PCOA 001- COMPENSATION MANAGEMENT

MODULE 1-INTRODUCTION TO OPERATIONS MANAGEMENT

Introduction

This module introduces the students to the Operations Management (OM) course.
Operations Management is a dynamic function of management that directly affects an
organization’s level of productivity and growth while achieving its ultimate goal of maximizing
profitability. The objective of this unit is to provide students a solid understanding of the role
played by operations managers and possible career opportunities it offers. Further, students will
be able to assess how OM affects individuals and society as well.

Intended Learning Outcomes

At the end of the module, you can:

1. define operations management;

2. categorize types of businesses under every kind of operations;
3. apply essential functions of a business relative to operations management decisions;
4. compute productivity using single and multifactor methods; and
5. construct strategies to enhance the level of productivity for organizations.

Course Outline

1. Concepts of Operations Management

2. Organizing to Produce Goods and Services
3. Why Study Operations Management (OM)?
4. OM decisions
5. The Heritage of Operations Management
6. Operations for Goods and services
7. Productivity Challenge

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Content

Preliminary Activity

DO you ever wonder how this variety of goods and services are created or produced?
How are services delivered? And how ultimately they satisfy human needs and wants?

Having a solid understanding of the role of operations in an organization will be of

substantial benefit to you. Indeed, you will better understand what goes on behind
the scenes when you attend a concert or major sports events; purchase a Louis Viton
bag, buy a meal at Hard Rock Café, buy a customized Dell computer, or enter a
hospital for medical care, and place an order through Amazon.com, etc.
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Welcome to the Operations Management course!!

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OPERATIONS MANAGEMENT

OPERATIONS MANAGERS throughout the world are producing products and delivering
services to provide for the well-being of society. These products and services take on a multitude
of forms.

Examples: Rides at Disney land

Motion pictures of DreamWorks
The food at Hard Rock Café
The washing machine of Whirlpool Company

These companies produced thousands, if not millions of complex products every day—TO
BE DELIVERED AS THE CUSTOMERS ORDERED THEM—WHEN THE CUSTOMERS WANT
THEM AND WHERE THE CUSTOMERS WANT THEM.

Example: Imagine Hard Rock Café that accommodates most nearly to 35 million guests per
year, knowing that this restaurant provides food for buyers following its business thrust, to
serve hot food hot and cold food cold.

What is Operations Management (OM)?

Operations Management is a discipline that applies to all businesses. Examples are

restaurants, factories, theatres, salons, and others.

Operations Management also refers to the efficient production of goods and services that
requires useful applications of concepts, tools, and techniques of OM.

Operations Management also refers to the set of activities that creates value in the form of
goods and services by transforming INPUTS into OUTPUTS

Production, on the other hand, is the actual creation of goods and services, including
ideas and experiences. (Heizer & Render, 2014)

In other words, there are organizations in which the creation of goods is apparent. Examples are
computers, cars, milk, rice, etc. There are also those of which the creation of goods is less
obvious. Example: haircut, school, airlines, banks, etc.

ORGANIZATION TO PRODUCE GOODS AND SERVICES

To create goods and services, all organizations perform three functions:

1. Marketing-which generates the demand or at least takes order for a product or service
2. Production/operation- which creates the products
3. Finance/accounting-which tracks how well the organization is doing, pays the bills, and
collects money
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Types of Operations:

1. Goods manufacturing (Examples: The Lego Group (toy- maker), Tupperware Brands
Corporation (plastic container manufacturer), L Brands Inc. (textile producer), DJC
Furniture (furniture producer), Mars Inc. (candy maker), Meiji Co. (confectioner),
Magnolia Bread Company LLC (food artisan), Del Monte Foods (processes food , and
producer)

2. Transportation and warehousing (Examples: XPO Logistics, Ninjas Van, 2GO Express,
J.B Hunt Transport Services, C.H. Robinson Worldwide, JRS Express, Penske Logistics,
Lineage Logistics, LBC, and FedEx Logistics)

3. Communication (Example: AT &T Inc., China Mobile Ltd., Verison Communications Inc.,
Vodafone Group Pic, Nippon Telegraph & Telephone Corporation, Softbank Group Corp.,
China Telecom, Globe Telecom Inc., Smart Communications Inc., and Philippine Long
Distance Telephone Company (PLDT) Inc.

4. Entertainment and recreation (Examples: Comcast Corporation, CBS Corporation, Dish

Network Corporation, Netflix Inc., Time Warner Inc., Viacom Inc., Dalian Wanda, AT &
T Entertainment Group, SM entertainment Co., and JYP Publishing Corp.

5. Financial (Examples: T. Rowe Price Group Inc. (asset management firm), Travellers
Companies Inc. (insurance company). Prudential Financial Inc. (investment management
firm), MetLife Inc. (annuities/ employee benefits program operator), Intercontinental
Exchange (financial and commodity market operator), Aon plc. (Commercial risk and
reinsurance broker). Marsh & McLennon Companies Inc., (investment advisor), Charles
Schwab Corporation (stockbroker), PNC Financial Services Group Inc. (bank holder). and
S&P Global Inc. (financial information and analytics company)

WHY DO WE STUDY OPERATIONS MANAGEMENT?

