Chapter I.

Introduction to Operation Management

Operation management - it is part of an organization that is responsible
for producing goods and services.
Production management - set of interrelated management activities,
which are involved in manufacturing certain products.
3 BASIC FUNCTIONAL AREAS
1. Finance securing financial resources at favourable prices (budgeting,
analysing investment proposal).
2. Marketing assess consumer wants and needs; selling and promotion.
3. Operation responsible for producing goods and services offered; core
of what the organization does.

7. Quality assurance services is more evident than manufacturing

because it can correct errors before customer receives the output.
8. Amount of inventory due to nature of manufacturing, it has usually
more inventory than service operation.
9. Evaluation of work evaluation of output of manufacturing is less
demanding than of service operation.
10. Ability to patent design product are easier to patent than service
design.
NOTE. Many service activities are essential in goods-producing companies.
(training, HR management, customer service, equipment repair ,
procurement and administrative services.
SCOPE OF OPERATION MANAGEMENT

Transformation process it is the converting of inputs into outputs.

Feedback measurements if the desired outputs are taken.

Operation management people involve in:

Control comparison of previous standards if there is a need for

corrective action.
Product packages combination of goods and service.
Value-added difference between the cost of inputs and the value or
price of outputs.
Technology choices have major impact on productivity, costs, flexibility
and quality and customer satisfaction.
GOODS vs. SERVICES

Product and service design, process selection, selection and

management technology, design of work systems, location
planning and quality improvement.

Operation function includes interrelated activities:

1. Forecasting
2. Capacity Planning essential to maintain cash flow and make
reasonable profit.
3. Scheduling
4. Managing inventories
5. Assuring quality emphasize safety and courtesy.
6. Motivating and training employees
7. Locating facilities

Differences:
1. Degree of customer contact service has a higher customer contact
than manufacturing. In service, sometimes customers are part of the
system of operation. In manufacturing, allows separation between
production and consumption, so that manufacturing can occur away from
the customer.

OPERATION MANAGER

2. Uniformity of input service operation is subject to a greater

variability of inputs than manufacturing. Manufacturing can control the
variability of its input.

System design involves decisions that relate to system capacity,

geographic location of facilities, arrangement of departments and
placement of equipment within physical structures product and service
planning and acquisition of equipment. Strategic decisions.

3. Labor content of Jobs services involve higher labor content than

manufacturing operations.
4. Uniformity of output
5. Measurement of Productivity due to uniformity, manufacturing is
more straightforward in production. Unlike in service operation, it considers
the customers to determine the density of its requirements.
6. Production and delivery

Guide the system by decision making that affects the operation of

the system.
Key figure in the system

Essentially determines many of the parameters of system

operation.

System operation involves management of personnel, inventory

planning and control, scheduling, project management and quality
assurance. Tactical or operational decisions.
Other areas that are part of the operation functions:

1. Purchasing responsible for procurement, receiving and

inspecting goods.
2. Industrial engineering concerned with scheduling,
performance standards, work methods, quality control and material
handling.
3. Distribution shipping of goods
4. Maintenance general upkeep and repair
Managerial kinds of job that operation manager oversee.
Operation core function
Operation function it is responsible for a major portion of assets in
most business organization.
Service sector and manufacturing sector are both important in
economy
OPERATION MANAGEMENT AND DECISION MAKING

Diff. types:
a. linear programming optimum allocation of scarce resources
b. queuing techniques useful in analyzing situations
c. Inventory models control inventories
d. project models useful for planning large scale of projects
(PERT,CPM)
e. Forecasting techniques planning and scheduling
f. Statistical models used in many areas of decision making
3. Performance Metrics use to manage and control operations
4. Analysis of trade-offs
5. A systems approach emphasize interrelationship among subsystem.
The whole is greater than the sum of its individual parts main
theme. Essential in design, redesigned, improve and change.
System a set of interrelated parts that must work together.
6. Establishing priorities
Pareto phenomenon - few factors account for a high percentage
of the occurrence of some events.

