Chapter 6

CHAPTER 6
MBK00103
OPERATION MANAGEMENT
Wan Marjan Binti Wan Abdullah

Operations Management Is:
The business function responsible for planning, coordinating, and controlling
the resources needed to produce products and services for a company.
✓ It ensures that organization successfully converts inputs (labor, materials, technology, etc.) into
outputs (products) in a very efficient manner.
✓ It involves managing information, human resources (such as staff), equipment, technology,
and other resources needed to produce goods and services. Simply put, it involves
The goal of operations management is to help
maximize efficiency within an organization, increase
the organization’s productivity, increase profits
while reducing costs, and ensure the production and
delivery of high-quality products or services that suit
consumers’ needs.
•Production planning. During production planning, managers determine how goods will be produced,
where production will take place, and how manufacturing facilities will be laid out.
•Production control. Once the production process is under way, managers must continually schedule
and monitor the activities that make up that process. They must solicit and respond to feedback and
make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and
the handling of inventories.
•Quality control. The operations manager is directly involved in efforts to ensure that goods are
produced according to specifications and that quality standards are maintained.
Typical Organization Chart
What Is Role Of Operation Management?
Operation Management Transforms inputs to outputs
 Inputs are resources such as
 People, Material, and Money
 Outputs are goods and services

Operations Management Transformation Process
Operation Management Transformation Role
 To add value
 Increase product value at each stage
 Value added is the net increase between output product value and input material
value
 Provide an efficient transformation
 Efficiency – means performing activities well for least possible cost

Difference Of Products (Goods) And Services
Operations management for an organization that produces products is different compared to

organizations that produce services. Therefore it is important to distinguish between the characteristics
of products and services.
PRODUCT SERVICES
Tangible (visible) Intangible (not visible)
Can be inventoried Services cannot be inventoried
Some aspects of quality can be measured Most aspects of quality are difficult to measure
Productivity is easy to measure It is difficult to measure productivity
Sales is different from production Sales are often part of a service
Location is important to minimize costs Location is important for relationships with
customers
Similarities For Products (Goods) And Services
 Both use technology

 Both have quality, productivity, & response issues
 Both must forecast demand
 Both can have capacity, layout, and location issues
 Both have customers, suppliers, scheduling and staffing issues
Operations Management Decisions
Strategic Operations Decisions

 Strategic operations decisions are decisions that are strategic in nature. This means that they have
long-term effects and consequences, and they usually require huge expenses and resource
commitments.
 Decisions that fall under strategic operations decisions include:
 Where facilities will be located
 How labor and equipment should be organized
 What kind of technology will be used
 How much long-term capacity and resources the organization will provide to meet consumers’ demand.
Tactical Operations Decisions
❑ Unlike strategic decisions, tactical operations decisions have short- to medium-term effects on the
organization.
❑ These decisions can be changed or revised more easily than strategic decisions, and they involve less
commitment of resources.
❑ Some tactical operations decisions include:

▪ How vendors will be contracted
▪ How inventory will be managed
▪ How the workforce should be scheduled
▪ What procedures will ensure quality assurance
❑ Tactical and strategic operations decisions make it possible for an organization to achieve a competitive
advantage over its competitors, making it easier to attract and keep customers.
❑ They also determine how well an organization will achieve its goals.
Operation Management In Practice
 Operation management has the most diverse organizational function

 Manages the transformation process
 Operation management has many faces and names such as;
 V. P. operations, Director of supply chains, Manufacturing manager
 Plant manger, Quality specialists, etc.
 All business functions need information from Operation management in order to
perform their tasks
Business Information Flow
Scope Of Operations Management
1. Product or service
The operations manager also designs and looks at the products to be produced. Organizations need to
assess operational capabilities, technology levels and user needs before they develop a product.
2. Quality management
Operations management is also responsible for ensuring that products and services also reach the level of
quality expected by customers and meet the standards set by the organization. Several aspects of
management can be practiced by organizations such as Total Quality Management (TQM), Six Sigma, JIT
(just-in-time) and Statistical Process Control (SPC).
3. Process and capacity design

The technology and equipment that will be used to produce the product also need to be planned and
managed efficiently. This is also related to the process chosen to produce products and services. These
activities will impact the quality and efficiency of operations as well as cost savings
4. Location Selection
Aspects of location selection are not only focused on strategic positions. Operations management also
emphasizes locations that can minimize costs as well as support operational efficiency. So, the decision on
the location of the operation needs to be made based on accurate evaluation techniques.
5. Layout Design
Layout design activities involve the question of how machines and facilities should be arranged for
operational purposes. The exact size of the facility also needs to be determined so that the organization can
achieve the goals that have been set. This planning is important so that the organization can improve the
efficiency and level of use of equipment and machines.
6. Human Resources and Work Design

An operations manager also has to make decisions about the workplace environment and employee
productivity rates. Various factors should be considered such as safety factors in the workplace, environment,
training and skills required to do a job.
A good relationship with suppliers and distributors is one of the keys to the success of an organization's
operations. Therefore, operations managers need to ensure that the organization has integration with these
two parties.
8. Inventory Management
Material Planning and JIT (just-in-time) Efficient inventory management can be a competitive advantage
especially for a manufacturing company. Inventory needs to be well planned, ordered and distributed
because it is able to reduce operating costs and increase the operational efficiency of the organization.
9. Scheduling
Scheduling of employees and work is very important to ensure that operations can run smoothly and at the
same time can increase the efficiency of the organization. Scheduling is also done to minimize costs as well
as promote the use of resources to an optimal level.
10. Maintenance
Manufacturing companies often have continuous and smooth operations. So, good maintenance
management is required to enable continuous, high volume production of products with less disruption.
Effective maintenance is also important to produce quality products.
Operation Management Across The Organization
 Most businesses are supported by the functions of operations, marketing,

and finance
 The major functional areas must interact to achieve the organization goals
Operation Management Across The Organization – Con’t
 Marketing is not fully able to meet customer needs if they do not understand
what operations can produce
 Finance cannot judge the need for capital investments if they do not understand
operations concepts and needs
 Information systems enables the information flow throughout the organization
 Human resources must understand job requirements and worker skills
 Accounting needs to consider inventory management, capacity information, and
labor standards
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CHAPTER 6

Wan Marjan Binti Wan Abdullah

Operation Management Transforms inputs to outputs

 Inputs are resources such as

 People, Material, and Money

 Outputs are goods and services

 Increase product value at each stage

 Provide an efficient transformation

 Efficiency – means performing activities well for least possible cost

Operations management for an organization that produces products is different compared to

 Both use technology

Strategic Operations Decisions

❑ Some tactical operations decisions include:

 Operation management has the most diverse organizational function

3. Process and capacity design

6. Human Resources and Work Design

 Most businesses are supported by the functions of operations, marketing,

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