OP ERATIONS MANAGEMENT

CHAPTER I. THE DOMAIN OF PRODUCTION

AND OPERATIONS MANAGEMENT
 In tro d u c tio n to Op e ra tio n s Ma n a g e m e n t
Learning Obje ctive s :
1. De fine ope ra tions ma na ge me nt.
2. Expla in the dis tinction be twe e n goods a nd s e rvice s .
3. Expla in the diffe re nce be twe e n production a nd productivity.
4. Ide ntify the critica l va ria ble s e nha ncing productivity.
 In tro d u c tio n to Op e ra tio n s Ma n a g e m e n t
• Production and operations managers operate within a social
and economic framework that imposes various constraints on
their efforts to produce products and services. Their role
involves managing the organization’s resources – people,
money, physical property, and the production of products and
services.

• Production is typically used to denote the process of converting

or transforming resources – such as materials, machines,
employees, and time – into goods or services. Although
productions primarily involves manufacturing, it also applies to
the creation of services.
 In tro d u c tio n to Op e ra tio n s Ma n a g e m e n t
• Operations is a broader term that encompasses all activities
associated with the production of goods and services. This
includes not only production but also transportation, supply,
and service.

• Basic task of preparing, cooking, and packaging

pizzas are essentially production functions.
• Delivering pizzas to customers’ homes involves
transportation, supply, and service
• Providing food for pickup or dining in involves both
supply and service.
 In tro d u c tio n to Op e ra tio n s Ma n a g e m e n t
• Production involves the intentional act of creating something
useful according to quantity demanded, quality specifications,
and delivery schedule. It is the process of converting or
transforming resources into products.

• Operations encompasses all activities associated with the

production of a product.

• A system provides an efficient and effective framework of

activities necessary to attain an objective. It can be viewed as
a purposeful grouping of elements or objects that perform a
specific and meaningful function as a whole.
 Ele m e n ts o f a P ro d u c tio n S ys te m
The production s ys te m cons is ts of:

1. A phys ica l ne twork of me n, ma te ria ls , ma chine s , a nd

proce s s e s .
2. An informa tion ne twork de s igne d to inte ra ct ha rmonious ly.

S ub-s ys te m within the P roduction S ys te m:

1. Physical System. This acts in the transformation of inputs to

product outputs.
2. Information System. This coordinates and controls the actions
of the physical system.
 Ele m e n ts o f a P ro d u c tio n S ys te m
The production s ys te m is cha ra cte rize d by:

1. A ma te ria l tra ns forma tion proce s s – cons is ts of inputs ,

a ctivitie s , a nd outputs .
2. A de gre e of re pe titive ne s s – to e ns ure e conomic a nd e fficie nt
production.
3. An informa tion s ys te m s upe rimpos e d on the phys ica l s ys te m
– coordina tion e ns ure s a s mooth flow of inputs through
va rious s ta ge s of ope ra tions re s ulting in the fina l product.
4. A ma te ria l proce s s flow – de pe nds on the na ture of the
product or s e rvice re nde re d by the compa ny.
 Ma n a g in g Re s o u rc e s
• Managing the resources needed to produce goods and services is
known as production/operations management (P/OM) or simply
operations management.

• Frederick Taylor, often referred to as the “the father of scientific

management” emphasized efficiency, stating that management is
about knowing exactly what you want men to do and then seeing to it
that they do it in the best and cheapest way.

• A more contemporary definition of management is the accomplishment

of desired objectives by creating an environment conducive to
performance by people operating in organized groups.
 Ele m e n ts o f a P ro d u c tio n S ys te m
Management typica lly involve s :

1. Planning – Establishing goals or objectives and the guidelines

for achieving them within a specified timeframe.
2. Organizing – Bringing together the necessary resources to
complete tasks.
3. Directing – Motivating people to perform tasks to attain
organizational goals.
4. Controlling – Monitoring and evaluating performance, and
correcting any problems as necessary.
S c o p e o f P ro d u c tio n /Op e ra tio n s Ma n a g e m e n t

Production and Operations Management Activities extend far

beyond manufacturing products. While manufacturing companies
are integral to our consumer society, producing a wide array of
products, production activities are also crucial in organizations
that provide services.

Service Organizations such as banks, hotels, and transportation

companies produce services in a manner similar to how
manufacturing companies produce goods.
S c o p e o f P ro d u c tio n /Op e ra tio n s Ma n a g e m e n t
In ge ne ra l, production and operations management deals with the
supply side of organizational activities, while marketing addresses
the demand side. Other key functional areas include finance,
which ensures adequate equity and debt capital to cover labor,
materials, and facilities cost.

The production manager’s goal is to deliver the end product in the

right quantity, quality, and time, economically. To achieve this, the
manager engages in product planning, process planning,
production planning and control, and quality control.
 Ke y Are a s o f P ro d u c tio n /Op e ra tio n s
Ma n a g e m e n t
Product Planning
• Involves top management and all sectors of the firm, including
finance, marketing, production, and technical departments.
Production plays a crucial role in product development.

Process Planning
• Follows product design and involves determining the
necessary machines, tools, personnel, and methods. It also
includes planning the general workflow, materials, and specific
work content and methods.
 Ke y Are a s o f P ro d u c tio n /Op e ra tio n s
Ma n a g e m e n t
Physical Facilities Management
• Considers the significant investment in manufacturing facilities.
Efficient arrangement of facilities impacts the final product cost.
Key areas include plant location, engineering economics, plant
layout, and materials handling.

