PAMANTASAN NG LUNGSOD NG MAYNILA

OPERATION MANAGEMENT (TQM)

TUESDAY AND FRIDAY
7:00 AM – 8:30 AM
CBM 0011-6

Course Description

An examination of how companies manage processes to produce the products or

services required by their customers, including product design, supply chain
management, quality, inventory, and planning.

Course Introduction

Operations management is a science that we are all familiar with, at least to some
degree. None of us have infinite resources, and we must allocate the resources we do
have properly. Think about the process of preparing a meal: you must gather all the
ingredients and prepare them for cooking. Certain ingredients go in at certain times.
Occasionally, you fall behind or get too far ahead, and that jeopardizes the entire meal.
Of course, if you find that you don't have enough ingredients, you then have even more
problems. All these elements of meal preparation – purchasing ingredients, prepping
them, mixing them together, boiling or baking the dish, serving, and cleaning – can be
seen as parts of operations management.

In the realm of business, operations management is more complicated than preparing

a family meal. There may be hundreds or thousands of participants, rather than just
you and your friends or family in the kitchen. Each participant has a specific role in the
operations process; if any step of the process is disrupted, the whole process can stall
or fall apart. Smart operations managers will have contingency plans in the event that
stoppages occur.

In this course, you will learn the fundamentals of operations management as they apply
to both production and service-based operations. Successfully completing this course
will empower you to implement the concepts you have learned in your place of
business. Even if you do not plan to work in operations, every department of every
company has processes that must be completed, and someone savvy in operations
management will be able to improve just about any process.

This course includes the following units:

Unit 1: Overview of Operations Management

GROUP RESEARCH AND PRESENTATION

Unit 2: Operations Strategy

Unit 3: Product Design and Process Selection
Unit 4: Supply Chain Management (SCM)
Unit 5: Just-In-Time and Lean Systems
Unit 6: Capacity Planning and Facility Layout
Unit 7: Work Systems Design
Unit 8: Inventory
Unit 9: Quality Management
Course Learning Outcomes

Upon successful completion of this course, you will be able to:

• explain the role of operations management and the use of the transformational
model in the success of manufacturing and service organizations.
• evaluate the importance of market needs and operational capabilities (e.g.,
productivity, workflow, and quality) in formulating a business strategy that
creates a sustainable competitive advantage;
• analyze operation processes from a variety of perspectives such as
productivity, workflow, and quality;
• discuss the goal of Supply Chain Management and its application in a variety
of organizational settings;
• apply basic design principles to determine the appropriate facility location and
layout.
• explain techniques and methods for creating and evaluating work systems
design.
• identify the critical factors involved in inventory control systems; and
• explain quality management and apply continuous quality improvement
principles to operations management.
 Unit 1:

Overview of Operations Management

Operations management is a vast topic but can be bundled into a few distinct
categories, each of which will be covered in later units. (It should be noted, however,
that entire courses could be devoted to each of these topics individually.) Because
most people do not work in a formal operations department, we will begin with an
overview of operations management itself. The top manager of an operations
department is usually called the Director of Operations. Most operations departments
will report to a Chief Operating Officer (COO), who reports to the Chief Executive
Officer (CEO). The COO is often considered the most important figure in a firm, next
to the CEO.

The history of operations management can be traced back to the industrial revolution
when production began to shift from small, local companies to large-scale production
firms. One of the most significant contributions to operations management came in the
early 20th century when Henry Ford pioneered the assembly line manufacturing
process. This process drastically improved productivity and made automobiles
affordable to the masses. Understanding the motivations behind innovations of the
past can help us identify factors that may motivate individuals in the future of
operations management.

Upon successful completion of this unit, you will be able to:

• define operations and operations management.

• differentiate between manufacturing and service operations.
• describe the role of an operations manager within an organization.
• relate operations to the other functional areas of a business organization; and
• identify and apply the elements of the transformation model to the relationship
between the inputs, processes, and outputs of an organization.

1.1: Introduction to Operations Management

1 Understanding Operations Management

Consider the ingredients of your breakfast this morning. Unless you live on a farm and
produced them yourself, they passed through several different processing steps
between the farmer and your table and were managed by several different
organizations. Similarly, your morning newspaper was created and delivered to you
through the interactions of several different organizations.

Every day, you use a multitude of physical objects and a variety of services. Most of
the physical objects have been manufactured and most of the services have been
provided by people in organizations. Just as fish are said to be unaware of the water
that surrounds them, most of us give little thought to the organizational processes that
produce these goods and services for our use. The study of operations deals with how
the goods and services that you buy and consume every day are produced.

2 Operations, operations management, and operations managers

Every organization has an operations function, whether or not it is called ‘operations.

The goal or purpose of most organizations involves the production of goods and/or
services. To do this, they have to procure resources, convert them into outputs, and
distribute them to their intended users. The term operations embrace all the activities
required to create and deliver an organization’s goods or services to its customers or
clients.

