OPERATIONS

MANAGEMENT
OPERATIONS MANAGEMENT
THE WORD OPERATIONS COMES FROM THE LATIN OPUS MEANS WORK.
IS ABOUT IMPROVING THE WAY WE AND / OTHER DO THEIR WORK. IT IS SIMPLY AS “THE SCIENCE
FOR THE BETTER”
IS AN AREA OF MANAGEMENT INVOLVED IN PLANNING AND CONDUCTING THE PROCESS OF
PRODUCTION AND REDESIGNING BUSINESS OPERATIONS IN THE PRODUCTION OF GOODS OR
SERVICES. IT REQUIRES THE RESPONSIBILITY OF ENSURING THAT BUSINESS OPERATIONS ARE
EFFICIENT TO USE AS FEW RESOURCES AS NEEDED AND EFFECTIVE IN SATISFYING CUSTOMER
REQUIREMENTS. IT IS DEALT WITH BY MANAGING AN ENTIRE PRODUCTION OR SERVICE PROCESS,
WHICH IS THE PROCESS THAT TRANSFORMS INPUTS INTO OUTPUTS.
IS A FIELD OF BUSINESS THAT IS INVOLVED IN THE ADMINISTRATION OF BUSINESS PRACTICES TO
BOOST EFFICIENCY WITHIN AN ORGANIZATION. IT REQUIRES PLANNING, ORGANIZING, AND
INSPECTING THE ORGANIZATION’S PROCESSES TO BALANCE REVENUES AND COSTS AND CARRY OUT
THE HIGHEST POSSIBLE OPERATING PROFIT.
 Nature of Operation Management
1) Dynamic Process - dynamic process means that it keeps changing as per
market trends.

2) Transformational Process - it is involved in the conversion of raw

materials into finished products.

3) Continuous Process - it is engaged by organizations for managing its

activities as long as they continue their operations.

4) Supervision - means it monitors and controls all activities of the

organization. It secures that all activities are going smoothly and there is
no mis-utilization of any resource.
 The importance of Operations Management
• Motivates team members: The operations team motivates team
members by keeping the workplace organized and improving
workplace conditions. Team members are more excited to work when
they have a functioning work environment.

• Utilizes resources: Another part of your job as operations manager is to

build a budget that uses the company’s resources wisely. Try to reduce
costs whenever possible, stretch resources to fit project needs, and
keep resources from going to waste.
• Enhances collaboration: You can enhance team collaboration within
your organization by improving decision making. When you make good
decisions, you establish trust among teams, which results in the
delivery of top-quality products to customers.

• Helps achieve objectives: Youfill help achieve business objectives by

serving as a checkpoint for big decisions. When department leaders
consider changes or initiatives, you'll assess whether their ideas align
with company goals.

• Improves productivity: Increase productivity by making the product's

delivery process more efficient. Team members in your organization
may complete their work faster when you make improvements to
production.
 What is Operation?
embrace all the activities required to create and deliver an
organization’s goods or services to its customers or clients.

also describe the processes and resources that a company use to

produce the highest quality products or services as efficiently as
possible.

What is Business Operation?

refer to activities that businesses engage in on a daily basis to
increase the value of the enterprise and earn a profit.
 Good or Services

Goods are physical items that include raw materials, parts,

subassemblies, and final products.
example: automobile, computer, oven, shampoo

Services are activities that provide some combination of time, location,

form or psychological value.
example: air travel, school, salon, law firms
 SUPPLY AND DEMAND

SUPPLY products or services a business offers to its

customers.

DEMAND simply, the set of products and services our

customer want.
 Business Operations in Different Industries
1. Retail industry. One of the main goals of a retail business is to stock
products that customers are looking for and at a price that the
customers are willing to pay.

*Deadstock refers to products that the company has in stock but

that are not in high demand.

2. Service industry. The business operations of a service business are

divided into the front-end and back-end side of the business. On the
front end, the business should focus on streamlining the service delivery
to customers to increase their satisfaction. It should also formulate a
means of receiving feedback and complaints from customers to know
their expectations and how to improve service delivery.
On the back end, the management should employ the right people in
each department.
3. Manufacturing industry. Manufacturing companies are involved in turning
raw materials into physical products, which are then sold to consumers.
One of the things that a manufacturing company can do to achieve
efficiency is to source quality raw materials from credible suppliers. For
perishable and edible products, the business should look into how raw
materials are stored, processed, and shipped to consumers.

