Operations Management and TQM||Module Content || PRELIM||Lesson 1-4

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Module Template for Blended Learning

Course Title Operations Management and TQM

Course Description Operations Management is a multi-disciplinary field that focuses on managing

all aspects of an organization's operations to provide products and services.
Operations managers apply ideas and technologies to increase productivity and
reduce costs, improve flexibility to meet rapidly changing customer needs, enhance
product quality, and improve customer service. The concerns of Operation
Management range from strategic to tactical and operational levels, which involve
designing, planning and managing the system. The Operations Management
concentration is designed to prepare students to be leaders in their operations
management careers. With the trend in globalization and decentralization, successful
management of supply chain requires system thinking and cross-functional skills.

It discusses the systematic approach and control of the processes that

transform inputs (e.g. human resources, facilities, materials, Information systems
etc.) into finished goods and services. The operations function consists of the core
wealth creation processes of a business and helps an organization to efficiently
achieve its mission while constantly increasing productivity and quality. This course
focuses on the role of operations management as a strategic element of the total
organization. This will cover classic and up-to-date tools and concepts used to
support operational managerial decisions.

This course also examines the basic principles of the management of

production and operations in manufacturing and service firms. Operations, in general,
comprise of all activities involved in the actual production of goods and delivery of
services. As such, the operations management function becomes a key function of
the organization, which must ensure that goods and services are created and
delivered efficiently and effectively, while balancing a number of conflicting demands.
In order for the operations management function to effectively achieve the objectives
of business strategy, it must be carefully and effectively coordinated with other
functions such as marketing, finance, human resources, etc. Students are exposed
among others to topics such as service and process design in manufacturing and
services, process analysis, capacity planning, operations strategy and
competitiveness, facility location and layout, managing for quality, supply chain
management, inventory management systems, and recent trends in production and
operations management.

Operations Management explores operations management in the

manufacturing and service environments. Topics include: cost accounting information
for improving efficiency, product and service quality and design, total quality
management, productivity and competitiveness, project management, materials
resource planning, value creation, supply chain management, economic value,
process selection and analysis, facility layout, project management, linear
programming, forecasting, design of work systems, materials management,
production planning and scheduling, quality management, simulation, capacity
planning, and operations strategy. Students will focus on how to apply these
concepts to real world operation functions of both manufacturing and services. It
covers the relevant concepts of production and operations management as well as
the quantitative tools for data analysis and business decision making. By the end of
the semester, the student should be able to appreciate the key decision situations
that confront the operations manager and apply analytical techniques to arrive at
better decisions.
Course Learning At the end of the course, students are expected to:

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Outcomes 1. Define operations management and TQM.
2. Identify what operations managers do.
3. Differentiate goods and services activities.
4. Identify current challenges of operations management.
Evidence of Short quiz, essay, activities and problem solving
Learning/
Assessment Tools

Topics (Coverage) Lesson 1: Introduction of Operations Management and TQM

Lesson 2: Goods and services
Lesson 3: Value chain
Lesson 4: Forecasting and Demand planning
Target 1st year BSA/BSAIS students
Participants

Learning Time: 6 hours per week

Means for Learner Students may contact teacher for assistance and guidance to the following links:
Support Email: [email protected]
Messenger: Victorious Hazel Barcelona
Mobile No.: 0927-248-8756

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LESSON 1: OPERATIONS MANAGEMENT AND TQM

Let’s activate your prior knowledge!
Greetings everyone!

Welcome to Module 1-4 of Operations Management and TQM

At the end of this module, you are expected to:

1. define and explain the different components of Operations Management and TQM,
1. apply various OM principles,
2. demonstrate awareness on the importance of Operations Management and TQM,
3. determine and explain goods, services in the context of operations management,
4. differentiate goods and services,
5. understand goods and services,
6. explain the value chain, and
7. explain the forecasting.

