PINLAC, ELAINE PRINCESS C.

BSA 1A • Produced & consumed at the same

OPERATIONS MANAGEMENT with TQM time
MS. CAMIA A. OFFICIAL, MBA • Often unique
• High customer interaction
LESSON 1 – INTRODUCTION TO OPERATIONS • Often knowledge-based
MANAGEMENT Basic Functions of the Business
Organization
What is Operations?
• The part of a business organization
that is responsible for producing
goods or services
- Operations are the standard business
processes that happen to make sure
a business is running smoothly or
providing goods and services sa mga
customers
How can we define operations
management?
• The management of systems or
processes that create goods and/or
provide services
- Involves improving the processes and
activities involved in producing
goods and delivering services.
Good or Service?
Goods are physical items that include raw Demand – willingness of a person to
materials, parts, subassemblies, and final purchase
products. V.P of Finance - They budget and utilize
- Automobile money
- Computer
- Oven
- Shampoo
Services are the activities that provide
some combination of time, location, form or
psychological value.
- Air travel
- Education
- Haircut
- Legal counsel
Characteristics of Goods
• Tangible product
• Production usually separate from Why study OM?
consumption • Every aspect of business affects or
• Can be inventories is affected by operations
• Low customer interaction • Many service jobs are closely
Characteristics of Services related to operations
• Intangible product o Financial Services
o Marketing services
 o Accounting services
o Information services System Operation Decisions
• There is a significant amount of System operation
interaction and collaboration • These are generally tactical and
amongst the functional areas operational decisions
• It provides an excellent vehicle for • Management of personnel
understanding the world in which • Inventory, management and control
we live • Scheduling
Scope of Operations Management • Project management
The scope of operations management • Quality assurance
ranges across the organization Operation managers spend more time
on system operation than any other
The operation function includes many decision are
interrelated activities such as: • They still have a vital stake in system
• Forecasting design
• Capacity planning Key Issues for Operations Managers Today
• Facilities and layout • Economic conditions
• Scheduling • Innovating – what products are not
• Managing inventories available in the market
• Assuring quality • Quality problems
• Motivating employees • Risk management – how are they
• Deciding where to locate facilities able to cope up to typhoon,
• And more… pandemic
Role of Operations Manager • Competing in a global economy –
The operations function consists of all international or just within the country
activities directly related to producing
goods or providing services
Historical Evolution of Operation
A primary function of the operation Management
manager is to guide the system by decision
making
• System design decisions
• System operation decisions

System Design Decisions

System design
• Capacity – how many goods will be
produced
• Facility location -
• Facility layout
• Product and service planning
• Acquisition and placement of
equipment
These are typically strategic decisions that
• Usually require long-term
commitment of resources
• Determine parameters of system
operation
Key takeaways CHAPTER 2 – COMPETITIVENESS, STRATEGY,
Operations management is the science AND PRODUCTIVITY
and the art of ensuring that goods and
services are created and delivered COMPETITIVENESS
successfully to costumers. How effectively an organization meets the
wants and needs of customers relative to
Operations and management is important others that offer similar goods or services.
in all types of organizations because it
involves planning and making decisions EXAMPLE OF DISTINTIVE COMPETENCIES
that are crucial to delivering quality goods
and services to customers. Planning and
decision-making are not only done at the
very beginning of the organization; they are
constant, continuous process. A good
operations manager thinks and plans for
the organization for a long-term period of
time. He plans about how the organization
works or operates, where it is located, who
are the individuals that make up the
organization, and making sure that they
work happily and accordingly. He is
involved in the before, during, and after BUSINESS COMPETE USING MARKETING
processes of an organization. • Identifying consumer wants and
needs
ROLE – because everyone has their own • Pricing
roles in operation and management. There • Advertising and promotion
are employees, managers, customers, and BUSINESS COMPETE USING OPERATIONS
etc. • Product and service design
• Cost
• Location
1. What is the input–transformation– • Quality
output process? Please discuss. • Quick Response
WHY SOME ORGANIZATIONS FAIL
It is the flow resources, processes, and • Too much emphasis on short-term
activities within the organization that financial performance
transform input to outputs. • Failing to take advantage of
strengths and opportunities
Franklit’s food house, their menus are • Failing to recognize competitive
delicious and affordable for a student threats
like me. It would be nice if they would • Neglecting operations strategy
expand and make their place bigger, WHY SOME ORGANIZATIONS FAIL
which could accommodate and • Too much emphasis in product and
entice more customers. 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 EXAMPLES OF STRATEGIES
DEFINING CORE COMPETENCIES • LOW COST: outsource operations to
In the article, C.K. Prahalad, and Gary the third world countries that have
Hamel revie three conditions a business low labor cost.
activity must meet in order to be a core • SCALE-BASED STRATEGIES: use the
competency: capital intensive methods to achieve
• The activity must provide superior high output volume and low unit cost.
value or benefits to the customer.
