Operation Management

17/2/2020
Management Fundamentals
Management Functions
OUTLINE
• Management Process – objectives & Policies setting,
planning, organizing, delegating and controlling.
– Manager vs. Leader
• Organization theory - structure and forms of organisation
• Principal of Organization - span of control, delegation,
divisionalisation & decentralization.
• Objectives and functions of marketing, financial,
personnel and production management
• Incentive schemes
• Safety and health
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Learning Objectives
• Define the term operations management
• Identify the three major functional areas of
organizations and describe how they
interrelate
• Compare and contrast service and
manufacturing operations
• Describe the operations function and the
nature of the operations manager’s job
1-3
Learning Objectives
• Discuss and compare organization strategy and
operations strategy, and explain why it is important to
link the two.
• Define the term productivity and explain why it is
important.
• List some of the reasons for poor productivity and
some ways of improving it.
• Discuss and compare financial and non financial
incentive schemes.
• Describe factors in designing good working condition.
2-4
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What is Management?
A set of activities directed at an organisation’s resources with
the aim of achieving organisational goals in an efficient and
effective manner.
• A set of activities
– planning, organizing, leading, and
controlling
directed at an organisation’s
resources
– human, financial, physical, and
information
with the aim of achieving
organisational goals in an efficient
and effective manner.
Copyright © Houghton
Mifflin Company. All rights 1–5
reserved.
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Organisational resources
• Human resources
– Managerial talent and labor
– Human capital
• Financial resources
– Capital investments to support
ongoing and long-term operations
• Physical Assets
– Raw materials; office and production
facilities, and equipment
• Information
– Usable data, information linkages
reserved.
the basic purpose of management
EFFICIENTLY
Using resources wisely and
in a cost-effective way
And
EFFECTIVELY
Making the right decisions and
successfully implementing them
reserved.
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managing in organisations
• For-Profit organisations
– Large businesses
• Industrial firms, commercial banks, insurance firms, retailers,
transportation firms, utilities, communication firms, service
organisations
– Small businesses and start-up businesses
– International management
• Not-for-Profit organisations
– Governmental organisations—local, state, and federal
– Educational organisations—public and private schools, colleges,
and universities
– Healthcare facilities—public hospitals and HMOs
– Nontraditional settings—community, social, spiritual groups
reserved.
Basic/Primary Functions
Organization
Finance Operations Marketing

Product and service design
Cost
FOM Operations Location
Quality
Quick response, flexibility
Identifying consumer wants

and needs
Pricing
Advertising and promotion
Marketing Finance
responsible for securing and
distributing funds for operations.
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• Marketing -responsible for ensuring
the business has customers
– work in areas related to getting consumers and clients to
buy the organisation’s products or services
– new product development, promotion, and distribution.
– must ensure that the target market is aware that the
companies goods and services,
– focus on developing strategies and plans that effectively
create this awareness
reserved.
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Total
Revenue
Time
reserved.
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The marketing mix

PRODUCT PROMOTION
Design/sizes colours Advertising
Materials Brochures/data sheets
Specification Public relations
Quality Personal selling and networks
Packaging Exhibitions
After-sales service Gift/sales aid
PEOPLE
PRICE PLACE
List price Location
Discounts Retail/wholesale
Payment terms Mail/telephone order
Service/spares prices Delivery methods
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• Financial - responsible for securing
and distributing funds for operations.
– deal primarily with an organisation’s financial
resources, cash management, and investments.
– deals with financial reports, accounting
– in charge of purchasing goods, supplies, and services
that are necessary to carry out marketing and
operational activities
reserved.
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Asset = Liabilities + Equity

reserved.
15
• Operations/Productions - Production
is the creation of goods and services
– transform resources into goods and services
– design, operation, and improvement of productive
systems
– responsible for producing what the company sells with
in the boundaries of the budgets and forecasts
supplied by the finance department as well as the
supply and demand forecasts of determined by the
marketing department.
– must produce products and services in line with what
the marketing department has dictated is necessary to
meet the needs and wants of the consumer.
– running and managing the supply chain
1–16
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Production Management
The management of activities or processes of
converting inputs (raw materials, labour, information
and capital) into outputs (goods or services) using
the basic management functions (finance, marketing
& Production/operation).
Inputs Transformation Outputs
process
Raw Material Production Line Finished Goods
Control
Monitor progress & take corrective actions