1. OM is one of the three primary functions of any business organization (see the
organization to produce goods and services), and it is integrally related to all other
business functions. It means we study POM to understand how people can organize
themselves for productive purposes.
2. We study OM because it answers questions like how goods and services are produced
3. We study this course to understand what operations managers do and realize how
lucrative careers may include exploring opportunities in the field.
4. We study OM because it is such a costly part of an organization. Operations
Management is in itself the COST OF GOODS in the statement of income and
expenses. Remember that every extra centavo saved will add to every extra centavo
profit.
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WHAT OPERATIONS MANAGERS DO?

All operations managers perform the essential functions of the management process
(Panning, Organizing. Directing, and Controlling). They apply this management process to the
decisions they undertake in OM functions, and at the same time, they use the concepts,
techniques, and tools in OM in doing so.

10 Operations Management Decisions

The following are the different decisions perform by OM managers as their primary
responsibility carried out in an organization:

1. Design of goods and services. Defines much of what is required of operations in each of
the OM decisions. For instance, product design usually determines the lower limits of cost
and the upper limits of quality and significant implications for sustainability and the
human resources required.
2. Managing quality. Determines the customer’s quality expectations and establishes
policies and procedures to identify and achieve that quality.
3. Process and capacity design. Determines how a good or service is produced (e.g., the
production) and commits management to a specific technology, quality, human
resources, and capital investments that determine much of the firm’s basic cost structure.
4. Location strategy. Requires judgments regarding nearness to customers, suppliers, and
talents, while considering costs, infrastructure, logistics, and government.
5. Layout strategy. Requires integrating capacity needs, personnel levels, technology, and
inventory requirements to determine the efficient flow of materials, people, and
information.
6. Human resources and job design. Determines how to recruit, motivate, and retain
personnel with the required talent and skills. People are an integral and expensive part of
the complete system design.
7. Supply-chain management. Decides how to integrate the supply chain into the firm’s
strategy, including decisions that determine what is to be purchased, from whom, and
under what conditions.
8. Inventory management. Considers inventory ordering and holding decisions and how to
optimize them as customer satisfaction, supplier capability, and production schedules are
considered.
9. Scheduling. Determines and implements intermediate-and short-term schedules that
effectively and efficiently utilize both personnel and facilities while meeting customer
demands.
10. Maintenance. Requires decisions that consider facility capacity, production demands, and
personnel necessary to maintain a reliable and stable process.

Operations
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Manufacturers produce a tangible product, while services products are often intangible.
Many products are a combination of a good and a service, which complicates the definition of a
service. Many have difficulty in generating a consistent purpose. Because definitions vary, much
of the data and statistics generated about the service sector are inconsistent. However, we define
services as repair and maintenance, government, food and lodging, transportation, insurance,
trade, financial, real estate, education, legal, medical, entertainment, and other professional
occupations.

The operation activities for both goods and services are often very similar. For instance,
both have quality standards, are designed and produced on a schedule that meets customer
demand. And are made in a facility where people are employed. However, some significant
differences do between goods and services. We should also point out that in services and almost
all goods are a mixture of service and a tangible product. Even services such as consulting may
require an actual report. Similarly, the sale of most goods includes a service.

THE HERITAGE OF OM

Operations Management is a field that is very young compared to finance and marketing.
Its history is rich and exciting. Most of the organization’s jobs are found in the area. In as far as
its history is concerned; its development was contributed by various individuals and groups
who, during their time of study and observations were recorded. Some of which are the
following:

1. Eli Whitney (1800). He is credited with the popularization of interchangeable parts

through standardization and quality control.
2. Frederick W. Taylor (1881). He is known as the father of scientific management. He
contributed to personnel selection, planning, scheduling, motion study, and ergonomics.
One of his contributions was his belief that the government should be much more
resourceful and aggressive in improving work methods.
Another of Taylor’s contributions was the belief that management should assume
more responsibility for:
1. Matching employees to the right job.
2. Providing proper training
3. Providing proper work methods and tools
4. Establishing legitimate incentives for work to be accomplished.
3. Walter Shewhart (1924). Quality control is another historically significant contribution to
the field of OM. Shewhart’s knowledge in statistics and quality assurance made its
indelible imprint in the history of OM
4. Operations Management will continue to progress with contributions from other
disciplines, including industrial engineering, statistics, management, and economics, all
improving decision making.
5. Innovation from the physical sciences (biology, anatomy, chemistry, and physics) has also
contributed to advances in OM. These innovations include new adhesives, faster-
integrated
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iPhones and plasma TVs. Innovation in products in products and processes often
depends on advances in the physical sciences.
6. Other significant contributions to OM have come from information technology, which we
define as the systematic processing of data to yield information. With information
technology, reducing costs and accelerating communication problems are addressed.

