 Overview of production/operations management

 The Objectives of operation Management

MODULE OVERVIEW  Characteristics of Services and Manufactured
product
 Concerpt production system
 The functions of management
Introduction to
 Relationship of operation and its environment
Production/Operation Management
 The importance of the location decision
 Plant location trends
Plant Location  Factors influencing location decisions
 Plant location model

 Overview
 Factors that influence layout
Facilities/Plant Layout
 Type of production method
 Basic type of layout
 Method of analyzing Product layout

Product Design  The importance of R & D

 Stages in product development process

 Overview
Project Management  Gantt charts
 Critical path analysis and PERT

Production Planning
(aggregate planning)  Overview
 Strategies for production planning

 Overview
Material Requirement Planning
 Objective of MRP
 ABC inventory classification
 EOQ model for independent demand items
(safety stock, lead time, quality discount)
Work Measurement
 Overview
 Objective
 Time concept in work measurement
 allowances
Quality Control

 Overview
 Measures of quality
 Objective of quality control
Maintenance  Types of inspection
 Cost of quality
 Control chart for attribute sampling

 Concept and its importance

 Preventive and breakdown maintenance
 Managing maintenance
 Recommended Study Plan

SEMINAR CHAPTER TOPIC STUDY

HOURS
Wk 1-3 Chapter 1 and 2  Introduction to production/operation 8
Seminar 1 management
 Plant location
Assignment 1

Wk 4-5 Chapter 3 and 4  Facilities/Plant layout 8

 Product design

Wk 6-7 Chapter 5 and 6  Project management 8

Seminar 2  Production planning
Submit Assignment 1
Assignment 2

Wk 8-10 Chapter 7 and 8  Material Requirement Planning 8

Seminar 3  Work Measurement
Submit Assignment 2
Assignment 3
Test 1 (Chapter 1 – 6)

Wk 11-14 Chapter 9 and 10  Quality control 8

Seminar 4  Maintenance
Submit Assignment 3
Revision Test 2 (Chapter 7 – 8)

Assessment
The final grade will be based on the following evaluation :

1. Assignments 20 %
2. Test 1 and Test 2 20 %
3. Final Examination 60 %

Total 100 %

1
 CHAPTER

OPERATIONS MANAGEMENT

Introduction to Plant Location Project Management Work Measurement

Operations
Management Plant Layout Production Planning Quality Control

Product Design Material Requirement Planning Mainlennance

Introduction to
Operation Management

Chapter Overview

Introduction to Operations Management

Definition

Operation System

Objectives of Operation Characteristics of Services and

Management Manufactured

Functions of Operation Relationship of Production and

Management its Environment
Table of Contents

Introduction to Operations Management 1

Chapter Overview 1

Learning Objectives 2

1.1 Overview of Production/Operation Management 3

1.2 Objectives of Production/Operation System 8

1.3 Characteristics of Services and Manufactured Products 8

SERVICES 9

Manufactured products 10

1.4 concept of an Operation System 10

SYSTEM – SUBSYSTEM RELATIONSHIP 11

1.5 The Functions of Operations/Production Management 12

1.6 Relationship of production/operations function and other functions in the

1.7 Organization 14

The Internal And External Environmental Influences 14

External Environment 16

Learning Objectives
After studying tjis topic, you should be able to :

1. Difine operation management

2. Discuss the three basic compenents of operations system
3. Determine the objectives of operations management
4. Explain the concepts of production/operations system
5. Discuss the role of an operation manager
6. Explain three important functions in an organization
7. Identify the internal and external environmental influences on an organization
1.1 Overview of Production/Operations Management

What comes to your mind when you hear the word production ?

I am sure many of us would imagine situations in the factories, machines and

production operation operators working on a product with noisy environment on the
production floor. Most of us confine our minds or thoughts to manufacturing
operations such as automobile assembly lines, food production and fabrication of
parts and compenents. This is because manufacturing industry has contributed
tremendously to the growth of this country’s economy generating revenues not only to
the nation but as well as the employment opportunities to the people at large.

However production activities also takes place in the service operations such as
banking, hospital, hotels, airline companies, agricultural department, restaurants and
other service organization. In fact production activities happen all the time around us
whether it is small, large, profit or non profit organization, even in your own home,
such as preparing lunch for the family to eat, cleaning the house, mowing the lawn
and so forth. Traditionally the scope of production management is focused on the
creation of goods. However, over the years the scope of production management has
broadened in nature covering the production of services, thus the term ‘operations
management’ is more appropriate to reflect the wide array of activities including both
goods and services production.