To start with, let’s have a quick survey activity to refresh your knowledge about
business plan. In a piece of paper, kindly answer the following question

Questions:

1. How important is Operations Management?

2. How to create successful management?
3. What are goods and services?
4. What is value chain?
5. What is Forecasting?

Now, let’s acquire new knowledge!

WHAT IS OPERATIONS MANAGEMENT?

Operations management involves planning, organizing and supervising processes, and
make necessary improvements for higher profitability. The adjustments in the everyday
operations have to support the company’s strategic goals, so they are preceded by deep
analysis and measurement of the current processes.
Operations management is an area of management concerned with designing and
controlling the process of production and redesigning business operations in the
production of goods or services.[1] It involves the responsibility of ensuring that business
operations are efficient in terms of using as few resources as needed and effective in
terms of meeting customer requirements. Operations management is primarily concerned
with planning, organizing and supervising in the contexts of production, manufacturing or
the provision of services.
OPERATIONS MANAGEMENT

 Deals with production of goods and services.

 is an area of management concerned with designing and controlling the process
of production and redesigning business operations in the production of goods or services.
 is primarily concerned with planning, organizing and supervising in the
contexts of production, manufacturing or the provision of services.

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4 Major Decisions Areas:

1. PROCESS- it determines the physical process or facility used to produce a

product or services and associated workforce practices.

2. QUALITY – must ensure that standards must be set, people trained, and
the product or services inspected, preferably by those who produce it, for
quality result.

3. CAPACITY – providing the right amount of capacity at the right place at the right time.

4. INVENTORY- determine what to order, how much to order, and when to order.

12 main components of operations management

1. Forecasting - Component that caters to historical data, facts, figures, and

statistics within the organization.

2. Location strategies - Oversees product base, market base, and vertically

differentiated locations.

3. Maintenance - Locates methods to reduce frequency of failures within the

production facility.

4. Purchasing - Could be either centralized, decentralized, or combined.

5. Scheduling - Pertains to scheduling of equipment or labor.

6. Total Quality Management (TQM) - Enables the organization to work

toward zero defects within the organization.

7. Quality - The overall ability to meet consumer expectations in terms of product quality.

8. Just In Time - System that will match stock availability with demand; can also
have stock arriving exactly when needed.

9. Materials Requirements Planning - Effectively manages inventory levels to

ensure cost reduction.

10. Process and System Performance - Measured through examination,

capacity utilization, or production.

11. Layout of Facilities - Ensure for a smooth workflow.

12. Inventory Management - Adequately controlling stock within an organization.

TOTAL QUALITY MANAGEMENT

Is all about “quality” at the very heart of it is the “quantification of quality”;

the need to “measure quality”; it is the activity or process that leads us in
achieving quality.

QUALITY -the degree of excellence of a thing; a distinctive attribute or faculty; the

relative nature of character of a thing; attribute or characteristic of a thing.

QUANTITY- that property of things that is measurable; the size or extent or weight or
amount or number; measurable.

What is QUALITY (in the light of TQM)?

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“Delighting the customer by fully meeting their needs and expectations”. These
may include performance, appearance, availability, delivery, reliability,
maintainability, cost effectiveness and price.

It is, therefore, imperative that the organization knows what these needs and
expectations are. In addition, having identified them, the organization must
understand them, and measure its own ability to meet them

Concepts of Effective & Efficient

Effective -is the results or consequence of an action; achieving the desired outcome.
- the mission that the business organization had set, has been achieved.

Efficient – productive with minimum waste or effort.

- the process and procedure that the organization went through minimum
cost and has been achieved in the shortest possible time.

Four-level model in TQM:

Inspection- measures the characteristics of a product and compare

them with its specifications; the goal here is the fitness of standards

Quality Control- it involves the detection and elimination of components or final

products that are not up to the standard. It is an after-the-event process
concerned with detecting and rejecting defective items.

Quality Assurance- it is before and during the event process. Its concern
is to prevent faults occurring in the first place. It is a means of producing defect
and fault-free products.

