Krizzaline D.

Barua, MBA
Christine Jane E. Buenafe, MBA
 Preliminaries
Course Title : Production and Operations Management

Course Number : CBMEC 110

Semester : Second Semester, Academic Year 2020-2021

Course Description : This will introduce the various elements and relevant concepts in Production
and Operations Management. It will also present some of the POM tools that can be applied to a wide variety
of situations. This course will provide an integrated framework for understanding the fields as a whole. By
the end of the course, the student should be able to understand and appreciate POM; know it importance in
the success of the business; and learn the major POM concepts, quantitative tools, and techniques that are used
in tactical strategic decisions.

Total Learning Time: 18 weeks or 54 hours

Overview:

Production and Operations Management is often thought to be more of a function for a manufacturing
company only, as both involves the conversion of raw materials into finished products or the inputs to outputs.
Thus, others would often believe that only those whose interest is in manufacturing should learn this course.
These are misconceptions however as importance is placed on learning how different functions of an
organization are interrelated to one another. This means that not only those who wish to study the
production/operations side of the business must learn this course. All business management students,
regardless of the major (Marketing, Finance, Human Resource Management, Operations Management), must
understand the functions of every aspect of the organization and how they interrelate with production and
operation.

This module in Production and Operations Management (TQM) is made for the purpose of guiding the
students in their independent learning and discovery of the whole Production and Operations Management
functions. This module is composed of six (6) sub-modules namely: Introduction to Production and Operations
Management, Quality Management, Forecasting Techniques, Inventory Models, Decision Making and
Probability, and PERT/CPM in Project Management.

The topics provided herein are seen to be essential in the understanding and learning of the concepts as a
whole under Production and Operations Management (TQM), providing for an integrated framework. Topics
discussed also provide guidance to students in the use of Production and Operations Management tools that
can be used in a wide variety of situations.

Each sub-module consists of the following components:

Part I- Introduction
This part contains the expected learning outcomes of the students, and the possible
deliverables of the sub-module.

Part II- Core Content

This is the main part of the sub-module which contains the discussion of key concepts/ topics
needed to be learned by the students. This may include diagrams, graphs, tables, or
illustrations to reinforce the learnings of the students.

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 Part III- Exercises and Evaluation
This is the part of the sub-module which would enable the students to practice the concepts
learned through different exercises/ activities being given. This part would also try to
measure their learnings at the end of the each sub-module.

Part IV- Additional Readings and References

This part includes additional readings and references, if any, to support the topics presented.

Learning Outcomes:

At the end of the Semester, the students must have:

1. Discussed the basic concepts in production and operations management.

2. Described the role and functions played by production and operations management in ensuring the
competitiveness of a business
3. Explained Total Quality Management as a philosophy in ensuring continuous improvement in the
organization.
4. Evaluated the purpose of TQM in improving productivity and achieving quality standards.
5. Illustrated the use of quantitative tools and techniques in making decisions regarding production and
operations strategies to be implemented by the organization.

THE AUTHORS

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 CONTENTS
Preliminaries

Module 1 Introduction to Production and Operations Management

 Production Management
 Operations Management
 Why Study Operations Management?
 Functions within the Business Organization
 The Operations Manager and the Management Process
 Competitiveness, Strategy and Productivity Through Operations Management

Module 2 Quality Management

 Meaning of Quality
 Total Quality Management
 Quality Improvement and Role of Employees
 Strategic Implications of TQM
 Cost of Quality
 Quality Management and Productivity
 Identifying Quality Problems and Causes
 Quality Tools

Module 3 Inventory Models

 Inventory
 Inventory Planning and Control
 Inventory as an Important Asset
 The Inventory Process
 Functions of Inventory
 Inventory Costs
 Economic Order Quantity