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Food Processor
Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
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Hospital Process
Inputs Processing Outputs
Doctors, nurses Examination Healthy

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
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Environment also influence operations

Internal environment (within/Inside)
 Departments
 Working conditions
 Personnel
 Management can control by having
certain policies
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External Environment (outside)

 Government policies
 Technology
 Economic situations
 Political situations
 Others
Management cannot control but can take steps

to adapt
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Types of Operations
Operations Examples
Goods Producing Farming, mining, construction,
manufacturing, power generation
Storage/Transportation Warehousing, trucking, mail
service, moving, taxis, buses,
hotels, airlines
Exchange Retailing, wholesaling, banking,
renting, leasing, library, loans
Entertainment Films, radio and television,
concerts, recording
Communication Newspapers, radio and television
newscasts, telephone, satellites
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Scope of operations management

• Operations Management includes:
– Forecasting
– Capacity planning
– Scheduling
– Managing inventories
– Assuring quality
– HR management
– Deciding where to locate facilities
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Assignments
1. What are the three major business functions and how
they are related to one another? Give specific example.
2. Describe three functions of marketing in organization.
3. List four organization resources that are needed to

achieve organization goal.
4. Describe three major functions areas of business

organization.
5. There are interactions between the three primary

functions in business organization. Explain two task
where the personnel from operation function need
cooperation from other primary functions.
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Part B: Organization
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Organizing process
leads to the creation of organization structure which defines
how task are divided and resources deployment
Organizational structure
1. The set of formal tasks assigned to individuals and
department
2. Formal reporting relationships, including lines of authority,
decision responsibility, number of hierarchical levels, span
of manager’s control
3. The design systems to ensure effective coordination of
employees across department
Organization chart
The visual representation of an organization’s
structure.
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Chain of command
is an unbroken line of authority that links all persons in an
organization and shows who report to whom.
illustrates the authority structure of the organization
Unity of command
each of employee is held accountable to only one supervisor.
Scalar principle
refer to a clearly defines line of authority in the organization
that includes all employees
Authority
the formal and legitimate right of the manager to make a
decisions, issue orders, and allocate resources to achieve
organizationally desired outcomes.
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Responsibility
to perform the task or activity an employee has been assigned.
typically, managers are assigned authority proportionate with
responsibility.
Accountability
The mechanism through which authority and responsibility are
brought into alignment.
means that the people with authority and responsibility are subject
to reporting and justifying task outcomes to those above them in
the chain of command.
For organization to function well :

everyone need to know what they are
accountable for and accept the
responsibility and authority
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Delegation
Is the process managers use to transfer authority and
responsibility to positions below them in their hierarchy
Span of control
The number of employees reporting to a supervisor, varies widely and
that several factors influence the span
Factors that are associated with less supervisor involvement (larger spans of
control)
i. Work performed by the subordinates is stable and routine
ii. Subordinates performed similar work task
iii. Subordinates are concentrated in a single location
iv. Subordinates are highly trained and need little direction in
performing task
v. Rules and procedures defining task activities are available
- The average span of control used in an organization determines whether
the structure is tall or flat.
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Centralization
-The decision authority is located near the top of the organization
Decentralization
-Decision authority is pushed down to lower organization level.
-Organization have to find the correct hierarchy level at which to make
decisions
- advantages :
i. Relieve the burden on top managers
ii. Make greater use of employees skill and abilities
iii. Ensure decisions are made close to the action by well
informed people
iv. Rapid response to external change
Example : army
However, in reality, not all organization decentralize decisions. Managers