Total Quality- is about providing the costumer with what they want, when they
want it and how they want it. Centered on quality and based on the participation
of everybody which aims at the customer satisfaction and at the improvement of
the company’s personnel, of the company and of the society.
Components of TQM:

Leadership
Policy and strategy
Training and development
Staff management
Teamwork
Resources
Processes.

LESSON 2: GOODS, SERVICES AND OPERATIONS MANAGEMENT

Service business

Firms that offer professional services, such as accounting, legal,

engineering, business consulting, customer service, and architecture
Transportation companies, such as airlines, shipping, land tours, and forwarders
Entertainment, such as artists and movie houses
Hotels and restaurants
Apartments

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Merchandising business
Grocery stores
Department stores
Distributors
Real estate dealers
Car dealers
Manufacturing business

Car manufacturers
Wine and soft drinks producers
Electronic parts manufacturers
Producers of drugs and other medical products
Operations management (OM)

Design of goods, services, and the processes that create them.

Day-to-day management of those processes.
Continual improvement of these goods, services, and processes.
Understanding Goods and Services
A good is a physical product that you can see, touch, or possibly consume.

Examples of goods include oranges, flowers, televisions, soap, airplanes, fish, furniture,
coal, lumber, personal computers, paper, and industrial machines.

A durable good is a product that typically lasts at least three years. Vehicles,
dishwashers, and furniture are some examples of durable goods.

A non-durable good is perishable and generally lasts for less than three years.

Examples are toothpaste, software, shoes, and fruit.

A service is any primary or complementary activity that does not directly

produce a physical product.

Similarities Between Goods and Services

1. Goods and services provide value and satisfaction to customers who purchase and use them.
2. They both can be standardized or customized to individual wants and needs.
3. A process creates and delivers each good or service, and therefore, OM is a critical skill.
Differences Between Goods and Services

1. Goods are tangible while services are intangible.

2. The demand for services is more difficult to predict than the demand for goods.
3. Services cannot be stored as physical inventory.
4. Service facilities typically need to be in close proximity to the customer.
5. Patents do not protect services.

Service management integrates marketing, human resources, and operations

functions to plan, create, and deliver goods and services, and their associated service
encounters.

A service encounter is an interaction between the customer and the service provider.

Service encounters consist of one or more moments of truth—any episodes,

transactions, or experiences in which a customer comes into contact with any
aspect of the delivery system, however remote, and thereby has an opportunity
to form an impression.

Examples:
-A gracious welcome by an employee at a hotel check-in counter.

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- A grocery store employee who seems too impatient to help.
-Trying to navigate a confusing Web site

HOW GOODS & SERVICES AFFECT OPERATIONS MANAGEMENT ACTIVITIES

OM ACTIVITY GOODS SERVICES

Forecasting Forecasts involve longer-time horizons. Forecast horizons generally are shorter,
Goods-producing firms can use physical and forecasts are more variable and
inventory as a buffer to mitigate forecast time-dependent. Forecasting must often
errors. Forecasts can be aggregated over be done on a daily or hourly basis, or
larger time frames. sometimes even more frequently.

Facility Goods-producing facilities can be located Service facilities must be located close to
Location close to raw materials, suppliers, labor, or customers/markets for convenience and
customer/markets. speed of service.

Facility Layout Factories and warehouses can be designed The facility must be designed for good
and Design for efficiency because few, if any, customer interaction and movement
customers are present. through the facility and its processes.

Technology Goods-producing facilities use various types Service facilities tend to rely more
of automation to produce, package, and on information-based hardware and
ship physical goods. software.

Quality Goods-producing firms can define clear, Quality measurements must account for
physical, and measurable quality standards customer’s perception of service quality
and capture measurements using various and often must be gathered through
physical devices. surveys or personal contact.

Inventory/ Goods-producing firms use physical Service capacity such as equipment or

Capacity inventory such as raw materials and employees is the substitute for physical
finished goods as a buffer for inventory.
fluctuations in demand.

