OPERATION MANAGEMENT & TQM
Historical Development of Operations
Management
1. The Industrial Revolution
• It started in the 1770s with the development of a number of
inventions that relied on machine power instead of human
power.
• The most important of these was the steam engine, which
was invented by James Watt in 1764.
• Industrial Revolution is an industry movement that changed
production by substituting machine power for labor power.
• The concept of division of labor was introduce in this time.
This concept would become one of the important ideas
behind the development of the assembly line. Division of
labor means that the production of a good is broken down
into a series of small, elemental tasks, each of which is
performed by a different worker.
2. Scientific Management
• approach to management promoted by Frederick W.
Taylor at the turn of the 20th century.
• sought to increase worker productivity and organizational
output.
• 2 key features:
1. workers are motivated only by money and are limited only
by their physical ability.
o Workers are to be paid in direct proportion to how
much they produce
2. the separation of the planning and doing functions in a
company, which meant the separation of management and
labor.
• Management is responsible for designing
productive systems and determining acceptable
worker output. Workers have no input into this
process—they are permitted only to work.
• Scientific management is an approach to management that
focused on improving output by redesigning jobs and
determining acceptable levels of worker output.
• Hawthorne studies
➢ The study responsible for creating the human
relations movement, which focused on giving
more consideration to workers’ needs.
➢ The purpose was to study the effects of
environmental changes, such as changes in
lighting and room temperature, on the productivity
of assembly-line workers.
3. Human relations movement
• An entirely new philosophy based on the recognition that
factors other than money can contribute to worker
productivity.
• Job Enlargement
➢ an approach in which workers are given a larger
portion of the total task to do.
➢ Additional tasks aside from your job or own task.
• Job Enrichment
➢ In which workers are given a greater role in
planning.
➢ Enrichment of your specialization.
4. Management Science
• developed by F.W. Harris in 1913
• A field of study that focuses on the development of
quantitative techniques to solve operations problems.
5. The Computer Age
• 1970s the use of computers in business.
• Data processing became easier, with important effects in
areas such as forecasting, scheduling, and inventory
management.
• A particularly important computerized system, material
requirements planning (MRP), was developed for
inventory control and scheduling.
• Material requirements planning
➢ Was able to process huge amounts of data in
order to compute inventory requirements and
develop schedules for the production of
thousands of items, processing that was
impossible before the age of computers.
6. Just-in-time (JIT)
• A philosophy designed to achieve high-volume production
through elimination of waste and continuous improvement.
• Developed in Japan in the 1980s, that is designed to
achieve high-volume production using minimal amounts of
inventory.
7. Total Quality Management (TQM)
• Refers to a quality emphasis that encompasses the entire
organization, from supplier to customer.
• Seeks to improve quality by eliminating causes of product
defects and by making quality the responsibility of
everyone in the organization.
• ISO 9000
➢ Is a set of International Organization for
Standardization (ISO) quality standards created
for global manufacturers to control trade into the
then-emerging European Economic Community
(EEC). Many firms need suppliers to achieve ISO
9000 standards to win contracts.
8. Business process reengineering
• Redesigning a company’s processes to increase efficiency,
improve quality, and reduce costs.
• Reengineering requires asking why things are done in a
certain way, questioning assumptions, and then redesigning
the processes.
9. Flexibility
• An organizational strategy in which the company attempts
to offer a greater variety of product choices to its
customers.
• Mass customization
➢ The ability of a firm to produce highly
customized goods and services and to do it at the
high volumes of mass production.
 OPERATION MANAGEMENT & TQM

10. Time-based competition ‘Operations’ as a meaning the part of the

• An organizational strategy focusing on efforts to develop function, organization which
new products and deliver them to customers faster than produces the products and
competitors. services for the
• Time-based competition requires specifically designing the
organization’s external
operations function for speed.
customers;
11. Supply chain management (SCM) 1990’s ‘Operations’ as an meaning the management
• Involves managing the flow of materials and information activity, of the processes within
from suppliers and buyers of raw materials all the way to any of the organization’s
the final customers. functions.
• The network of entities that is involved in producing and
delivering a finished product to the final customer is called
a supply chain. The objective is to have everyone in the • Production
chain work together to reduce overall cost and improve ➢ Is the creation of goods and services.
quality and service delivery. ➢ “operations” can take many different forms. The
• It is consisting of multiple firms/organizations and transformation process can be:
departments collaborating to leverage strategic positioning
and to improve operating efficiency.

