OPERATION

MANAGEMENT
MARICEL B. BORROMEO
 INTRODUCTION TO OPERATIONS
MANAGEMENT
◦CHAPTER OUTLINE:
What is Operation Management?
Differences between Manufacturing and Service
Organizations
Operations Management Decisions
Historical Development
Operations Management across the organization
OPERATIONS MANAGEMENT
◦ The business function responsible for planning, coordinating, and controlling
the resources needed to produce a company’s goods and services.

ROLE OF OPERATIONPS MANAGEMENT

◦ To transform organizational inputs into outputs.
Basic Functions of the Business
Organization

Organization
Organization

Marketing
Marketing Operations
Operations Finance
Finance

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THE TRANSFORMATION PROCESS
 For operations management to be successful,
it must add during the transformation process.

VALUE ADDED

◦ To describe the net increase between the final value of a product and the
value of all the inputs.
◦ the greater the value added, the more productive a business is. In addition
to value added, operations must be efficient.
EFFICIENCY
◦ Means being able to perform activities well and at the lowest possible cost.
◦ An important role of operations is to analyze all activities, eliminate those
that do not add value, and restructure process and job to achieve greater
efficiency.
 DIFFERENCES BETWEEN
MANUFACTURING AND SERVICE
ORGANIZATIONS
◦ MANUFACTURING ORGANIZATIONS

- organizations that primarily produce a tangible product and typically have low customer contact.

◦ SERVICE ORGANIZATIONS

- Organizations that primarily produce an intangible product, such as ideas, assistance, or information,
and typically have high customer contact.

For example:

A customer buying a car at a car dealership never comes into contact with the automobile factory.

However, in service organizations the customers are typically present during the creation of the services.
 CHARACTERISTICS OF
MANUFACTURING AND SERVICE
ORGANIZATIONS
 OPERATIONS
MANAGEMENT
DECISIONS
THE RELATIONSHIP BETWEEN
STRATEGIC AND TACTICAL DECISIONS
◦ STRATEGIC DECISCIONS
- Decisions that set the direction for the entire company; they are broad
in scope and long-term in nature.
◦ TACTICAL DECISIONS
- Decisions that are specific and short-term in nature and are bound

by strategic decisions
THE RELATIONSHIP BETWEEN STRATEGIC
AND TACTICAL DECISIONS
HISTORICAL DEVELOPMENT
◦ THE INDUSTRIAL REVOLUTION
- An industry movement that changed production by substituting machine power for labor power.
.
HISTORICAL DEVELOPMENT
◦ SCIENTIFIC MANAGEMENT - An industry movement that changed production by substituting machine
power for labor power.
◦ THE HUMAN RELATIONS MOVEMENT
Hawthorne studies The studies responsible for creating the human relations movement, which focused on
giving more consideration to workers’ needs.
 Human relations movement A philosophy based on the recognition that factors other than money can
contribute to worker productivity.

◦ MANAGEMENT SCIENCE- A field of study that focuses on the development of quantitative techniques to
solve operations problems
◦ THE COMPUTER AGE-With computers, many of the quantitative models developed by management science
could be employed on a larger scale
◦ JUST IN TIME- A philosophy designed to achieve high-volume production through elimination of waste and
continuous improvement.
HISTORICAL DEVELOPMENT
◦ Total quality management (TQM) Philosophy that seeks to improve quality by eliminating causes of
product defects and by making quality the responsibility of everyone in the organization.

◦ Business Process Reengineering - means redesigning a company’s processes to increase efficiency,

improve quality, and reduce costs. In many companies things are done in a certain way that has been
passed down over the years.

◦ Flexibility An organizational strategy in which the company attempts to offer a greater variety of product
choices to its customers.

◦ Time-based competition An organizational strategy focusing on efforts to develop new products and
deliver them to customers faster than competitors.

◦ Supply chain management (SCM) Management of the flow of materials from suppliers to customers in
order to reduce overall cost and increase responsiveness to customers.
THE TRADITIONAL PUBLISHING
SUPPLY CHAIN
HISTORICAL DEVELOPMENT
◦ Global marketplace A trend in business focusing on customers,suppliers,and competitors from a global
perspective

◦ Sustainability A trend in business to consciously reduce waste, recycle,and reuse products and parts.

