Chapter 1 - Introduction to

Operations Management

BOD 205 – Effective and Efficient

Operations of Management
SPUM Graduate School
January 18, 2020
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• Jay Mercado has been a leader for more than 28 years already,
having started as a Management Trainee for McDonald’s
Philippines immediately after college. He graduated with a
degree of Bachelor of Science in Hotel and Restaurant
Administration at the University of the Philippines in Diliman,
Quezon City in 2013. He was a student leader, having been
President of the UP Interschool Business Association, Inc., at
that time, the biggest non-political student organization in the
entire university.
• It was when he joined Tokyo Tokyo, Inc. in 1992 that he
became a trainer. He developed and conceptualized modules
and programs as well as authored the company’s Operations
Manual during his first six months with Tokyo Tokyo. He was
with Tokyo Tokyo until 2011, as Vice President for Business
Development. In his 19 years of stay with the company, he
handled the following departments: Business Development,
Systems, Training, Marketing, Operations, Administration,
Franchising, Catering and Selling Operations and Special
• He has worked for various companies in different industries like business
process outsourcing (Branders.com), oil retail (Rephil Station, Inc), and real
estate (Landco Pacific Corp), all in leadership capacities as Vice President,
Director or Department Head.
• Jay is also a graduate school and college professor, having taught business
subjects in the graduate schools and business programs of St. Paul
University in Manila and Quezon City. He also teaches part-time in college
at the Manila Tytana Colleges (formerly Manila Doctors College) in Pasay
City.
• He also writes for FHM.com.ph, and SLAM Magazine as a contributing
writer, focusing on areas of Philippine sports history, particularly with
topics on the Philippine Basketball Association (PBA).
• Apart from graduating at UP, Jay recently graduated with honors as
SUMMA CUM LAUDE at St. Paul University Manila with a post-graduate
degree in Masters in Business Administration, Major in Organization
Development. He now works as Director for Administration at MTC.
 Learning Objectives

n Define OM
n Role of OM in business
n Decisions that operations managers make
n OM differences between service and mfg.
n Major historical developments in OM
n Identify current trends in OM
n Define information flow between OM and
other business functions
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What is Operations Management?

The business function responsible for

planning, coordinating, and
controlling the resources needed to
produce a company’s products and
services

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Management Science
…is the study and development of
techniques for the formulation and
analysis of management and related
business problems. Operations
research models are often helpful in this
process.
Operations Research
…is the application of techniques
developed in mathematics, statistics,
engineering and the physical sciences
to the solution of problems in business,
government, industry, economics and
the social sciences.
Quantitative Methods
…employ mathematical models to reach a wide
variety of business decisions.
n They give modern managers a competitive edge
n Managers do not need to have great mathematical
skills
n Familiarity allows one to:
n Ask the right questions
n Recognize when additional analysis is necessary
n Evaluate potential solutions
n Make informed decisions
Qualitative Methods
…like more traditional methods, however,
qualitative methods come in many
varieties. Different researchers focus on
different sources of data:
n One's own immediate experience
n Others' experiences, which we might seek to
understand through:
n their speech or writing,
n their other behaviors,
n their products - technology, artwork, footprints,
etc.
What is POM?
n Production is the creation of goods
and services
n Production and/or Operations
Management are the activities that
transform resources into goods and
services
Why Study POM?
n It is one of the 3 critical parts of any
organization:
n Marketing – generates demand
n Operations – creates the product
n Finance/accounting – tracks organizational
performance, pays bills, collects money
n It shows us how goods and services are
produced
n It shows us what POM managers do
n It is the most costly part of any organization
Cost as a Percentage of Sales
Meat Furniture Restaurant Heavy

Packing Manufacturing Equipment

POM
Materials 79% 40% 38% 42%
Labor 8 15 20 12
Fringes 3 22 16 23
Total 90 77 74 77

Other 9 15 22 20
Int., Taxes,
Profits, etc. 1 8 4 3
Jobs in the Philippines
Education, Health, etc.
6% 5% 5%
6% 3% Manufacturing
1%
Retail Trade

State & Local Gov't

14%
Finance, Insurance
26%
aaaaaaaa
Wholesale Trade

Transport, Public Util.

16% Construction

Government
18%
Mining
Jobs in POM
n Less than 20% of all jobs are in
manufacturing (and they are declining)
n Almost 80% of jobs are in the service
sector (and they are increasing)
n Nearly half of all jobs are in POM
n Most POM jobs are professional and/or
managerial
Typical Organization Chart

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OM’s Transformation Role

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Why OM?
n “In business today, the emphasis is not so
much on what you make, but on how you
do business. Dell makes computers just like
every other PC manufacturer.”
n The resurgence of American business in the
1990’s capitalized on improved operations.