Module 4 Forecasting Techniques

 Qualitative Models
 Time Series Methods
 Causal Methods

Module 5 Decision Making and Probability

 Decisions under certainty, uncertainty and risk

 Maximax
 Maximin
 Minimax Regret
 Criterion of Realism
 Decision Trees

Module 6 PERT/CPM in Project Management

 The Importance of Project Management

 Project Planning
 Project Scheduling
 Project Controlling
 Project Management Techniques: PERT and CPM
 A Critique of PERT and CPM
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 Module 1

Learning Objectives:
At the end of the session, the students must have:
 Differentiated production management from operations management
 Understood the functions of operations management in the organization and the need to study it
 Explained the reasons why operations management is essential in achieving competitiveness,
strategy and productivity
 Computed for single-factor and multifactor productivity, including productivity growth

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 Businesses are formed mainly to produce either goods or services to meet consumer needs. Thus,
when talking about businesses, terms such as production management and operations management often
come to light. These terminologies are often associated with the manufacturing part of the business.

What is Production Management?

Production Management refers to the application of management

principles to the production part of the company. It basically involves
planning, organizing, directing, and controlling the production process.
Its ultimate goal is to convert raw materials into finished products.
Others may refer to Production Management as the bringing together of
the 6 Ms: Men, Money, Machines, Materials, Methods, and Markets.

In this process, the decision with regards to the quality, quantity,

price, packaging, design, among others, are placed on the hands of the
production manager. This is to ensure that the output produced confirms
the specifications being set.

The Production System

The figure on the side

shows a simplified production
system. It shows the flow of how
inputs through the
transformation process are being
converted to outputs. Note that
these processes are being
influenced by the feedback loop,
wherein there is a continuous
feedback of information from the
environment which is being
considered.

Generally, the production

system has the following characteristics:

 Production is an organized activity, so every production system has an objective

 The system transforms the various inputs to useful outputs
 It does not operate in isolation from the other organizational system
 There exists a feedback about the activities, which is essential to control and improve system
performance

What is Operations Management?

Operations Management deals with the supervision, design, and planning of business operations. Its
main objective is to enhance the quality of business operations, focusing on successfully turning inputs into
outputs in the most efficient manner. Operations Management is focused more on processes and how they can
be optimized so that there is minimum wastage of available resources.

Both production management and operations management deals with the conversion of inputs to
outputs. Because of this, both terms are often used interchangeably. However, it is important to note that there
are differences between the two. A summary on the areas on which the two differs is provided.

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 Areas of Consideration Production Management Operations Management
Definition Production management is about Operation management is about the
managing activities related to management of overall business
production only operations which includes production
and post-production stages
Area of Decision- Related to aspects of production only Related to the regular business
making activities in an organization
Found In It is found in enterprises where It is found in places like Banks,
production is undertaken Hospital, Companies, etc. which are
providing service
Capital Requirement More capital requirement initially Fewer capital requirements

Why Study Operations Management?

Many business management students might wonder if their major is not

Operations Management yet they are required to study such field. This is because
operations is part of any business organization and for it to be successful, all Operations
members of the organization must understand not only their own role but also the
role of others.
And even though individual courses have a narrow focus (e.g. human
resources, finance), in practice, there is a significant overlapping of various
functional areas which involves exchange of information and cooperative Finance Marketing
decision-making. Thus, the need for every business management student to
study operations management. This is also notwithstanding the fact that
operations is one of three major functions of an organization. The figure on the
side shows the three major functions of business organization that overlaps, of which operations is part.
Also, operations interact with other functional areas of the organization including legal, management
information system (MIS), accounting, personnel/human resources, and public relations, as shown on the
figure below.

There are also many career opportunities in the field of operations management.
Legal One can be an operations manager, production analyst, production manager,
industrial engineer, time study analyst, inventory manager, purchasing
manager, schedule coordinator, distribution manager, supply chain
Accounting
Public manager, quality analyst, and quality manager.
Relations

Operations These people working on the operations field should have skill sets,
both people skills and knowledge skills. People skills may include
mentoring ability, political awareness, collaboration skills, negotiation
skills, and communication skills. Knowledge skills which are necessary
Personnel/
MIS Human for decision-making may include product knowledge, process
Resources knowledge, industry and global knowledge, and financial and
accounting skills.

