MANAGING THE OPERATIONS FUNCTION
CONCEPT OF OPERATIONS FUNCTION
A component of management that deals with planning, implementing, and monitoring of
the process of producing goods and services
COMPONENT MANAGER
1. Oversee the resources available to the enterprise for production activities
(observe and inspect raw materials that serve as the foundation of
the production)
2. Plans the structure of production (organize the components of the
production to make sure they are coherent with one another)
3. Supervises the process of combining materials together with other inputs
(be in charge of managing the procedure in incorporating the
materials with other inputs together)
4. Assess the performance of production (evaluate the overall execution
done by the production of the enterprise)
IMPORTANT BUSINESS ACTIVITIES ATTACHED TO OPERATIONS
MANAGEMENT
1. WAREHOUSING - security and storage of the materials needed for
production
2. MAINTENANCE - ensures the continuous productivity of the firm’s capital
equipment (sustaining the efficiency of the equipment to make sure
everything turns out well)
3. INVENTORY - crucial in narrowing the gap between proximate future
demand and next production (itemized list or catalog that ensures
future productions will run smoothly and are possible)
4. QUALITY CONTROL - to assure customers that the product is consistent
and reliable (maintain standards in manufactured products to avoid
any faults/damages)
ASSESSING THE PERFORMANCE OF BUSINESS ENTERPRISE
TWO LEVELS IN EVALUATING THE PERFORMANCE OF A BUSINESS:
Effectiveness – accomplishing a purpose, producing the expected result
Efficiency – performing in the best possible manner without any waste of
time and effort
o PERFORMANCE EFFECTIVENESS (about doing the right things)
Indicates how the output of the firm was able to achieve the objectives set
by the business enterprise
Business is considered effective if it is able to produce the goods and
services that is has planned to produce
“HOW THE PRODUCT OR SERVICE EVOLVED FROM AN IDEA TO
ITS FINAL PRODUCTION “
One way to test the effectiveness of a business is to use the MADI
Questions – answer to these questions show the gap in the business
Ano yung kulang? What aspect of the product annoys you?
Ano yung nakakalungkot malaman from the product? Ano
yung nakakainis from the product?
Can also be assessed in terms of quality, speed, dependability and
flexibility
o PERFORMANCE EFFICIENCY (about doing things right)
Denotes how the output of the firm was realized through the use of
resources
Involves the monetary outlay in the use of inputs to produce a good or
service
“ALTHOUGH EFFECTIVE, THE FIRM’S PERFORMANCE CAN BE
CONSIDERED INEFFICIENT SINCE ITS PRODUCTION WAS VERY
EXPENSIVE IN TERMS OF THE USE OF RESOURCES, THUS NOT
ALL PRODUCTS AND SERVICES THAT ARE ADDRESSED TO BE
EFFECTIVE ARE ALSO EFFICIENT.”
Performance of the firm did not turn out well kasi the
components needed for production from the start are
expensive thus are not efficient
FRAMEWORK FOR ANALYZING THE OPERATIONS OF AN ENTERPRISE
To understand how the production is structured
TWO WAYS OF UNDERSTANDING HOW THE OPERATIONS PROCEEDS IN AN
ENTERPRISE:
1. SYSTEM APPROACH: INPUT-PROCESS-OUTPUT (IPO) FRAMEWORK
An arrangement of relationships between inputs and output
3 major components:
INPUTS (5Ms)
Materials
Semi-processed goods, raw materials or
intermediate inputs
Manpower
Human resource input used in production process
Includes intellectual, creative abilities, and other
qualities
Machinery
All man-made physical capital used in the
production process
Method
Process of combining raw materials and how these
are going to be transformed
Also called technology or techniques
Money
Financial resource used to purchase all the
resources needed for its operation
PROCESS
Physical Transformation - when the processing of raw
materials convert them into significantly altered new
product (physical characteristics of materials)
Locational Transformation - when a product changes in
location through various means of transportation and
communication (taxi services)
Information Transformation - when knowledge and
specialized skills of providers are transmitted to their
customer (consultations)
Exchange Information - when a commodity (raw material)
is transmitted from their supplier to its buyer (trade)
Extractive Transformation - when a natural resource is
taken out from our habitat (oil extraction, mining)
OUTPUT - result of production process and most important
component in the IPO Framework since the goal of production is
the realization of an output
Outputs from Physical Transformation
Outputs from Locational Transformation
Outputs from Information Transformation
Outputs from Exchange Information
Outputs from Extractive Transformation
2. VALUE CHAIN APPROACH
Traces the value of a commodity in terms on how factor input are adding
value to the raw material
VALUE OF COMMODITY is represented by: (a basic good used in
commerce that is interchangeable with other goods of the same
type) ex: agricultural products, metals, fuels traded in bulk
1. Value of raw materials
2. Value-added factors
Wages (cost of labor)
Interest (cost of capital)
Rent (cost of land)
Royalty (cost of technology)
Profit (return to entrepreneur)
MEASURES OF PRODUCTIVITY
Productivity is a concept of measuring output relative to the value of inputs used
in production. (capacity to produce the output)
MEASURES OF PARTIAL PRODUCTIVITY:
Average cost – total cost of making a product / total no. of products made
Marginal cost – change in total costs when additional units are made
1. Average productivity of labor - value of total production per unit of labor input
(effort expended by an individual to bring a product of service to the
market)
2. Average productivity of capital - value of total production per unit of capital input
(primary driver of value) (purchase of goods made with money in
production)
3. Marginal productivity of labor - additional output per additional unit of labor input
4. Marginal productivity of capital - additional output per additional unit of capital
unit
Measures of costs:
Average cost - total cost of production per unit of output
Marginal cost - additional cost of production per additional unit of production
WAYS OF IMPROVING THE FIRM’S PRODUCTIVITY
Increasing output per unit of input (determinant of the growth of a country’s material
standard of living)
Reduce the cost of production (increasing productivity efficiency)
Motivation (allows management to meet the company’s goals – can lead to
increased productivity and allow an organization to achieve higher levels of
output)
BALANCED SCORECARD - A WAY OF RECKONING EFFECTIVENESS
A scorecard reflects not only the output of the firm but also the interests of its various
stakeholders.
The balanced scorecard considers the variety of interests that the firm pursues besides
the production of an output to earn profit for the owners of the enterprise as reflected in
financial reports.
STAKEHOLDERS OF A FIRM AND THEIR CORRESPONDING INTERESTS:
Shareholders - owners of the enterprise are interested in the continuity, stability,
and growth of the firm. (invest in the firm’s productivity, sees the future of
the company)
Managers - administrators that may want to control in managing risks affecting
the business enterprise and adequate compensation. (recognize faults and
problems involved in the business enterprise and how to solve them)
Workers - adequate compensation, good working environment, and production of
labor rights (work in the production of goods)
Customers - reliability, consistency, and quality of goods and services
(consumers of the goods)
Government - how the firm can generate and provide employment to a growing
labor force (give permission to proceed with plan of action and operations)
General public - responsibility of the firm to its intermediate neighborhood and
the care for the environment (exposure of the business towards society)
SCORECARD SUMMARIZING FOUR PERSPECTIVES OF A FIRM:
Learning and growth perspectives
Business process perspective
Customer perspective
Financial perspective
