Om Reviewer
Om Reviewer
Om Reviewer
CHAPTER 1
INTRODUCTION TO OPERATIONS MANAGEMENT
Goods
- are tangible items sold to customers.
Service
- are tasks performed for the benefit of
the recipients.
Example of Supply Chain:
Finance Design - the design stage is where details of
- The ones that is responsible for fabrics, silhouettes, trims, and finishes are
securing the financial resources or the established.
budget of the organization. Producing Materials - the producing
materials stage where in buying materials
Marketing needed such as fabrics, yarn, etc.,
- Is the responsible for assessing Producing clothes - the clothing production
consumers needs and wants. phase involves the cutting, sewing, and
finishing of a garment.
According to the book the operation Distribution - at his stage the product will be
management is the CORE of the business delivered to the consumers, or the consumers
organization. will go to the tailoring shop to get their
clothes.
Supply Chain
- Is a sequence of activities and 1.2 Production of Goods and Services
organizations involved in producing
and delivering a good or service. It is
both external and internal.
- external parts of a supply
chain provide raw materials,
parts, equipment, supplies,
and/or other.
- internal parts of a supply
chain are part of the operations
function itself, supplying
operations with parts and
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operations management:
1. Assessment of customer's wants and
1.3 Why Learn about Operation needs
Management? 2. Benchmarking
3. Informing design in consumer’s
There are many career-related reasons for preference
wanting to learn about operations
management, whether you plan to work in the
field of operations or not. This is because Other functional areas of the organisation
every aspect of business affects or is affected where operations also interact with:
by operations. The fact that many service jobs 1. Legal department - Operations
are closely related to operations made it should consult the legal department on
interrelate to different functional areas in an contracts with employees, customers,
organisation. suppliers, and transporters, also with
the liability and environmental issues.
2. Accounting - Operations shall obtain
information from the accounting
department on costs of labour,
materials, and over-head, and may
provide reports on items such as
scrap, downtime, and inventories.
3. Management information systems
(MIS) - Operations shall be provided
by the MIS with the information it
needs to effectively manage. This
Activities requiring a cooperation between occurs mainly through designing
Finance and Operations: systems to capture relevant
1. Budgeting - Budgets must be information and designing reports.
periodically prepared to plan financial MIS is also important for managing
requirements. Budgets must the control and decision-making tools
sometimes be adjusted, and used in operations management.
performance relative to a budget must 4. Personnel or Human Resources -
be evaluated. HR is concerned with recruitment and
2. Economic analysis of investment training of personnel, labour
proposals - Evaluation of alternative relations, contract negotiations, wage
investments in plant and equipment and salary administration, assisting in
requires inputs from both operations manpower projections, and ensuring
and finance people. the health and safety of employees.
3. Provision of funds - The necessary 5. Public relations - this department has
funding of operations and the amount responsibility for building and
and timing of funding can be maintaining a positive public image of
important and even critical when the organisation.
funds are tight. Careful planning can
help avoid cash-flow problems. 1.4 Career Opportunities and Professional
Societies
The role of marketing in effective business
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- Manage projects.
Operation Management Skills
Social Media Product Manager
Political Awareness Necessary for - Identify ways to increase consumer
Credibility engagement.
- Analyze the key performance
Mentoring Ability Good Decision indicator and recommend
Making improvements.
- Lead cross-functional teams to define
Collaboration Product/ Service product specifications.
Knowledge - Collaborate with design and technical
to create key product improvements.
Negotiation Process Knowledge - Develop requirements for new Web
site enhancements.
Communication Industry and Global
- Monitor the competition to identify
Skills Knowledge
need for changes.
Knowledge Skills Financial and
Accounting Skills Professional Societies
- Any association or other organization
Project Management of people practicing the same
Skills profession, occupation, or specialty.
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1.8 The Historical Evolution of Operation 1. Product and service technology refers to
Management the discovery and development of new
products and services.
19th Century 2. Process technology refers to methods,
Industrial Evolution procedures, and equipment used to produce
Craft Production: Highly skilled workers goods and provide services.
using simple, flexible tools to produce. 3. Information technology (IT) refers to the
science and use of computers and other
20th Century electronic equipment to store, process, and
Scientific Management send information. Information technology is
The introduction of mass production and heavily ingrained in today’s business
division of labor to automotive industry. operations.
1960 Internet
Human Relation Movement Advanced technologies enabled the creation
The Theory X and Theory Y of Douglas of the Internet in the modern period,
McGregor and the Theory of Z by William considerably enhancing our quality of life.