Functions Within the Business Organization

As mentioned above, there are three basic functions of business organizations namely: Finance,
Operations, and Marketing. The ideal situation for any business organization is to have an economic match of
supply and demand. There must be a balance between the two as excess in supply is a waste of resources and
is costly while having too little supply could not meet demand thereby losing opportunity and gaining customer
dissatisfaction.
The key functions on the supply side are operations and supply chains, and sales and marketing on the
demand side. Finance is responsible for securing financial resources at favorable prices and allocating those
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resources throughout the organization, as well as budgeting, analyzing investment proposals, and providing
funds for operations. Marketing is responsible for assessing consumer wants and needs, and selling and
promoting the organization’s goods or services. Operations is responsible for producing the goods or providing
the services offered by the organization.
Understanding operations would mean understanding the supply chain as well. A supply chain is the
sequence of organizations—their facilities, functions, and activities—that are involved in producing and
delivering a product or service. The sequence begins with basic suppliers of raw materials and extends all the
way to the final customer, as seen on the figures below.

The illustration/ figures also

show that inputs undergo the so-called
transformation process before they
become outputs.
The creation of goods or services
involves transforming or converting inputs
into outputs. Various inputs such as
capital, labor, and information are used to
create goods or services using one or more
transformation processes (e.g., storing,
transporting, repairing).
The figure below provides some
examples of inputs, transformation
process, and outputs.

Although there is a distinction between goods and

services, it is important to note that they often both occur
jointly. For example, having the oil changed in cars is a service.
However, the oil that is delivered is a good. In the same manner,
house painting is a service, but the paint being used is a good.
Thus, there is the so-called goods-service continuum where
products can range from pure goods, a combination of both
goods and services (in between), to pure service. Below is an
illustration of the goods-service continuum.

Some may find it quite

challenging to differentiate goods from
services, given the fact that there is that
so-called continuum where goods and
services go hand in hand.
However, there are basic
differences that would help in giving
distinction between the two. This is
summarized on the figure that follows.

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 The Operations Manager and
the Management Process

The operations manager

is one of the key figures in an
organization – he/she has the
responsibility for the creation of
goods or the provision of
services.
The kinds of jobs that
operations managers oversee
however varies tremendously from one organization to another. This is mainly because of the different
products or services involved in each of those organizations. For instance, managing a banking operation
requires a different kind of expertise as compared to that of managing a hotel and restaurant operation.
Though different however, the jobs are the same sense: they are both essentially managerial. The same
is true for the job of any operations manager regardless of the kinds of goods or services being created. In
every case, the operations manager must coordinate the use of resources through the management process of
planning, organizing, staffing, directing, and controlling.
Examples of the responsibilities of operations manager are the following:
Planning Controlling Organizing Staffing Directing
 Capacity  Inventory  Degree of  Hiring/  Incentive
 Location Control centralization Laying Plans
 Products  Quality  Subcontracting off  Issuance of
and Control  Use of work orders
Services overtime  Job
 Make or assignments
buy
 Layout
 Projects
 Scheduling

Competitiveness, Strategy, and Productivity through Operations Management

Competitiveness

Companies must be competitive to sell their goods and services as it is such an important factor in
determining whether the company would grow, get by, or fail. Business organizations compete through some
combination of price, delivery time, and product or service differentiation.

In terms of competitiveness, operations has a major influence through product and service design, cost,
location, quality, response time, flexibility, inventory and supply chain management, and service. Many of
these are interrelated.