4. Technology industry. The key to streamlining operations of a technology

company is hiring the right staff and training them on how to execute the
tasks they are assigned. This means that the company should put a hiring
criterion in place that helps them hire the best candidates for the job.
Components of Operations Management
1) Forecasting: This component pertains to the process of relying on
historical data, facts, figures, and statistics to make decisions for
production.

2) Location Strategies: This component of operations management

involves selecting the right location for your organization.

3) Maintenance: This component involves scheduling all of the regular

maintenance checks and adjustments for your machines and
equipment.

4) Purchasing: This component pertains to ensuring that you have

enough raw materials to supply the incoming demands for products.
5) Scheduling: This component of operations management involves
assigning jobs or operations to the right machine or labor resource.
When an operation schedule is done right, it allows your company to
decrease your overall production time and allow for more items to be
produced and shipped out in time. This will allow you to increase your
revenues and maintain a competitive advantage in the market.

6) Total Quality Management (TQM): TQM is a strategy that is used to

create a customer-focused organization and involves improving all
employees and activities of the company to meet customer
requirements. The focus of total quality management is usually on
improving the processes rather than the outcomes and enables the
organization to work towards having zero defects.
 9) Just-In-Time (JIT): This component refers
7) Materials Requirements Planning to the process of scheduling your operations
(MRP): This component ensures that so that they can start and be completed
you are receiving the right amount of “just-in-time” - or just when they are really
the right material on time to be able to needed. This technique ensures that you are
complete your production on time. MRP limiting the number of work in progress
involves taking inventory of the items items so that materials and intermediates
you currently have, identifying which can flow from one resource to another to
additional materials are required, and avoid needing to store large quantities of
scheduling the production of materials WIP items.
or their purchase.
10) Process and System Performance: This
8) Quality: This component is important component is measured through
for companies to conform to product examination, capacity utilization, or
specifications and maintain favorable production. You can analyze and compare
relationships with their customers. Having the expected time and quantity of items
quality products or services usually produced to the actual values to get a sense
means that they meet your customer of whether your production facility is
demands. meeting its targets of falling short.
11) Layout of Facilities: This component ensures that the most optimal
workflow is used within your production facility. One of the 7 wastes
identified in lean manufacturing involves the unnecessary movement
of items throughout the facility caused by poor workflow, poor layout,
and inconsistent working methods. An optimal facility layout is one
that minimizes the motion of items.
12) Inventory Management: This component involves keeping track of
the stocked materials and items and making sure that the company is
carrying the products they need at the right time. Effective inventory
management will help companies meet demands by ensuring that
they have the right amount of materials and finished goods to avoid
having too much or too little stock.
 The Customer’s View of the World
Economic theory suggests that consumer make choices based on where to obtain the highest UTILITY which
measures the strength of customer preferences for a given product or service. Customers buy the product or
service that maximizes their utility.
COMPONENTS OF UTILITY
1. CONSUMPTION UTILITY - a measure of how much you like a product or service, ignoring the
effects of price and of the inconvenience of obtaining the product or service. It is divided into
two sub components:

a) PERFOMANCE - it captures how much an average consumer desires a product or

service. This are features of the product or service that most (if not all) people agree are more
desirable. In terms of performance, consumer have the same ranking of product.

b) FIT - it captures how well the product or service matches with the unique characteristics
of a given consumer. With some attributes, customers do not all agree on what is best because of the
fact that not all consumers have the same utility functions and it’s called HETEROGENEOUS
PREFERENCES.

2. PRICE - the total cost of owning the product or receiving the service. Thus, price has to include
expenses as shipping or financing and other price-related variables such as discount which customer
prefer to pay less than paying more.
3. INCONVENIENCE - the reduction in utility that results from the effort of obtaining
the product or service. Economists often refer to this component as TRANSACTION
COST. The following are the two major subcomponents of inconvenience.

a) LOCATION - its the place where a consumer can obtain a product or

service. The further you have to travel, the more inconvenient it is for you.

b) TIMING - it is the amount of time that passes between the consumer

ordering a product or service and the consumer obtaining the product or service.

MARKETING - is the academic discipline that is about understanding and influencing

how customers derive utility from the product.
 STRATEGIC TRADE-OFFS
CAPABILITIES - the dimensions of the customer utility function a firm is able to
satisfy.