Differences Between Goods and Services

CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS

1. Intangible Tangible
2. produced and consumed The product can usually be kept in
simultaneously inventory
3. unique Similar products produced
4. high customer interaction Limited customer interaction
5. inconsistent product definition Product standardized
6. often knowledge-based; legal, The standard tangible product tends to
education, medical make automation feasible
7. services dispersed Product typically produced at a fixed
facility
8. quality may be hard to evaluate Many aspects of quality are easy to
evaluate
9. reselling is unusual Products often have residual value

THE PRODUCTIVITY CHALLENGE

The creation of goods and services requires changing resources into goods and services.
The more efficient we make in this change, the more productive we are, and the more value is
added to the right and service provided.
Productivity is the ratio of outputs, generally expressed in terms of the number of goods
and services and the inputs or the resources used to produce goods and services like labor,
capital, management, etc. The operations manager’s job is to enhance (improve) this ratio of
outputs and inputs.
The improvement can be made in two ways: reducing inputs while keeping output
constant or increasing output while maintaining stable inputs. Both represent productivity
improvement.

Productivity Measurement

The call for all organizations is to improve levels of productivity. This means improving
productivity also to enhance efficiency.
To measure productivity, we use the formula:

P = Units Produced
Input used
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Productivity = 1,000 = 4 units per labor-hours

250

The use of one resource input to measure productivity is known as the single factor
productivity. However, a broader view of productivity is multifactor productivity, including all
inputs (e.g., capital, labor, material, energy). Multifactor productivity is also known as total
factor productivity. Multifactor productivity is calculated by combining the input unit, as shown
below:

Productivity = Output

Labor-hours + Material + Energy + Capital + Misc.

Computing Single–Factor and Multifactor Productivity

Example: Collins Title Ltd. Want to evaluate its labor and multifactor productivity with a new
computerized title search system. The company has a staff of four, each working 8 hours per day
for (for a payroll cost of $604/day) and overhead expenses of $400 per day. Collins processes
and closes on 8 titles each day. The new computerized title-search system will allow the
processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the
overhead expenses are now $800 per day.

Solution:
Labor productivity with the old system: 8 titles per day =.25 titles per labor-hour
32 labor-hours

Labor productivity with the new system: 14 titles per day = .4375 titles per labor-hour
32 labor-hours

Multifactor productivity with the old system: 8 titles per day = .0077 title per dollar
$640 + 400

Multifactor productivity with the new system: 14 titles per day = .0097 titles per dollar
$640 + 800

Labor productivity has increased has increased from .25 to .4375. The change is (.4375
- .25) / .25= 0.75 or a 75% increase in labor productivity. Multifactor productivity has increased
from .0077 to .0097. This change is (.0097 -. 0077) / .0077 = 0.26 or 26% increase in
multifactor productivity.
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Productivity and the Service Sector
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The service sector provides a unique challenge to the accurate measurement of productivity and
productivity improvement. The traditional analytical framework of economic theory is based
primarily on goods-producing activities. Consequently, most published financial data relating to
goods production. But the data indicates that, as our current service economy has increased in
size, we have had slower growth in productivity.

Summary

Operations, marketing, and finance/ accounting are the three basic functions of all
business organizations. The operations function is responsible for creating goods and services.
Much of the progress, therefore, of organizations depends on how operations tools, concepts,
and techniques are used effectively and efficiently. Operations Managers are the essential
character in improving the well-being of society since they play a productive function in the
organization. Productivity improvements and sustainable environments are challenging to
achieve, but operations managers continue to challenge themselves to create goods and services
necessary to answer the demands of the market.

References

Heizer, J., & Render, B., Operations Management: Sustainability and Supply Chain
Management. (2014). England. C& E Publishing.

Lewis, William W. (2005). The Power of Productivity. University of Chicago Press.

Supplementary Materials

Crampton, N. (2020). Examples of Manufacturing Business Ideas. Entrepreneurs Media Inc.,E

South Africa. https://www.entrepreneur.com/article/335090

Fortune (2017). 40 Best Financial Companies. https://fortune.come/2017/03/28/40-best-

companies-financial-services/

Reiff, N., (2020) 10 Biggest Entertainment Companies.

https://www.investopedia.com/articles/investing/020316/worlds-top-10-entertainment-
companies-cmcsa-cbs.asp

Slack, N., Chambers, S., and Johnston, R. (2010). Operations management. Pearson Education
Limited

Ten Biggest Telecommunications Company. (2020). Investopedia.

https://www.investopedia.com/articles/markets/030216/worlds-top-10-
telecommunications-companies.asp
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Top 50 Logistics Companies. (2019). Arlington. https://www.ttnews.com/top50/logistics/2019?

fbclid=IwAR0EaTHg2IwVe7lNItcHj9rFZpiU13I5d7Hm_0b1YCeCTxUe_vaSN7aOtcg

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