12. Electronic commerce (e-commerce)

• Is the use of the Internet for conducting business activities,
such as communication, business transactions, and data
transfer.
Business-to-business (B2B) Electronic commerce
between businesses.
e.g collabs o Goods
Business-to-customers Electronic commerce ➢ Are physical items inclusive of raw
materials, parts, subassemblies, such as
(B2C) between businesses and their the engine system used in car, and final
customers. exchange, as products such as computers and
engaged in by on-line machineries.
retailers such as o Services
Amazon.com, Shopee and ➢ Are activities that provide a
Lazada combination of time, location, form,
Customer-to-customer Electronic commerce and psychological value.
(C2C) between customers. as on
consumer auction sites such
as eBay.
• E-commerce is creating virtual marketplaces that continue
to change the way business functions.
Function of Business Organization
13. Outsourcing & flattening of the world
• Outsourcing is obtaining goods or services from an outside The 4 primary functional areas of organization:
provider. This can range from outsourcing of one aspect of Marketing, which generates the demand, or
the operation, such as shipping, to outsourcing an entire part at least takes the order for a
of the manufacturing process. product or service (nothing
• Outsourcing has been touted as the enabling factor that helps happens until there is a sale).
companies achieve the needed speed and flexibility to be which is responsible for
competitive. communicating the
• Operations Management (OM) organization’s products and
➢ Is the business function that plans, organizes, services to its markets in
coordinates, and controls the resources needed to order to generate customer
produce a company’s goods and services. requests for service;
➢ Refers to the systematic design, direction, and Production/operations, which creates, produces, and
control of processes that transform inputs into delivers the product.
services and products for internal, as well as Which is responsible for
external customers. fulfilling customer requests for
service through the
production and delivery of
products and services.
 OPERATION MANAGEMENT & TQM

Finance/accounting, which tracks how well the

organization is doing, pays the
bills, and collects the money.
Which provides the information
to help economic decision-
making and manages the
financial resources of the
organization;
Human resources which recruits and develops the
function organization’s staff as well as
looking after their welfare.
Operations in the service sector
Production Service
Production of goods results in a Service, on the Other
tangible output, such as an hand, generally implies
automobile, a clock an act.
radio, a golf ball, a refrigerator-
anything that we can see or
touch. It may take place in a
factory, but can occur
elsewhere.

We study OM for four reasons:

1. we study how people organize themselves for productive
enterprise. Productivity
2. because we want to know how goods and services are produced.
3. to understand what operations manager.
A measure of how efficiently inputs are being converted into outputs.
4. because it is such a costly part of an organization.
Productivity is the value of outputs (services and products) produced
What do operations (supply chain) managers do? divided by the values of input resources (wages, cost of equipment, and
• Operations managers are the improvement people, the
so on) used.
realistic, hard-nosed, make-it-work, get-it-done people, the
planners, coordinators, and negotiators. Productivity = output / input
They perform a variety of tasks in many different types of businesses
and organizations. Such as;
1. decision support, Measures of Productivity
2. process improvement, and
3. organizational performance. 1. Single-factor productivity

Managers focused on: (Partial productivity) - Productivity computed as a ratio of output to

• continuous quality improvement projects only one input (e.g., labor, materials, machines).
• analyzes methods and systems for managing information.;
• staffing patterns and workflow for computerized scheduling
systems;
• consolidating policies, procedures and practices;
• developing and implementing balanced scorecards and
benchmarking reports;
• designing new process for effectiveness; and
• conducting training sessions on process mapping and
analysis. 2. Multifactor Productivity relates output to a combination of inputs,
such as (labor + capital) or (labor + capital +energy + materials).

is an index of the output provided by more than one of the resources

2 broad categories of organizations:
manufacturing
organizations
manufacturing organizations
produce physical, tangible
goods that can be stored in
inventory before they
are needed.
most customers have no
direct contact with the
operation. Customer
contact occurs through
distributors and retailers.
used in production; it may be the value of the output divided by the
service organizations
sum of labor, materials, and overhead costs.
service organizations
produce intangible products
that cannot be produced
ahead of time.
Product cannot be
inventoried.
High customer contact 3. Total factor productivity compares the total quantity of goods and
Labor intensive services produced with all the inputs used to produce them.
Productivity computed as a ratio of output to all organizational inputs.
 OPERATION MANAGEMENT & TQM

Variety Handling a wide assortment of

Volume Flexibility
services or products efficiently.
Accelerating or decelerating the
rate of production of service or
products quickly to handle large
functions in demand.