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Differences between Manufacturers
and Service Organizations

n Services: n Manufacturers:
n Intangible product n Tangible product
n Product cannot be n Product can be
inventoried inventoried
n High customer contact n Low customer contact
n Short response time n Longer response time
n Labor intensive n Capital intensive

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Similarities-Service/Manufacturers
n All use technology
n Both have quality, productivity, & response
issues
n All must forecast demand
n Each will have capacity, layout, and location
issues
n All have customers and suppliers
n All have scheduling and staffing issues

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Goods vs. Services
 Characteristics of Goods
l Tangible product
l Consistent product
definition
l Production usually
separate from
consumption
l Can be inventoried
l Low customer
interaction © 1995 Corel Corp.
 Characteristics of Services
l Intangible product
l Produced & consumed at
same time
l Often unique
l High customer interaction
l Inconsistent product
definition
l Often knowledge-based
l Frequently dispersed
© 1995 Corel Corp.
n
Goods vs.
Goods
Services
Service
n Can be resold l Reselling unusual
n Can be l Difficult
to
inventoried inventory
n Some aspects of l Quality difficult to
quality measure
measurable
n Selling is distinct l Selling is part of
from production service
 Goods vs. Services -
Continued
n Goods Service
n Product is l Provider, not product
transportable is transportable
n Site of facility l Site of facility
important for cost important for
customer contact
n Often easy to l Often difficult to
automate automate
n Revenue generated l Revenue generated
primarily from primarily from
tangible product intangible service
Goods Contain Services / Services
Contain Goods
Automobile
Computer
Installed Carpeting
Fast-food Meal
Restaurant Meal
Auto Repair
Hospital Care
Advertising Agency
Investment Management
Consulting Service
Counseling

100 75 50 25 0 25 50 75 100
Percent of Product that is a Good Percent of Product that is a Service
Trends in OM
n Service sector growing
to 80% of non-farm
jobs
n Global competitiveness
n Demands for higher
quality
n Huge technology
changes
n Time based competition
n Work force diversity
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Philippine Current Trends
n Philippines is becoming more of a
knowledge intensive service economy
n Globalization
n Total Quality Control
n Need for flexibility and innovation
OM Decisions

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 Historical Development of OM
n Industrial revolution Late 1700s
n Scientific management Early 1900’s
n Human relations movement 1930s to 1960s
n Management science Mid-1900s
n Computer age 1970s
n Just-in-Time Systems (JIT) 1980s
n Total quality management (TQM) 1980’s
n Reengineering 1990s
n Flexibility 1990s
n Time-Based Competition 1990s
n Supply chain Management 1990’s
n Global Competition 1990s
n Environmental Issues 1990s
n Electronic Commerce Late 1990s

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Significant Events in POM
n Division of labor (Adam Smith, The Wealth of
Nations, 1776)
n Industrial Revolution
n Standardization of parts (Eli Whitney, 1765 –
1825)
Significant Events in POM
(cont.)
n Scientific management (Frederick
Taylor 1865 - 1915)
n The Principles of Scientific Management,
1911
n Match employees to jobs
n Provide the proper training
n Provide the proper methods and tools
n Establish legitimate incentives
Significant Events in POM
(cont.)
n Taylor’s 4 Principles of Scientific
Management:
n Replace rule-of-thumb work methods with methods based
on a scientific study of the tasks
n Scientifically select, train, and develop each worker rather
than passively leaving them to train themselves
n Cooperate with the workers to ensure that the
scientifically developed methods are being followed
n Divide work nearly equally between managers and
workers, so that the managers apply scientific
management principles to planning the work and the
workers actually perform the tasks
Significant Events in POM
(cont.)
n Coordinated assembly line (Henry Ford 1863 -
1947)
n Gantt charts (Henry Gantt 1861-1919)
n Motion studies (Frank and Lillian Gilbreth,
1922)
n Quality control (Shewhart, Juran,
Feigenbaum, Deming, Taguchi, etc.)
n CAD
n Flexible manufacturing systems (FMS)
n Computer integrated manufacturing (CIM)
Today’s OM Environment
n Customers demand better quality,
faster deliveries, and lower costs
n Increased cross-functional decision
making
n Recognized need to better manage
information using ERP and CRM
systems

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Business Information Flow

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New Challenges in Operations
Management
Changing Challenges for the
Operations Manager
Past Future Effects
Local or Global Focus Low-cost, reliable
national worldwide communication
focus and transportation
networks
Batch (large) Just-in-time Cost of capital puts
shipments shipments pressure on reducing
investment in inventory
Low-bid Supply-chain Quality emphasis requires
purchasing partners that suppliers be engaged
in product improvement
Lengthy Rapid product Shorter life cycles, rapid
product development, international
development alliances, communication, computer-
collaborative aided design, and
designs international collaboration
 Changing Challenges for the
Operations Manager
Past Causes Future
Standardized Affluence and worldwide markets; Mass
products increasingly flexible production customization
processes
Job Changing sociocultural milieu. Empowered
specialization Increasingly a knowledge and employees,
information society. teams, and lean
production
Low cost Environmental issues, ISO 14000, Environmentally
focus increasing disposal costs sensitive
production,
Green
manufacturing,
recycled
materials,
remanufacturing
The Productivity Challenge
 The Economic System
Transforms Inputs to Outputs
Inputs Process Outputs
Land, Labor, The economic system Goods and
Capital, transforms inputs to outputs Services
Management