Within large and complex organizations operations is usually a major functional area,
with people specifically designated to take responsibility for managing all or part of the
organization’s operations processes. It is an important functional area because it plays
a crucial role in determining how well an organization satisfies its customers. In the
case of private sector companies, the mission of the operations function is usually
expressed in terms of profits, growth, and competitiveness; in public and voluntary
organizations, it is often expressed in terms of providing value for money.

Operations management is concerned with the design, management, and

improvement of the systems that create the organization’s goods or services. The
majority of most organizations’ financial and human resources are invested in the
activities involved in making products or delivering services. Operations management
is therefore critical to organizational success.

2.2 The historical development of operations management

Operations in some forms have been around as long as human endeavor itself but, in
manufacturing at least, it has changed dramatically over time, and there are three
major phases - craft manufacturing, mass production, and the modern period. Let's
look at each of these briefly in turn.

2.2.1 Craft manufacturing

Craft manufacturing describes the process by which skilled craftspeople produce

goods in low volume, with a high degree of variety, to meet the requirements of their
individual customers. Over the centuries, skills have been transmitted from masters to
apprentices and journeymen and controlled by guilds. Craftspeople usually worked at
home or in small workshops. Such a system worked well for small-scale local
production, with low levels of competition. Some industries, such as furniture
manufacture and clockmaking, still include a significant proportion of craft working.

2.2.2 Mass production

In many industries, craft manufacturing began to be replaced by mass production in

the 19th century. Mass production involves producing goods in high volume with low
variety – the opposite of craft manufacturing. Customers are expected to buy what is
supplied, rather than goods made to their own specifications. Producers concentrated
on keeping costs, and hence prices, down by minimizing the variety of both
components and products and setting up large production runs. They developed
aggressive advertising and employed sales forces to market their products.

An important innovation in operations that made mass production possible was the
system of standardized and interchangeable parts known as the ‘American system of
manufacture’ (Hounshell, 1984), which developed in the United States and spread to
the United Kingdom and other countries. Instead of being produced for a specific
machine or piece of equipment, parts were made to a standard design that could be
used in different models. This greatly reduced the amount of work required in cutting,
filing, and fitting individual parts, and meant that people or companies could specialize
parts of the production process.
A second innovation was the development by Frederick Taylor (1911) of the system of
'scientific management’, which sought to redesign jobs using similar principles to those
used in designing machines. Taylor argued that the role of management was to
analyze jobs in order to find the ‘one best way’ of performing any task or sequence of
tasks, rather than allowing workers to determine how to perform their jobs. By breaking
down activities into tasks that were sequential, logical, and easy to understand, each
worker would have narrowly defined and repetitious tasks to perform, at high speed
and therefore with low costs (Kanigel, 1999).

A third innovation was the development of the moving assembly line by Henry Ford.
Instead of workers bringing all the parts and tools to a fixed location where one car
was put together at a time, the assembly line brought the cars to the workers. Ford
thus extended the ideas of scientific management, with the assembly line controlling
the pace of production. This completed the development of a system through which
large volumes of standardized products could be assembled by unskilled workers at
constantly decreasing costs – the apogee of mass production.

2.2.3 The modern period

Mass production worked well if high volumes of mass-produced goods could be

produced and sold in predictable and slowly changing markets. However, during the
1970s, markets became highly fragmented, product life cycles reduced dramatically,
and consumers had far greater choices than ever before.

An unforeseen challenge to Western manufacturers emerged from Japan. New

Japanese production techniques, such as total quality management (TQM), just-in-
time (JIT), and employee involvement were emulated elsewhere in the developed
world, with mixed results. More recently, the mass production paradigm has been
replaced, but there is as yet no single approach to managing operations that has
become similarly dominant. The different approaches for managing operations that are
currently popular include:

• Flexible specialization (Piore and Sabel, 1984) in which firms (especially small
firms) focus on separate parts of the value-adding process and collaborate
within networks to produce whole products. Such an approach requires highly
developed networks, effective processes for collaboration, and the
development of long-term relationships between firms.
• Lean production (Womack et al., 1990) which developed from the highly
successful Toyota Production System. It focuses on the elimination of all forms
of waste from a production system. A focus on driving inventory levels down
also exposes inefficiencies, reduces costs, and cuts lead times.
• Mass customization (Pine et al., 1993) which seeks to combine high volume,
as in mass production, with adapting products to meet the requirements of
individual customers. Mass customization is becoming increasingly feasible
with the advent of new technology and automated processes.
• Agile manufacturing (Kidd, 1994) emphasizes the need for an organization to
be able to switch frequently from one market-driven objective to another. Again,
agile manufacturing has only become feasible on a large scale with the advent
of enabling technology.

In various ways, these approaches all seek to combine the high volume and low cost
associated with mass production with product customization, high levels of innovation,
and high levels of quality associated with craft production.
2.3 The role of the operations manager

Some people (especially those professionally involved in operations management!)

argue that operations management involves everything an organization does. In this
sense, every manager is an operations manager, since all managers are responsible
for contributing to the activities required to create and deliver an organization’s goods
or services. However, others argue that this definition is too wide and that the
operations function is about producing the right amount of a good or service, at the
right time, of the right quality, and at the right cost to meet customer requirements.

