Understanding 4 M’s of

Operations
 Topics
• Describe the 4 M’s of operations
• Develop the Business Model
• Forecast the revenues and costs to be
incurred by the business
• Compute for profit
• Create company’s five year projected
financial statements
THE 4M’S OF OPERATIONS
 OBJECTIVE
• Describe the 4Ms (Manpower, Method,
Machine, Materials) of operations in
relation to the business opportunity.
 ACTIVITY
• Each group will describe/define the
following words.
– Method
– Manpower
– Machine
– Materials
You are given 5 minutes to accomplish this
activity.
 4 M’s of Operations

1.Method
2.Manpower
3.Machine
4.Materials
 METHOD
• In mind…
– Steps to be followed
– Procedure
– Sequence of action
– Process
– System
– Standards to be followed
 METHOD
• in dictionary…
– An established, habitual, logical, or
prescribed practice or systematic
process of achieving certain ends
with accuracy and efficiency, usually in
an ordered sequence of fixed steps.
 METHOD
• Why do we need to know this?
– to know the most efficient way for each
portion of the process to be done
– to eliminate damage to the product
– to eliminate areas where time and
manpower are wasted
 METHOD
• Business implication:
– Wrong method of doing the jobs can be
expensive because you may not be
able to attain the results.
 MANPOWER
• In mind…
– Employees
– Workers
– Labor
– Human resource
 MANPOWER
• In dictionary…
– Power available from or supplied by the
physical effort of human beings
– The total supply of persons available
and fitted for service
 MANPOWER
• Why do we need to know this?
– To know the ideal number of people it
will take to perform these methods and
the positions they should be in
– To train and measure the performance
of the personnel 
– To know the “cycle time” of each part of
the method
 MANPOWER
• Business implication:
– Without manpower you are unable to
get your work done. Untrained man can
cause damage to goods.
 MACHINE
• In mind…
– Equipment
– Tools
– help increase productivity
– help lessen manpower
 MACHINE
• In dictionary…
– General: Semi or fully
automated device that magnifies human
physical and/or mental capabilities in
performing one or more operations.
– Mechanics: Device that
makes mechanical work easier by
overcoming a resistance (load) at one
end by application of effort (force) at the
other end.
 MACHINE
• Why do we need to know this?
–  To maximize the efficiency and
productivity of the department
–  To make sure that tools enable
employees to perform tasks
independently
– To allow employees have access to the
same tools and equipment needed
– To train employees on how to maintain
the machinery and tools
 MACHINE
• Business Implication:
– If machine has inferior quality it may
take a longer process to get the work
done
– Break down of machinery is down time
and that may incur higher cost. There is
a need to pay for repairs and materials.
 MATERIALS
• In mind…
– Supplies
– Ingredients
– Components
– Raw materials
 MATERIALS
• In dictionary…
– The matter from which something can be
made.
– It can include, but is not limited to, raw
and processed material, components,
parts, assemblies, sub-assemblies, and
small tools and accessories that may be
consumed directly or indirectly.
 MATERIALS
• Why do we need to know this?

– To perform all parts of production

– To know where to conveniently find the
materials
– To minimize waste of unnecessary
materials
 MATERIALS
• Business Implication:
– The use of the material in different
quantity or quality can affect the end
results causing a loss.
 GENERALIZATION

