An Overview of

Operations Management
Manuel C. Manuel III

University of the Philippines

Operations include all those activities

required to create and deliver a product
or service, from procurement through
conversion to distribution.
Operations management is the
management of these activities and the
organizations productive resources.

Manuel C. Manuel III ... University of

the Philippines

An operations strategy is a set of goals,

policies, and approaches that together
describe how the organization proposes to
direct and develop all the resources
invested in operations so as to best fulfill,
and possibly redefine, its vision and
mission.

Operations strategy
Manuel C. Manuel III ... University of
the Philippines

STRATEGIC PLANNING FRAMEWORK

VISION
MISSION
Management Policy
SWOT Analysis

GOAL

Strategy

Guiding Principle

GOAL

GOAL

Strategy

Strategy

Project:
Specific
Action/
Activity

Project:
Specific
Action/
Activity

Project:
Specific
Action/
Activity

Manuel C. Manuel III ... University of

the Philippines

In the case of a business organization,

this mission usually is expressed in terms
of survival, profitability, and growth, and
is pursued by trying to differentiate itself
from its competitors in some desirable
way.
A companys operations strategy ,
therefore, has to begin by specifying how
it proposes to support that chosen form of
competitive differentiation.

Operations strategy
Manuel C. Manuel III ... University of
the Philippines

The performance of a firm is influenced by

a combination of internal and external
factors.
These factors can be characterized as the
firms internal strengths and weaknesses
and its opportunities and threats.
Systematically analyzing these factors as
an aid in strategic planning and decisionmaking represents a form of situational
analysis known commonly by the acronym
SWOT.

SWOT
Manuel C. Manuel III ... University of
the Philippines

A companys strengths are its resources

and capabilities that can be used as bases
for developing competitive advantage.

Strengths
Manuel C. Manuel III ... University of
the Philippines

Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know
how
Exclusive access to high grade natural
resources
Favorable access to distribution networks

Strengths: examples
Manuel C. Manuel III ... University of
the Philippines

The absence of certain strengths may be

viewed as a weakness.

Weaknesses
Manuel C. Manuel III ... University of
the Philippines

Lack of intellectual property protection

Weak brands
Poor reputation among customers
High cost structure
Lack of access to quality raw materials
Lack of access to key distribution
channels

Weaknesses: examples
Manuel C. Manuel III ... University of
the Philippines

10

In some cases, a weakness may be the

flip side of a strength.
For example, take the case of a company
that has a large amount of production
capacity.

Weaknesses
Manuel C. Manuel III ... University of
the Philippines

11

The external environment analysis may

reveal certain opportunities for profit and
growth.

Opportunities
Manuel C. Manuel III ... University of
the Philippines

12

Unfulfilled customer needs

Arrival of new technologies
Loosening of government regulations
Removal of internal trade barriers

Opportunities: examples
Manuel C. Manuel III ... University of
the Philippines

13

Changes in the external environment may

also present threats to the firm.

Threats
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the Philippines

14

Shifts in consumer tastes away from the

companys products and services
Emergence of substitute products
New regulations
Increased trade barriers

Threats: examples
Manuel C. Manuel III ... University of
the Philippines

15

A scan of the internal and external

environment is an important part of the
strategic planning process.
The SWOT analysis provides information
that is helpful in matching the firms
resources and capabilities to the
competitive environment in which it
operates.
As such, it is instrumental in strategy
formulation and selection.

Importance of SWOT analysis

Manuel C. Manuel III ... University of
the Philippines

16

SWOT MATRIX
INTERNAL ASPECTS

EXTERNAL ASPECTS

Strengths (S)

Weaknesses (W)

List major company

strengths
(e.g. quality products)

List major company

weaknesses
(e.g. poor distribution)

Opportunities (O)

SOmajor
strategies
List
company pursue opportunities
SO strategies
opportunities
that
are a good fit to the
(e.g.
new
markets)
companys
strengths.

WO strategies

Threats (T)
List major company
threats
(e.g. competition

ST strategies

WT strategies

Manuel C. Manuel III ... University of

the Philippines

17

SWOT MATRIX
INTERNAL ASPECTS

EXTERNAL ASPECTS

Opportunities (O)

List major company

opportunities
(e.g. new markets)

Strengths (S)

Weaknesses (W)

List major company

strengths
(e.g. quality products)

List major company

weaknesses
(e.g. poor distribution)

WO strategies overcome
SO strategies weaknessesWO
tostrategies
pursue
opportunities.