Operations Management
LEARNING OBJECTIVES

Explain the role of operations management.

KEY TAKEAWAYS

Key Points

• The goal of operations management is to maximize efficiency while producing

goods and services that effectively fulfill customer needs.
• Operations is one of the three strategic functions of any organization.
• Operations decisions include decisions that are strategic in nature, meaning
that they have long-term consequences and often involve a great deal of
expense and resource commitments.

Key Terms

• strategy: A plan of action intended to accomplish a specific goal.

• tactic: A maneuver or action calculated to achieve some end.
• Operations management: Management of processes that transform inputs into
goods and services that add value for the customer.

What is Operations Management?

Operations management is the management of processes that transform inputs into

goods and services that add value for the customer.

The Goal of Operations Management

The goal of operations management is to maximize efficiency while producing goods

and services that effectively fulfill customer needs.

Countless operating decisions must be made that have both long- and short-term
impacts on the organization’s ability to produce goods and services that provide added
value to customers. If the organization has made mostly good operating decisions in
designing and executing its transformation system to meet the needs of customers, its
prospects for long-term survival are greatly enhanced.
For example, if an organization makes furniture, some of the operations management
decisions involve the following:

• purchasing wood and fabric,

• hiring and training workers,
• location and layout of the furniture factory,
• purchase cutting tools and other fabrication equipment.

If the organization makes good operations decisions, it will be able to produce

affordable, functional, and attractive furniture that customers will purchase at a price
that will earn profits for the company.

The Role of Operations Management in the Organization

Operations is one of the three strategic functions of any organization. This means that
it is a vital part of accomplishing the organization’s strategy and ensuring its long-term
survival. The other two areas of strategic importance to the organization are marketing
and finance. The operations strategy should support the overall organizational
strategy. Many companies prepare a 5-year pro-forma to assist in their operational
planning. The pro forma uses information from past and current financial statements
in an effort to predict future events such as sales, and capital investments.

Strategic Versus Tactical Operations Decisions

Operations decisions include decisions that are strategic in nature, meaning that they
have long-term consequences and often involve a great deal of expense and resource
commitments.

Strategic operations decisions include the following:

• facility location decisions,

• the type of technologies that the organization will use,
• determining how labor and equipment are organized,
• how much long-term capacity the organization will provide to meet customer
demand.

Tactical operations decisions have short to medium-term impacts on the organization,

often involve less commitment of resources, and can be changed more easily than
strategic decisions. The following are some tactical decisions:

• workforce scheduling,
• establishing quality assurance procedures,
• contracting with vendors,
• managing inventory.

Strategic and tactical operations decisions determine how well the organization can
accomplish its goals. They also provide opportunities for the organization to achieve
unique competitive advantages that attract and keep customers.

For example, United Parcel Service (UPS), an international package delivery service,
formed a partnership with its customer, Toshiba computers. Toshiba needs to provide
a repair service to its laptop computer customers. The old approach to providing this
service was cumbersome and time-consuming:
 1. UPS picked up the customer computers.
2. UPS delivered the computers to Toshiba.
3. Toshiba repaired the computers.
4. UPS picked up the repaired computers and delivered them back to the
customers.

Under this traditional approach, the total time to get a laptop computer repaired was
two weeks—a long time for people to be without their laptop! Then they came up with
an innovative idea for Toshiba to provide better service to its customers.

UPS hired, trained, and certified its own employees to repair Toshiba laptop
computers. The new repair process is much more efficient:

UPS picks up computers from Toshiba owners.

UPS repairs the computers.
UPS delivers the computers back to their owners.
The total time to get a computer repaired is now about two days.

Most Toshiba customers think that Toshiba is doing a great job of repairing their
computers, when in fact Toshiba never touches the computers! The result of this
operations innovation is better service to Toshiba customers and a strong and
profitable strategic partnership between UPS and its customer, Toshiba.

Service Operations
Service and manufacturing operations share many similarities. However, there are
some significant differences. This section provides an overview of those differences.

Services operations often encounter different opportunities and challenges than

tangible goods and thus require unique operational considerations.

LEARNING OBJECTIVES

Identify the key differences between services and other types of goods and recognize
the operational implications of these differences.

KEY TAKEAWAYS

Key Points

• Service operations are the operational strategies and tactics which go into
delivering an intangible good to prospective consumers.
• Understanding this field of work requires an understanding of what a service
constitutes. One useful perspective in differentiating services from other goods
is the ‘5 I’s of services’ perspective.
• As services behave somewhat differently than tangible products, operations
managers must consider different considerations when optimizing their
operational strategy.
• Improving overall quality through measuring consumer satisfaction, planning
facilities for optimal use of space, and effective scheduling are a few examples
of considerations service operators consider.
Key Terms

• Intangibility: The state of not being touchable. For example, an idea is real,
but not tangible.
• opportunity costs: The overall cost of something missed; through deciding to
do ‘A’, an individual or organization incurs the opportunity cost of doing ‘B’.
• NPS (Net Promoter Score) surveys: Management tools that can be used to
gauge the loyalty of a firm’s customer relationships. It serves as an alternative
to traditional customer satisfaction research and claims to be correlated with
revenue growth.

