQUES by projecting past
movements of a variable
- It rely on the use of into the future without
historical data or considering specific
associations among factors that might influence
variables to develop the variable.
forecasts.
- Some of the techniques
are simple, and others are
complex. Some work
better than others, but no
ASSOCIATIVE TECHNIQUES

- It attempt to explicitly
identify influencing factors
and to incorporate that
information into equations
that can be used for
predictive purposes.

All forecasts tend to be inaccurate;

therefore, it is important to provide
a measure of accuracy. It is
possible to compute several
measures of forecast accuracy that
help managers to evaluate the
performance of a given technique
and to choose among alternative
forecasting techniques.

CONTROL OF FORECASTS

- It involves deciding
whether a forecast is
performing adequately,
typically using a control
chart.

When selecting a forecasting

technique, a manager must
choose a technique that will serve
the intended purpose at an
acceptable level of cost and
accuracy.