• It should be difficult for a competitor SPECIALIZATION: Europe lv focus on narrow
to replicate or imitate it. product lines or limited services to achieve
• It should be rare. higher quality.
SOME EXAMPLE OF CORE COMPETENCIES FLEXIBLE OPERATIONS – focus on quick
- McDonald’s has standardization. It response.
serves nine million pounds of French HIGH QUALITY – focus on achieving higher
fries every day, and every one of quality than competitors.
them has precisely the same taste SERVICE – focus on various aspects of
and texture. service (e.g helpful, courteous, reliable,
- Apple has style. The beauty of its etc.)
devices and their interface gives
them an edge over its many DISTINCTIVE COMPETENCIES
competitors The special attributes or abilities that give an
org a competitive edge
STRATEGIES • Price
Plans for achieving organizational goals • Quality
MISSION • Time
The reason for existence for an organization • Flexibility
MISSION STATEMENT – states the purpose of • Service
an organization • Location
Answers the question “what business are we OPERATIONS STRATEGY – the approach
in” consistent with organization strategy, that is
GOALS used to guide operations function.
Provide detail and scope of mission STRATEGY FORMULATION
TACTICS - Distinctive competencies
The methods and actions taken to - Environmental scanning
accomplish strategies - SWOT
- Order Qualifiers
PLANNING AND DECISION MAKING - Order winners
Strategy Example – rita is a high school
student. She would like to have a career in • Order qualifies – characteristics that
business, have a good job, and earn customers perceive as minimum
enough income to live comfortably. standards pf acceptability to be
Mission: Live a good life considered as a potential purchase
Goal: Successful career, good income • Order winners – very expensive
Strategy: Obtain a college education Characteristics of an organization’s
Tactics: Select a college and a major goods or services that cause it to be
Operations: Register, buy books, take perceived as better than the
course, study, graduate, get job. competition
KEY EXTERNAL FACTORS •A measure of the effective use of
• Economic conditions resources, usually expressed as the
• Political conditions ratio of output to input
• Legal environment PRODUCTIVITY RATIOS ARE USED FOR
• Technology • Planning workforce requirements
• Competition • Scheduling equipment
• Markets • Financial analysis

PRODUCTIVITY
• Is concerned with the effective and
efficient utilization of resources (input)
in producing goods and services
(output).
• In other words: production is the
quantity of output produced while
productivity is the ratio of output
produced to the input(s) used.
• Productivity is an index that means
output (goods and services) relative
KEY INTERNAL FACTORS to input (labour, material, energy,
• Human resources and other resources) used to
• Facilities and equipment produce them.
• Financial resources FACTORS AFFECTING PRODUCTIVITY
• Customers - METHOD
• Products and services - CAPITAL
• Technology - TECHNOLOGY
• Suppliers - QUALITY
QUALITY AND TIME STRATEGIES - MANAGEMENT
• Quality-based strategies – focuses on
maintaining or improving the quality OTHER FACTORS AFFECTING PRODUCTIVITY
of an organization’s products or • Safety
services • Shortage of IT workers
o Quality at the source • Layoffs
• Time-based strategies –focuses on • Labor turnover
reduction of time needed to • Design of the workspace
accomplish task • Incentive plans that reward
productivity

LESSON 3 FORECASTING
FORECASTING
• It is an art and science of
predicting future events.
• Forecasting may involve taking
historical data and projecting
them into the future with some sort
of mathematical model.

PRODUCTIVITY
 • It is a mathematical model 2. Capacity
adjusted by a manager’s good 3. Supply Chain Management
judgment.
• Effective planning in both the short HUMAN RESOURCES
and long run depends on a Hiring, training, and laying off workers all
forecast of demand for the depends on anticipated demand.
company’s products or services. If the human resource department must hire
FEATURES COMMON TO ALL FORECAST AND additional workers without warning, the
ELEMENTS OF A GOOD FORECAST amount of training declines and the quality
• The forecast should be timely. of the workforce suffers.