Services Defined

An easy way to remember what a service is (compared to a product) is through using

the ‘5 I’s of Services:

1. Intangibility – Services cannot be touched, shipped, handled, or looked at. They

are an occurrence, not a tangible good.
2. Inventory – Services cannot be stored for later use. They occur, or they do not
occur.
3. Inseparability – Services cannot be pulled into different parts or separated (as
many tangible goods can be—which makes operations management quite
different for products).
4. Inconsistency – Services tend to be unique. A teacher may teach you a topic,
and another teacher may teach you the same topic in another course. Each
teacher will deliver this topic somewhat differently. This is a good example of
service inconsistency.
5. Involvement – Consumers are often directly involved in service delivery. A
therapist is a good example of this. The consumer is the center of the service,
and thus each instance of the service is unique based on the individual
involved.

Managing Service Operations

This definition offers a great deal of insight when applied to the concept of operational
management. Without a tangible good to ship, handle and produce, operational
managers are instead focused on the execution of activity to fill a consumer need. This
management of an instance is rather different from the management of a product.

Managing operations is just as critical on the service side as it is on the product side.
While there are countless considerations to be made, many of which are unique to
specific organizations or industries, these core operational decisions are strong
indications of the mentality service management specialists consider:

Location

Choosing where to open a facility, how to lay out the facility, what size is appropriate,
and overall, how efficiently a given space can be used relative to the cost are key
considerations. Consider a car mechanic opening a garage. Depending upon how
many jobs she anticipates having within a given period, and how many employees she
expects to be able to manage simultaneously, she may want to open a facility with
three garages or five garages. It really depends on how much output she expects she
can accomplish, and how much input demand will provide.
Scheduling

Just as a product manufacturing facility will know when a product will be where, so do
service operators need to know when a given service should start and what duration
of time is required to complete it. Maximizing output through planning properly can
minimize opportunity costs and maximize revenue and plays an integral role in the
operational management of services. Take a doctor’s office. If they simply had
everyone come in whenever they wanted, there would be times when the staff would
have nothing to do (but be obligated to be there, and be paid), and other times when
there would be too much to do, and capital and customers would be lost.

Quality

As the ‘5 I’s of Services’ indicate, most services tend to be completely unique. A

hairdresser rarely gives the same haircut twice and, even if they do, it would be cut to
fit a different individual. As a result, managing high-quality output is rather complex.
Each execution is measured relative to the specific instance and that specific
consumer, making tools like NPS surveys and other measures of individual satisfaction
highly useful in optimizing. Following these ratings, operational specialists must
consider the comments received and work to find a way to integrate this feedback into
future services.
1.2: Manufacturing versus Service Operations
Operations Management in Manufacturing
This section discusses the role of an operations manager in a manufacturing company.

Click https://saylordotorg.github.io/text_exploring-business-v2.0/s15-01-operations-
management-in-manuf.html link to open resource.

Operations Management for Service Providers

This section talks about how the elements of operations management for service
providers differ from manufacturing operations management.

Click https://saylordotorg.github.io/text_exploring-business-v2.0/s15-06-operations-
management-for-serv.html link to open resource.

Operations Management for Service Providers

This section talks about how the elements of operations management for service
providers differ from manufacturing operations management.

Click https://saylordotorg.github.io/text_exploring-business-v2.0/s15-06-operations-
management-for-serv.html link to open resource.

1.3: The Systems View of Operations Management

1. The Transformation Model
This section introduces the transformation model for analyzing operations. This is
shown in Figure 1, which represents the three components of operations: inputs,
transformation processes, and outputs. Operations management involves the
systematic direction and control of the processes that transform resources (inputs) into
finished goods or services for customers or clients (outputs). This basic transformation
model applies equally in manufacturing and service organizations and in both the
private and not-for-profit sectors.

Figure 1: The transformation model

Let's look at each of the components of Figure 1 in a little more detail.

2. Inputs

Some inputs are used up in the process of creating goods or services; others play a
part in the creation process but are not used up. To distinguish between these, input
resources are usually classified as:

• transformed resources – those that are transformed in some way by the

operation to produce the goods or services that are its outputs
• transforming resources – those that are used to perform the transformation
process.

Inputs include different types of both transformed and transforming resources.

Three types of resources that may be transformed in operations are:

• materials – the physical inputs to the process

• information that is being processed or used in the process
• customers – the people who are transformed in some way.

