ACLC COLLEGE

BUSINESS DEPARTMENT

PRODUCTION AND OPERATIONS MANAGEMENT

with TOTAL QUALITY MANAGEMENT (TQM)

LESSON 1: Introduction to Production and Operations Management

Operations, marketing, and finance or accounting are the three functions basic to
all organizations. The operations function creates goods and services. Much of the
progress of operations management has been made in the twentieth century, but since
the beginning of time, humankind has been attempting to improve its material well –
being. Operations managers are key players in the battle to improve productivity. As
societies become increasingly affluent, more of their resources are devoted to services.
Productivity improvements are difficult to achieve, but operations managers are the
primary vehicle for making improvements.

OBJECTIVES:
At the end of the lesson student is expected to:
1. Define operations management
2. Explain the distinction between goods and services
3. Explain the difference between production and productivity
4. Compute single – factor productivity
5. Compute multifactor productivity
6. Identify the critical variables in enhancing productivity

DISCUSSION:

WHAT IS OPERATIONS MANAGEMENT?

Production is the creation of goods and services. On the other hand,
Operations management is the set of activities that creates value in the form of
goods and services by transforming inputs into outputs. Activities creating goods
and services take place in all organizations. In manufacturing firms, the
production activities that create goods are usually quite obvious. In them, we can
see the creation of a tangible product such as a Sony TV or a Harley – Davidson
motorcycle.
In an organization that does not create a tangible good or product, the
production function may be less obvious. We often call these activities services.
The services may be hidden from the public or even from the customer. The
product may take such forms as the transfer of funds from a savings account to a
checking account, the transplant of a liver, the filling of an empty seat on an
airplane, or the education of a student. Regardless of whether the end product is
goods or services, the production activities that go on in the organization are
often referred to as operations, or operations management.

ORGANIZING TO PRODUCE GOODS AND SERVICES

To create goods and services, all organizations perform three functions.
These functions are the necessary ingredients not only for production but also for
an organization’s survival. They are:
 ACLC COLLEGE
BUSINESS DEPARTMENT

1. Marketing, which generates the demand, or at least takes the order for
a product or service (nothing happens until there is a sale).
2. Production/operations, which creates the product.
3. Finance/accounting, which tracks how well the organization is doing,
pays the bills, and collects the money.

WHY STUDY OPERATIONS MANAGEMENT?

We study operations management for four reasons:
1. Operations management is one of the three major functions of any
organization, and it is integrally related to all the other business
functions. All organizations market (sell), finance (account), and
produce (operate), and it is important to know how the operations
management activity functions. Therefore, we study how people
organize themselves for productive enterprise.
2. We study operations management because we want to know how
goods and services are produced. The production function is the
segment of our society that creates the products and services we use.
3. We study operations management to understand what operations
managers do. Regardless of your job in an organization, you can
perform better if you understand what operation managers do. In
addition, understanding operations management will help you explore
the numerous and lucrative career opportunities in the field.
4. We study operations management because it is such a costly part of
an organization. A large percentage of the revenue of most firms is
spent in the operations management function. Indeed, operations
management provides a major opportunity for an organization to
improve its profitability and enhance its service to society.

WHAT OPERATIONS MANAGERS DO?

All good managers perform the basic functions of the management
process. The management process consists of planning, organizing, staffing,
leading, and controlling. Operations managers apply this management process to
the decisions they make in the operations management function. Below is the ten
(10) major decisions of operations management which requires planning,
organizing, staffing, leading, and controlling.

Ten Decisions Areas Issues

1. Design of goods and services What good or service should we offer?
How should we design these products?
2. Managing quality How do we define the quality?
Who is responsible for quality?
3. Process and capacity design What process and what capacity will
these products require?
What equipment and technology is
necessary for these processes?
4. Location strategy Where should we put the facility?
 ACLC COLLEGE
BUSINESS DEPARTMENT

On what criteria should we base the

location decision?
5. Layout strategy How should we arrange the facility?
How large must the facility be to meet our
plan?
6. Human resources and job design How do we provide a reasonable work
environment?
How much can we expect our employees
to produce?
7. Supply – chain management Should we make or buy this component?
Who should be our suppliers and how
can we integrate them into our strategy?
8. Inventory, material requirements How much inventory of each item should
planning, and JIT (just – in – time) we have?
When do we reorder?
9. Intermediate and short – term Are we better off keeping people on the
scheduling payroll during slowdowns?
Which job do we perform next?
10. Maintenance How do we build reliability into our
process?
Who is responsible for maintenance?