• The forecast should be accurate and
the degree of accuracy should be CAPACITY
stated. Capacity is inadequate, the resulting
• The forecast should be reliable, it shortages can mean undependable
should work consistently. delivery, loss of customers, and loss of
• The forecast should be expressed in market share.
meaningful units. SUPPY CHAIN MANAGEMENT
Good supplier relations and the ensuring
Organizations use three major types of price advantages for materials and parts
forecast in planning future operations depends on accurate forecasts.
ECONOMIC FORECAST – it addresses the
business cycle by predicting inflation rates, SEVEN STEPS IN THE FORECASTING SYSTEM
money suppliers, housing starts, and other Forecasting follows seven basic steps. We
planning indicators. use Disney World as an example of each
Technological forecasts – These are step:
concerned with rates of technological 1. Determine the use of the forecast:
progress, which can result in the birth of Disney uses park attendance
exciting new products, requiring new plants forecasts to drive staffing, opening
and equipment's. time, ride availability, and food
Demand forecasts – These are projections of suppliers.
demand for a company’s products or 2. Select the item to be forecasted: For
service. These are forecasts , also called Disney World, there are six main parks.
sales forecasts, drive a company’s A forecast of daily attendance at
production, capacity, and scheduling each is the main number that
systems and serve as inputs to financial, determines labor, maintenance, and
marketing, and personnel planning. scheduling.
3. Determine the time horizon of the
THE STRATEGIC IMPORTANCE OF forecast: is it short, medium, or long
FORECASTING term? Disney develops daily, weekly,
• The forecast is the only estimate of monthly, annual, and 5-year forecast.
demand until actual demand 4. Select the forecasting model: Disney
becomes known. uses a variety of statistical models like,
• Forecasts of demand therefore drives including moving averages,
decision in many areas. econometrics, and regression
• analysis. It also employs judgmental,
LET’S LOOK AT THE IMPACT OF PRODUCT or nonquantitative, models.
FORECAST ON THREE ACTIVITIES 5. Gather the data needed to make the
1. Human Resources forecast: Disney’s forecasting team
 employs 35 analysts and 70 field your organization’s activity. It makes
personnel to survey 1 million lagging indicators easy to measure but not
people/businesses every year. It also as easy to improve or influence.
uses the firm called Global Insight for
travel industry forecasts and gathers
data on exchange rates,
arrivals into the U.S., airline specials, ECONOMETRICS
Wall Street trends, and school • Econometrics is the application of
vacation schedules. statistical methods to economic data
6. Make the forecast in order to give empirical content to
7. Validate and implement the result: economic relatinships.
At Disney, forecasts are reviewed
daily at the highest levels to make
sure that the model, assumptions,
and data are valid. Error measures
are applied; then the forecasts are
used to schedule personnel down to
15-minutes intervals.

QUANTITATIVE METHODS
• Quantitative methods of forecasting
exclude expert opinions and utilize
statistical data based on quantitative
information. QUALITATIVE FORECASTING METHODS
• Quantitative forecasting models DELPHI METHOD
include time series methods, • To overcome the limitation of above
discounting, analysis of leading or method, a committee is formed.
lagging indicators, and econometric. • A moderator creates a questionnaire
& distributes to the participants. The
1. Time series analysis accounts for the identity of committee members is
fact that data points taken over time concealed.
may have an internal structure (such • Their responses are summed up.
as autocorrelation, trend or seasonal • A new set of questions is prepared.
variation) that should be accounted STEPS INVOLVED
for. 1. Steps involved Choose experts to
2. Discounting is the process of participate from different areas.
determining the present value of a 2. Their questionnaire or email obtain
payment or a stream of payments forecasts.
that is to be received in the future. 3. Summarize the results. Redistribute
results with another new
ANALYSIS OF LEADING OR LAGGING questionnaire.
INDICATORS 4. Summarizes again- refining forecasts.
Leading indicators measure change. They 5. Carry on 3 to 6 rounds
deal with immediate progress and show the 6. It results in forecasts that most
likelihood that you will achieve your goals participants have ultimately agreed
to in spite of their initial disagreement.
Lagging indicators measure results. This
means they are the direct result or output of EDUCATED GUESS
Judgment based on experience & intuition - Paul Saffo
to estimate a sales forecast (by one person)
Used for short term forecast when cost of LESSON 4: PRODUCT AND SERVICE DESIGN
forecast inaccuracy is low. Such forecasts PRODUCT DESIGN – the process of deciding
have to be made very frequently. on the unique characteristics and features
of the company’s product.