To understand in greater depth the subject of Production/Operations Management let us

begin by defining the word product.

Definition

Product or output can be defined as either goods or services. Product

Goods can be classified as consumer goods, industrial goods or

producer goods.

Production is defined as the creation of goods and srevices. Production

Operation Management can be defined as the activities related to the

creation of goods or services by process of transforming or converting Operations
inputs into outputs Management

You may find other definitions of production/operations management by other authors.

Look at the examples below :

Elwood S. Buffa/Rakesh K. Sarin

Operations Management is defined as the means by which we transform resource inputs to
create useful goods and service output.
Krajewski/Ritzman
Operations Management refers to the systematic direction and control of the process that
transform inputs into finished goods and services.

Everett E. Adam Jr. and Ronald J. Ebert

Operations Management is the management of the conversion process, which convert lands,
labor, capital and management inputs into desired outputs of goods and services.

Chase and Aquiline

Operation Management may be defined as managing the resources required to produce the
products or services provided by an organization involving raw materials, people, equipment
and facilities and seeing that a product or service is created.

 ACTIVITY
Can you give some examples of inputs, transformation process and outputs?

From the definition you will be able to identify three important elements of an operations
system. Some of you may have realized this fact. They are inputs, transformation process or
conversion process and outputs. (Figure 1)

Figure 1.1 the Operations Management

Inputs Transformation outputs

Process
 Human Resources  Fabrication and assembly  Goods 
Information of part  Services  Raw
Materials  Room Reservation
 Surgiral procedures

Feedback
Inputs
Input is the most important ingredient of a production system. It includes any entities that are
needed to produce goods such as human resources, machines, capital, land, information,
energy, raw materials and other supplied. For example the department store’s inputs include
the sales promoters, store clerk, equipment and merchandise.

Human resources includes for top management such as the Chief Executive of a company ,
directors, managers, supervisors, clerks, operators, technician and janitors.

Materials is the basic for the conversion process from raw materials to finished goods. For
example in a car assembly plant the materials would be the tires, engines, wheel, body shell,
and chassis. Many service organizations also require a certain kind of material such as
foodstuff in restaurant, medication in hospital and spare parts in automotive workshops and
postage stamps in post offices.

Information is important for an operations system. It facilitates the coordination of the

product/operations processes and provides the basic for making management decision.

 ACTIVITY
Can you think of other input resources besides those mentioned above ?

Transformations process
Transformation system or conversion system is the heart of an operation system. During this
process, the less valuable input resources are transformed into valuable process from of
output through a series of value added processes. Examples of transformation processes are
comfirming a reservation for a hotel room, surgical procedures in a hospital, order taking in a
fast food outlet and fabrication and assembly of parts in a automobile factory.

Factors affecting the transformation process are capacity, efficiency, effectiveness and
flexibility.

1. Capacity is determined by the following factors the size of a factor, the type and number
of equipment, the amount of labor, capital and energy available. How the facility is utilized
to genetare the desired output, and the amount of outputs.

2. Efficiency of the transformation process can be measured by its output per unit of input.

output
x 100%
input

A production system must strive to utilize all its inputs such as labor and materials in the
most productive way. This can be accomplished through proper product design, process
planning, maintenance, inventory planning and control.
3. Effectiveness is concerned with doing the right thing. Producing the right of outputs
and achieving the objective of the organization in timely faction.

4. Flexibility is the ability of a system to adapt quickly to produce outputs due to the changes
in the environment. A system that changes easily to meet customer’s preference and
customers’ demand has become an important factor to be competitive environment for
long term survival in the market place.

Outputs
The end-result of a production/operation system in the output in generates in the form of
goods or services or both.

Examples will be :

Consumer goods: clothing, furniture, jewelry, cars, books and toys

Industrial goods: parts and compenents, machines, material equipment and robots
handing orproducer goods

Services : hotels, banking, insurance, legal services, transportation, and

entertainment, safety and protective services, consulting services
and medical services.

In today’s businesses most companies produces a combination of both goods and services.
For examples, Sony TV manufacturer not only produces color TV but also provides other
services as well such as after sales services, warranties etc.

Feedback
The main function of feedback is to act as a control mechanism for operations system. It
includes measuring the operations system actual performance.