TRADE-OFFS - the need to sacrifice one capability in order to increase another

one.

MARKET SEGMENT - a set of customers who have similar utility functions.

PARETO DOMINATED - means that a firm’s product or service is inferior to one or

multiple competitors on all dimensions of the customer utility functions.

EFFICIENT FRONTIER - the set of firms that are not Pareto dominated.

INEFFICIENCY - the gap between a firm and the efficient frontier.

STRATEGIC TRADE-OFFS
PARETO DOMINATED
 Ways how to achieves the goal of
MATCHING SUPPLY WITH DEMAND:
O

1. Operations Management designs the operation that

match the demand of a market segment with supply
of products and services appropriate for that
segment.
2. Operations Management seeks to utilize inputs and
resources to their fullest potential.
3. Operations Management needs to keep innovating to
shift the efficient frontier.
 ominated by D
pareto d efficient frontier

pareto dominated by D

inefficient
 OVERCOMING INEFFICIENCIES
Company can only be successful if its customers are willing to pay a
sufficiently high price to cover the cost of the product or service it
offers. The difference between the revenue earns and the costs it incurs
is its PROFIT. There are two types of costs:

COST FOR INPUTS - inputs are the things that a business purchases.
COST FOR RESOURCES - resources are the things in a business that
help transform input into output and thereby help provide supply for
what customers demand.
 THREE SYSTEMS INHIBITORS THAT
OVERCOME INEFFIENCIES
1. WASTE - the consumption of inputs and resources that do not add
value to the customer.
2. VARIABILITY - predictable or unpredictable changes in the demand or
the supply process.
VARIABLITY IN TERMS OF DEMAND:
CUSTOMER ARRIVALS
CUSTOMER REQUEST
CUSTOMER BEHAVIOR
 VARIABILITY IN TERMS OF SUPPLY
TIME TO SERVE CUSTOMER
DISRUPTIONS
DEFECTS
1. s
2. s
3. INFLEXIBILITY - the inability to adjust to either changes in
the supply process or changes in customer demand.
 KEY QUESTIONS IN OPERATIONS
MANAGEMENT

WHAT is the product or service?

WHO are the customers ?
HOW much do we charge?
HOW efficiently are the products or services delivered?
WHERE will the demand be fulfilled?
WHEN will the demand be fulfilled?
INTRODUCTION TO PROCESS
PROCESS - a set of activities that take a collection
of inputs, perform some work or activities with
those inputs, and then yield a set of outputs.
PROCESS FLOW DIAGRAM - a graphical way to
describe the process. It uses boxes to depict
resources, arrows to depict inventory location.
RESOURCE - a group of people and/equipment
that transforms inputs into outputs.
PROCESS SCOPE - the set of activities and
processes included in the process.
FLOW UNIT - the unit of analysis that we consider
in a process analysis or the basic unit that moves
through a process.
 To summarize, there are several important rules with
respect to defining the flow unit:

1. Choose a flow unit that corresponds to what you want to track and measure with
respect to the process.
2. Stick with the flow unit you defined. Don't measure some aspects of the dairy pro-
cess using a "gallon of milk" as the flow unit and then switch to "pounds of milk
powder." It makes no sense to combine things in different units.
3. Choose a flow unit that can be used to measure and describe all of the activities
within the process. To use an exercise example, "distance traveled" might not be the
best measure of all activities for a triathlete who must swim, bike, and run because
people generally bike much further than they swim. A more unifying flow unit could
be "minutes of workout" or, to be even more sophisticated, "calories burned" (or some
other measure of power). In business, a currency (such as a euro, dollar, or yen) is a
common flow unit that can be used to span all of the things and activities in a process.
THREE KEY PROCESS METRICS
A PROCESS METRIC is something we can measure that informs us about the
performance and capability of a process. For a process observer or designer,
there are three key process metrics:

• Inventory is the number of flow units within a process. For example, "dollars"
in process, "kilograms" in process, or "people" in process.
• Flow rate is the rate at which flow units travel through a process. As a rate,
it is measured in "flow units per unit of time"; for example, "dollars per week,"
"kilograms per hour," or "people per month." The key feature of a rate is that it
is always expressed in terms of some unit (c.g.. boxes or dollars) per unit of
time. If the "per unit of time" is missing, then it is just inventory.
• Flow time is the time a flow unit spends in a process, from start to finish.
Typical units for this measure are minutes, hours, days, weeks, months, or
years.