◦ Electronic commerce (e-commerce) is the use of the Internet for conducting business activities, such as
communication, business transactions, and data transfer.
◦ Business-to-business (B2B) Electronic commerce between businesses.
◦ Business-to-customers (B2C) Electronic commerce between businesses and their customers.
◦ Customer-to-customer (C2C) Electronic commerce between customers.
TODAY’S OMENVIRONMENT
◦ Lean systems A concept that takes a total system approach to creating efficient operations.

◦ Enterprise resource planning (ERP) Large,sophisticated software systems used for identifying and
planning the enterprise-wide resources needed to coordinate all activities involved in producing and
delivering products.

◦ Customer relationship management (CRM) Software solutions that enable the firm to collect
customerspecific data.

◦ Cross-functional decision making The coordinated interaction and decision making that occur among
the different functions of the organization.
 OM ACROSS THE ORGANIZATION
◦ Marketing is not fully capable of meeting customer needs if marketing managers do not understand what
operations can produce, what due dates it can and cannot meet, and what types of customization
operations can deliver

◦ Finance cannot realistically judge the need for capital investments, make-or-buy decisions, plant
expansions, or relocation if finance managers do not understand operations concepts and needs.

◦ Information systems (IS) is a function that enables information to flow throughout the organization and
allows OM to operate effectively.
ORGANIZATIONAL CHART SHOWING
FLOW OF INFORMATION
INFORMATION FLOW BETWEEN OPERATIONS
AND OTHER BUSINESS FUNCTIONS
OM ACROSS THE ORGANIZATION
◦ Human resource managers must understand job requirements and worker skills if they are to hire the
right people for available jobs. To manage employees effectively, operations managers need to understand
job market trends, hiring and layoff costs, and training costs.

◦ Accounting needs to consider inventory management, capacity information, and labor standards in order
to develop accurate cost data. In turn, operations managers must communicate billing information and
process improvements to accounting, and they depend heavily on accounting data for cost management
decisions

◦ NOTE:

◦ Engineering and other disciplines that are not in the business field are also tied to operations. Operations
management provides engineering with the operations capabilities and design requirements, and
engineering, in turn, provides valuable input on technological trade-offs and product specifications.These
are essential for the product design process.
THE ROLE OF OPERATIONS STRATEGY
◦ is to provide a plan for the operations function so that it can make the best use of its resources.

◦ THE IMPORTANCE OF OPERATIONS STRATEGY

Relationship between the business strategy and the functional strategies
DEVELOPING A BUSINESS STRATEGY
◦ A company’s business strategy is developed after its managers have
considered many factors and have made some strategic decisions.These
include developing an understanding of what business the company is in
(the company’s mission),analyzing and developing an understanding of
the market (environmental scanning), and identifying the company’s
strengths (core competencies). These three factors are critical to the
development of the company’s long-range plan, or business strategy. In
this section we describe each of these elements in detail and show how
they are combined to formulate the business strategy.
◦ MISSION
- A statement defining what business an organization is in, who its customers are, and how its core beliefs shape its business.

◦ Environmental scanning
- Monitoring the external environment for changes and trends to determine business opportunities and threats

◦ Core competencies
- The unique strengths of a business.

ORGANIZATIONAL CORE COMPETENCIES:

THREE INPUTS IN DEVELOPING A
BUSINESS STRATEGY
DEVELOPING AN OPERATIONS
STRATEGY
◦ Competitive priorities

-Capabilities that the operations function can develop in order to give a company a competitive
advantage in its market.
 Cost A competitive priority focusing on low cost.

Operations strategy
and the design of the
operations function
Competitive priorities

◦ Quality -A competitive priority focusing on the quality of goods and

services.
 TWO DIMENSIONS:
1. High Performance design -This means that the operations
function will be designed to focus on aspects of quality such as superior
features, close tolerances, high durability, and excellent
customer service .
2. Goods and Services consistency - which measures how often
the goods or services meet the exact design specifications.
◦ Time- A competitive priority focusing on speed and on-time delivery.
◦ Flexibility -A competitive priority focusing on offering a wide variety of
goods or services.
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Order Winners and Order Qualifiers

These are criteria used by customers in service
or product selection.
Order Winners are criteria for differentiating
services or products of one firm from those of
another.
• Price, quality, time, flexibility, after sales support, reputation, etc.

Order Qualifiers are demonstrated levels of

performance required to do business in a
particular market segment.

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Competitive Capabilities
The Competitive Capabilities are the cost,
quality, time and flexibility dimensions of
competitive priorities that a process or value
chain actually possesses and is able to
deliver.
• Low Cost means delivering a service or product at the lowest possible cost
to the satisfaction of the customer.

