CHAPTER 8

Managing Operations
and Supply Chains
Facilitator: Naya Hapsari, M.Sc.

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 Operations Management
The development and administration of the
activities involved in transforming resources
into goods and services
• Historically, OM has been called “production” or
“manufacturing” limiting it to the manufacture of
physical goods
• The change from “production” to “operations”
recognizes services and ideas and views the function
as a whole
The Nature of Operations Management
Manufacturing
– The activities and processes used in making tangible
products; also called production
Production
– The activities and processes used in making tangible
products; also called manufacturing
Operations
– The activities used in making both tangible and
intangible products
 Transformation Process
At the heart of OM is the transformation process
through which inputs are converted into outputs
ü INPUTS: The resources – such as labor, money,
materials and energy – that are converted into
outputs
ü OUTPUTS: The goods, services and ideas that result
from conversion of inputs
• Operations managers control the process by taking
measurements (feedback) and comparing them to
established standards and taking corrective action for any
deviation
 The Transformation Process of
Operations Management
Combines inputs in predetermined ways using different
equipment, administrative procedures, technology, to
create a product
• Any deviation between actual and desired outputs
• Manager may take corrective actions

Jump to Appendix 1 for long image description

Inputs and Outputs and Transformation Processes
in the Manufacturing of Oak Furniture

1. Strip oak trees of bark and saw them into appropriate sizes
2. Firm dries the strips of oak lumber
3. Dried wood routed into its appropriate shape and smoothed
4. Assemble and treat wood pieces then stain/varnish piece
5. Completed piece stored until shipped to customers

Jump to Appendix 2 for long image description

 OM in Service Businesses
Transformation processes occur in all
organizations, regardless of what they produce or
their objectives
Significant customer-contact component to most
services
ü Strive to provide a standardized process, and
technology offers an interface that creates an
automatic and structured response
ü The output is generally intangible and even
perishable
• Few services can be saved, stored, resold, or returned
Manufacturers and Service Providers
Differences

Nature and consumption of output – services require

more customer contact and happen at the point of
consumption
Uniformity of inputs – services are more “customized”
to each consumer
Uniformity of output – each service is performed
differently
Labor required – services are more labor-intensive
Measurement of productivity – intangibility of the
service product makes measurement more difficult
 Planning the Product 1 of 2
Operations planning involves making the
following decisions:
ü What will we produce?
ü Who are our customers?
ü What processes will we use?
ü Where will we make our products?
 Planning the Product 2 of 2
Planning the product
ü Marketing research helps determine the product and
features customers want, gauge demand and set
price
ü Once management has a product, they must plan
how to produce the product
ü Operations managers plan for the resources needed
to complete the transformation process
Designing the Operations Processes
Products manufactured using one of three processes
ü Standardization
• The making of identical interchangeable components or
products

ü Modular Design
• The creation of an item in self-contained units, or modules,
that can be combined or interchanged to create different
products

ü Customization
• Making products to meet a particular customer’s needs or
wants
 Planning Capacity
The maximum load that an organizational unit
can carry or operate
ü The unit of measurement could be a worker or
machine, a department, a branch or an entire plant
ü Capacity can be stated in terms of inputs or outputs
ü Planning capacity too low results in unmet demand
while planning it too high results in higher cost
 Planning Facility Location
Significant due to the high costs involved and
complex because it involves the evaluation of
many factors, some of which cannot be
measured with precision
ü Proximity to market
ü Availability of raw materials, transportation, power,
labor
ü Climatic influences and community characteristics
ü Taxes and inducements
 Fixed-Position Layout
Fixed-Position Layout
– A layout that brings all resources required to create
the product to a central location
Project Organization
– The name given to companies using a fixed-position
layout because it is typically involved in large,
complex projects such as construction or exploration
 Process Layout
Process Layout
– A layout that organizes the transformation process
into departments that group related processes
Intermittent Organizations
– The name given to organizations that deal with
products of a lesser magnitude than project
organizations; their products are not unique but
possess a significant number of differences
 Product Layout
Product Layout
– A layout requiring production be broken down into
relatively simple tasks assigned to workers, who are
usually positioned along an assembly line
Continuous Manufacturing Organizations
– Companies that use continuously running assembly
lines, creating products with many similar
characteristics
 Computer-Assisted Design and
Manufacturing

