BTMW 4012

TECHNOLOGY
ENTREPRENEURSHIP

Lecture 8 :
Operations Management
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 Introduction
• Operations management can be defined
as the management of resources (inputs),
organizing and designing the
transformation process (production
processes) to produce products and
services (outputs) to achieve objectives of
cost, quality, quantity, time and safety.

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Introduction (cont.)

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 Location Planning
• It is crucial for an entrepreneur to choose the
right location for his business because a good
location can result in higher sales, lower
operating cost and higher profit. In general, the
choice of location will depend on the following
factors:
– Close proximity to customers.
– High number of potential customers and high
population growth.
– Close proximity to raw materials.
– Availability of good infrastructures
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and facilities.
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 Location Planning (cont.)

– Availability of manpower.
– Good visibility and easier accessibility.
– Low crime rate and availability of facilities and
services such as hospitals, schools, banks,
sport facilities, etc.

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 Process Design, Sourcing of Equipment
and Layout Planning
• In a small business employing a traditional production
process, products are made in a small quantity and they are
normally produced to fulfil specific customers’ needs.
• Generally, the tools and machines used are designed to
perform specific isolated tasks to help operators perform
their work.
• Entrepreneurs must choose machines that are suitable with
his production tasks in terms of quality, price, quantity, after-
sales service and maintenance, etc.

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 Process Design, Sourcing of
Equipment and Layout Planning
(cont.)
• The layout planning and the positioning of the
machines must be designed to achieve
efficient process flow, safe operation, effective
and convenient process control.

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Process Design, Sourcing of Equipment
and Layout Planning (cont.)

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Activity chart for manufacturing cookies

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Activity chart for vehicle repairing service

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 Process Chart Symbols
Symbol Type of Activity Description

Operation Activities that modify, transform or give

values to the input.

Transportation Transport activity occurs when materials

are transported from one point to another.

Inspection Activity that measures standard of the in-

process material, finished products or
services.

Delay The symbol is used when in-process

material is restrained in a location waiting
for next activity.

Storage The symbol is used when the in-process

materials or finished products are stored in
the storage area.
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Process flowchart for manufacturing cookies

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Process flowchart for vehicle repairing service

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 Job
activity
chart

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Layout based on product

Dried
bean curd
factory

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Layout based on process

Steel
workshop

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Layout based on marketing

Bookstore

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Production Planning and Capacity
Management

• An entrepreneur must design adequate production

facilities to produce outputs that fulfil sales forecast.
Decisions must be made on the type, quality and number
of machines or equipment and manpower required for
the plan production. Depending on the volume of
production, he may choose to use a fully automatic,
semi-automatic or manual production system.

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 Inventory Management
• Entrepreneurs must manage inventory effectively because:
(a) Adequate inventory helps entrepreneurs to meet
market demand.
(b) Inadequate inventory will cause disruption to
operations and incur missed sales opportunities.
(c) Too much inventory means high inventory costs
and reduce business profit.
• In short, inventory is entrepreneurs’ valuable capital. All capital
must be managed effectively and efficiently.

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 Inventory Management (cont.)
• A business that has too much inventory will increase holding
or storage (carrying) costs and occupy more space; while
too little inventory may cause stock shortage and affect
customer service.
• In a retail business, the general rule of thumb is that
inventory for fast-moving items should be adequately
stocked, while the inventory for slow-moving items should be
few but adequate. The objective of inventory management is
to determine optimum inventory level that is suitable for the
business.

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 Quality Management
• Quality is defined as a measure of how close a product or
service conforms to standards and specifications (Stevenson,
2009).
• Quality is also defined as a product’s fitness for use; its
success in offering features that consumers want (Juran,
1998).
• ISO definition of quality, "The totality of features and
characteristics of a product or service that bear on its ability to
satisfy stated or implied needs".

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 Quality Management (cont.)
Benefits of quality:
• Remain competitive
• Retain market share
• Acquire profitability
• Achieve customer satisfaction and customer loyalty
• Produce high quality products/services
• Reduce operational costs (reduced quality problems,
scraps, yield loss, wastages)

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Quality Management (cont.)

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 Quality Management (cont.)

Cost of Non-quality:
• Entrepreneurs must realize that the cost of non-
quality is very high.
• External costs involve poor reputation, loss of
repeat customers, and rejected or returned
product costs.
• Internal costs involve wasted cost on material
and labour, rework costs and low morale among
workers.

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 Quality Management (cont.)

• An entrepreneur should initially focus on preventive

efforts to eliminate defects and seek the causes of
these defects—defective methods, materials,
manpower, equipment, management procedures
and systems, layout and work place.
• An entrepreneur has to identify these quality defects
and find the causes of these defects, before working
out a suitable solution.

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 Quality Management (cont.)
• The cause-and-effect diagram below, also known as Ishikawa
diagram, can facilitate an exercise of identifying quality problems,
their root causes and possible remedies or solutions.

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 Operational Costs and Product
Costing
• One of the objectives of operations management is to minimize the cost per
unit of production, so that the product can be sold at a competitive price.
• Operational costs include cost of direct materials, direct labour and
overhead.
– Direct materials and labour include the money spent on materials and
labour directly used for the production of the product.
– Overhead costs include other indirect costs such as wages for
administrative, marketing and finance staff; rental, utility, transportation,
maintenance, depreciation of assets (equipment) and interest.

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Operational Costs and Product
Costing (cont.)

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