Threats (T)
List major company
threats
(e.g. competition

ST strategies

WT strategies

Manuel C. Manuel III ... University of

the Philippines

18

SWOT MATRIX
INTERNAL ASPECTS
Strengths (S)

Weaknesses (W)

List major company

strengths
(e.g. quality products)

List major company

weaknesses
(e.g. poor distribution)

SO strategies

WO strategies

EXTERNAL ASPECTS

Opportunities (O)
List major company
opportunities
(e.g. new markets)

ST strategies
Threats
(T)

identify ways that

allow the company to use its
List major company
ST strategies
strengths
to
reduce
its
threats
to external threats.
(e.g.vulnerability
competition

WT strategies

Manuel C. Manuel III ... University of

the Philippines

19

SWOT MATRIX
INTERNAL ASPECTS
Strengths (S)

Weaknesses (W)

List major company

strengths
(e.g. quality products)

List major company

weaknesses
(e.g. poor distribution)

SO strategies

WO strategies

EXTERNAL ASPECTS

Opportunities (O)
List major company
opportunities
(e.g. new markets)

Threats (T)
List major company
threats
(e.g. competition

ST strategies

WT strategies establish a
defensive plan to prevent the
companys
weaknesses from
WT strategies
making it highly susceptible
to external threats.
Manuel C. Manuel III ... University of
the Philippines

20

The goal business strategy is to achieve a

sustainable competitive advantage.
Michael Porter identified two basic types
of competitive advantage:

Cost advantage
Differentiation advantage

The goal of business strategy

Manuel C. Manuel III ... University of
the Philippines

21

A competitive advantage exists when the

company is able to deliver the same
benefits as competitors but at a lower
cost (cost advantage), or deliver benefits
that exceed those of competing products
(differentiation advantage).
Thus, a competitive advantage enables
the company to create superior value for
its customers and superior profits for
itself.

Competitive advantage
Manuel C. Manuel III ... University of
the Philippines

22

The Concept of Competitive Advantage

Resources are the firm-specific

Resources

Distinctive
Competencies

assets useful for creating a cost or

differentiation advantage, which
few competitors can acquire easily.
COST ADVANTAGE
OR
DIFFERENTIATION
ADVANTAGE

Value
Creation

Capabilities

Manuel C. Manuel III ... University of

the Philippines

23

The Concept of Competitive Advantage

Resources

Distinctive
Competencies

Capabilities

COST ADVANTAGE
OR
DIFFERENTIATION
ADVANTAGE

Value
Creation

Capabilities refer to the firms

ability to utilize its resources
effectively.

Manuel C. Manuel III ... University of

the Philippines

24

The Concept of Competitive Advantage

Resources

Distinctive
Competencies

The firms resources and

COST ADVANTAGE
capabilities together
form its
OR
DIFFERENTIATION
distinctive
or core
ADVANTAGE
competencies.

Value
Creation

Capabilities

Manuel C. Manuel III ... University of

the Philippines

25

The Concept of Competitive Advantage

Resources

Distinctive
Competencies

Capabilities

COST ADVANTAGE
OR
DIFFERENTIATION
ADVANTAGE

Value
Creation

These competencies enable

innovation, efficiency, quality, and
customer responsiveness, all of
which can be leveraged to create a

cost advantage or a differentiation

advantage.

Manuel C. Manuel III ... University of

the Philippines

26

The Concept of Competitive Advantage

Resources

Distinctive
Competencies

Capabilities

COST ADVANTAGE
OR
DIFFERENTIATION
ADVANTAGE

Value
Creation

The firm creates value by

performing a series of activities
that Porter identified as the value
chain.