Developments in computers and robotics have

strongly influenced the operations of many
businesses
ü Computer-Assisted Design (CAD)
• The design of components, products and processes on
computers instead of on paper

ü Computer-Assisted Manufacturing (CAM)

• Manufacturing that employs specialized computer systems to
actually guide and control the transformation processes
 Flexible Manufacturing and
Computer-Integrated Manufacturing
Robots have become particularly important in
industries in which human lives would otherwise
be at risk
ü Flexible Manufacturing
• The direction of machinery by computers to adapt to
different versions of similar operations
• The use of drones —unmanned aerial vehicles—in
business operations would vastly change the technology
landscape

ü Computer-Integrated Manufacturing (CIM)

• A complete system that designs products, manages
machines and materials, and controls the operations
function
 Technology

© Aaron Roeth Photography

The use of robotics in manufacturing is increasing,

especially in countries like the United States and Japan.
Sustainability and Manufacturing 1 of 2
ü Sustainability issues increasingly important to
stakeholders and consumers
ü “Green” operations improve a company’s reputation,
increase customer/employee loyalty, lead to increased
profits
• Pollution of land, air, water
• Urban sprawl
• Climate change
• Waste management
• GMOs
Sustainability and Manufacturing 2 of 2
• Adobe is a leader in sustainability
– Ranked as the greenest technology company
– It continually monitors energy use and takes steps to reduce it

• New Belgium Brewing

illustrates green
initiatives in operations
and manufacturing
– First brewery to adopt
100% wind-powered
electricity
– Reduced carbon
Sierra Nevada’s new brewery has received LEED
emissions by 1,800 certification (Leadership in Energy and
metric tons a year Environmental Design), showing that it was built
using sustainable guidelines.
 Supply Chain Management
Connecting and integrating all parties or members
of the distribution system in order to satisfy
customers; also called logistics
ü Obtaining/managing raw materials and component
parts
ü Managing finished products
ü Packaging products
ü Getting products to customers
 Purchasing
The buying of all materials needed by the
organization; also called procurement
• Aim is to obtain items of desired quality in the right
quantities at the lowest possible cost
• Companies may be able to make some component
parts more economically and efficiently
• Can arrange to lease the item from another company
• What the firm does depends on cost, product
availability, and supplier reliability
 Inventory
All raw materials, components, completed or partially
completed products, and pieces of equipment a firm uses
ü Finished-goods inventory – products ready for sale
ü Work-in-process inventory – products partly
completed
ü Raw materials inventory – all materials purchased to
be used as inputs for making other products
 Inventory Control
The process of determining how many supplies and
goods are needed and keeping track of quantities on
hand, where each item is, and who is responsible for it
ü Must be closely coordinated with operations
management
§ Each item held in inventory carries with it a cost

ü Inventory managers determine proper inventory level

for each item
§ Depends on usage rate, cost of maintaining the item in
inventory, other procedures associated with ordering or
making the item, and cost of the item
 Operations Managers and
Inventory Management

Operations managers
are concerned with
managing inventory to
ensure that there is
enough inventory in