Ouchi. Companies today use the internet to compete
with one another, but we must also keep in
1915 mind that there are many risks involved in
Decision Models employing this kind of setup.
Mathematical model for inventory ordering.
E-Business
1960-1980 A lot of electronic business or e-business has
Management Science developed and has become commonplace for
The widespread use of personal computers all types of business owners, whether they run
and user friendly software in the workplace. small or large corporations. This became their
new way to interact with their consumers and
1980 to Present even to their suppliers. Next is the most
Japanese Manufacturers familiar to the public e-commerce, this is
Emphasis of quality consumer-to-business transactions and even
buying online or even asking for information.
1.9 Operations Today However, business-to- business transactions
such as e-procurement represent an increasing
Technology share of e-business. E-business is receiving
- Technology in general meaning is increased attention from business owners and
application to scientific discoveries to managers in developing strategies, planning,
the development and improvement of and decision making.
goods and technology, process
technology and information Management of Technology
technology (IT) and services. While in Management of technology is high on the list
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CHAPTER 2
COMPETITIVENESS. STRATEGY AND PRODUCTIVITY
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- These include existing products and business, but creating separate organizational
services, and the potential for new and operational strategies
products and services.
6. Technology. Organizational - When you start a business,
- This includes existing technology, the you might begin with no employees or only a
ability to integrate new technology, few employee. As you grow, you assign
and the probable impact of technology different tasks to different staff members, all
on current and future operations. of whom report to you.
7. Suppliers. Operational - Maintaining a steady
- Supplier relationships, dependability workflow, whether for producing your product
of suppliers, quality, flexibility, and or administration, requires operational
service are typical considerations. procedures. This is best achieved by writing
8. Other. an operation manual with guidelines for each
- Other factors include patents, labor activity of your employees.
relations, company or product image,
distribution channels, relationships Differences of the two
with distributors, maintenance of - The two concepts are related but
facilities and equipment, access to distinct. Organizational issues focus
resources, and access to markets. on "who": assigning employees to
handle specific functions, setting up a
Supply Chain Strategy chain of command, assigning
- A supply chain strategy specifies how supervisory roles and duties and
the supply chain should function to creating interdepartmental
achieve supply chain goals. communications.
Sustainability Strategy Overlap of the two
- The sustainability strategy establishes - For operations to be effective, you
a framework for focusing on must have the right organizational
investment, driving performance, and structure. This requires you to analyze
engaging internal and external the operational needs you have,
stakeholders. function by function or department by
Global Strategy department, and create an organization
- A global strategy is an approach that helps your employees work
developed by an organization to together efficiently.
expand into the worldwide market.
The goal of creating a global strategy Operations strategy
is to grow sales all around the world. - The approach, consistent with the
organization strategy that is used to
2.4 Operations Strategy guide the operations function.
- The organization strategy provides the
Organization Strategy vs. Operations overall direction for the organization.
Strategy It is broad in Scope, covering the
entire organization.
“Organizational” refers to your business - Operations strategy is narrower in
structure, “operational” refers to how you scope, dealing primarily with the
get things done. Knowing these definitions operations aspect of the organization.
isn’t critical to successfully running your - Operations strategy relates to
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Processing time:
The time needed to produce goods or provide
services. This can involve scheduling, Productivity in the Service Sector
repairing equipment, methods used, - Productivity in the service sector is
inventories, quality, training, and the like. more challenging than in the
manufacturing sector. Because it
Changeover time: involves intellectual processes and has
The time needed to change from producing a high degree of variability, it is
one type of product or service to another. This frequently harder to evaluate and
may involve new equipment settings and regulate.
attachments, different methods, requipment,
schedules, or materials.
Deliver time:
The time needed to fill orders. Response time
for complaints: These might be customer
complaints about quality, timing of deliveries,
and incorrect shipments. These might also be
complaints from employees about working
conditions (e.g., safety, lighting, heat or cold),
equipment problems, or quality problems.
2.7 Factors that Affect Productivity
2.6 Productivity
1. Capital
Productivity 2. Quality
- A measure of the effective use of 3. Management
resources, usually expressed as the 4. Technology
ratio of output to input.
Other factors that affect productivity
include the following:
Productivity Growth 1. Standardizing processes and procedures
- growth is the increase in productivity wherever possible to reduce variability can
from one period to the next relative to have a significant benefit for both productivity
the productivity in the preceding and quality.
period. 2. Quality differences may distort
productivity measurements. One way this can
happen is when comparisons are made over
Computing Productivity time.