• I learned that
______________________.
 APPLICATION
• What is the importance of 4Ms of
operations in relation to the business
opportunity?
 EVALUATION: ¼ sheet of paper
Define briefly the following terms:
1. Manpower
2. Method
3. Machine
4. Materials
 4 M’s can be used to:
1. Develop a product description.
2. Create a prototype of the product.
3. Validate the service description of the
product to determine its market
acceptability.
4. Select/pinpoint potential suppliers of raw
materials.
5. Discuss the value chain/ supply chain.
6. Recruit qualified people.
 Develop a Product Description
• Consider the kind of product you would
like to produce.
• What are the features of the product?
• What additional service can you offer?
• Example:
– Barkada burger good for 8 persons with
beef patty, cheese, pickles and special
sauce
 Create a Prototype of the Product
• Make a sample of the product.
• How does it look like? What is the size?
What is the color? What is the taste? What
is the packaging? What is in the label?
• Miniature of the product/ actual size of the
product.
• Example:
– Burger size is 12 inches in diameter in
light brown-colored patty with pink
packaging
 Validate the Service Description of the
Product to Determine its Market
Acceptability
• Conduct test marketing in which the
product and its proposed marketing
program are tested in the actual setting.
• Usually through sampling or food taste
• Ask feedback through comments and
suggestions.
 Select/Pinpoint Potential Suppliers
of Raw Materials
1. Problem recognition
identifying the need to acquire
2. General need description
describing the characteristics of the item
3. Product specifications
identifying the technical characteristics
of the item
4. Supplier search
compiling a list of qualified suppliers
 Select/Pinpoint Potential
Suppliers of Raw Materials
5. Proposal solicitation
invitation for submission of proposals
6. Supplier selection
reviewing of suppliers proposals
7. Order routine specification
purchasing and writing of order
8. Performance review
assessment of supplier performance
 Discuss the Value Chain/
Supply Chain
• Supply chain- describes a longer
channel, stretching from raw materials to
components to final products that are
carried to final consumers.
• Example: the supply chain for PC’s
consists of suppliers of computer chips
and other components, the computer
manufacturer, distributors, retailers and
others who sell the computers
 Discuss the Value Chain/
Supply Chain
• Value Chain- the series of internal
departments that carry out value-creating
activities to design, produce, market,
deliver, and support a firm’s product.
• Example- the company’s goal is to create
customer value and satisfaction by
providing shoppers with products they
want at the lowest possible price.
 Recruit Qualified People
• Create Organizational Chart
(hierarchical positioning of employees)
• Identify Job Positions, Personnel
Qualifications and Duties and
Responsibilities
• Staffing
• Training and Development
• Motivation
• Maintenance
 Recruit Qualified People
Recruiting Sources:
• Internal search
– Employee referrals
– Employee promotions
• External search
– Advertisement
– Employment agencies, schools and
colleges, job fairs, professional
organizations, unsolicited applicants,
online recruiting
DEVELOP THE BUSINESS
MODEL
Understanding Reality
Understanding Reality

38
 Understanding Reality

“Wrong understanding of
reality leads to wrong
expectations…”
Understanding Reality

40
 What is a Business Model?
• A business model is a simple representation
of the complex reality of a business.
• We mean a model that describes the details
of a business: its goals, organizations,
business processes, or business rules.
• Businesses have complex reality. To be able
to manage this reality and solve business
problems, we need to create business
models.
 The Rise of Business Modeling
• Business people are increasingly
using models to communicate.

• Business models: business processes of

the organization, the goals and strategies,
or the policies and rules.
 What’s driving the growth of
business modeling?
1. Business organizations are using
business models to align business
initiatives with business needs.
2. Models help with the implementation of
change.
3. The need to manage increasing
complexity. Complexity is the key problem
in business today. Decisions are harder
now because there is more to consider.
i. Mission and Vision
ii. Goals and Strategies
(Management, Marketing, Operations and Financial)
iii. Policies and Rules
FORECASTING REVENUES
AND COSTS TO BE INCURRED
 Introduction to Forecasting
• What is forecasting?
– Primary function is to predict the future using
data we have in hand
• Why are we interested?
– Affects the decisions we make today
• Where is forecasting used in POM?
– forecast demand for products and services
– forecast availability/need for manpower
– forecast inventory and materiel needs daily
 What Makes a Good Forecast?
• It should be timely.
• It should be as accurate as possible.
• It should be reliable.
• It should be in meaningful units.
• It should be presented in writing.
• The method should be easy to use and
understand in most cases.
 In entrepreneurship…
• There’s no need to calculate and
solve on several methods in
forecasting…

• Generally, Subjective Method is

used by providing assumptions
 Subjective Methods
Judgment/expert opinion based methods
with (little or) no direct data on the process
to be forecast.
Generally no data/supporting forecast
requirement
May rely upon data from related process
for historical analogy
Best for long-range forecasts
More than two years out
 General Assumptions:
• Conservative assumption on increase or
decrease of :
– Sales (price multiplied to number of products
sold)
– Production Costs (costs incurred in making
the product which includes the raw materials,
utility, packaging and labeling and labor)
– Other Expenses (costs incurred in asset
acquisition, permit and licenses, advertising,
insurance, salaries, rent and other applicable
expenses)
 Assumptions are done
based on:
– Previous data
– Experts’ opinion
– Concept of Product Life Cycle
Product Life Cycle on Sales,
Profit and Expenses
• Sales (price multiplied to number of
products sold)

• Expenses (cost incurred in asset

acquisition, permit and licenses,
advertising, insurance, salaries, rent and
other applicable expenses)

