Lesson 1: Introduction to Operations Management

     
            This introductory lesson focuses on activating your prior knowledge on Management. It may sound repetitive
on your part as you might have studied this already in Senor High School, however, we would like you to have a
smooth transition from high school lesson to college lessons. Afterall, it is just practical to start our discussion with
something you are familiar with, so that you may not find it difficult to adjust to the more complicated topics.
So, when you hear the word Management, what comes into our mind? Perhaps you think of – a business,
people, managers, and the like. Several ideas might be running in your head now, and slowly you are able to recall
what you have learned in high school.
Management, as a distinct field of study, encompasses what we call “The Managerial
Functions” of Planning, Organizing, Staffing/Directing, Actuating, and Controlling. Now, our course, Operations
Management or Production and Operations Management (as previously known), is just one of the areas of concern in
management. However, we will still be talking about the Managerial Functions here as we study this course.
NOTE: In the past, the term Production  was considered to connote only the  manufacture of tangible items. Later, the
term  Operations was added to include references to non-manufacturing operations.  That’s why Production and
Operations Management and Operations Management are just the same. But we stick with our course description that
is,  Operations Management (OM).
 
Lesson Proper:
Basic Concepts on Operations Management (OM)
Operations as a competitive weapon is important to…
Accounting, which prepares financial and cost accounting information that aids operations managers in designing
and operating production systems.
The production system consists of inputs, processes, outputs, and information flows that connect with
customers and the external environment. It uses operation resources to transform inputs into desired
outputs. It is considered as the heart of Operations Management.
Inputs – includes human resources   ( workers, managers ), capital (equipment, facilities), purchased
materials and services, land, and energy
     It may also be raw materials, a customer, or a finished product from another system
Process – any activity or group of activities that takes one or more inputs, transforms  and adds value to
them, and provides output for a customer
Finance, which manages the cash flows and capital investment requirements that are created by the operations
function.
Human Resources, which hires and trains employees to match process needs, location decisions, and planned
production levels.
Management Information Systems, which develops information systems and decision support systems for
operations managers.
Marketing, which helps create the demand that operations must satisfy, link customer demand with staffing and
production plans, and keep the operations function focused on satisfying customer’s needs.
Operations, which designs and operates production systems to give the firm a sustainable competitive advantage.
Let’s take into consideration these terms, for us to have a clear understanding of our course description.
     1.Production – creation of goods and/or services

2. Management - denotes both FUNCTION and PEOPLE who discharge the functions
- A distinct process of planning, organizing, staffing, directing (actuating)and controlling for the
achievement of stated objectives efficiently and effectively by the use of human beings and other
business resources.

3. Operations – encompasses the overall activities within the organization

4. Organization – a business, an entity, a private school, a government office, a hospital, a restaurant, a
religious organization, etc. that is composed of people
5. Manufacturing firms – those companies/businesses engaged in the manufacture/creation/production of
tangible items. Tangible items are those that we could see and touch, like your smartphones,                              
laptops, house, buildings, etc.
6. Non-Manufacturing firms – those companies/business engaged offering non-tangible items. Non-tangible
items are those that we could experience or feel. It includes services of a hospital, a beautician, an artist, a chef, a
hotel, a school, and many others.
What is Production/Operations Management?
    Set of activities that creates goods and services by transforming inputs into outputs involving planning,
coordinating, and executing of all activities
    The management of systems or processes that creates goods and/or services
    The design, operation and movement of the production systems that create the firm’s primary product or
service.
Figure 1. OM Framework
Source: Chase, Richard,et.al. Production and Operations management, Manufacturing and Services 8 th ed.

 
 The market place ( the firm’s customers for its products/services) shapes the firm’s corporate strategy.
 The corporate strategy must be based on the corporate mission and reflects how the firm plans to use all its
resources and functions ( marketing, finance, operations).
 The operation’s strategy specifies how the firm will employ its production capabilities to support its corporate
strategy.
 The marketing strategy addresses how the firm will sell and distribute its g/s.
 The finance strategy identifies how best to utilize the firm’s financial resources.
Within the operations function, management decisions can be divided into three broad areas:
1. Strategic (long term) decisions – Operations management decision at this level impacts the company’s long-
range effectiveness in terms of how it can address its customer’s needs. Thus, for the firm to succeed, these
decisions must be in alignment with the corporate strategy
2. Tactical (intermediate term ) decisions – primarily addresses how to efficiently schedule materials and labor
within the constraints of previously made strategy decisions

1. Operational planning and control (short term) decisions – issues at this level include:
 What jobs do we work on today or this week?
 Who do we assign to what tasks?
 What jobs are priorities?
 