© Andersen Ross/Digital Vision/Getty Images

stock to meet demand
 Approaches to Inventory Control
Economic Order Quantity (EOQ) Model
– A model that identifies the optimum number of items to
order to minimize costs of managing (ordering, storing and
using) them
Just-In-Time (JIT) Inventory Management
– A technique using smaller quantities of materials that
arrive “just in time” for use in the transformation process;
therefore require less storage space and other inventory
management expense
Material-Requirements Planning (MRP)
– A planning system that schedules the precise quantity of
materials needed to make the product
 Question
• Terdapat 5 pihak yg terlibat dalam "supply chain management", yaitu
supplier, manufacturer, distributor, retailer dan customer. Namun di
era industri 4.0 saat ini, perusahaan dapat menjual produknya
langsung kpd customer, contohnya melalui website atau
marketplace. Apakah benar kedepannya, perusahaan dapat
mengurangi biaya distribusi?
• Ketika suatu manajer operasional miss dalam inventory control
dikarenakan kurang tepat didalam menentukan material
requirements planning (MRP). Apakah hal tersebut bisa
menyebabkan Perusahaan gagal supply chains dan transformasi?
• Apa dampak yang ditimbulkan dari jika EOQ suatu perusahaan tidak
berjalan secara optimal?
 Outsourcing
The contracting of manufacturing or other tasks
to independent companies, usually overseas
– Globalization requires supply chain managers to
improve speed and balance resources
– Linked with competitive advantage
• Improved product quality
• Customers obtain products sooner
• Overall supply-chain efficiencies

– May raise negative public opinion

 Routing and Scheduling
Routing
– The sequence of operations through which the
product must pass; sequence depends on the
product specifications
Scheduling
– The assignment of required tasks to departments or
even specific machines, workers or teams
 Program Evaluation and
Review Technique (PERT)

q Identifies all major activities or events required to

complete a project
q Arranges them in a sequence or path
q Determines the critical path
• Path requiring longest time from start to finish is
called critical path as that is minimum time needed
for completion
q Estimates the time required for each event
Hypothetical PERT Diagram for a
McDonald’s Big Mac

Jump to Appendix 3 for long image description

 Managing Quality
Quality, like cost and efficiency, is a critical element of
operations management; defective products can quickly
ruin a firm
ü Quality reflects the degree to which a good or service meets
the demands and requirements of customers
ü Determining quality can be difficult because it depends on
customers’ perceptions

ü Quality is especially difficult to measure for a service

§ A company must define important quality characteristics into
measurable terms
 Operations Management Control
Quality Control
– The processes an organization uses to maintain its
established quality standards
Total Quality Management
– A philosophy that uniform commitment to quality in all
areas of an organization will promote a culture that
meets customers’ perceptions of quality
Statistical Process Control
– A system in which management collects and
analyzes information about the production process to
pinpoint quality problems in the production system
 Product Specifications and
Quality Standards

ü Must be set so company can compete in

marketplace
ü Company must first determine what
standard of quality it desires
• Manufacturing: Specifications such as metal
thickness
• Service: Standards such as customer wait time
International Organization for Standards
ISO9000 - A series of quality
assurance standards designed by the
International Organization for
Standardization (ISO) to ensure

© McGraw-Hill Education/Jill Braaten

consistent product quality under many
conditions

ISO14000 - A comprehensive set

of environmental standards that
encourages companies to conduct
business in a cleaner, safer and less
wasteful way; providing a uniform set
of global standards Several of FedEx’s worldwide facilities have
achieved ISO 14001 certification.
ISO19600 - A comprehensive set
of guidelines for compliance
management that address risks, legal
requirements, and stakeholder needs.
 Inspection
Inspection
– Reveals whether a product meets quality standards
– Inspecting finished items determines quality level
– Inspecting work-in-process items finds defects before
the product is completed so corrections can be made
 Sampling
Sampling
– Allows a company to pass an entire batch of products
through inspection by testing a sample
– Always the risk of making an incorrect conclusion
based on a sample
– Sampling more likely to be used when inspection
tests are destructive to the product
 Integrating Operations and
Supply Chain Management
ü Managing the various partners is important because
stakeholders hold the firm responsible
ü Companies can adopt a Global Supplier Code of
Conduct and ensure it’s communicated
ü Supply chain and procurement managers must work
together to make operational decisions
ü Must regularly audit suppliers against firm’s standards
and take action against those found to be in violation
 Reference
Ferrel, O.C., Hirt, Geoffrey A., dan Ferrell, Linda.
2017. Business Foundations: A Changing
World, 12th Edition. NY: McGraw-Hill.
 Thank You

Constant and frequent questioning is the first key to wisdom …

[Ibnu Sina]

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