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Service or Product Development

Strategies
Product Variety: Offering a wide assortment.
Design: Ease of use and desirable features.
Innovation: Translate new technology into
new products.
Service: Products with services added.
Leader: Being first to introduce new services
and/or products.
Middle of the Road: Wait for the leaders to
introduce new services and/or products.
Laggard: Wait to see if the leader’s new
services and/or products catch on in the
market.
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Service Package

A Service Package is a collection of goods and

services provided by a service process to its
customers. It consists of four features:
1. Supporting Facility: The physical resources
that must be in place before a service can be
offered.
2. Facilitating Goods: The materials purchased
or consumed by the customer or the items
provided by the customer to receive a service.
3. Explicit Services: The readily observable
benefits.
4. Implicit Services: Psychological benefits.
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Quality Function Deployment (QDF)

Quality Function Deployment (QDF) is a means of
translating customer requirements into the appropriate technical
requirements for service or product development. Questions it
seeks to answer are…
1. What do our customers want?
2. How well are we doing relative to our competition?
3. What technical measures relate to our customers’ needs?
4. What are the relationships between what our customers want
and the technical measures?
5. How does our service or product performance compare to the
competition?
6. What are the potential technical trade-offs?

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Role of the Operations Manager
The Operations Function consists of all activities
directly related to producing goods or providing
services.

A primary function of the operations manager is to

guide the system by decision making.
• System Design Decisions
• System Operation Decisions

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Role of the Operations Manager
The Operations Function consists of all activities
directly related to producing goods or providing
services.

A primary function of the operations manager is to

guide the system by decision making.
• System Design Decisions
• System Operation Decisions

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System Design Decisions
• System Design
– Capacity
– Facility location
– Facility layout
– Product and service planning
– Acquisition and placement of equipment
• These are typically strategic decisions that
• usually require long-term commitment of resources
• determine parameters of system operation

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System Operation Decisions
• System Operation
• These are generally tactical and operational decisions
– Management of personnel
– Inventory management and control
– Scheduling
– Project management
– Quality assurance
• Operations managers spend more time on system operation
decision than any other decision area
• They still have a vital stake in system design

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Why Study OM?
Every aspect of business affects or is affected by
operations
Many service jobs are closely related to operations
◦ Financial services
◦ Marketing services
◦ Accounting services
◦ Information services
There is a significant amount of interaction and
collaboration amongst the functional areas
It provides an excellent vehicle for understanding
the world in which we live

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Operations Strategy

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How Operations Strategy

fits the Operations Management
Philosophy

Operations As a Competitive
Weapon
Operations Strategy Process Strategy
Project Management Process Analysis
Process Performance and Quality
Constraint Management
Process Layout Supply Chain Strategy
Lean Systems Location
Inventory Management
Forecasting
Sales and Operations Planning
Resource Planning
Scheduling

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Operations Strategy
Operations strategy is the means by which
operations implements the firm’s corporate
strategy and helps to build a customer-driven
firm.

It links long-term and short-term operations

decisions to corporate strategy.

It is the core of managing processes and

value chains.

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Customer-Driven Operations Strategy

Corporate strategy views the
organization as a system of
interconnected parts, each working with
the others to achieve desired goals.
Operations Strategy supports the
corporate strategy and requires
continuous cross-functional interaction.
The operations strategy should be
customer driven.

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Market Analysis
A Market Analysis is one key to developing a
customer-driven strategy, and is accomplished
in two parts.
• Market Segmentation, which identifies groups of
customers with enough in common to warrant
developing services and/or products for them.
• Needs Assessment identifies the needs of each
market segment. Needs include such things as:
• Service or product needs
• Delivery system needs
• Volume needs

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Quality “House of Quality”
Function
Deployment
Voice of
the
Engineer
Voice of Competitive
the Analysis
Customer Correlations

Technical Comparison
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Development Process
Service or product
Design not profitable

Specifications are
developed for new Need to rethink
services or products Analysis the idea.

A critical review of how

it will be produced, Post-launch
resource requirements Development review
and capabilities.
Cross-functional
coordination,
process design.

Sales & promotion

Full Launch 44
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Corporate Strategy and Key

Operations Management Decisions
Corporate
Corporate strategy
strategy

Market analysis

Competitive priorities

New
New Service/
Service/
No
Product
Product Development
Development
Performance
Gap?
Yes
Operations strategy

Decisions
• Managing Processes
Capabilities
• Managing Value Chains
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