- Productivity measures can be based on 3. Use of the Internet can lower costs of a
wide range of transactions, thereby increasing
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CHAPTER 3
FORECASTING
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Degree of accuracy that can be assigned to a items because forecasting errors among items
forecast (i.e., the potential size of forecast in a group usually have a canceling effect.
error). Opportunities for grouping may arise if parts
Forecast accuracy is a function of the ability or raw materials are used for multiple products
of forecasters to correctly model demand, or if a product or service is demanded by a
random variation, and sometimes unforeseen number of independent sources.
events. 4. Forecast accuracy decreases as the time
period covered by the forecast—the time
Forecasts are made with reference to a horizon —increases. Generally speaking,
specific time horizon. short-range forecasts must contend with fewer
● Short-term forecasts pertain to ongoing uncertainties than longer-range forecasts, so
operations. . they tend to be more accurate.
● Long-term forecasts pertain to new
products or services, new equipment, new 3.3 Elements of a Good Forecast
facilities, or something else that will require a
somewhat long lead time to develop, 1. The forecast should be timely. Usually, a
construct, or otherwise implement. certain amount of time is needed to respond to
the information contained in a forecast. For
Two uses for forecasts. example, capacity cannot be expanded over
1. To help managers plan the system. night, nor can inventory levels be changed
- Planning the system generally involves immediately. Hence, the forecasting horizon
long-range plans about the types of must cover the time necessary to implement
products and services to offer, what possible changes.
facilities and equipment to have, where 2. The forecast should be accurate, and the
to locate, and so on. degree of accuracy should be stated. This will
2. To help them plan the use of the system. enable users to plan for possible errors and
- Planning the use of the system refers to will provide a basis for comparing alternative
short-range and intermediate-range forecasts.
planning, which involve tasks such as 3. The forecast should be reliable; it should
planning inventory and workforce work consistently. A technique that some
levels, planning purchasing and times provides a good forecast and sometimes
production, budgeting, and scheduling. a poor one will leave users with the uneasy
feeling that they may get burned every time a
3.2 Features Common to all Forecasts new forecast is issued.
4. The forecast should be expressed in
1. Forecasting techniques generally assume meaningful units. Financial planners need to
that the same underlying causal system that know how many dollars will be needed,
existed in the past will continue to exist in the production planners need to know how many
future. unitswill be needed, and schedulers need to
2. Forecasts are not perfect; actual results know what machines and skills will be
usually differ from predicted values; the required. The choice of units depends on user
presence of randomness precludes a perfect needs.
forecast. Allowances should be made for 5. The forecast should be in writing. Although
forecast errors. this will not guarantee that all concerned are
3. Forecasts for groups of items tend to be using the same information, it will at least
more accurate than forecasts for individual increase the likelihood of it. In addition, a
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of squared errors, and MAPE is the average utilize causal (explanatory) variables to
absolute percent error. make a forecast. consist mainly of
analyzing objective, or hard, data.
The formulas used to compute MAD, 1 MSE, They usually avoid personal biases that
and MAPE are as follows: sometimes contaminate qualitative
methods.
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Naive forecast
- A simple, but widely used approach to
forecasting is the naive approach, it
uses a single previous value of a
timeseries as the basis of a forecast.
A moving average forecast tends to smooth
and lag changes in the data.
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Forecast error
- The difference between the forecast
Comments on the Use of Linear Regression demand and the actual demand.
Analysis - Tracking the forecast errors can
1. Variations around the line are random. If provide useful insight on whether
they are random, no patterns such as cycles or forecasts are performing
trends should be apparent when the line and satisfactorily.
data are plotted.
2. Deviations around the average value (i.e., Variety of possible sources of forecast
the line) should be normally distributed. A errors:
concentration of values close to the line with a 1. The model may be inadequate due to (a)
small proportion of larger deviations supports the omission of an important variable, (b) a
the assumption of normality. change or shift in the variable that the model
3. Predictions are being made only within the cannot deal with (e.g., sudden appearance of
range of observed values. a trend or cycle), or (c)the appearance of a
new variable (e.g.,new competitor).
Weaknesses of Regression 2. Irregular variations may occur due to
● Simple linear regression applies only to severe weather or other natural phenomena,
linear relationships with one independent temporary shortages or breakdowns,
variable. catastrophes, or similar events.
● One needs a considerable amount of data to 3. Random variations. Randomness is the
establish the relationship (20 or more inherent variation that remains in the data
observations). after all causes of variation have been
● All observations are weighted equally. accounted for. There are always random
Nonlinear Regression Analysis variations.