Many people think of operations as being mainly about the transformation of materials
or components into finished products, as when limestone and sand are transformed
into glass, or an automobile is assembled from its various parts. But all organizations
that produce goods or services transform resources: many are concerned mainly with
the transformation of information (for example, consultancy firms or accountants) or
the transformation of customers (for example, hairdressing or hospitals).

Galloway (1998) defines operations as all the activities concerned with the
transformation of materials, information, or customers.

The two types of transforming resources are:

• staff – the people involved directly in the transformation process or supporting

it
• facilities – land, buildings, machines, and equipment.

The staff involved in the transformation process may include both people who are
directly employed by the organization and those contracted to supply services to it.
They are sometimes described as ‘labor’. The facilities of an organization – including
buildings, machinery, and equipment – are sometimes referred to as ‘capital’.
Operations vary greatly in the mix of labor and capital that make up their inputs. Highly
automated operations depend largely on capital; others rely mainly on labor.

3. Outputs

The principal outputs of a doctor's surgery are cured patients; the outputs of a nuclear
reprocessing plant include reprocessed fuel and nuclear waste. Many transformation
processes produce both goods and services. For example, a restaurant provides a
service, but also produces goods such as food and drinks.

Transformation processes may result in some undesirable outputs (such as nuclear

waste in the example above) as well as the goods and services they are designed to
deliver. An important aspect of operations management in some organizations is
minimizing the environmental impact of waste over the entire life cycle of their
products, up to the point of final disposal. Protecting the health and safety of
employees and of the local community is thus also the responsibility of operations
management. In addition, the operations function may be responsible for ethical
behavior in relation to the social impact of transformation processes, both locally and
globally. For example, in the United States, manufacturers of sports footwear have
come under fire for employing child labor and paying low wages to workers employed
in their overseas factories.

4. Transformation Processes

A transformation process is any activity or group of activities that takes one or more
inputs, transforms and adds value to them, and provides outputs for customers or
clients. Where the inputs are raw materials, it is relatively easy to identify the
transformation involved, as when milk is transformed into cheese and butter. Where
the inputs are information or people, the nature of the transformation may be less
obvious. For example, a hospital transforms ill patients (the input) into healthy patients
(the output).

Transformation processes include:

• changes in the physical characteristics of materials or customers

• changes in the location of materials, information, or customers
• changes in the ownership of materials or information
• storage or accommodation of materials, information, or customers
• changes in the purpose or form of information
• changes in the physiological or psychological state of customers.

Often all three types of input – materials, information, and customers – are transformed
by the same organization. For example, withdrawing money from a bank account
involves information about the customer's account, materials such as cheques and
currency, and the customer. Treating a patient in a hospital involves not only the
‘customer's’ state of health but also any materials used in treatment and information
about the patient.

One useful way of categorizing different types of transformation is into:

• manufacture – the physical creation of products (for example cars)

• transport – the movement of materials or customers (for example a taxi service)
• supply – change in ownership of goods (for example in retailing)
• service – the treatment of customers or the storage of materials (for example
hospital wards, and warehouses).

Several different transformations are usually required to produce a good or service.

The overall transformation can be described as the macro-operation and the more
detailed transformations within this macro-operation as micro-operations. For
example, the macro operation in a brewery is making beer (Figure 2). The micro-
operations include:

• milling the malted barley into grist

• mixing the grist with hot water to form wort
• cooling the wort and transferring it to the fermentation vessel
• adding yeast to the wort and fermenting the liquid into beer
 • filtering the beer to remove the spent yeast.
• decanting the beer into casks or bottles.

Figure 2 Macro and micro-operations

5. Feedback

A further component of the transformation model in Figure 1 is the feedback loop.

Feedback information is used to control the operations system, by adjusting the inputs
and transformation processes that are used to achieve desired outputs. For example,
a chef relies on a flow of information from the customer, through the waiter, about the
quality of the food. Adverse feedback might lead the chef to change the inputs (for
example by buying better quality potatoes) or the transformation process (for example
by changing the recipe or the cooking method).

Feedback is essential for operations managers. It can come from both internal and
external sources. Internal sources include testing, evaluation and continuously
improving goods and services; external sources include those who supply products or
services to end-customers as well as feedback from customers themselves.

The Boundary of the Operations System

Operations management does not exist in a vacuum within an organization.
Operations management is a functional area that interacts with and is supported by
other functional parts of the organization. This section discusses the suppliers and
customers as areas outside of the control of the organization. Be sure to complete
each activity.

The simple transformation model in Figure 1 provides a powerful tool for looking at
operations in many different contexts. It helps us to analyze and design operations in
many types of organizations at many levels.

This model can be developed by identifying the boundaries of the operations system
through which an organization’s goods or services are provided to its customers or
clients. Figure 3, shows this boundary and added three components that are located
outside it:
 • suppliers
• customers
• the environment.

Figure 3 The operations boundary

Suppliers provide inputs to the operations system. They may supply raw materials (for
example a quarrying company providing limestone to transform into glass),
components (as in car assembly), finished products (for example a pharmaceutical
company providing drugs to a hospital, or an office supplies company providing it with
stationery) or services (as in the case of a law firm providing legal advice).