Process Because customers have no participation or Customers usually participate extensively

Design involvement in goods- producing processes, in-service creation and delivery requiring
the processes can be more mechanistic and more flexibility and adaptation to special
controllable. circumstances.

Job/Service Goods-producing employees require strong Service employees need more

encounter technical and production skills. behavioural and service management
Design skills.

Scheduling Scheduling revolves around the movement Scheduling focuses on when to assign
and location of materials, parts, and employees and equipment (service
subassemblies and when to assign capacity) to accomplish the work most
resources (employees, equipment) to efficiently without the benefit of physical
accomplish the work most efficiently. inventory.

Supply Chain Goods-producing firms focus mainly on Service-producing firms focus mainly on
Management the physical flow of goods in a global network the flow people, information and
with the goal of maximizing customer services often in a global network with
satisfaction and profit, and minimizing the goal of maximizing satisfaction and
delivery time, costs and environmental profit and minimizing delivery time,
impact. costs, and environmental impact.

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A primary good or service is the “core” offering that attracts customers and responds to
their basic needs. Peripheral goods or services are those that are not essential to the
primary good or service, but enhance it.

LESSON 3: VALUE CHAIN

Value and Supply Chains
 A value chain is a network of facilities and processes that describes the flow of
goods, services, information, and financial transactions from suppliers through the
facilities and processes that create goods and services and deliver them to customers.
The Concept of Value
 The underlying purpose of every organization is to provide value to its customer
and stakeholders.
 Value is the perception of the benefits associated with a good, service, or bundle of goods
and services (i.e., the customer benefit package) in relation to what buyers are willing to
pay for them.
Perceived benefits
Value =
Price (cost) to the
customer
 If the value ratio is high, the good or service is perceived favorably by customers, and the
organization providing it is more likely to be successful. To increase value, an organization
must:
 increase perceived benefits while holding price or cost constant,
 increase perceived benefits while reducing price or cost, or
 decrease price or cost while holding perceived benefits constant.

Value Chain Paradigms and Perspectives

 Input-Output Model: A value chain begins with suppliers who provide inputs that are
transformed into value-added goods and services through processes that are supported by
resources such as equipment and facilities, labor, money, and information. These goods and
services are delivered or provided to customers and targeted market segments.

Exhibit 1: An Input-Output Perspective of a Value Chain

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Value Chain Paradigms and Perspectives
 Pre- and Postproduction Services Perspective: Pre- and postproduction services complete
the ownership cycle for the good or service. Pre-production services are focused on “gaining a
customer.” Postproduction services focus on “keeping the customer.” This view of the value
chain emphasizes the notion that service is a critical component of traditional manufacturing
processes.

Exhibit 2: Pre- and Post-Service View of the Value Chain

Value and Supply Chains

 A supply chain is the portion of the value chain that focuses primarily on the physical
movement of goods and materials, and supporting flows of information and financial
transactions through the supply, production, and distribution processes.
 Many organizations use the terms “value chain” and “supply chain” interchangeably;
however, we differentiate these two terms in this book.
 A value chain is broader in scope than a supply chain, and encompasses all pre-and post-
production services (see Exhibit 2.3) to create and deliver the entire customer benefit
package.
 A value chain views an organization from the customer’s perspective—the integration of goods
and services to create value—while a supply chain is more internally-focused on the creation
of physical goods.

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Value Chain Decisions

 The operational structure of a value chain is the configuration of resources such as suppliers,
factories, warehouses, distributors, technical support centers, engineering design and sales
offices, and communication links.
Value chains may be centralized or decentralized.

Outsourcing and Vertical Integration

 Vertical integration refers to the process of acquiring and consolidating elements of a
value chain to achieve more control.
 Backward integration refers to acquiring capabilities toward suppliers, while forward
integration refers to acquiring capabilities toward distribution or even customers.
 Outsourcing is the process of having suppliers provide goods and services that were
previously provided internally.