Operations resources consist of what we term Five P’s of OM
 People – direct and indirect workforce
 Plants – factories or service branches where production is carried out
 Parts – include the materials that go through the system
 Processes – equipment and steps by which production is accomplished
 Planning and Control system – procedure and information management used to operate the system
Figure 2: Functions within Business

Operations – consists of all activities directly related to producing goods or providing services
 Usually responsible for the actual transformation of inputs into finished products/services
Transformations that take place may include:
  Physical, as in manufacturing
 Location, as in transportation
 Exchange, as in retailing
 Storage, as in warehousing
 Physiological, as in healthcare
 Informational, as in telecom
 
Figure 3: Example of Transformation
Source: Chase, Richard,et.al. Production and Operations management, Manufacturing and Services 8 th ed.
 

Types of Operations

1.      Goods Producing ( e.g. farming, mining, manufacturing)

2.      Storage/Transportation ( e.g. warehousing, trucking, mail service, buses, hotel, airlines)
3.      Exchange (e.g. retailing, wholesaling, banking, leasing, library, loans)
4.      Entertainment (e.g. films, radio, TV, plays, concerts, recording)
5.      Communication (e.g. newspapers, radio, TV, telephone, satellites)
 
Finance – secures and invests the company’s capital assets
Finance and operations management personnel cooperate by exchanging information and expertise in
activities such as:
o     Budgeting – budget must be periodically prepared to plan financial requirements
o     Economic analysis of investment proposal – evaluation of alternative investments in plant and
equipment requires inputs from both operations and finance people
 o     Provision of funds – the necessary funding of operations and the amount and timing of funding
can be important and even critical when funds are tight
Marketing – consist of selling and/or promoting the g/s of an organization; generates demand for the  company’s
output
     Responsible for assessing customer wants and needs for communicating to operations people
NOTE: The three major functions within a business are interdependent.
     Having the financial resources and the ability to produce a product are of little value if there is no market
for the product
     Having the finance and a market for a product are of little value when one cannot provide the product
    The ability to produce a product and a market for the product are not sufficient if one does not have the
necessary capital to employ personnel, buy raw materials and put the other capabilities into action.
Scope of Operations Management
The scope of OM ranges across organizations. OM people are involved in:
 Product and service design
 Process selection
 Selection and management of technology
 Design of work systems
 Location planning
 Facilities planning
 Quality improvement of products and services
The operations function includes many interrelated activities such as:
 Forecasting
 Capacity planning
 Managing inventories
 Assuring quality
 Motivating employees
 Locating facilities
 Scheduling
 
OM and Decision Making
Key decisions include:

1. What resources will be needed?

1. When will each resource be needed? When should the work be scheduled? When should materials and
other supplies be ordered? When is corrective action needed?
2. Where will the work be done?
3. How will the product or service be designed? How will the work be done? How will resources be allocated?
4. Who will do the work?
General Approaches to Decision Making:

1. Models
2. Quantitative Approaches
3. Performance metrics
4. Analysis of Trade-Offs
5. Degree of Customization
6. Systems Approach
7. Establishing priorities
Models – an abstraction of reality, a simplified representation of something
 Classifications:

1. Physical models-look like the real-life counterparts ( miniature cars,toy animals, scale-model bldg.,etc.)

2. Schematic models – are more abstract that their physical counterparts (e.g. graphs, charts, blueprints, etc.)
3. Mathematical models – are the most abstract (e.g. numbers, formulas, symbols)
Quantitative Approaches to decision making in operations management have been accepted because of
calculators and computers capable of handling the required calculations.
Performance metrics are used to manage and control operations (e.g. metrics related to profits, costs, quality, etc.)
Analysis of Trade-Offs
 Decision makers compare the pros and cons of a course of action to better understand the consequences of
the decisions they make
Degree of Customization
 Highly customized products and services generally is more time consuming, requires highly skilled people,
and involves more flexible equipment than standardized ones.
Systems Approach
- Emphasizes interrelationships among subsystems  but its main theme is the whole is greater than the  sum
of its individual parts.
Establishing priorities
          - Managers recognizing the importance of a certain issue than others enable them to direct their efforts   to
where they will do the most good.