The customers (or clients) are the users of the outputs of the transformation process.
The boundary drawn in Figure 3 around the transforming process can be thought of as
the boundary of the organization, so that the whole organization is viewed as an
operations system, with its customers external to it. This may be an appropriate way
of viewing a small organization, whose outputs go directly to its external customers.

However, most macro-operations are made up of several micro-operations, or sub-

systems. Only the outputs of the final micro-operation go directly to a customer or client
who is not part of the organization that is carrying out the macro-operation. The final
user or client of the good or service is the organization’s external customer and the
users or clients of the outputs of the other micro operations’ internal customers. Most
of the operations in a large organization serve internal, rather than external customers.
For example, if you are the manager of a human resources department, a printing unit,
or a building maintenance section within a large organization, your customers are
internal: they are other sub-systems within the larger organization that are external to
the system of your operations but internal to the organization.

All operating systems are influenced by the organization’s environment. This

environment includes other functional areas within the organization, each with its own
policies, resources, forecasts, goals, assumptions, and constraints, and the wider
world outside the organization – the legal, political, social, and economic conditions
within which it is operating. Changes in either the internal or the external environment
may affect the operations function.

Traditionally, organizations have kept the operations function separate from both their
customers and their suppliers, to protect it from environmental disturbances
(Thompson, 1967). This can lead to a ‘closed system’ mentality, in which the
operations function loses contact with external customers and suppliers, and focuses
only on the transformation process that it controls. A closed system tends to limit
flexibility and result in a loss of competitiveness. An ‘open system’ mentality, in which
communication with customers and suppliers is encouraged, seeks to reduce the
barriers between the operations function and its environment, to enhance the
organization’s competitiveness.

An added complication is that, as organizations become more complex, it becomes

increasingly difficult to draw neat boundaries around the operations function.
Operations management must therefore focus its attention on key interfaces within the
organization, as well as on interfaces between the organization and its external
customers and suppliers. Most operations systems are part of a supply chain that
involves materials, information, and customers, and the distribution of finished goods
or services to customers or clients. It is therefore the responsibility of the operations
function to coordinate the flow of information that links these activities through the
supply chain. Thus, while some operations managers are concerned only with the
transformation process within a single organizational unit, such as a factory or service
outlet, many are involved in managing operations across several organizational units
or even across separate organizations.

A process perspective on organizations

The overall transformation process can be broken down into a series of micro-
processes. Attention to processes within organizations can provide a powerful tool for
understanding organizational performance. In the extract below, David Garvin
discusses how attention to work processes can yield new insights for managers about
the ways in which performance may be improved.

Activity

Read the extract below and make your own notes about the key points Garvin makes
and their application to your own organization.

The work process approach, which has roots in industrial engineering and work
measurement, focuses on accomplishing tasks. It starts with a simple but powerful
idea: organizations accomplish their work through linked chains of activities cutting
across departments and functional groups. These chains are called processes and
can be conveniently grouped into two categories: (1) processes that create, produce,
and deliver products and services that customers want, and (2) processes that do not
produce outputs that customers want, but that is still necessary for running the
business. I call the first group ‘operational processes’ and the second group
‘administrative processes’. New product development, manufacturing, logistics, and
distribution are examples of operational processes, while strategic planning,
budgeting, and performance measurement are examples of administrative
processes.

Operational and administrative processes share several characteristics. Both involve

sequences of linked interdependent activities that together transform inputs into
outputs. Both have beginnings and ends, with boundaries that can be denned with
reasonable precision and minimal overlap. And both have customers, who may be
internal or external to the organization. The primary differences between the two lie
in the nature of their outputs. Typically, operational processes produce goods and
services that external customers consume, while administrative processes generate
information and plan that internal groups use. For this reason, the two are frequently
considered independent, unrelated activities, even though they must usually be
aligned and mutually supportive if the organization is to function effectively. Skilled
supply chain management, for example, demands a seamless link between a
company's forecasting and logistics processes, just as successful new product
development rests on well-designed strategy formation and planning processes.

The work processes approach is probably most familiar to managers. It draws heavily
on the principles of quality movement and re-engineering. Both focus on the need to
redesign processes to improve quality, cut costs, reduce cycle times, or otherwise
enhance operating performance. Despite these shared goals, the two movements
are strikingly similar on some points but diverge on others.

The similarities begin with the belief that most existing work processes have grown
unchecked, with little rationale or planning, and are therefore terribly inefficient.
Hammer, for example, has observed: ‘Why did we design inefficient processes? In a
way, we didn't. Many of our procedures were not designed at all; they just happened
…. The hodgepodge of special cases and quick fixes were passed from one
generation of workers to the next.’ The result, according to one empirical study of
white-collar processes, is that value-added time (the time in which a product or
service has value added to it, as opposed to waiting in a queue or being reworked to
fix problems caused earlier) is typically less than 5 percent of total processing time.