Manuel C. Manuel III ... University of

the Philippines

27

PORTERS GENERIC VALUE CHAIN MODEL

Primary Activities
Inbound
Logistics

Production

Outbound
Logistics

Marketing &
Sales

Service
MARGIN

Firm Infrastructure
HR Management
Technology Development

Support
Activities

Procurement

Manuel C. Manuel III ... University of

the Philippines

28

Inbound logistics: receiving and

warehousing of raw materials and their
distribution
Production: transforming inputs into finished
products and services
Outbound logistics: warehousing and
distribution of finished goods
Marketing & sales: identification of customer
needs and generation of sales
Service: support of customers after the
products and services are sold to them

Primary value chain activities

Manuel C. Manuel III ... University of
the Philippines

29

Infrastructure: company structure, control

systems, and culture
Human resource management: manpower
recruitment, training, development, and
compensation
Technology development: technologies to
support value-creating activities
Procurement: acquisition of inputs such as
materials, supplies, and equipment

Support activities
Manuel C. Manuel III ... University of
the Philippines

30

The resulting profit margins depend on the

effectiveness of performing both primary
and support activities, so that the amount
the customers are willing to pay for the
firms products and services exceed the
cost of the activities in the value chain.
Competitive advantage can be achieved by
configuring the value chain to provide
lower cost or better differentiation.

The value chain & profits

Manuel C. Manuel III ... University of
the Philippines

31

Cost: Make it cheap

Quality: Make it good
Delivery speed: Make it fast
Delivery reliability: Deliver it when
promised
Flexibility: Change the volume
Innovativeness: Change it

Operations competitive
dimensions
Manuel C. Manuel III ... University of
the Philippines

32

By helping weld together the resources

invested in the operations function into a
cohesive, goal-oriented whole, such a
strategy can enable operations to become
a powerful source of competitive
advantage.

Operations strategy &

competitive advantage
Manuel C. Manuel III ... University of
the Philippines

33

Corporate strategy
Strategic business unit (SBU) strategy
Functional strategy

Three levels of strategy

Manuel C. Manuel III ... University of
the Philippines

34

Encompasses decisions regarding

industries and markets in which the firm
participates, how it structures itself in
order to attack those markets, and how it
acquires and allocates key corporate
resources to various activities and
business groups.

Corporate strategy
Manuel C. Manuel III ... University of
the Philippines

35

SBUs may be subsidiaries, divisions, or

product lines.
Each SBU is expected to have its own
business strategy which specifies the
scope of that business and its relationship
to the corporation as a whole.

SBU strategy
Manuel C. Manuel III ... University of
the Philippines

36

Functional strategies, which include

operations strategy, support the type of
competitive advantage being pursued by
the firm and its SBUs.
In other words, they back up and
reinforce the corporate and SBU
strategies.
Functional strategies must also be
consistent and congruent with each
other

Functional strategy
Manuel C. Manuel III ... University of
the Philippines

37

Different companies and business units

have different strengths and weaknesses
and so may choose to compete or
differentiate themselves from competitors
in different ways, requiring them to adopt
different standards of success.

A contingency theory of
operations strategy: fit &
focus
Manuel C. Manuel III ... University of
the Philippines

38

Different ways of configuring, equipping,

and managing an operations function
result in different operating
characteristics, making it easier or harder
for a company to achieve a given form of
differentiation.

A contingency theory of
operations strategy: fit &
focus
Manuel C. Manuel III ... University of
the Philippines

39

Therefore, rather than adopting a one

best way or even an industry-standard
approach, the task for an operations
organization is to seek congruence (fit)
between its business units chosen
approach to competition and the way the
operations function is designed,
organized, and managed.

A contingency theory of
operations strategy: fit &
focus
Manuel C. Manuel III ... University of
the Philippines

40

Operations strategy framework

Corporate Vision
Customer needs
New products

Current products

Competitive dimensions &

requirements

New product
development

Cost

Quality

Speed

Reliability

Flexibility

Order fulfillment
after sales service

Innovativeness

Operations strategy decisions

Structural decisions: Capacity, Sourcing, Facilities,
Information & Process technology

Infrastructural policies & systems: Resource Allocation,

Human Resource Systems, Planning & Control, Quality
Systems, Measurement & Reward Systems, Product &
Process Development, Organization

41

Strategic decisions
Tactical decisions

Management decisions within the

operations function
Manuel C. Manuel III ... University of
the Philippines

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Operations Activity: Capacity Planning

Tactical: Day to day scheduling
Strategic: Capacity expansion

Tactical versus strategic

Manuel C. Manuel III ... University of
the Philippines

43

Operations Activity: Quality

Management
Tactical: Use of statistical process
control (SPC) charts
Strategic: Implementation of a TQM
program