Production Planning and Control

• Involves forecasting product demand and converting it into
production needs. This includes scheduling and adjusting
factors of production to avoid wide fluctuations, allowing for
economic manufacturing and purchasing batches.
 Ke y Are a s o f P ro d u c tio n /Op e ra tio n s
Ma n a g e m e n t
Quality Control
• Ensures the correct product quality consistent with minimal
resource usage. This includes setting quality standards and
maintaining them.

Methods Improvement
• Seeks the most efficient ways to produce a product. This
ongoing process involves developing and selecting the best
methods amid evolving materials, machines, and knowledge.
 Ke y Are a s o f P ro d u c tio n /Op e ra tio n s
Ma n a g e m e n t
Work Measurement
• Establishes labor time standards through techniques designed
to determine the time required for a qualified worker to perform
a job at a defined level of performance. This helps control labor
costs.

Materials Management
• Manages inventories to decouple successive operations,
avoiding direct synchronization of production with
consumption. The goal is to maintain an optimal inventory level
for economic efficiency. This involves scheduling production for
economical lot sizes and ensuring availability of
supplies.
 In te rre la tio n s h ip
Production and Operations managers are tasked with a variety of
activities, assembling and directing appropriate resources –
people, machines, and processes – to transform materials and
labor into products or services. Their role involves coordinating
inputs to produce desired outputs.

Successful organizations utilize reporting systems that provide

real-time feedback enabling managers to determine whether they
are meeting customer demands. Failure to meet these demands,
particularly in the private sector, results in the loss of customers.
Consequently, organizations must continuously redesign their
products and services.
 In te rre la tio n s h ip
Managers also respond to external forces such as government
regulations, labor demands, and economic conditions at local,
regional, and global levels. Staying attuned to these dynamic
external conditions is essential for maintaining effective
operations.
 Wh y s tu d y P ro d u c tio n /Op e ra tio n s
Ma n a g e m e n t?
1. Unde rs ta nding the S upply S ide of Orga niza tion

• Marketing Managers. Gain insights into the capabilities and

limitations of their demand-supply systems, improving market
service and sales force management.
• Financial Managers. Better plan for capacity expansion,
understand inventory purposes, and utilize modern planning
systems for forecasting capital and cash requirements.
• Personnel Managers. Appreciate job design complexities,
aiding in the design of training programs, compensation
systems, and recruitment processes.
 Wh y s tu d y P ro d u c tio n /Op e ra tio n s
Ma n a g e m e n t?
2. As s e t Conce ntra tion Control

• Approxima te ly 70% of a s s e ts in ma nufa cturing a nd proce s s ing

orga niza tions a re inve ntorie s , pla nt, a nd e quipme nt, a ll
controlle d by production or ope ra tions ma na ge rs . In s e rvice
orga niza tions , dire ct la bor ofte n cons titute s the ma jority of
ope ra ting e xpe ns e s , with s che duling be ing a n ope ra tions
re s pons ibility.
 Wh y s tu d y P ro d u c tio n /Op e ra tio n s
Ma n a g e m e n t?
3. Addre s s ing the P roductivity Cris is

• P roductivity me a s ure s how e ffe ctive ly a n orga niza tion us e s its

re s ource s to tra ns form inputs into outputs . Major factors
affecting productivity include:

i. Government Policy. Integrated planning, price stability, tax

policies, licensing, and support for small industries.
ii. Resource Endowment. Availability of natural, human, and
financial resources.
iii. Cultural/Social Values and Institutions. Societal attitudes and
local values influence productivity levels.
 P ro d u c t S a fe ty a n d Co n s u m e r P ro te c tio n
Most organizations provide goods and services that perform as
expected, offer good value, and are safe to use. However, some
products and services may still be unsatisfactory or unsafe in
certain applications.

In the 1960s, rising concerns about injuries from automobile

accidents led to new safety laws that required significant
redesigns of automobiles. This focus on consumer safety quickly
expanded. For instance, hazardous materials were found in tyos,
such as lead-based paint.
 P ro d u c t S a fe ty a n d Co n s u m e r P ro te c tio n
The food industry also faced scrutiny over health hazards of
artificial coloring, sweeteners, and preservatives.
Environmentalists and ecologists raised concerns about air and
water pollution and wildlife preservation.

These examples illustrate that product and service design is not

just about meeting market needs but also about adhering to
societal requirements imposed through government regulations
and pressures from consumer and environmental groups.
 P ro d u c t S a fe ty a n d Co n s u m e r P ro te c tio n
From a ma na ge ria l pe rs pe ctive , the cons ume r prote ction
move me nt pre s e nts two s ignifica nt cha lle nge s :

1. Compliance Costs. Meeting regulatory requirements can be

expensive. For example, the cost of automobiles increased
due to the addition of emission control and safety features.
Electric companies spend millions on “scrubbers” to reduce
air pollution. These costs are often passed on to consumers.
2. Increase in Lawsuits. There has been a rise in lawsuits
claiming damages from injuries caused by allegedly faulty
products and services.
 En viro n m e n ta l Co n s id e ra tio n s
The 1970s ma rke d a growing conce rn a bout the impa ct of
indus tria liza tion on the e nvironme nt, le a ding to wide s pre a d
s upport for e cologica l a nd e nvironme nta l prote ction me a s ure s .

Achieving environmental goals often involves trade-offs. For

example, automobile engines designed to minimize air pollution
may use fuel less efficiently, conflicting with efforts to reduce
gasoline consumption.

Balancing these socially desirable goals with resource scarcity

remains a challenge.