DESIGN AS BUSINESS STRATEGY
SURVEY OF CUSTOMERS TRENDS IN PRODUCT & SERVICE DESIGN
Suitable when a company has few • Customer satisfaction
customers e.g. Automobile/defense o Designing products & services
contractors. Estimates are gathered from that are “user friendly”
customers directly. • Reducing time to introduce/produce
EXECUTIVE COMMITTEE CONSENSUS new product or service
• Forecast made by a committee of • The organization’s capabilities to
knowledge executive from different produce or deliver the right item on
departments. Such forecast are time
compromise forecast not reflecting • Environmental concerns
the extremes. o Designing products that use
• People from a lower level may not less material
speak freely to refute the estimates of MAJOR FACTORS IN DESIGN STRATEGY
people saving above them. • Cost
• SURVEY OF SALES FORCE Used for • Quality
existing product when salespeople • Time-to-market
sell directly to customers & a good • Customer satisfaction
communication system exists in an • Competitive advantage
organization. Product and service design – or redesign –
• Estimates of future regional sales are should be closely ties to an organization’s
obtained from sales people. strategy.
• These are refined by managers &
total sales for all regions is estimated PRODUCT OR SERVICE DESIGN ACTIVITIES
on its behalf. 1. Translate customer wants and needs
MARKET RESEARCH into product and service
Suitable for new products or introduction of requirements.
existing product in new market segments: 2. Refine existing products and services
then mail, questionnaire, surveys, telephone 3. Develop new products services
interviews – hypothesis is tested. 4. Formulate quality goals
HISTORICAL ANALOGY 5. Formulate cost targets
For a new product a generic or existing 6. Construct and test prototypes
product is used as a model. The analogies 7. Document specifications
may be complementary product/ OTHER ISSUES IN PRODUCT AND SERVICE
substitutes. Knowledge of one product sales DESIGN
during various stages of its product life cycle • Product/ service life cycles
is applied to the estimate of sales for a • How much standardization
similar product. • Mass customization
• Product/service reliability
The goal of forecasting is not to predict the • Robust design
future but to tell you what you need to know • Degree of newness
to take meaningful action in the present. • Cultural differences
LIFE CYCLES OF PRODUCTS OR SERVICES GLOBAL PRODUCT AND SERVICE DESIGN
GLOBAL PRODUCT AND SERVICE DESIGN – a
commercial product that is marketed
throughout the world under the same brand
name. McDo, Coca-Cola, Colgate
toothpaste.
GLOBAL PRODUCT DESIGN
• Original Equipment Manufacturer
(OEM) – designs and manufactures a
product based on its own
specifications and sells to another
company for branding and
distribution.
STANDARDIZATION
Consider these prominent OEM
Extent to which there is an absence of
examples:
variety in a product, service or process
o Computer software – a
RELIABILITY
company like Microsoft that
• Reliability: The ability of a product,
sells the operating systems
part, or system to perform its intended
used in computers or other
function under a prescribed set of
digital devices.
conditions
o Electronics – a company that
• Failure: Situation in which a product,
builds the car radios that is
part, or system does not perform as
included in a new vehicle.
intended
• Original Design Manufacturer (ODM)
• Normal operating conditions: The set
– designs and manufactures a
of conditions under which an item’s
product according to purchaser’s
reliability is specified
specifications. Ex. Consumer
IMPROVING RELIABILITY
electronics like phone cases and
• Component design
charges
• Production/assembly techniques
• Original Brand Manufacturers (OBM) –
• Testing
sells an entire products that is
• Redundancy/backup
manufactured by a second
• Preventive maintenance procedures
company under its own brand. Ex.
• User Education
Motorola they manufacture and
• System design
responsible for the entire production
process
ROBUST DESIGN – design that results in
PHASES IN PRODUCT DESIGN AND
products or services that can function over
DEVELOPMENT
a broad range of conditions
CULTURAL DIFFERENCES – multinational
PHASES IN PRODUCT DEVELOPMENT
companies must take into account cultural
PROCESS
differences related to the products design.