THE HERITAGE OF OPERATIONS MANAGEMENT

Frederick W. Taylor (1881), known as the father of scientific management,
contributed to personnel selection, planning and scheduling, motion study, and
the now popular field of ergonomics. One of his major contributions was his belief
that management should be much more resourceful and aggressive in the
improvement of work methods. Taylor and his colleagues, Henry L. Gantt and
Frank and Lilian Gilbreth, were among the first to systematically seek the best
way to produce. Another of Taylor’s contributions was the belief that
management should assume more responsibility for: (1) matching employees to
the right job; (2) providing the proper training; (3) Providing proper work methods
and tools; and (4) establishing legitimate incentives for work to be accomplished.
By 1913, Henry Ford and Charles Sorensen combined what they knew
about standardized parts with the quasi – assembly lines of the meatpacking and
mail – order industries and added the revolutionary concept of the assembly line,
where men stood still and material moved.
Walter Shewhart (1924) combined his knowledge of statistics with the
need for quality control and provided the foundations for statistical sampling in
quality control. W. Edwards Deming (1950) believed that management must do
more to improve the work environment and processes so that quality can be
improved.
Operations management will continue to progress with contributions from
other disciplines, including industrial engineering, management science, along
with statistics, management, and economics, contribute to improved models and
decision making. Innovations from the physical sciences have also contributed to
 ACLC COLLEGE
BUSINESS DEPARTMENT

advances in operations management, as well as information technology, which is

define as the systematic processing of data to yield information.

OPERATIONS IN THE SERVICE SECTOR

Manufacturers produce a tangible product, while service products are
often intangible. But many products are a combination of a good a service, which
complicates the definition of a service. However, we define services as including
repair and maintenance, government, food and lodging, transportation,
insurance, trade, financial, real estate, education, legal, medical, entertainment,
and other professional occupations.
Differences Between Goods and Services
 Services are usually intangible, as opposed to a tangible good.
 Services are often produced and consumed simultaneously; there is no
stored inventory.
 Services are often unique.
 Services have high customer interaction. Services are often difficult to
standardize, automate, and make as efficient as we would like
because customer interaction demands uniqueness.
 Services have inconsistent product definition.
 Services are often knowledge based, as in the case of educational,
medical, and legal services and therefore hard to automate.
 Services are frequently dispersed.

THE PRODUCTIVITY CHALLENGE

The creation of goods and services requires changing resources into
goods and services. The more efficiently we make this change, the more
productive we are and the more value added to the good or service provided.
Productivity is the ratio of outputs (goods and services) divided by the inputs
(labor and capita). The operations manager’s job is to enhance this ratio of
outputs to inputs. Improving productivity means improving efficiency.
This improvement can be achieved in two ways: reducing inputs while
keeping output constant or increasing output while keeping inputs constant. In
economic sense, inputs are labor, capital and management, which are integrated
into a production system. Management creates this production system, which
provides the conversion of inputs to outputs. Outputs are goods and services.
Production is the making of goods and services. High production may imply only
that more people are working and that employment levels are high, but it does
not imply high productivity.

Productivity Measurement
Productivity=Units Produced/Input Used. The use of just one
resource input to measure productivity is known as a single – factor
productivity, e.g. Productivity (Units per Labor Hour)=Units Produced
(Output)/Labor – Hours Used. However, a broader view of productivity is
multifactor productivity, which includes all inputs, also known as total
 ACLC COLLEGE
BUSINESS DEPARTMENT

factor productivity, e.g. Productivity=Units Produced

(Output)/Labor+Material+Energy+Capital+Miscellaneous.

Productivity Variables
1. Labor – creating a more holistic working environment in order to gain
and utilized better and stronger work force.
2. Capital – contributes a big portion in decision making by Operations
managers.
3. Management – responsible for ensuring that the labor and capital are
effectively used to increase productivity.

Productivity and the Service Sector

Productivity of the service sector has proven difficult to improve
because service – sector work is:
1. Typically labor intensive.
2. Frequently focused on unique individual attributes or desires.
3. Often an intellectual task performed by professionals.
4. Often difficult to mechanize and automate.
5. Often difficult to evaluate for quality.
The more intellectual and personal the task, the more difficult it is to
achieve increases in productivity. Low – productivity improvement in the
service sector is also attributable to the growth of low – productivity
activities in the service sector.