Random fluctuations that consist of unplanned or uncontrollable influences such as fire, flood
and earthquake and other natural disasters may cause late deliveries of supplied or
materials. The occurrence of economic turmoil, resignations of workers, power failure and
other uncontrollable factors certainly affect the actual output to differ from expected output
either in quality and quantity.

It is essential for the top management to determine factors that cause the deviation in
performance to enable the system to improve its performance in the future. Customers’
complaint regarding the system goods and services can provide an insight for product
improvement and customer satisfaction.
The feedback loop enables management to decide whether or not adjustments in the
organizational activities are needed. It is the essential element in exercising timely control
over the firm’s behavior.

Figure 1.2
 ITM as an Operations System (Service Organization)

Inputs Transformation outputs

Process
 Students  Lecturer imparting knowledge  Graduates
 Academic, Admin,  Students sitting examination
& supporting staff 
Classrooms & Lab 
Library

Feedback

Actual vs. desired

We can look at ITM for instance as an Operation system having its own sets of inputs,
transformation process and outputs. For example, ITM needs students, lecturers,
administration officers, clerks, laboratory assistant, classroom facilities and so forth as its
inputs. The main transformation process is the imparting of knowledge by the lecturers.
Students are required to fullfill the course requirement before they could be awarded a
diploma or a degree. The main outputis the graduate students. In this case, the
transformation process may take between two to three years. Transformation process in
some service or manufacturing organization may take a few hours or even minutes to deliver
an output. It is essential to take the shortest possible time to deliver the expected ouputs to
ensure competitive advantage.

Table 1.1

The input, transformation process and output of various operations system

System Inputs Conversion Process Outputs

Hospital patients Surgical procedures Healty people

Doctors Administering medication Dead people ?
Medical facilities

Airline Aircraft Air transportation Passengers

Pilot arriving at
destination

Restaurant Foodstuff Order taking Satisfied

Cooking utensils Cooking customer
Serving customers

Automobile Engine Fabrication & Assembly of parts Finished cars

factory Transmission and compenents
system Body
panels Tires

 ACTIVITY
Can you think of other production/operations system and its three important elements ?

1.2 Objectives of Productions System

The main objectives of a production/operation system is to provide conversion
capabilities to produce goods or services or both in achieving the organizational goal
and strategies in terms of quantity and quality requirement.

The conversion capabilities of a system is affected by its capacity, efficiency,

effectiveness and flexibility of the transformation process. These factors have been
discussed earlier.

The main objective can be translated into sub goals :

 To produce product or service that meets the specified standard at minimum
cost.
 To utilize labor, equipment and material (and other resources) efficiently. For
associated with the utilization of labor.
 To enhance productivity through efficiency of production process.
 To achieve customer satisfaction by providing quality goods and services at
competitive cost, and affordable prices within reasonable time schedule.
 To produce goods to meet expected demand and meeting the required
delivery date.
 To be an effective producer i.e maximize the value of output.
 To adapt for future survival i.e production system has to be flexible ability to
respond rapidly to changes in product design or process design.

1.3 Characteristics of Services and Manufactured Product

Althrough manufacturing operations and service operation require the same basic
elements, inputs, conversion and output, there are some differences between the two
because manufacturing is product oriented and service is act oriented.

Let us now look at each operation.

The basic characteristics between goods and services involve the following :
SERVICES

Intangible outputs
Services can be defined as an act/performance ar an effort or a deed. Basically services are
intangible; i.e. cannot be seem, touched or displayed. Examples of services are hotel
services, airlines services and transportation sevices.

Outputs cannot be Inventoried

Since services are intangible, it cannot be stored or inventoried. Services happen in a real
time condition. Thus operations manager faces the challenge of managing the demand and
supply of its services. Services operations must plan its production level to approximately
equal customer demand.

Extensive customer contact

Most high contact services require the customer to participate in the creation and service
delivery process. Customer involvement is essential due to simultaneity between
consumption and production of services. Customer must be present in the service factory to
receive the service because without their physical presence service cannot be delivere e.g.
getting a haircut, staying at a hotel, boarding an airplan, a visit to a clinic for medical check-
up.

Short lead times

services may, need to be delivered immediately when the customer wants the service.
Customer usually dislikes waiting to get a servise althrough most of the time customer may
have to wait for it. For instance, customer may have to queue up at the supermarket
checkout counter to pay for their groceries, or wait for an ordered meal to be served, or wait
for a car to be repaired. Generally, customers prefer to go to a service organization that can
deliver service in a speedy manner rather than waiting for considerable amount of time
before being served.