Operation manager = planner and decision maker

Tools necessary to handle decisions:

7. Ethics

1. Models abstraction of reality; representation of something (ex.

formuls, graphs and charts, financial statements and etc.)

1. legal department consulted on contracts

Classified as
a. Physical look like real-life; visual correspondence with reality
b. Schematic more abstract
c. Mathematical most abstract

3. management information system - provide info to

management to effectively manage

For each model, we have to learn:

1. its purpose
2. how to use to generate results
3. how results are interpreted and used
4. assumptions and limitations apply
Models are beneficial because:
1. easy to use and less expensive
2. require users to organize
3. increase understanding
4. manager can analyse what if questions
5. consistent tool and standardized format
6. bring the power of mathematics (viewpoint of users)
Limitations of model:
1. quantitave information may emphasize than qualitative info.
2. may be incorrectly applied and interpreted
3. does not guarantee good decisions
2. Quantitative approaches obtain mathematical optimal solutions to
managerial problems.

2. accounting- supplies info to manament (cost accounting)

4. personnel or HR dept recruitment and training

5. public relation maintaining positive public image
8. Career opportunities
HISTORY EVOLUTION
-

Industrial evolution began in 1770s in England and spread to

Europe and US during the 19th century.
In earliest part, craft production was used in manufacturing.
Craft production system requires skilled workers use simple,
flexible tools to produce small quantities of customized goods.
No economies of scale
Scientific manangement inteoduced by Frederick Winslow
Taylor (FATHER OF SCIENTIFIC MANAGEMENT)
This method emphasize maximizing output.

Ethical issues: (a manager must follow this)

FS accurate presentation
Worker safety adequate training; safe working environment

Product safety provide products that doesnt damage

environment totally
Quality- avoid defects; warranty
Environment dont do thing that will harm it
Community good neighbour
Hiring/Firing workers avoiding false promises
Closing facilities taking into account the impact of the community
Workers right respect

WHY STUDY OPERATION MANAGEMENT?

1. Internet, E-business (use of internet to transact business) and Ecommerce (Consumer to business transaction)
2. Technology application of discoveries to improve goods and services
(product and service technology, process technology and IT)
3. Globalization need of global supply chain
4. Management of Technology high on the list of the major trends
Supply Chain a sequence of activities and organizations involved in
producing and delivering of goods and services.
Outsourcing obtain product from outside the organization

1. To be able to work with one another and understand each role.

5. Agility to respond quickly on demands and opportunities

2. To have an effective exchange of information. The operation and

financial manager may cooperate on this activities:

6. Ethical behaviour commanding increased attention from

management

a. Budgeting
b. Economic analysis of investment proposals

Other trends:

c. Provision of funds

1. Operating strategy

Lead time time between ordering a good or service and receiving it.
The Principles of Scientific Management book of Taylor

2. Working with fewer resources - cost control; trade off decisions on

allocation of resources
3. Revenue Management maximize revenue

Other pioneers:

4. Process analysis and improvement cost and time reduction; six

sigma process (increase customers satisfaction)

1. Frank Gilbreth Father of motion study; industrial engineer

Total quality management = Total quality efforts

2. Henry Gantt Gantt Charts (Used for scheduling)

Process improvement can result into improved quality

3. Harrington Emerson improve organizational effiency

5. Increase regulation

4. Henry Ford great industrialist

6. Lean production minimal use of resourcs to produce high volumes of

outputs

Mass production low-skilled workers are used to produced high

volumes of standardized goods
Interchangeable parts parts of product that dont have to be
custom fitted

OPERATION TOURS

Division of Labor break up the production processes into small

tasks.

2. Product department

1. Superstores
3. Meat department

HUMAN RELATIONS MOVEMENT

4. Ordering

Lilian Gilbreth a psychologist; who focus on human factor of work. Most

of her work refers to worker fatigue

5. Inventory management

Elton Mayo studied the physical and technical aspect of work

7. Quality

Abraham Maslow develop motivational theories

8. Technology

TRENDS IN BUSINESS
Major trends:

6. Employees