should diagnose the organizational situation and select decision making level
that will best meet the organizational’s needs.
Example :
in times of crisis or risk of company failure
- authority may be centralized at the top
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Part C: Manager vs Leader
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Who is a MANAGER?
• Someone whose
– primary responsibility is to carry out the management
process
– give organisations a sense of purpose and direction
• Someone who plans and makes decisions,
organizes, and controls human, financial,
physical, and information resources.
reserved.
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the manager’s job
• Plan:
– A manager cannot operate effectively unless he or she has
long range plans.
• Organise:
– When there is more than one employee needed to carry
out a plan, then organisation is needed.
• Control:
– Develop a method to know how well employees are
performing to determine what has been and what still
must be done.
reserved.
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The Management Process
reserved.
34
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Planning
• Planning
– the conscious, systematic process of making
decisions about goals and activities to be pursued in
the future
– importance of formal planning has grown
dramatically
• Decision making
– Is the cornerstone of planning.
– Is the catalyst that drives the planning process.
– Underlies every aspect of setting goals and formulating plans.
35
Organizing
Organizing involves deciding:
• Who will perform the task?

• Where will decisions be made?
• Who reports to whom?
• How will different parts of the organisation fit
together to accomplish the common goal?
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Controlling
• The process of monitoring

performance against goals,
intervening when goals are not
met, and taking corrective action
• First step – Drafting plans

• Important aspect is creating
incentives that align employees’
and organisation’s interests
37
Who is a LEADER?
Leading & Developing

• Leading – is the process of motivating, influencing,
and directing others in the organisation to work
productively in pursuit of organisation goals.
• Developing employees – the task of hiring, training,

mentoring, and rewarding employees in an
organisation, including other managers.
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Skilled Leaders:
• Drive strategic thinking

• Have a plan for organisation
• Proactively structure the organisation
• Exercise control with a deft (skillful) hand
• Use the right kind of incentives
• Get the best out of people
• Build a high-quality team
39
Leaders versus Managers
Process Management Leadership

Vision * Plans and budgets * Set the direction and develops the
Establishment * Develops process steps and vision
set timelines * Develops strategic plans to achieve
the vision
Development and * Organizes and staffs * Aligns organisation
Networking * Maintain structure * Communicates the vision, mission,
and direction
Vision Execution * Controls processes * Motivates and inspires
* Identifies problems * Energizes employees to overcome
barriers to change
Vision Outcome * Manages vision order and * Promotes useful and dramatic
predictability changes
* Provides expected results
Source: Adapted from “Leadership versus management: What’s the difference?”, The Journal for Quality and Participation, 2006
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Assignments
1. Compare three behaviors between a leader and a manager.
2. Describe three responsibilities of manager.
3. Describe the skills of a leader in order to achieve the

objectives of leading process.
4. Briefly define delegation.
5. Briefly define centralization.
6. Explain the benefit of decentralization in organization.
7. Define authority.
8. State four factors that associated with less supervisor

involvement (larger spans of control) in the organizations?
41
Differences Between Production and Services
Operation Production Services

Decision
Final Product Tangible Intangible
Quality Measurable Difficult to Measure
Location Selection near raw materials or near customer

labour
Layout Design enhance productivity enhance service delivery
Human Resource focused on technical direct contact with

& Job Design skills customers, must interact
well
Supply Chain relationship critical important but may no be
Management critical
42
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Operation Production Services

Decision
Inventory raw materials, work- most services cannot be
in-progress, finished stored
goods
Scheduling May allow leveling of Immediate schedule based
production rates on customer
Maintenance Preventive preventive and must have

fast recovery team
Process and Customer not Customer directly involved

Capacity involved directly
Transportation Transportable Not transportable
Customer Low High