1. Idea generation
2. Feasibility analysis (Demand,
cost/profit, capacity)
3. Product specifications (customer
requirement)
4. Process specifications (produce in
economic way)
 5. Prototype development • Psychological Benefits -
6. Design review Market test entertainment
7. Product introduction (promotion) • Physiological Benefits - health Service
8. Follow-up evaluation Standards
IDEA GENERATION SERVICE DESIGN
• Service is an act
• Service delivery system
o Facilities
o Processes
o Skills
• Explicit services
o Core of the service: Hair styling
• Implicit services
o Excitement characteristics:
Courtesy
• Many services are bundled with
products
o Maintenance services
SOURCES OF IDEAS FOR PRODUCTS AND o Concept of selling solutions:
SERVICES Products and Services
Internal E.g. IBM
• Employees
• Marketing department Product and Service Design
• R&D department a. Design as Business Strategy
External b. Global Product and Service Design
• Customers, sometimes misleading c. Phases in Product Design and
• Competitors Development
• Suppliers & Customers d. Designing for Production
e. Service Design
DESIGNING FOR PRODUCTION
DESIGN FOR PRODUCTION (DFP) CHAPTER 5: STRATEGIC CAPACITY
• Design for production (DFP) refers to PLANNING FOR PRODUCT AND SERVICES
methods that evaluate
manufacturing system performance CAPACITY – volume of production an
as a function of product design organization is capable of.
variables. • The upper limit or ceiling on the load
• DFP can advise a product that an operating unit can handle
development team to consider • Capacity also includes: Equipment,
changing the product design to Space, Employee skill
avoid problems or improve • The basic questions in capacity
profitability. handling are:
o What kind of capacity is
SERVICE DESIGN needed?
SERVICE DESIGN o How much is needed?
A process which specifies what the o When it is needed?
customer is to experience:
• Physical Benefits - physiques
• Sensual Benefits - good feeling
DEFINING AND MEASURING CAPACITY • Supply Chain Factors – e.g
• It can be refined into three useful adaptable distributors
definitions of capacity: • External Factors - minimal
1. Design capacity interference with quality and
2. Effective Capacity performance standards
3. Actual Capacity FORECASTING CAPACITY REQUIREMENTS
DESIGN CAPACITY – maximum output rate • Long-term vs. Short-term capacity
or service capacity an operation, process, needs.
or facility is designed for. • Long-term relates to overall level of
EFFECTIVE CAPACITY – design capacity capacity such as facility size, trends,
minus allowances such as personal time, and cycles
maintenance, and scrap. • Short-term relates to variations from
ACTUAL OUTPUT – rate output actually seasonal, random, and irregular
achieved – cannot exceed effective fluctuations in demand
capacity. THE CHALLENGE OF PLANNING SERVICE
CAPACITY
Three important Factors in planning service
Capacity
• The need to be near customers –
convenience for customers is often
an important aspects if services.
Generally, a service must be located
near customers.
• The inability to store service – speed
of delivery, or customers waiting time
become a major concern in a service
capacity planning.
• The degree of volatility – demand
volatility presents problems for
DETERMINANTS OF EFFECTIVE CAPACITY capacity planners. Demand volatility
• Facility Factors – eg. Expansion tend to be higher for services than
potential, strategic location goods, not only in timing of demand,
• Product & Service Factors – eg. but also in amount of time required to
Uniformity within the product the service individual customers.
manufactured or service executed MAKE OR BUY
• Process Factors – eg. Reducing Once capacity requirements have been
inspections, efficient equipment determined, the organization must decide
adjustments whether to produce a good or provide a
• Human Factors – eg. High employee service itself or outsource (buy) from
motivation, low absenteeism, low another organization.
labor turnover
• Policy Factors – eg. Opportunity for FACTORS:
overtime and/or additional shifts AVAILABLE CAPACITY
• If an organization has available
DETEMINANTS OF EFFECTIVE CAPACITY equipment, necessary skills, and time,
• Operational Factors – e.g well- if often makes sense to produce and
stocked inventory, minimal item of perform a service in house.
scheduling delays The additional cost would be
 relatively small compared with those WHAT ARE EXAMPLES OF BOTTLENECKS IN A
required to buy items or subcontract PROCESS?
services. • A shortage of resources or skilled staff
EXPERTISE can cause delays and increased
• If a firm lacks the expertise to do the processing times.
job satisfactory buying might be • Waiting on a third party to complete
reasonable alternative. a particular step in the process.
DEVELOPING CAPACITY STRATEGIES • Frequent equipment breakdown =
There are a number of ways to enhance slowing down the production
development of capacity strategies: process.
1. Design flexibility into systems EVALUATING CAPACITY ALTERNATIVES
• Provision for future expansion • Economic considerations take into
2. Take stage of Life cycle into account account the cost, useful life,
3. Take a “big picture” (i.e. systems) compatibility and revenue for each
approach to capacity changes. alternative.
4. Prepare to deal with capacity • Non-economic considerations
“chunks” include public opinion, reactions
• Capacity increments are not usually from employees and community
smooth pressure.
5. Attempt to smooth our capacity
requirements
• Overtime, subcontract, inventory
control
6. Identify the optimal operating level:
economies of scale