- Nonlinear regression analysis is used
when more than one predictor variable Control Chart
is involved. When nonlinear - A visual tool for monitoring forecast errors.
relationships are present, you should
employ curvilinear regression; models
that involve more than one predictor
require the use of multiple regression
analysis.
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the results of the status quo forecast packages designed primarily for
are unacceptable statistical analysis. Almost all these
packages also offer forecasting
3.14 Computer Software in Forecasting capabilities, as well as extensive data
analysis capability.
Many software packages can be used for - However, their many features can be
forecasting, so it may be difficult to select overwhelming for someone
the right forecasting software. interested only in forecasting.
Examples: SPSS, SAS, NCSS, Minitab
Most forecasting software packages fall
into one of three categories: 3. Specialty forecasting packages
1. Spreadsheets - These packages often provide an
- These packages provide basic extensive range of forecasting
forecast capability, such as simple capability, though they may not offer
exponential smoothing and large statistical analysis capability.
regression. Simple forecasting These packages offer a wide range of
programs can be written very quickly forecasting models, whereas others
for most spreadsheet programs. specialize in a particular model
Disadvantage category.
- They do not have the capability for Examples: Forecast Master, Forecast Pro,
statistical analysis of forecast data SIBYL
Examples: Microsoft Excel, Corel Quattro,
Lotus 123
2. Statistics packages
- Statistical software includes
CHAPTER 4
PRODUCT AND SERVICE DESIGN
service.
4.1 Product and Service Design
Key Questions
What Does Product and Service Design
Do? Buyer’s Organization’s
Product design Standpoint Standpoint
- is the combination of manufacturing
capabilities with product and business How much is the Is there a demand
knowledge to convert ideas into cost? for it?
physical and usable objects.
Service design Are the quality and Can we do it?
- is the coordination and combination performance are
of people, communication, and good?
material components to create quality
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Product liability
- the responsibility of a manufacturer
for any injuries or damages caused by
Reasons for Product and Service Design or
a faulty product.
Redesign
• Economic
Republic Act No. 7394 The Consumer Act
• Social and demographic
of the Philippines
• Political, liability, or legal
• Competitive
ARTICLE 11. Amendment and
• Cost or availability
Revocation of Declaration of the Injurious,
• Technological
Unsafe or Dangerous Character of a
4.2 Idea Generation Consumer Product.
Any interested person may petition the
Reverse engineering appropriate department to commence a
- Dismantling and inspecting a proceeding for the issuance of an amendment
competitor’s product to discover or revocation of a consumer product safety
product improvements. rule or an order declaring a consumer product
Research and development (R&D) injurious dangerous and unsafe. The
- Organized efforts to increase department shall also direct the manufacturer,
scientific knowledge or product distributor or seller of such product to extend
innovation. any or all of the following remedies to the
injured person:
R&D efforts may involved in: - d) to pay the consumer reasonable
1. Basic research has the objective of damages as may be determined by the
advancing the state of knowledge about department.
subject, without any near-term expectation of
commercial applications. Example: Mitsubishi Montero Sport crash
2. Applied research has the objective of incidents in 2015
achieving commercial applications.
3. Development converts the results of Uniform Commercial Code
applied research into useful commercial - a product must be suitable for its
applications. intended purpose.
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Degree of Standardization
- Standardization refers to the extent to
which there is absence of variety in a
product, service, or process.
- Standardized products are made in
large quantities of identical items.
- Standardized service implies that
every customer or item processed
receives essentially the same service.
Introduction Phase
- Treated as a curiosity item. Benefits of Standardization
- Many potential buyers may suspect 1. Immediately available to customers.
that all the bugs haven’t been worked 2. Standardized products mean
out and that the price may drop after interchangeable parts, which greatly lower
the introductory period. the cost of production while increasing
- Strategically, companies must productivity
carefully weigh the trade-offs in 3. Design costs are generally lower.
getting all the bugs out versus getting 4. Reduced time and cost to train employees
a leap on the competition, as well as and reduced time to design jobs.
getting to the market at an
advantageous time. Advantages of Standardization
1. Fewer parts to deal with in inventory and
Growth Phase in manufacturing.
- It is important to obtain accurate 2. Reduced training costs and time.
projections of the demand growth rate 3. More routine purchasing, handling, and
and how long that will persist, and inspection procedures.
then to ensure that capacity increases 4. Orders fillable from inventory.
coincide with increasing demand. 5. Opportunities for long production runs and
automation.