• Profit (the difference between sales and

expenses)
 Product Life Cycle on Sales,
Expenses and Profit

Introduction Maturity
• S E P • S E P
Growth Decline
• S E P • S E P
 The Budget
• Sales budget: shows the estimated sales
in units and pesos
• Materials and purchase budget:
refers to the estimate of the materials
required by the firm, specified in quantities ,
costs, timing of purchase, the required
delivery dates and other requirements
• Production budget: an estimate of the
quantity of products that should be
produced in accordance with the sales
budget
 Forecasting Revenues and
Cost Incurred

• Create assumptions
• Create schedule of estimated sales
and production costs
 Assumption:
1. for a day a minimum of 50 servings will
be sold.
Schedule 1. Sales

quantity sold per

Sales per day Price
day
P1,000 20 50

     
P1,000 x 7days = P7,000  sales per week
P7,000 x 4 weeks = P28,000 per month
 Assumption:
2. for every 50 serving the production cost is
calculated as:
Schedule 2. Cost of Goods Sold for every 50 pieces
Budget
Components Description
Price

all ingredients for food;

Raw Materials all components and parts for non-food 300
Labor the effort provided by the worker 100
Packaging container of the product 50
this includes salaries of supervisors,
Overhead depreciation, light and water supplies
Cost and factory rent 200
    650
650 x 7days = 4,550 per week
4,550 x 4 weeks = 18, 200 per month
 Assumption:
3. before the operation, pre-operating
expenses are calculated as:
Schedule 3. Pre-operating Expenses
Components Budget Price
Permits and Licenses 2,000
Insurance 2,000
Advertisement 2,000
Salaries and Wages 3,000
Supplies 10,000
Rent 3,000
Total 22,000
 Assumption:
4. for every 10,000 pesos increase in
advertising, sales increases to two times
its amount.
Year 1 Year 2 year3

Sales 336,000 672,000 1,344,000

Advertising 24,000 34,000 44,000

 Assumption:
5. For every year, cost of goods
manufactured and sold decreases by
10% because of bulk purchase discounts
Year 1 Year 2 year3

CGMS 218,400 196,560 176,904

10% -21,840 -19,656 -17,690
discount
 Forecasted Sales and cost to
be incurred

Year 1 Year 2 Year 3

Sales 336,000 672,000 1,344,000
CGMS 218,400 196,560 176,904
Net Sales 117,600 475,440 1,167,096
COMPUTE FOR PROFIT
 Profit (Loss)
• The difference between sales and
expenses
• If the result is:
– Positive – the business earns profit
– Negative – the business incurs loss
 References:
Counts, R and C (2011). 4 M’s of Production Management. Retrieved from:
http://www.countsbusinessconsulting.com/all-catalogs/past-webinar-videos 
DeCenzo, D. and Robbins S. (2010)Human Resource Management. 10 th edition.
New Jersey: John Wiley & Sons Inc.
Gharaibeh, R. Modeling and Simulation of Business. Retrieved from:
Hand, M. (n.d.) Professor of Applied Statistics and Information Systems. Principles of
Forecasting. Retrieved from:
Kotler, P. and Armstrong G. (2013) Principles of Marketing. 14 th edition. England:
Pearson Education.
Lindeke, R. (n.d.) IE 3265 Forecasting Models . Retrieved from:
Medina, R. (2010) Business Finance. Philippines: Rex Bookstore Inc.
Machine definition. Retrieved from:
Manpower definition. Retrieved from:
Materials definition. Retrieved from:
Method definition. Retrieved from:
http://www.businessdictionary.com/definition/method.html#ixzz4ALptmGwn
 ACTIVITY
From the conceptualized business:
• Identify the 4 M’s needed by your
business
• Create a business model
• Forecast revenues and costs to be
incurred by the business
• Divide your group into three to
complete the tasks given
 Materials needed:

• Manila Paper
• Colored Cartolina
• Markers
• Other creative materials
 Time Allocation:
(2 hours)

• 10 minutes brainstorming10 minutes

• 10 minutes per part 60 minutes
(simultaneous with the other group)
• 10 minutes presentation 50 minutes
per group
 OUTLINE
(10 minutes per part)

I. 4 M’s of Operation
i. Product Description (Materials/Machine)
ii. Create Product Prototype (Methods)
iii. List method to test product prototype and
market acceptability
iv. List of potential suppliers
v. Present the supply/ value chain
vi. Present qualified people (Manpower)
 OUTLINE
(10 minutes per part)

II. Business Model

i. Mission and Vision
ii. Goals and Strategies
(Management, Marketing, Operations and Financial)
iii. Policies and Rules
III. Forecasting Revenues and Cost
i. Revenues
ii. Cost to be incurred
iii. Profit