1. Product and service design should reflect joint efforts of many areas of the firm to achieve a match
between financial resources, operations capabilities, supply chain capabilities, and consumer wants
and needs. Special characteristics or features of a product or service can be a key factor in consumer
buying decisions. Other key factors include innovation and the time-to-market for new products and
services.
2. Cost of an organization’s output is a key variable that affects pricing decisions and profits. Cost-
reduction efforts are generally ongoing in business organizations. Productivity is an important
determinant of cost. Organizations with higher productivity rates than their competitors have a

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 competitive cost advantage. A company may outsource a portion of its operation to achieve lower
costs, higher productivity, or better quality.
3. Location can be important in terms of cost and convenience for customers. Location near inputs can
result in lower input costs. Location near markets can result in lower transportation costs and quicker
delivery times. Convenient location is particularly important in the retail sector.
4. Quality refers to materials, workmanship, design, and service. Consumers judge quality in terms of
how well they think a product or service will satisfy its intended purpose. Customers are generally
willing to pay more for a product or service if they perceive the product or service has a higher quality
than that of a competitor.
5. Quick response can be a competitive advantage. One way is quickly bringing new or improved
products or services to the market. Another is being able to quickly deliver existing products and
services to a customer after they are ordered, and still another is quickly handling customer complaints.
6. Flexibility is the ability to respond to changes. Changes might relate to alterations in design features
of a product or service, or to the volume demanded by customers, or the mix of products or services
offered by an organization. High flexibility can be a competitive advantage in a changeable
environment.
7. Inventory management can be a competitive advantage by effectively matching supplies of goods with
demand.
8. Supply chain management involves coordinating internal and external operations (buyers and
suppliers) to achieve timely and cost-effective delivery of goods throughout the system.
9. Service might involve after-sale activities customers perceive as value-added, such as delivery, setup,
warranty work, and technical support. Or it might involve extra attention while work is in progress,
such as courtesy, keeping the customer informed, and attention to details. Service quality can be a key
differentiator; and it is one that is often sustainable. Moreover, businesses rated highly by their
customers for service quality tend to be more profitable, and grow faster, than businesses that are not
rated highly.
10. Managers and workers are the people at the heart and soul of an organization, and if they are competent
and motivated, they can provide a distinct competitive edge by their skills and the ideas they create.

Strategy

Strategies are plans for achieving

organizational goals. Thus, goals serve as
foundation for the development of
organizational strategies.

Organizational strategy is important

because it guides the organization by providing
direction for, and alignment of, the goals and
strategies of the functional units. Moreover,
strategies can be the main reason for the success
or failure of an organization.

There are three basic business strategies:

• Low cost.
• Responsiveness.
• Differentiation from competitors.

Responsiveness relates to ability to

respond to changing demands. Differentiation
can relate to product or service features, quality,
reputation, or customer service. Some

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organizations focus on a single strategy while others employ a combination of strategies.

There is also the so-called operations strategy which is narrower in scope, dealing primarily with the
operations aspect of the organization. Operations strategy relates to products, processes, methods, operating
resources, quality, costs, lead times, and scheduling. The figure shown shows examples of operations strategy
made by different companies, in relation to the organization strategy.

Productivity

One of the primary responsibilities of a manager is to achieve productive use of an organization’s

resources. The term productivity is used to describe this. Productivity is an index that measures output (goods
and services) relative to the input (labor, materials, energy, and other resources) used to produce it. It is usually
expressed as the ratio of output to input:

Productivity has important implications for business organizations and for entire nations. For nonprofit
organizations, higher productivity means lower costs; for profit-based organizations, productivity is an
important factor in determining how competitive a company is. For a nation, the rate of productivity growth
is of great importance.

Productivity growth is the increase in productivity from one period to the next relative to the
productivity in the preceding period. Thus,

Productivity growth is a key factor in a country’s rate of inflation and the standard of living of its
people. Productivity increases add value to the economy while keeping inflation in check.

Computing Productivity

Productivity measures can be based

on a single input (partial productivity), on
more than one input (multifactor
productivity), or on all inputs (total
productivity). On the side lists some
examples of productivity measures. The
choice of productivity measure depends primarily on the purpose of the measurement. If the purpose is to
track improvements in labor productivity, then labor becomes the obvious input measure.

Partial measures are often of greatest use

in operations management. On the left side are
some examples of partial productivity measures.