Tactical versus strategic

Manuel C. Manuel III ... University of
the Philippines

44

Operations Activity: Process

Management
Tactical: Regular maintenance of
equipment
Strategic: Investment in a new process
technology or system to increase speed
and flexibility

Tactical versus strategic

Manuel C. Manuel III ... University of
the Philippines

45

Operations Activity: Inventory

Management
Tactical: Regular ordering and
purchasing of materials
Strategic: Entering into a long-term
relationship with suppliers

Tactical versus strategic

Manuel C. Manuel III ... University of

the Philippines

46

Building operations
competitive dimensions
PRODUCTION
LEVERS

PRODUCTION

PRODUCTION

CAPABILITY

OUTPUTS
Operations competitive
dimensions

PRODUCTION
SYSTEM

Manuel C. Manuel III ... University of

the Philippines

47

Cost
Quality
Delivery speed
Delivery reliability
Flexibility
Innovativeness

Production outputs
Manuel C. Manuel III ... University of
the Philippines

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Building operations
competitive dimensions
PRODUCTION
LEVERS

PRODUCTION

PRODUCTION

CAPABILITY

OUTPUTS
Operations competitive
dimensions

PRODUCTION
SYSTEM

Manuel C. Manuel III ... University of

the Philippines

49

Human Resources
Organization Structure & Controls
Sourcing
Production Planning & Control
Process Technology
Facilities

Production levers
Manuel C. Manuel III ... University of
the Philippines

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The production subsystems are called

levers to reflect the fact that each of
them can be adjusted.
Adjustments, which are usually made in
response to changes in the external
environment, are of many types.

Why levers?
Manuel C. Manuel III ... University of
the Philippines

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The skill level, wages, training and

promotion policies, employment security,
and so on, for all groups of employees.

Human resources
Manuel C. Manuel III ... University of
the Philippines

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The formal relationships between groups

(line and staff) in the production system.
How are decisions made? What is the
underlying culture? What systems are
used to measure performance and provide
incentives?

Organization structure & controls

Manuel C. Manuel III ... University of
the Philippines

53

The amount of vertical integration. How

does the production system manage those
parts of the production and distribution
system that it does not own? What is its
relationship with suppliers?

Sourcing
Manuel C. Manuel III ... University of
the Philippines

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The rules and systems that plan and

control the flow of materials, the activities
of line personnel, the production support
operations,and the introduction of new
products.

Production planning & control

Manuel C. Manuel III ... University of
the Philippines

55

The nature of the production processes,

the types of equipment, the amount of
automation, and the linkages between the
parts of the production process.

Process technology
Manuel C. Manuel III ... University of
the Philippines

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The location, size, and focus of individual

plants. The types and timing of changes
to these plants.

Facilities
Manuel C. Manuel III ... University of
the Philippines

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Building operations
competitive dimensions
PRODUCTION
LEVERS

PRODUCTION

PRODUCTION

CAPABILITY

OUTPUTS
Operations competitive
dimensions

PRODUCTION
SYSTEM

Manuel C. Manuel III ... University of

the Philippines

58

Job shop
Batch flow
Operator-paced line flow
Equipment-paced line flow
Continuous flow

Traditional production systems

Manuel C. Manuel III ... University of
the Philippines

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Building operations
competitive dimensions
PRODUCTION
LEVERS

PRODUCTION

PRODUCTION

CAPABILITY

OUTPUTS
Operations competitive
dimensions

PRODUCTION
SYSTEM

Manuel C. Manuel III ... University of

the Philippines

60

The production system makes little

contribution to the organizations success.
Production is low tech and unskilled.

Production capability level 1:

infant
Manuel C. Manuel III ... University of
the Philippines

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Production is satisfied to keep up with its

competitors and maintain the status quo.
Production consists of standard, routine
activities.

Production capability level 2:

average
Manuel C. Manuel III ... University of
the Philippines

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The production system provides market

qualifying and order winning outputs at
target levels.
All production decisions are consistent
with the production/operations strategy.

Production capability level 3: adult

Manuel C. Manuel III ... University of
the Philippines

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The production system strives to be the

best in the world in all activities in all
production levers.
The production system is a major source
of competitive advantage.

Production capability level 4:

world class
Manuel C. Manuel III ... University of
the Philippines

64

Thank you!

Manuel C. Manuel III ... University of

the Philippines

65