To eliminate inefficiencies, both movements suggest that work processes be

redesigned. In fact, both implicitly equate process improvement with process
management. They also suggest the use of similar tools, such as process mapping
and data modeling, as well as common rules of thumb for identifying improvement
opportunities. First, flow charts are developed to show all the steps in a process; the
process is then made more efficient by eliminating multiple approvals and
checkpoints, finding opportunities to reduce waiting time, smoothing the handoffs
between departments, and grouping related tasks and responsibilities. At some point,
‘process owners’ with primary responsibility for leading the improvement effort are
also deemed necessary. Their role is to ensure integration and overcome traditional
functional loyalties; for this reason, relatively senior managers are usually assigned
the task. The differences between the two movements lie in their views about the
underlying nature and sources of process change. The quality movement, for the
most part, argues for incremental improvement. Existing work processes are
assumed to have many desirable properties; the goal is to eliminate unnecessary
steps and errors while preserving the basic structure of the process. Improvements
are continuous and relatively small-scale. Re-engineering, by contrast, calls for
radical change. Existing work processes are regarded as hopelessly outdated; they
rely on work practices and a division of labor that take no account of modern
information technology.

For example, the case management approach, in which ‘individuals or small teams
… perform a series of tasks, such as the fulfillment of a customer order from
beginning to end, often with the help of information systems that reach throughout
the organization,’ was not economically viable until the arrival of powerful,
inexpensive computers and innovative software. For this reason, re-engineering
focuses less on understanding the details of current work processes and more on
‘inventing a future’ based on fundamentally new processes.

Perhaps the most dramatic difference between the two approaches lies in the
importance they attach to control and measurement. Quality experts, drawing on their
experience with statistical process control in manufacturing, argue that well-managed
work processes must be fully documented, with clearly defined control points.
Managers can improve a process, they believe, only if they first measure it with
accuracy and assure its stability. After improvement, continuous monitoring is
required to maintain the gains and ensure that the process performs as planned. Re-
engineering experts, on the other hand, are virtually silent about measurement and
control. They draw on a different tradition, information technology, that emphasizes
redesign rather than control.

Insights for Managers

The work processes perspective has led to a few important insights for managers. It
provides an especially useful framework for addressing a common organizational
problem: fragmentation, or the lack of cross-functional integration. Many aspects of
modern organizations make integration difficult, including complexity, highly
differentiated sub-units and roles, poor informal relationships, size, and physical
distance. Integration is often improved by the mere acknowledgment of work
processes as viable units of analysis and targets of managerial action. Charting
horizontal workflows, for example, or following an order through the fulfillment
system, are convenient ways to remind employees that the activities of disparate
departments and geographical units are interdependent, even if organization charts,
with their vertical lines of authority, suggest otherwise.

In addition, the work processes perspective provides new targets for improvement.
Rather than focusing on structures and roles, managers address the underlying
processes. An obvious advantage is that they closely examine the real work of the
organization. The results, however, have been mixed, and experts estimate that a
high proportion of these programs have failed to deliver the expected gains.

My analysis suggests several reasons for failure. Most improvement programs have
focused exclusively on process redesign; the ongoing operation and management of
the reconfigured processes have usually been neglected. Yet even the best
processes will not perform effectively without suitable oversight, coordination, and
control, as well as occasional intervention. In addition, operational processes have
usually been targeted for improvement, while their supporting administrative
processes have been overlooked. Incompatibilities and inconsistencies have arisen
when the information and plans needed for the effective operation were not
forthcoming. A few companies have used the work processes approach to redefine
their strategy and organization. The most progressive have blended a horizontal
process orientation with conventional vertical structures.

Source: Garvin, D. A. (1998), ‘The processes of organization and management,

Sloan Management Review, Cambridge; Summer, pp.35–37

ANSWER THE FOLLOWING:

1. What is the work processes approach and what are its two categories?
2. What are the similarities and differences between operational and administrative
processes?
3. How do quality movement and re-engineering approach process improvement?
What are the insights for managers provided by the work processes perspective?
Functional Structure

This section covers the functional structure that is common in many organizations.
Operation is a function within the organization. It is important to understand the other
functional units and how operations fit within the overall structure.

An organization with a functional structure is divided based on functional areas, such

as IT, finance, or marketing.

LEARNING OBJECTIVES

Explain the functional structure within the larger context of organizational structures in
general.

Key Points

• A functional organization is a common type of organizational structure in which

the organization is divided into smaller groups based on specialized functional
areas, such as IT, finance, or marketing.
• Functional departmentalization arguably allows for greater operational
efficiency because employees with shared skills and knowledge are grouped
together by function.
• A disadvantage of this type of structure is that the different functional groups
may not communicate with one another, potentially decreasing flexibility and
innovation. A recent trend aimed at combating this disadvantage is the use of
teams that cross traditional departmental lines.