Maturity Phase 6. Need for fewer parts justifies increased
- Demand levels off. expenditures on perfecting designs and
- Few, if any, design changes are improving quality control procedures.
needed.
- Generally, costs are low and Disadvantages of Standardization
productivity is high. New uses for 1. Designs may be frozen with too many
products or services can extend their imperfections remaining.
life and increase the market size. 2. High cost of design changes increases
resistance to improvements.
Declining Phase 3. Decreased variety results in less consumer
- Decisions must be made on whether appeal.
to discontinue a product or service
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process.
- The purpose is to ensure that
customer requirements are factored
into every aspect of the process.
The model employs three definitions of 4.9 Phases in Product Design and
quality: basic, performance, and excitement. Development
1. Basic quality refers to customer
Feasibility analysis.
requirements that have only a limited
- Feasibility analysis entails market
effect on customer satisfaction if
analysis (demand), economic analysis
present, but lead to dissatisfaction if
(development cost and production
not present.
cost, profit potential), and technical
2. Performance quality refers to
analysis (capacity requirements and
customer requirements that generate
availability, and the skills needed).
satisfaction or dissatisfaction in
- Also, it is necessary to answer the
proportion to their level of
question, Does it fit with the mission?
functionality and appeal.
It requires collaboration among
3. Excitement quality refers to a
marketing, finance, accounting,
feature or attribute that was
engineering, and operations.
unexpected by the customer and
Product specifications.
causes excitement (the “wow” factor).
- This involves detailed descriptions of
what is needed to meet (or exceed)
customer wants, and requires
collaboration between legal,
marketing, and operations.
Process specifications.
- Once product specifications have
been set, attention turns to
specifications for the process that will
be needed to produce the product.
- Alternatives must be weighed in
terms of cost, availability of
resources, profit potential, and
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database to function and that this - The facilities, processes, and skills
entails a considerable amount of effort needed to provide a service.
Product bundle
Production Requirements - The combination of goods and
- Designers must take into account services provided to a customer.
production capabilities. Service package
- Design needs to clearly understand the - The physical resources needed to
capabilities of production perform the service, the accompany
ing goods, and the explicit and
Manufacturability implicit services included.
- A key concern for manufactured
goods: Ease of fabrication and/or System design involves development or
assembly is important for cost, refinement of the overall service package :
productivity, and quality. With 1. The physical resources needed.
services, ease of providing the service, 2. The accompanying goods that are
cost, productivity, and quality are of purchased or consumed by the customer, or
great concern. provided with the service.
- The ease of fabrication and/or 3. Explicit services (the essential/core features
assembly. of a service, such as tax preparation).
4. Implicit services (ancillary/extra features,
Design for Manufacturing (DFM) such as friendliness, courtesy).
- is used to indicate the designing of
products that are compatible with an Overview of Service Design
organization’s capabilities. - The selection of a service strategy
Design for Assembly (DFA) establishes the target market, the
- Design that focuses on reducing the nature, and the focus of the service.
number of parts in a product and on Top management must evaluate the
assembly methods and sequence. potential market, profitability (or need,
in the case of a nonprofit
Component Commonality organization), and suitability of the
- The use of the same version of a organization to deliver the service,
component across multiple products, among other factors.
is increasingly considered as a
promising way to offer high external Differences between Service Design and
variety while retaining low internal Product Design
variety in operations 1. Products are generally tangible;
services are generally intangible.
2. In many instances services are created
and delivered at the same time
4.11 Service Design 3. Services cannot be inventoried.
4. Services are highly visible to
Service consumers and must be designed with
- Refers to an act, something that is that in mind
done to or for a customer (client, 5. Some services have low barriers to
patient, etc.). entry and exit.
Service delivery system 6. Location is often important to service
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CHAPTER 5
STRATEGIC CAPACITY PLANNING FOR PRODUCTS AND SERVICES
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relatively small increments to keep pace with 5.6 Forecasting Capacity Requirements
increasing demand.
Long-term capacity - needs require
An organization typically bases its capacity forecasting demand over a time horizon and
strategy on assumptions and predictions then con�verting those forecasts into capacity
about long-term demand patterns, requirements.
technological changes, and the behavior of
its competitors. It involves:
1. The growth rate and variability of
demand
2. The costs of building and operating
facilities of various sizes
3. The rate and direction of technological
innovation
4. The likely behavior of competitors,
and (5) availability of capital and other
inputs.
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