College of Business Administration and Accountancy

Alabang–Zapote Road, Pamplona 3, Las Piñas City, 1740

SUBJECT: OPERATIONS MANAGEMENT

TOPIC/S: INTRODUCTION TO OPERATIONS MANAGEMENT
NO. OF HOURS: 3 HOURS
REFERENCE: Operations Management 7th ed., Nigel Slack, et. al.

LECTURE NOTES

Operations Management – it is the management of resources that create and deliver services and products.
Although every organization has an operations function, not all types of organization will call the operations
function by this name.

• The operations function is central to the organization because it creates and delivers services and products,
which is its reason for existing.
• Three core function of an organization:
o Marketing Function – this function is responsible for communicating the organization’s services
and products to its markets in order to generate customer requests. This function also includes the
sales.
o Finance Function – this function is responsible for securing financial resources at favorable prices
and allocating those resources throughout the organization, as well as budgeting, analyzing
investment proposals, and providing funds for operations.
o Operations Function – this function is responsible for the creation and delivery of services and
products based on customer requests.
• There are other support functions which enable the core functions to operate effectively such as the
technical function, human resource function, and the information systems function.
• In practice, there is not always a clear division between the three core functions or between core and
support functions. Usually, the product development, technical and information systems, human resources,
marketing, and accounting and finance falls under operations management.
• When talking about operations, it is understandable that activities that are necessary for the day-to-day
fulfilment of customer requests are within the sphere of operations.

THE IMPORTANCE OF OPERATIONS MANAGEMENT

• It is the core of most business organizations;

• It is responsible for the creation of an organization’s goods and services.

• VALUE-ADDED - term used to describe the difference between the cost of inputs and the value or price of outputs.
• In non-profit organizations, the value of outputs is their value to society; the greater the value added, the greater
the effectiveness. For for-profit organizations, the value of outputs is measured by the prices that customers are
willing to pay for these goods or services.

• FINANCE – this function comprises activities related to securing resources at favorable prices and allocating those
resources throughout the organization.
• FINANCE AND OPERATIONS MANAGEMENT PERSONNEL ACTIVITIES:
o BUDGETING – periodically prepared to plan financial requirements. It is sometimes adjusted, and
performance relative to a budget must be evaluated.
o ECONOMIC ANALYSIS OF INVESTMENT PROPOSALS – this requires inputs from both operations and
finance people.
o PROVISION OF FUNDS – can be important and critical when funds are tight. Careful planning can help
avoid cash-flow problems.

• MARKETING – consists of selling and/or promoting the goods or services of an organization. It is also responsible
for assessing customer wants and needs, and for communicating those to operations people (short-term) and
design people (long-term)

• LEAD TIME - important information needed by marketing from operations. It is the time necessary to deliver an
order or perform a service. It gives the customer realistic estimates of how long it will take to fill their orders.

• The three (Finance, Marketing and Production/Operation) must interface on product and process design,
forecasting, setting realistic schedules, quality and quantity decisions, and keeping each other informed on the
other’s strengths and weaknesses.

Production /
Operations

Marketing Finance

• OTHER FUNCTIONS:
o Accounting – has responsibility for preparing the financial statements, including the income statement
and balance sheet.
o Purchasing – has responsibility for procurement of materials, supplies, and equipment. Always called on
to evaluate vendors for quality, reliability, service, price, and ability to adjust to changing demand.
o Personnel Department – concerned with recruitment and training of personnel, labor relations, contract
negotiations, wage and salary administration, assisting in manpower projections and ensuring the health
and safety of employees.
o Public relations – has responsibility for building and maintaining a positive public image of the
organization.
o Industrial Engineering – often concerned with scheduling, performance standards, work methods, quality
control, and material handling. This function is typically found in manufacturing plants of medium and
large firms.
o Distribution – involves shipping of goods to warehouses, retail outlets, or final customers.
 o Maintenance – responsible for general upkeep and repair equipment, buildings and grounds, heating and
air-conditioning; removing toxic wastes; parking; and perhaps security.

• The primary function of an operations manager is to guide the system by decision making.

• 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.

• SYSTEM OPERATION – involves management of personnel, inventory planning and control, scheduling, project
management, and quality assurance.

• DIFFERENTIATING FEATURES OF PRODUCTION SYSTEMS

o Degree of Standardization
▪ Standardized output – there is a degree of uniformity in goods or services. These include radios,
televisions, computers, newspapers, etc.
▪ Customized output – product or service is designed for a specific case or individual.
o Type of Operation
▪ Project- a set of activities directed toward a unique goal. A project approach would be used in
the development of a new product, installation of a computerized production line, transfer of
equipment to a new facility, and construction of a hospital. The key feature of all of these
projects is their limited time frame.
▪ Job Shop – it is where small quantities or customized products are produced. It performs to
customer specifications; jobs tend to vary according to the needs of customers.
▪ Batch Processing – used when companies need to produce moderate volumes of similar products.
▪ Continuous processing – employed when a highly uniform product or service is produced or
rendered.