Labor Intensive
In high contact services, personnel plays an important role in the service process because
service delivery requires customers to interact face to face with the service provider. E.g.
check-in process at airport terminal.

Sevice quality is subjectively determined

The quality of services delivered to customers may vary from one occasion to the other.
Customers face higher risk in purchasing services rather than goods because customers are
not quaranteed of getting quality service all the time althrough they may have frequent the
service oulet. One of the main reasons contributing to this fact is the personnel element.
Personnel differ on their abilities and temperament these might affect the quality of service
delivered to customers.

Manufactured products
 Tangible products
Goods are tangible can be seen and touched and must be delivered to customers.
E.g. clothe, furniture and cars.

Products can be inventoried

Product can be produced in advance and held as inventories until the customers
need them. Production can be planned according to the forecasted demand.

Little contact with customer

In manufacturing operation customers are not involved in the production process.
Goods are produced in advance, sale and consumption comes later. For examples,
customers are not involved in the manufacturing of canned foodstuff.

Long lead times

It may takes several days or weeks to manufacture goods. Customers
may have to wait longer to receive an order for a car instance.

Capital-intensive
Most manufacturing companies are highly automated and capital-intensive, using
special purpose equipment and robots to manufacture goods such as in the car
assembly plant.

Product quanlity is objectively determined

Goods are produced against a predetermined standard or specification. Goods are
usually inspected to ensure that they meet the standard requirement, otherwise it will
be rejected. Only the good ones will be delivered to customers.

 ACTIVITY
Why is it important to understand the differences between manufacturing operation and
service operations ?

1.4 Concept of An Operations System

To gain a better understanding the production/operations system of an organization, we need
to view an organization as a system. Let us start by defining a system.

A system is an organized complex of interdependent components or subsystems to

achieve a particular objectives. It can also be defined as a collection of objects united
by some form of regular interaction and interdependence.

The operations manager takes these interacting variables and designs a system to
achieve a particular objective or mission. Examples of system are a business firm, a
solar system, a universe, human body or a hi-fit system. Operations system is an
example of such system whose main function is to create goods and services.

A system also contain smaller system which have their own goals and objectives. These
system are known as subsystems.
Subsystem is a system that provides inputs to another system.

Let us take a look at several assumptions of system and subsystem concepts.

 Each system or subsystem has their own goals and objectives. For example, the
objective of finance subsystem is to keep inventory close to zero whereas the
objective of operations subsystem is to keep sufficient inventories to satisfy future
demand.
 Each system or subsystem has boundaries that limit the nature and types of activities
it performs. However the boundaries separating the various subsystem are not clear
and distinct.
 Each system or subsystem is usually a part of a larger environment or another
system.
 Each system or subsystem is made up of subsystems that are interrelated in many
complex ways.
 Each system or subsystem engages in efforts and activities to ensure its goal are
satisfactorily achieved. Thus conflicting objectives must be avoided to enable the
system (the firm) to function at its best.

SYSTEM – SUBSYSTEM RELATIONSHIP

Two or more subsystem in an organization affect the operations of each other since they are
dependent upon one another for their inputs and outputs.

For example, a Business firm or an organization is a system whereas the department in the
Business firms act as a subsystem.

Figure 1.3 that follows the relationship of production/operations subsytem whose main
function is to create goods and services and other subsystem that exists in a business firm or
organization.

Figure 1.3 system – Subsystem Relationship

Lets take Proton Assembly Plant as our example of a system.

Proton is a business organization whose existence is to accomplish a specific purpose or

goal, that is to become one of the leading automobile manufacturer in Malaysia. These are
other subsystem such as finance subsystem, marketing subsystem and off course the
production/operation subsystem that make the Proton system which is also a part of a larger
environment. Thus, proton cannot exist without the support of the larger environment such as
its customers, suppliers of components and parts, shareholders and employees.

1.5 The Functions Of Operations/Production Management

What do production/operations managers do ?

Surely you can describe some of the functions of a production manager. Try listing a
few . . . .

Operations Manager performs the basic functions of the management process as illustrated
in Figure 1.4.

Figure 1.4 Transformation Process

Let us redefine operations/production system :

Production/operation management is defined as activities of transforming inputs such

as human resources, material and other input resources into outputs such as goods
 and services involving the management process of planning, organizing and
controllingof the either operations system.