Feedback loop
 Productivity
l Measure of process improvement
l Represents output relative to input
Productivity n Units produced
n n=
nInput used

l Onlythrough productivity increases can

our standard of living improve
Adam Smith on Productivity
…He asserted that ten workers could
produce 48,000 pins per day if each of
eighteen specialized tasks was assigned
to particular workers. Average
productivity: 4,800 pins per worker per
day. But absent the division of labor, a
worker would be lucky to produce even
one pin per day.
Henry Ford on Productivity
…In 1907, Henry Ford announced his goal for the
Ford Motor Company: to create "a motor car for
the great multitude." At that time, automobiles
were expensive, custom-made machines.
Ford realized he'd need a more efficient way to
produce the Model T in order to lower the price.
He and his team looked at other industries and
found four principles that would further their
goal:
n Interchangeable parts
n Continuous flow
n Division of labor
n Reducing wasted effort
Ford Model T
Frank Gilbreth on Productivity
…improved a five-thousand-year-old job
and had enabled bricklayers to lay brick
faster with less effort and fatigue. On
one particularly difficult type of wall,
where the previous record had been
120 bricks per hour, his methods
allowed them to lay 350 bricks, an
increase in productivity of over 190%.
Walter Shewhart on
Productivity
…the original notions of Total Quality
Management and continuous improvement
trace back to a former Bell Telephone
employee named Walter Shewhart. One of
W. Edwards Deming's teachers, he preached
the importance of adapting management
processes to create profitable situations for
both businesses and consumers, promoting
the utilization of his own creation.
Impact of Quality Improvement
Productivity improved Costs were pared Wages increased

Parts per man hour Cost per unit decreased Average worker's annual cash
compensation increased
$2.25
115

110 $2.00 27000

105 26000
$1.75
100 25000

95 $1.50 24000
Year A Year B Year C Year A Year B Year C Year A Year B Year C
Measurement Problems
n Quality may change while the quantity
of inputs and outputs remains constant
n External elements may cause an
increase or decrease in productivity
n Precise units of measure may be lacking
Productivity Increase
n Labor - contributes about 10% of the
annual increase
n Capital - contributes about 32% of the
annual increase
n Management - contributes about 52%
of the annual increase
Key Variables for Improved
Labor Productivity
n Basic education appropriate for the
labor force
n Maintaining and enhancing skills in the
midst of rapidly changing technology
and knowledge
Service Productivity
n Typically labor intensive
n Frequently individually processed
n Often an intellectual task performed by
professionals
n Often difficult to mechanize
n Often difficult to evaluate for quality
Course Requirements
n Assignment on Reports (02/01/20)
(reports should be in MS Word but reporting in MS PPT)
1. Forecasting / Forecasting Models
2. Service/ Product Design
3. Quality Management
4. Process, Capacity Design
5. Location Strategy
6. Layout Strategy

© Wiley 2005 52
Course Requirements
n Assignment on Reports (02/08/20)
(reports should be in MS Word but reporting in MS PPT)
1. Human Resources & Job Design
2. Supply Chain Management
3. Distribution / Distribution Models
4. Inventory Management, Just-In-Time,
Material Requirement Planning
5. Scheduling
6. Maintenance
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Course Requirements
1. Prepared in MS Word format
a) Assignment 1: Application on 1-6
(submission on 2/1/20)
b) Assignment 2: Application on 7—12
(submission on 2/08/20)
c) Critic: Responsible Supply Chain Walmart
(submission on 2/08/20)
https://www.youtube.com/watch?v=yZC4neLax5o

© Wiley 2005 54
Course Requirements
2. Precis (to be submitted on 2/08/20)

Operations Management – Emirates

https://www.youtube.com/watch?v=IxMXU-S5Bzc&fbclid=IwAR1t0m-
2kuaHYaEKUFRiIgiR71OgJ9gSuUXOgPVTGP8hltFHOYGGoL6UZo8

Supply Chain Management (identify and understand

common and unique supply chain practices)
1) Nike https://www.youtube.com/watch?v=yZC4neLax5o
2) Ikea https://www.youtube.com/watch?v=yZC4neLax5o
3) Apple https://www.youtube.com/watch?v=yZC4neLax5o

© Wiley 2005 55
Course Requirements
3. Course Integration
(submit writeup, prepare PPT and be ready for individual reporting on
2/15/20)

Pick one case: (to be emailed)

a) Ford Global
b) McDonald’s India

© Wiley 2005 56
Course Requirements
n Course Integration Case Study Format
n Abstract
n Background / History
n Opportunity Identification
n PESTEL / SWOT / Market Analysis / 7P’s / Problem
Statement
n Areas of Consideration
n Courses of Action
n Conclusion
n Recommendation
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 Course Requirements
BONUS:
n Do both cases and submit on 2/15/20 via
email at jaypmercado@yahoo.com

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