Interaction
43
Responsibilities of
Operations Management
Planning Organizing
– Capacity – Degree of centralization
– Location – Process selection
– Products & services Staffing
– Make or buy – Hiring/laying off
– Layout – Use of Overtime
– Projects Directing
– Scheduling – Incentive plans
Controlling/Improving – Issuance of work orders
– Inventory – Job assignments
– Quality
– Costs
– Productivity
44
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Operations Interfaces
Industrial
Engineering
Maintenance
Distribution
Purchasing Public
Operations Relations
Legal
Personnel
Accounting Management Information System
45
Trends in Business
• Major trends
– The Internet, e-commerce, e-business
– Management technology
– Globalization
– Management of supply chains
– Agility
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New Challenges in OM
From To
 Global focus
• Local or national focus  Just-in-time
• Batch shipments  Supply chain
• Low bid purchasing partnering

• Lengthy product  Rapid product
development cycles development
• Standardized products  Strategic alliances
• Job specialization  Mass customization
 Empowered
employees
 Teams
47
Changing Challenges for the

Operations Manager
Past Causes Future
Local or Low-cost, reliable worldwide Global Focus
national communication and
focus transportation networks
Batch (large) Cost of capital puts pressure on Just-in-time
shipments reducing investment in shipments
inventory
Low-bid Quality emphasis requires that Supply-chain
purchasing suppliers be engaged in product partners
improvement
Lengthy Shorter life cycles, rapid Rapid product
product international communication, development,
development computer-aided design, and alliances,
international collaboration collaborative
designs
48
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Changing Challenges for the

Operations Manager
Past Causes Future
Standardized Affluence and worldwide markets; Mass
products increasingly flexible production customization
processes
Job Changing sociocultural milieu. Empowered
specialization Increasingly a knowledge and employees,
information society. teams, and lean
production
Low cost Environmental issues, ISO 14000, Environmentally
focus increasing disposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing
49
Why Some organisations Fail

• Too much emphasis on short-term financial
performance
• Failing to take advantage of strengths and
opportunities
• Failing to recognize competitive threats
• Neglecting operations strategy
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Why Some organisations Fail

• Too much emphasis in product and service design
and not enough on improvement
• Neglecting investments in capital and human
resources
• Failing to establish good internal communications
• Failing to consider customer wants and needs
51
Assignments
1. List three distinctions between goods and
services.
2. Give three reasons why organization fail.
3. List three challenges of operation management.
4. List three operation management

responsibilities. Give an example of each
responsibility.
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INCENTIVE SCHEMES &

OSHA
53
INCENTIVE SCHEMES
Benefits to the business

1. persuade staff to join your business
2. retain existing staff
3. increase staff motivation, morale and loyalty
4. boost productivity
5. link individual and business performance
6. focus employees on achieving targets
7. build teamwork
Benefits to staff
1. enhancing the quality of working life
2. rewarding staff efforts
3. adding value to the employment contract
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Type of Benefits &

Incentives
1. Performance Bonuses
2. Health Benefits
3. Performance-based Time Off
4. Education and Learning
5. Recognition and Awards
6. Retirement Planning
7. Promotion
8. Child Care
55
Advantages and disadvantages of

incentive schemes
Incentive Advantages Disadvantages
Financial - salary, bonus,

Can focus employees on Rewards are sometimes
gift, commission, pension, hitting a target small
subsidised canteens Places a value on Can demoralise if not
achievement earned
coupon
Non-financial - annual
Can recognise employee Can be taken for granted
leave, member of social priorities and lifestyles
May be inappropriate
Can encourage
club, formal recognition/ attachment to business
award, company car
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Individual and Group Incentive

Plans
Individual incentive plans
– Straight piecework
• Worker’s pay is a direct linear function of his or her output
• Minimum wage legislation has reduced their popularity
– Base rate + bonus
• Worker is guaranteed a base rate, tied to an output standard,
that serves as a minimum
• A bonus is paid for output above the standard
Group incentive plans

– Tend to stress sharing of productivity gains with employees
57
Safety and Health
- is about preventing people from being harmed at

work or becoming ill, by taking the right
precautions and providing a satisfactory working
environment.
- Implementing good health and safety practices will

help you comply with the law and provide an acceptable
workplace.
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Important of Safety and Health