• Manufacturing and service are often similar in terms of what is done but different in terms of how it is done.

• MANUFACTURING OPERATIONS VERSUS SERVICE OPERATIONS

o Customer contact
o Uniformity of input
o Labor content of jobs
o Uniformity of output
o Measurement of productivity
o Quality assurance

• THE OPERATIONS MANAGER AND THE MANAGEMENT PROCESS

o The operations manager is the key figure in the system: he or she has the ultimate responsibility for the
creation of goods and services.

THE SCOPE OF OPERATIONS MANAGEMENT

• Activities under operations management:
 o Forecasting
o Capacity planning
o Locating facilities
o Facilities and layout
o Scheduling
o Inventory management
o Quality assurance
o Motivation and training
• System design – it 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. These decisions usually, but not always, require long-term
commitments. Moreover, they are typically strategic decisions.
• System operation - involves management of personnel, inventory planning and control, scheduling,
project management, and quality assurance.
• Other support functions:
o Purchasing – responsible for procurement of materials, supplies, and equipment.
o Industrial engineering - often concerned with scheduling, performance standards, work methods,
quality control, and material handling.
o Distribution - involves the shipping of goods to warehouses, retail outlets, or final customers.
o Maintenance - responsible for general upkeep and repair of equipment, buildings and grounds,
heating and air-conditioning; removing toxic wastes; parking; and perhaps security.

OPERATIONS MANAGERS AND DECISION MAKING

o Use of Models
▪ MODEL – it presents a simplified version of something.
• Physical model – look like their real-life counterparts.
• Schematic model – more abstract than their physical counterparts; they have less
resemblance to the physical reality.
• Mathematical model – most abstract; they do not look at all like their real-life
counterparts.

• The goal of modeling is to develop a model that adequately portrays some real-life
phenomenon.

o Advantages of Models:
▪ Generally easy to use and less expensive than dealing directly with the actual situation.
▪ Require users to organize and sometimes quantify information and often indicate areas where
additional information is needed.
▪ Provided a systematic approach to problem solving.
▪ Increase understanding of the problem.
▪ Enable managers to analyze the “what if?” questions.
▪ Require users to be very specific about objectives.
▪ Serve as a consistent tool for evaluation.
▪ Enable users to bring the power of math to bear on the problem.
▪ Provide standardized format for analyzing a problem.
 o Limitations of Models:
▪ Quantitative information may be emphasized at the expense of qualitative information.
▪ Models may be incorrectly applied and the results misinterpreted.
▪ Model building can become an end in itself.

• QUANTITATIVE APPROACHES
o It was not until World War II that major efforts were made to develop quantitative techniques.

o During WWII, in order to handle complex military logistics problems, interdisciplinary teams were
assembled to combine efforts in search of workable solutions.

o This continued and expanded even after the war, and many of the resulting techniques were applied to
operations in management.

o QUANTITATIVE TECHNIQUES
▪ Linear programming
▪ Queuing techniques
▪ Inventory models
▪ Project models (PERT, CPM)
▪ Forecasting techniques
▪ Statistical models

o Because of the emphasis on qualitative approaches in operations management decision making, it is

important not to lose sight of the fact that managers typically use a combination of qualitative and
quantitative approaches.

o The reason for the emphasis on quantitative methods is that quantitative analysis is typically more difficult
to understand without a fair amount of explanation and demonstration problems.

o ANALYSIS OF TRADE-OFFS
▪ This involves dealing with decisions by listing the advantages and disadvantages, of a course of
action to better understand the consequences of the decisions they must make.

▪ Systems approach
• System – a set of interrelated parts that must work together. In business organizations,
an organization is viewed as a system composed of subsystems, which are in turn,
composed of lower subsystems.

• This approach emphasizes interrelationships among subsystems, but its main theme is
that the whole is greater than the sum of its individual parts.
THE NEED TO MANAGE SUPPLY CHAIN

• Supply Chain - is the sequence of organizations—their facilities, functions, and activities—that are
involved in producing and delivering a product or service. The sequence begins with basic suppliers of raw
materials and extends all the way to the final customer.

• Issues of supply chains:

o The need to improve operations
o Increasing levels of outsourcing
o Increasing transportation costs
o Competitive pressures
o Increasing globalization
o Increasing importance of e-business
o The complexity of supply chains
o The need to manage inventories

• Elements of the supply chain and their issues:

o Customers – determining what products and/or services customers want.
o Forecasting – predicting the quantity and timing of customer demand
o Design – incorporating customers wants, manufacturability, and time to market
o Capacity planning – matching supply and demand
o Processing – controlling quality, scheduling work
o Inventory - meeting demand requirements while managing the costs of holding inventory
o Purchasing – evaluating potential suppliers supporting the needs of operations on purchased goods
and services
o Suppliers – monitoring supplier quality, on-time delivery, and flexibility; maintaining supplier
relations
o Location – determining the location of facilities
o Logistics – deciding how to best move information and materials