Lesson Proper:

Operations Management as a Set of Decisions

Decision making, both strategic and tactical, is an essential aspect of a
management activity, including operations management. What sets operations
managers apart, however, are the types of decisions that they make.
Decisions are:
  Strategic Decisions – less structured; have long term consequences
focus on the entire organization.
  Tactical Decisions – more structured; focus on division and
departmental lines.
  Operational Decisions – repetitive and short-term; routine focus
sections, units teams and tasks.
 
Terminologies:

1. Strategic Decisions

- it will affect company’s future direction.

- operations managers help determine the company’s global strategies and
competitive priorities and whether its flow strategy should organize resources
around products/processes (Operations Strategy)

2. Process
            - fundamental to all activity that produce goods/services
- it includes the following:

1.       Process Management – making process decisions about the types of

work to be done in-house, the amount of automation to use, and methods
of improving existing processes.
2.       Management of Technology – technologies to pursue and ways to
provide leadership in technological change.
3.      Workforce Management – ways to structure the organization and
foster team work, the degree of specialization or enhancement of the jobs
created by the processes, and methods of making time estimates for work
requirements. 

3. Quality
 - in a general sense, it is defined as meeting or exceeding the expectations of the
customer.
- operations manager helps establish quality objectives and seek ways to
improve the quality of the firm’s products and services (TQM) through

1.      Customer Satisfaction
2.       Employee Involvement
3.      Continuous Improvement
- use of inspection and statistical methods to monitor the quality produced by the
various processes (Statistical Process Control)
 

4. Capacity, Location, and Layout

- often requires long-term commitments
- operations managers help determine:

1.      System’s Capacity
2.       Location of new facilities, including global operations
3.       Organization of department and a facility’s physical layout

5. Operating Decisions
- it is called operations infrastructure which deal with operating the facility
after it has been built.
 
Operations Manager:

1.      Help coordinate the various parts of the internal and external supply
chain (Supply Chain Management)
2.      Forecast Demand (Forecasting)
3.      Manage Inventory
4.      Control and Staffing Level Overtime (Aggregate Planning)
            They also make decisions about releasing purchase or production orders and
the qualities to be purchased or produced (Materials Requirements Planning), whether
to implement JIT techniques, which customer or jobs to give top priority (Scheduling),
and the use and scheduling of resources in large projects (Managing Projects).
 
 Ten Critical Decisions of Operations Management
 

            Operations manager draws on many skill areas and quantitative analysis to

solve problems:
      Knowledge of information systems to manage vast quantities of data
     Concept of organizational behavior to aid in designing jobs and
managing the workforce
     An understanding of international business methods to gain useful
ideas about facility, location, technology and inventory management  
            Production System is the heart of Operations Management. A primary function
of an operations manager is to guide the system by decision-making.
 
Two Types of Decisions:
1. System Design 
- involves decisions that relate to system capacity, the geographic location of
facilities, arrangement of departments, and placement of equipment within
physical structures, product and service planning, and acquisition of equipment.
- this decision usually, but not always, requires long-term commitments.
- lies in the province of top management.
- this decision essentially determines many of the parameters of system
operation (e.g. costs, space, capacities, and quality)

2. System Operation
- decisions on management of personnel, inventory planning and control,
scheduling, project management and quality assurance.
 
- in most instances, the operations manager is more involved in day-to-day
operating decisions than with decision with system design.
 

Why study operations management (OM)?

  
 OM is one of the three major functions of any organization and it is integrally
related to all the other business functions.
- to study how people organize themselves for productive enterprise
  The production function is the segment of our society that creates the products
we use.
- to know how goods/services are produced
  To understand what operations managers do
- to be able to develop the skills necessary to become such a manager
(help explore the   numerous and lucrative career opportunities in OM)
 It is a costly part of an organization.
- a large percentage of the revenue of most firms is spent in the OM
function
 

       The consumption of goods is an integral part of our society.

       P/O Management is responsible for creating those goods.
Organizations exist primarily to provide service or create goods. Hence,
production is the CORE FUNCTION of an organization. Without this core, there
would be no need for any of the other functions 
 

Trends in Operations Management

 Several business trends are currently having a great impact on operations
management: the growth of the service sector; productivity changes; global
competitiveness; quality, time, and technological change; and environmental, ethical,
and diversity issues. In this section we look at these trends and their implications for
operations managers. 
Business Trends that have an Impact on OM

1. Growth of service sector

2. Productivity changes
3. Global competitiveness
4. Quality, time, and technological change
5. Environmental, ethical, and diversity issues
 

1. Service Sector Growth

Services may be divided into three main groups such as:

1. Government ( local, regional, national)

2. Wholesale and retail sales
3. Other services ( transportation, public utilities, real estate, etc.)
 

2. Productivity – the ratio of outputs ( goods/services) to inputs ( wages, cost of

production, etc.)
                        Productivity = Output
                                               Input
At the national level, productivity typically is measured as the dollar value
of output. This measure depends on the quality of the products and services
generated in a nation and on the efficiency with which they are produced. 
Productivity is the prime determinant of a nation’s standard of living. Conversely,
lagging or declining productivity lowers the standard of living. Wage or price
increases not accompanied by productivity increases lead to inflationary
pressures rather than real increases in the standard of living. 

Measures of Productivity
 1. Single Productivity
            Labor productivity – an index of the output per person or hour worked
  Example:
Three employees processed 600 insurance policies last week. They worked 8 hours per
day, 5 days per week. 
Labor productivity = 600 policies
                        ( 3 employees) (40 hours/employee)
                        = 5 policies/hour

2. Multifactor productivity – an index of the output provided by more than one of the
resources used in production
Example:
A team of workers made 400 units of a product, which is valued by its standard cost of
P10 each. The accounting department reported that for this job the actual costs were
P400 for labor, P1,000 for materials, and P300 for overhead.
Multifactor productivity 
=          (400 units) ( P10/unit)
            P400+ P1,000 + P300
=          P4,000
            P1,700
=          2.35

3. Global Competition
Today businesses accept that, to prosper, they must view customers, suppliers,
facility locations, and competitors in global terms. Most products today are global
composites of materials and services. Strong global competition affects industries
everywhere. In order to prosper, they must view customers, suppliers facility locations,
and competitors in global terms. 

4. Competition based on quality, time, and technology

- Quality = Part of the success of foreign competitors has been their ability to provide
products and services of high quality at reasonable prices.
- Time = Firms compete on the basis of filling orders earlier than the competition,
introducing products and services quickly, and reaching the market first.
- Technological change = affects the design of new products and services and the
production processes.  Technology is important in linking the firms internally and
externally with customers and strategic partners.
      The right choices and effective management of technology can give a
firm a competitive advantage.

5. Environmental, ethical, and Work-force Diversity issues

Firms, to be more ethical in doing business;
- have responsibilities that go beyond producing goods and services at a
profit;
     Help solve important social problems;
     Respond to a broader constituency than shareholders alone;
     Have impacts beyond simple marketplace transactions; and
     Serve a range of human values that go beyond economic value
END of LESSON 2