 ACTIVITY
Why is it important for operations manager to apply the management process in the
production/operations function ?

1.6 Relationship Of Production/Operations Function And Other

Functions In The Organization.
The Internal And External Environment Influences

Figure 1.5 The Business Firm The Environment

Environment influencces the operations system either directly or indirectly. Internal

environment includes all subsystem within the organizaion or the business firm such as
operation, marketing, finance, R&D and purchasing departments.

The internal environment cosists of three primary functions :

 finance
 marketing
 operation/production

The success of any organization depends not only on how well each function performs but
also on how well the three functions inteface or interrelate with each other and other
supporting function within the internal environment. The understanding of system-subsystem
relationship concept is essential. Take a look at Figure 1.3 again. Notice the interface of
operations with other primary functions and a number of supporting functions in a achieving
organization’s objectives.

Finance
Managers in the finance are responsible for achieving the financial objectives of the firm. The
finance function comprises of activities related to securing resources such as raising funds
for the firm through the issuance of shares, arranging for short-term or long term financing at
favorable rates and allocating these resources throughout the firm.

Marketing
The main function of marketing is to create demand for the organization’s goods and
services. This would involve the activities of selling and promoting the goods of
anorganization. Marketing is also responsible for assessing customer wants and needs and
communicating these needs to the operations people.

Operations/Production
The operations/production function is the core of most business organization. It is
responsible for the conversion of inputs into outputs, i.e. producing goods or providing
services. As mentioned earlier in this module the operations function exists not only in
manufacturing operations, that are goods-oriented, but also in areas such as transportation,
insurance and banking which are service-oriented.

Supporting Functions

There are other supporting functions that interfaces with these three primary functions, they
are functions such as human resources, Reseach and development, purchasing and
engineering. Management has better control over the internal environments since it exists
within the business organization. The operations manager must keep the diffrent functions
focused on the overall organization.
External Environment

External environment exists outside the organization, e.g. government laws and regulations,
suppliers, competitors, economics and political situations of the country and other nations
may affects the decisions and behaviors of a business organization either directly or
indirectly. For example if the supplier of critical components or raw materials cease to supply
the needed material, the operations system may be unable to produce the goods required by
the customers. The organization may have to find other suppliers or search for other from of
materials.

The question is whether the change is acceptable to the customers. Besides that, the
organization need to abide to the rules and regulations imposed by the government and
other bodies of authority. Althrough the organization may find it difficult to control is external
environmen, adapting to the changes is essential to ensure that the system is operating at its
optimum level.

 ACTIVITY
Give other examples of internal and external factors affecting the organization.

 CHECKLIST

I am now able to :
 Define operations management

 Discuss the three basic components of operations system

 Determine the objectives of operations management

 Explain the concepts of production/operations system

 Discuss the role of an operations manager

 Explain three important functions in an organization

 Discuss the differences between the manufacturing and service operations

 Identify the internal and external environmental influences on an organization

SELF TEST QUESTIONS

1. a. Define production management

b. With an aid of a diagram, identify the inputs, conversion process and

outputs of a soft-drink production system.
2. State the inputs, conversion process and the outputs for the following production
system.

a. Auto factory
b. Hospital
c. Launderette

STUDY QUESTIONS

1. State and describe the main components of an operations/production system. Use

diagram to illustrate your answer.

2. Discuss the functions of ‘feedback loop’ in an operations system.

3. List the objectives of a production system.

4. Explain briefly the basic functions of an operations manager.

5. Briefly discuss the production system of an a manufacturing and service

organizations.

6. Discuss the differences between manufacturing and service operations.

7. What are the three main functions that must be performed in all organizations?
Define each one and their relationships.

Solution To Self Test Q

Q1

a. Production management relates to the creation of goods and service by

transforming (converting) inputs into outputs, involving the basic management
function i.e. planning, organizing and controlling the entire production.
 b. Production system of a soft-drink company

INPUTS TRANSFORMATION OUTPUTS

PROCESS

Water
Sugar Mixing and blending Canned or
Coloring of the ingredients bottled
Flayor soft-drink

FEEDBACK

Input Conversion Process Output

a. Auto Factory Fabrication, assembly of part Finished cars

Spare parts, Tyres

b. Hospital Medical Checkup and treatment Cured patient

Patients, Doctors,
Nurse, Pharmacist,
general workers

c. Launderette Washing, drying and ironing Clean clothes

Dirty clothes,
detergents, water