Three Waves of Outsourcing

1. Outsourcing goods-producing jobs, such as computer components and electronics from the U.S. in many
industries several decades ago.
2. Outsourcing simple service work, such as standard credit card processing, billing and other forms of
transaction processing, and software development.
3. Outsourcing skilled knowledge work, such as engineering design, architectural plans, call centers, and
computer chip design.

Solved Problem—In-House versus Outsource

Suppose that a manufacturer needs to produce a custom aluminum housing for a special customer order. Because it
currently does not have the equipment necessary to make the housing, it would have to acquire machines and
tooling at a fixed cost (net of salvage value after the project is completed) of P250,000. The variable cost of
production is estimated to be P20 per unit. The company can outsource the housing to a metal fabricator at a cost
of P35 per unit. The customer order is for 12,000 units. What should they do?

Solution
VC1 = Variable cost/unit if produced = P20
VC2 = Variable cost/unit if outsourced = P35
FC = fixed costs associated with producing the part = P250,000
Q = quantity produced

Using Equation 2.1 we obtain:

Q = 250,000/(P35 - P20) = 16,667

In this case, because the customer order is for only 12,000 units, which is less than the break-even
point, the least cost decision is to outsource the component.

LESSON 4: FORECASTING AND DEMAND PLANNING

Forecasting is the process of projecting the values of one or more variables into the future.
Types of forecasts:
• Long-range forecasts in total sales dollars (top management level)
• Aggregate forecasts of sales volume (middle management level)
• Forecasts of individual units (operational level)

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The Need for Forecasts in a Value Chain

Basic Concepts in Forecasting

 The planning horizon is the length of time on which a forecast is based.
 This spans from short-range forecasts with a planning horizon of under
3 months to long-range forecasts of 1 to 10 years.
 The time bucket is the unit of measure for the time period used in a forecast.
 A time series is a set of observations measured at successive points in time or over
successive periods of time.
 A time series pattern may have one or more of the following five characteristics:
 Trend
 Seasonal patterns
 Cyclical patterns
 Random variation (or noise)
 Irregular (one time) variation
 A trend is the underlying pattern of growth or decline in a time series.
 Seasonal patterns are characterized by repeatable periods of ups and downs over short
periods of time.
 Cyclical patterns are regular patterns in a data series that take place over longer periods of
time.
 Random variation (sometimes called noise) is the unexplained deviation of a time series
from a predictable pattern, such as a trend, seasonal, or cyclical pattern.
 Irregular variation is a one-time variation that is explainable
Statistical Forecasting Models
 Statistical forecasting is based on the assumption that the future will be an extrapolation of
the past.

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 Judgmental forecasting relies upon the opinions and expertise of people in developing
forecasts.
Judgmental Forecasting
• Judgmental forecasting relies upon the opinions and expertise of people in
developing forecasts.
Grass Roots forecasting is simply asking those who are close
to the end consumer, such as salespeople, about the
customers’ purchasing plans.
The Delphi method consists of forecasting by an expert opinion by
gathering judgments and opinions of key personnel based on their
experience and knowledge of the situation.

Demand Planning

 Demand planning is the process of forecasting the demand for a product or service so it can be
produced and delivered more efficiently and to the satisfaction of customers.

Key Steps for an Effective Demand Planning Process

1. Use past sales data to create a statistical forecast. This information paints a portrait of
past demand patterns and allows a company to better understand its own demand fluctuations
from a historical perspective, which in turn will better inform its future forecasts.

2. Work with customers to determine when they anticipate greater demand and by how
much. Since historical data alone can’t predict future trends, it’s important to collaborate with
manufacturers, distributors, and customers to get a complete picture of your demand vs. supply.
Companies can then use that information to factor into the planning process.

3. Manage and combine your forecasts. It’s important to have forecasts that reflect the most
current data to make the most informed decision. Implementing a system for updating and
managing these forecasts will allow you to gauge your progress and make it easier to
eventually combine these separate forecasts into one consensus forecast.

4. Re-examine the data. Hold a review meeting with key personnel and staff to reanalyze the
numbers and make sure that your teams have the capabilities and capacity to reconcile demand
with available supply.

