Topic 8

Operations Management

Operations Plan

Operations Management Definition of transformation process Productivity Index The process planning Production Schedule Material requirement planning Capacity planning Layout planning Physical location planning Operations costs

Introduction

Operations section
How

to produce your product or service and run your business

The status of the development of a product or service

Operations Model and Procedures

Objective
Fully understand operational details of launching and running your business

How inventory will be stored Production cycle Bottlenecks Seasonal production loads Quality control

Operations Management

Operations management can be defined as the process of marshalling / bring together resources to produce output through the transformation process. The operation process consists of three (3) main components: Input Transformation system Output

Definition of Transformation Process

Transformation process is activities to change input into output.

Input: all resources required to produce a particular output example: manpower, raw materials, machines and equipment Output: end products created as a result of the transformation process end products can be either products or services

Transformation Process

There are also external environmental factors and internal feedback that need to be considered during the transformation process:

External environmental factors Factors: politics, economics, new technology, socio-cultural factors, climactic conditions, suppliers, customers, competitors, new entrants, substitutes products/services Each factor could be an opportunity or threat to input, transformation process and output Internal feedback By constantly monitoring the quality of the input, processes and the output To improve the whole production system

Productivity Index

The efficiency of the transformation process is measured by comparing the ratio of the total value of output to the total value of input. The ratio is called Productivity Index Formula: Productivity Index = Total Value of Output Total Value of Input Ratio > 1 : Ratio < 1 : indicates the business operation is running efficiently indicates the business operation is inefficient

Calculating the Productivity Index

Total sale per month = RM 15,000 Total operational cost per month = RM8,000 Total Value of Output Total Value of Input

Productivity Index (PI) =

= Total Sale Per Month Total Operations Cost Per Month

= RM 15,000 RM 8,000
= 1.88

The Process Planning

Process planning involves identifying the step-by-step processes from beginning to end to make the product or to provide the services. The process can be illustrated by using a flow chart activity chart, process chart:

Activity chart: Entrepreneur must identify all the activities involved in the manufacture of the product Activities will be arranged in sequence Process chart: A schematic representation of the step-by-step sequence that takes place in a production process/service using recognized symbols

The Process Planning

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 measure standard of the in-process material, finished products or services. When in-process material is restrained in a location waiting for next activity. When the in-process materials or finished products are stored in the storage area.

Delay

Storage

The Process Planning

To prepare process chart: Step 1: identify all the operational activities required for the production of the product/service Step 2: arrange these activities according to sequence Step 3: draw the process chart Note: The symbols used in the process chart can also be used to make a job activity chart. Job activity chart show the sequence of jobs need to be done by a worker (example refer to Figure 7.7 page 159: Fundamentals of Entrepreneurship)

Production Schedule

Objective of production schedule: To ensure the quantity of production is enough to fulfill expected market demand or sale forecast over the scheduled period.

Material Requirement Planning

Delivery of materials must be planned and controlled to ensure the entrepreneurs get those materials at the right quantity, quality time and cost.
The quality and timely delivery of products or services depend very much on the quality and delivery of materials. Material requirement planning involves four (4) steps: Step 1: identify and list down the raw materials required Step 2: prepare the bill of materials Step 3: calculate the quantity of raw material required Step 4: identify supplier

Refer to page 160 165

Capacity Planning

Refers to the amount of output that can be produced within a specified time. A method to calculate machinery and manpower requirements so that production demand based on sales forecast can be met. To determine the daily production capacity. Formula: Daily production rate = Monthly sales forecast No. of working days per month

Layout Planning

Definition of Layout: The arrangement of machinery, equipment, workers and other facilities used in the operation.

Why? To ensure production of goods and services can be done efficiently Layout planning should take into consideration other factors such as: work station, tool room, store, office, prayer room, and toilet. Safety and conducive working environment

Layout Planning

Types of Layout:

Type 1: Layout based on product Layout based on the sequence of activity Example: food processing factory
Type 2: Layout based on process Layout based on the production process Suitable for factory producing several products that undergo a similar process Examples: steel workshops, clothing factory Type 3: Layout based on marketing Layout designed to utilize the available space to display goods Example: retail business such as bookshop

Physical Location Planning

It is crucial to choose the right location for the business. Strategic location can contribute to the success of the business i.e. higher sales, lower operational costs In general, choice of physical location will depend on the following factors: Distance from the source of raw materials Availability of manpower Transportation facilities Distance from customer Price of premises Other factors (such as utilities, banks, schools, housing, government policies)

Operations Costs

It is essential to determine the total operational cost. Why? To enable us to calculate the cost per unit of the foods produced. Operations costs include:

Costs of direct material: the money spent on materials that are directly used to produce the products/services Direct labor costs: the money paid as wages, salaries and benefits to the workers involves directly in the production. Overheads: expenses include rent, insurance, wages of indirect labor, maintenance and depreciation

Operations Costs

Operations cost : Direct materials cost + Direct labour cost + Overhead costs

Cost per unit :

Total operations cost (RM) Total Number of Outputs (Units)

Conclusion

Types of operation facilities differ greatly between industries. Therefore, the entrepreneur have to study in detail the uniqueness of each industry operations process, and make the necessary modifications and adjustments to his production plan to suit his business requirements.