 Comply with safety and health rules
OSHA, Machinery act, Environmental act
 Avoid the cost of illness and accident

• lost productivity
• damage to products, equipment or your premises
• costs of investigating and correcting the problem
• fines and legal costs if you're prosecuted
• Clean up cost
 Attract retain customer

- with good safety and health practice – job can complete on time
 Easy to recruit new employees
59
Working conditions
1. Working space
• must be enough free space for people to move about with ease.
2. Temperature and humidity

• There are no set temperature requirements
• suitable
3. Ventilation
• adequate ventilation and a source of fresh air that comes from
outside.
• provide mechanical ventilation, such as an air-conditioning unit,
and ensure it's well maintained.
4. Illumination (Lighting)
• detail work --- required high illumination.
• high illumination required for safety purpose: dangerous point.
• natural light source ---- free but…inability to control
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5. Noise and vibration

• not so noisy that it distracts the user. If you can't use quieter
equipment, consider soundproofing or moving the equipment or
use sound-insulating partitions or use of protected devices
• Corrective measures reduce vibration : padding, stabilizers,
shock absorbers, cushioning
6. Work time & work break

• Reasonable/ flexible working hrs
• Work break – important ( long working hrs tend to generate
boredom and fatigue -- effect the productivity and quality)
7. Safety
• safe working area
• alert employee the hazard and danger surrounding working area
• Safety procedure, provide PPE
61
Basic facilities
1. basic standards of comfort and sanitation that every
workplace must meet.
• Toilets are clean and in good working order - facilities
can be mixed providing they're enclosed and lockable
from the inside.
• Working areas are cleaned and waste removed
regularly.
2. Put up suitable notices and signs
• put up suitable health and safety notices and signs in
your workplace.
3. Provide suitable first aid facilities
4. Fire protection
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Assignments
1. List two working conditions that the employers have

to provide for their employees in order to have a
satisfactory working condition.
2. Identify types of incentives schemes provided by

employer.
3. List two benefits of incentives to the employees.
4. List three disadvantages of incentive schemes to the

employees.
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17/2/2020

the basic purpose of management

Finance Operations Marketing

Identifying consumer wants

The marketing mix

Asset = Liabilities + Equity

Monitor progress & take corrective actions

Inputs Processing Outputs

Inputs Processing Outputs

Doctors, nurses Examination Healthy

Environment also influence operations

External Environment (outside)

Management cannot control but can take steps

Scope of operations management

2. Describe three functions of marketing in organization.

3. List four organization resources that are needed to

4. Describe three major functions areas of business

5. There are interactions between the three primary

For organization to function well :

However, in reality, not all organization decentralize decisions. Managers

Part C: Manager vs Leader

the manager’s job

The Management Process

Organizing involves deciding:

• Who will perform the task?

• The process of monitoring

• First step – Drafting plans

Leading & Developing

• Developing employees – the task of hiring, training,

• Drive strategic thinking

Leaders versus Managers

Process Management Leadership

2. Describe three responsibilities of manager.

3. Describe the skills of a leader in order to achieve the

4. Briefly define delegation.

5. Briefly define centralization.

6. Explain the benefit of decentralization in organization.

8. State four factors that associated with less supervisor

Differences Between Production and Services

Operation Production Services

Quality Measurable Difficult to Measure

Location Selection near raw materials or near customer

Human Resource focused on technical direct contact with

Operation Production Services

Maintenance Preventive preventive and must have

Process and Customer not Customer directly involved

Transportation Transportable Not transportable

Customer Low High

Accounting Management Information System

• Low bid purchasing partnering

Changing Challenges for the

Changing Challenges for the

Why Some organisations Fail

Why Some organisations Fail

2. Give three reasons why organization fail.

3. List three challenges of operation management.

4. List three operation management

INCENTIVE SCHEMES &

Benefits to the business

Type of Benefits &