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DIFFERENCE BETWEEN FORECASTING AND DEMAND PLANNING

 A forecast is, in its simplest form, a prediction of future events. In a business context, demand
forecasting, then, is the process by which demand planners attempt to predict what demand
for a given product will be in a week’s time, a month’s time, or even a year’s time.

 Its singular objective is to arrive at the right answer and, therefore, demand forecasting is
very data-focused.

 Demand planning, on the other hand, refers to the entire undertaking: forecasting consumer
demand and then arranging things accordingly.

 Its overarching goal is to make sure a company can supply customers with a given product or
service when, where and how they want to buy it while keeping costs as low as possible, thus
increasing chances of profitability. So the demand planner takes the demand forecast and
translates it into action, mapping out all necessary steps and ensuring everyone is able to
perform their parts well.

Ready for the drill? Let’s have an application activity!

Congratulations for finishing the content of topic 1.
Now, give yourself two big thumbs up for your
effort!!!

ACTIVITY

VENN DIAGRAM: Illustrate and explain the differences between goods and services through a Venn
Diagram. You may add additional differences other than the one stated in this module. Write your answer in a
separate paper.

NAME: BLOCK AND YEAR:

VENN DIAGRAM
DGDGDGDG

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Look, you’re almost done, let’s do the assessment!

Remarkable!!! I know you are capable of so much more!!!

Now let’s evaluate the level of competency you acquire throughout the topic.
Heads up and take this activity with high motivation!!!

QUIZ 1: Write your answer in a separate paper. No need to rewrite the statements.

TRUE OR FALSE: Write TRUE if the statement is correct and FALSE if the
statement is wrong.

1. Operations management is primarily concerned with planning, organizing, and

supervising in the contexts of production, manufacturing, or the provision of
services.
2. Determining what to order, how much to order, and when to order are part of the process area
in the major decision of operations management.
3. Quantity is the degree of excellence of a thing; a distinctive attribute or faculty;
the relative nature of character of a thing; attribute or characteristic of a thing.
4. Quality is that property of things that is measurable; the size or extent or
weight or amount or number; measurable.
5. Inventory Management adequately controlling stock within an organization.
6. Quality Assurance is before and during the event process. Its concern is to
prevent faults occurring in the first place. It is a means of producing defect
and fault-free products.
7. Centered on quality and based on the participation of everybody which aims at
the customer satisfaction and at the improvement of the company’s personnel, of
the company and of the society.
8. Layout of Facilities does not ensure a smooth workflow.
9. Quality control is an after-the-event process concerned with receiving defective items.
10. Maintenance helps locates methods to reduce frequency of failures within the
production facility.

ESSAY: Explain value chain and forecasting in your own words. (minimum of 50 words) (40
points)

Rubric for Subjective Assessment

Criteria Pts Grading scale

Subject 20 20 18 15 10
knowledge Excellent Good Fair Poor

Student demonstrates Student answers to Student is able Student does not

full knowledge by all questions, to answer only have grasp of
answering questions without elaboration rudimentary information;
with explanations and questions. student cannot
elaboration. answer questions
about subject.

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Organization 20 20 18 15 10
Excellent Good Fair Poor

Student presents Student presents Readers has Readers cannot

information in logical, information in difficulty understand
interesting sequence logical sequence following presentation
which readers can which audience can presentation because there is
follow. follow. because student no sequence of
jumps around. information.

Timeline!

Let’s be mindful of your deadline.

Activity Name of Activity Date of submission Remarks

Number

Activity 1 VENN DIAGRAM NEXT MODULE

DISTRIBUTION SCHEDULE

QUIZ 1 TRUE OR FALSE AND NEXT MODULE

ESSAY DISTRIBUTION SCHEDULE

REFERENCE:

 David Collier and James Evans. OM, 2nd Edition. Upper Saddle River, NJ: South-Western Cengage
Learning, 2010/2011. ISBN-13: 978-0538745567

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