Productivity & the Service Sector

• Service sector companies have a unique challenge when
➢ Productivity is essentially a scorecard of how efficiently trying to measure productivity.
resources are used and a measure of competitiveness. • Services primarily produce intangible products, such as
➢ Productivity can be measured for individuals, departments, ideas and information, making it difficult to evaluate quality.
or organizations. • Consequently, accurately measuring productivity
➢ Competitiveness improvements can be difficult.
- The degree to which a nation can produce goods and
services that meet the test of international markets.

Competition within Industries Increases when: Operations Strategy in a Global

Environment

Strategy
• derives from the Greek word ‘strategos’ meaning
‘leading an army’.
• Strategy is an organization’s action plan to achieve the
mission. These strategies exploit opportunities and
strengths, neutralize threats, and avoid weaknesses.

‘Strategic decisions’
• Those decisions which are widespread in their effect on the
organization to which the strategy refers, define the
Competitive Capabilities are the cost, quality, time, and flexibility position of the organization relative to its environment, and
dimensions that a process or supply chain possesses and is able to move the organization closer to its long-term goals.
deliver. • ‘strategy’ is more than a single decision; it is the total
pattern of the decisions and actions that influence the long-
nine broad competitive priorities that fall into the 4 capability term direction of the business.
groups:

Low-cost Operations Consistent Quality Operations Strategy

• Is concerned in the pattern of strategic decisions and
Delivery Speed Volume Flexibility
actions which set the role, objectives, and activities of the
Cost: Delivering a service or a operation.
Low-cost operation product at the lowest possible • Its role is to provide a plan for the operations function so
cost to the satisfaction of that it can make the best use of its resources.
external or internal customers of ✓ The content of operations strategy is the specific
the process or supply chain. decisions and actions which set the operations
Quality : Delivering an outstanding role, objectives, and activities.
Top quality service or product ✓ The process of operations strategy is the method
Consistent quality Producing services or products that is used to make the specific ‘content’
that meet design specifications decisions.
on a consistent basis.
Business Strategy includes:
Time: Quickly filling a customer’s
1. developing an understanding of what business the company is in
Delivery Speed order
(the company’s mission),
On-time Delivery Meeting delivery- time
2. analyzing and developing an understanding of the market
promises
(environmental scanning),
Development Speed Quickly introducing a new
3. identifying the company’s strengths (core competencies).
service or a product
Flexibility: Satisfying the unique needs of
Customization each customer by changing Mission – A statement defining what business an organization is in,
service or product designs who its customers are, and how its core beliefs shape its business.
 OPERATION MANAGEMENT & TQM

• Firms achieve missions in three conceptual ways: The process of operations strategy
1. differentiation, formulation processes include the following elements:
2. cost leadership, and 1. Link to business strategy
3. response. 2. Used competitive factors as the translation device between
business strategy and operations strategy.
Environmental scanning - is the monitoring the external process of 3. customers’ preferences.
environment. And allows a company to identify opportunities and 4. Comparison of competitive advantage to others.
threats. 5. An emphasis on operations strategy formulation as an iterative
• Trends in the environment: process.
Marketplace trends 6. The concept of an ‘ideal’ or ‘greenfield’ operation against which to
Economic trends compare current operations.
Political trends 7. A ‘gap-based’ approach.
Social trends
The 5 P’s of operations strategy formulation:
Core competencies 1. purpose
• (Third factor) The unique strengths of a business. 2. point of entry
• This may include special skills of workers, such as 3. process
expertise in providing customized services or knowledge of 4. project management
information technology. 5. participation

3 inputs in developing a business strategy: Issues in operations strategy

✓ Resources view - A method managers use to evaluate the
resources at their disposal and manage or alter them to
achieve competitive advantage.
✓ Porter’s value-chain analysis or value-chain analysis - is
used to identify activities that represent strengths, or
potential strengths, and may be opportunities for
developing competitive advantage.
✓ SWOT analysis - is a formal review of internal strengths
and weaknesses and external opportunities and threats.