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 The units of output used in productivity measures depend on the type of job performed. The following
are examples of labor productivity:

Specific Example:

Example for multi-factor productivity:

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Exercises and Evaluation
Module 1: Worksheet 1
Computing Productivity and Productivity Growth

Name: Course, Year, & Section

Instruction: Analyze the different scenarios below and answer the questions that follow.

A. Analyn produces “Beauty Care Packages” for resale to her classmates. She is currently working a total of 6
hours per day to produce 120 beauty care packages.

What is Analyn’s productivity? Show your solution.

Analyn thinks that by redesigning the package, she can increase her output to 135 beauty care packages per
day. What will be her new productivity? Show your solution.

B. CJ Seafood makes 600 wooden packing boxes for fresh seafood per day, working in two 10-hour shifts. Due
to increased demand, plant managers have decided to operate three 8-hours shifts instead. The plant is now
able to produce 750 boxes per day.

Calculate the company’s productivity before the change in work rules and after the change. Show your
solution.

The plant managers were able to identify that to produce 750 boxes, they spent P3,000 for labor, P5,000 for
materials and P2,000 for overhead. Compute for the multifactor productivity. Show your solution.

C. Using the data from Item A, compute now for the productivity growth on Analyn’s productivity after
redesigning the package. The previous productivity would be what you have computed when Analyn was able
to produce 120 beauty care packages and the current productivity is what you have computed when she was
able to produce 135 packages. Show your solution.

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 Module 1: Worksheet 2
Doing Essays

Name: Course, Year, & Section

Essay. Give your thoughts on the items as brief and concise as possible. You will be scored according to the
following:

1. How does production management differ from operations management?

2. Being a BSBA student taking either financial management or human resource management major, is it
necessary for you to study operations management? Why or why not?

3. In what ways do you think can operations management help in a company’s competitiveness, strategy, and
productivity?

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Additional Readings and References

Additional Readings:
https://www.kickoffall.com/2019/07/historical-evolution-of-production.html
https://financiallysimple.com/evolution-business-operations-management/
https://www.gazprom-energy.co.uk/blog/10-of-the-most-common-operational-issues-faced-by-growth-
businesses-and-how-to-overcome-them/

References:

BYJU's. (2021). Top 5 Difference Between Production Management and Operation Management. Retrieved from
BYJU's: https://byjus.com/commerce/difference-between-production-management-and-operation-
management/
Chand, S. (2021). Production Management : it’s Meaning, Definition, Function and Scope. Retrieved from Your
Article Library: https://www.yourarticlelibrary.com/production-management/production-management-its-
meaning-definition-function-and-scope/27925
Davies, J. (2020, October 22). The Basic Principles of Production Management. Retrieved from Winman:
https://www.winman.com/blog/bid/341826/the-basic-principles-of-production-management
Essential Learning. (2019). Production and Operations Management. Oakville, Canada: Essential Learning.
McGraw-Hill Companies, Inc. (2012). Production and Operations Management. Philippines: McGraw-Hill
Companies, Inc.
McGraw-Hill Education. (2016). Production Operations Management. Philippines: McGraw-Hill Education.
S, S. (2017, September 26). Difference Between Production and Operations Management. Retrieved from Key
Differences: https://keydifferences.com/difference-between-production-and-operations-management.html
Stevenson, W. J. (2002). Operations Management 7th Edition. New York: McGraw-Hill Companies, Inc.
Stevenson, W. J. (2015). Operations Management 12th Edition. New York: McGraw-Hill Education.

Image Sources:
https://blog.hubstaff.com/manufacturing-marketing/
http://rehucap.com/qualitys/
https://ebsedu.org/blog/role-operations-management-use-organizational-growth/
https://www.dhakatribune.com/opinion/op-ed/2019/02/06/what-is-production-management
https://www.winman.com/blog/bid/341826/the-basic-principles-of-production-management
https://www.tonex.com/operations-management-tutorial/
https://www.wisdomjobs.com/e-university/production-and-operations-management-tutorial-295/concept-of-
production-9435.html

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