Building & staffing the organization

Organizational chart showing the three major business functions:

Global operations strategy options

International business Multinational corporation

Developing an operations strategy (MNC)
is any firm that is a firm with extensive
Competitive priorities - Capabilities that the operations function can engages in international international business
develop to give a company a competitive advantage in its market.
trade or investment. involvement.
4 broad categories: MNCs buy resources, create
goods or services, and sell
Cost Quality goods or services in a variety
of countries.
Time Flexibility
 OPERATION MANAGEMENT & TQM

Types of forecasting method

Qualitative method Quantitative
method
Characteristics Based on human Based on
judgement opinions; mathematics
subjective and non-
mathematical
Strengths Can incorporate latest Consistent and
changes in the objective able to
environment and consider much data
“inside information” at one time
Weaknesses Can bias, the forecast Often quantifiable
and reduce forecast data are not
accuracy available. Only as
good as the data on
which they are
Disadvantages of globalization based.
1. acquiring new technology or adjusting some
activities to cope up on the capacity of the area; Types of qualitative forecasting methods
2. political risks; 1. Salesforce estimates
3. employee skills may be lower in foreign countries, requiring 2. Executive Opinion
additional training time; 3. Market Research
4. designing effective supply chains; 4. The Delphi Method
5. environmental events; and more.
2 main approaches to quantitative forecasting
• Time series analysis
Ethical, Workforce diversity, & environmental issues • Causal modelling techniques
Some countries are more sensitive than others about;
1. conflicts of interest, 5 basic patterns of time series model
2. bribery, Horizontal The fluctuation of data around a constant
3. discrimination against minorities and women, mean.
4. minimum-wage levels, and Trend The systematic increase or decrease in the
5. unsafe workplaces.
mean of the series over time.
Seasonal A repeatable pattern of increases or
decreases in demand, depending on the
time of day, week, month, or season.
Cyclical The less predictable gradual increases or
Forecasting decreases in demand over longer periods
of time (years or decades).
Forecasting analyzes historical data to forecast trends. Forecasting Random The unforecastable variation in demand.
helps businesses manage budgets and plan for future spending.

Principles of forecasting Forecast errors are defined as providing important clues for making
• Forecasts are rarely perfect. better forecasts.
• Forecasts are more accurate for groups or families of items
rather than for individual items. Demand-Forecast= Forecast error
• Forecasts are more accurate for shorter than longer time
horizons.

5 basic steps in forecasting process

1. Determine the purpose of the forecast
2. Evaluate and analyze appropriate data
3. Select and test the forecasting model
4. Generate the forecast
5. Monitor forecast accuracy
 OPERATION MANAGEMENT & TQM

Cumulative sum of forecast errors (CFE) Absolute percent error

• Measures the total forecast error.
• CFE is also called the bias error and results from consistent
mistakes—the forecast is always too high or too low. This
type of error typically causes the greatest disruption to
planning efforts.
l E l / Dt x 100 = l Pct Error l
|E| / actual demand * 100
Get the per period percentage error
Two decimal point ONLY= round off

Total of all forecast error in period

Average forecast error

sometimes called the mean bias.
n = number of periods

Mean square error (MSE)

Total errors or the CFE divide the number of periods given.

Error ^2 / n
Absolute error
The absolute value (or modulus) | x | of a real number x is the mean absolute percent error (MAPE) {not that relevant}
non-negative value of x without regard to its sign.

Errors negative to positive number.

Mean absolute deviation (MAD)

|E| / n
 OPERATION MANAGEMENT & TQM

Weighted Moving Average Method

A time-series method in which each historical demand in the
average can have its own weight; the sum of the weights equals
1.0.

The naïve method

is one of the simplest forecasting models. It assumes that the
next period’s forecast is equal to the current period’s actual.

Simple Moving Average Method

A time-series method used to estimate the average of a demand
time series by averaging the demand for the n most recent time
periods.