Key Terms

• silo: In business, a unit or department within which communication and

collaboration occur vertically, with limited cooperation outside the unit.
• departmentalization: The organization of something into groups according to
function, geographic location, etc.

Overview of the Functional Structure

An organization can be arranged according to a variety of structures, which determine

how the organization will operate and perform. In a functional structure, a common
configuration, an organization is divided into smaller groups by areas of specialty (such
as IT, finance, operations, and marketing). Some refer to these functional areas as ”
silos “—entities that are vertical and disconnected from each other. Correspondingly,
the company’s top management team typically consists of several functional heads
(such as the chief financial officer and the chief operating officer). Communication
generally occurs within each functional department and is transmitted across
departments through the department heads.
Functional structure at FedEx: This organizational chart shows a broad functional
structure at FedEx. Each different function (e.g., HR, finance, marketing) is managed
from the top down via functional heads (the CFO, the CIO, various VPs, etc.).

Advantages of a Functional Structure

Functional departments arguably permit greater operational efficiency because

employees with shared skills and knowledge are grouped together by functions
performed. Each group of specialists can therefore operate independently with
management acting as the point of cross-communication between functional areas.
This arrangement allows for increased specialization.

Disadvantages of a Functional Structure

A disadvantage of this structure is that the different functional groups may not
communicate with one another, potentially decreasing flexibility and innovation.
Functional structures may also be susceptible to tunnel vision, with each function
perceiving the organization only from within the frame of its own operation. Recent
trends that aim to combat these disadvantages include the use of teams that cross
traditional departmental lines and the promotion of cross-functional communication.

Functional structures appear in a variety of organizations across many industries. They

may be most effective within large corporations that produce relatively homogeneous
goods. Smaller companies that require more adaptability and creativity may feel
confined by the communicative and creative silos functional structures tend to produce.
A Study of Process

Read this section and explore the transformation process that occurs in operations
management. Operations management transforms inputs like labor, widgets, steel,
and capital into outputs (goods and services) that provide added value to customers.

After you read, you will be able to analyze the importance of operations management
in protecting an organization’s competitive advantage.

Operations management transforms inputs (labor, capital) into outputs (goods and
services) that provide added value to customers.

LEARNING OBJECTIVES

Analyze the importance of operations management in protecting an organization’s

competitive advantage

Key Points

• Operations management transforms inputs (labor, capital, equipment, land,

buildings, materials, and information) into outputs (goods and services ) that
provide added value to customers.
• All organizations must strive to maximize the quality of their transformation
processes to meet customer needs.
• Controlling the transformation process makes it difficult for competitors to
manufacture products of the same quality as the original producer.

Key Terms

• output: Production; quantity produced, created, or completed.

• input: Something fed into a process with the intention of it shaping or affecting
the outputs of that process.
• process: A series of events to produce a result, especially as contrasted to a
product.

Operations Management and the Transformation Process

Operations management transforms inputs (labor, capital, equipment, land, buildings,

materials, and information) into outputs (goods and services) that provide added value
to customers.

Figure 1 summarizes the transformation process. The arrow labeled “Transformation

System” is the critical element in the model that will determine how well the
organization produces goods and services that meet customer needs. It does not
matter whether the organization is a for-profit company, a non-profit organization
(religious organizations, hospitals, etc.), or a government agency; all organizations
must strive to maximize the quality of their transformation processes to meet customer
needs.
Example: Strategic Importance of Operations Management

The 3M Company is a good example of the strategic importance of transforming inputs

into outputs that provide a competitive advantage in the marketplace.

3M manufactures a top-quality adhesive tape called “Magic Tape”. Magic Tape is used
for everyday taping applications, but it offers attractive features that most other tapes
do not, including:

• Smooth removal from the tape roll

• An adhesive that is sticky enough to hold items in place (but not too sticky that
it cannot be removed and readjusted if necessary!)
• A non-reflective surface

For several decades, 3M has enjoyed a substantial profit margin on its Magic Tape
product because 3M engineers make the manufacturing equipment and design the
manufacturing processes that produce Magic Tape. In other words, 3M enjoys a
commanding competitive advantage by controlling the transformation processes that
turn raw material inputs into high-value-added Magic Tape products.

Controlling the transformation process makes it extremely difficult for competitors to

produce a tape of the same quality as Magic Tape, allowing 3M to reap significant
profits from this superior product.

An opposite example of the strategic implications of the input/output transformation

process is 3M’s decision in the 1980s to stop manufacturing VHS tape for video players
and recorders.

In the VHS tape market, 3M had no proprietary manufacturing advantage, as there

were many Asian competitors that could produce high-quality VHS tape at a lower cost.
Since 3M had no proprietary control over the transformation process for VHS tape that
would allow the company to protect its profit margins for this product, it dropped VHS
tape from its offerings.

The two 3M examples of Magic Tape and VHS tape show how important the
transformation process and operations management can be to providing and
protecting an organization’s competitive advantage.
 Example of a typical transformation process

Activity (INDIVIDUAL)

Choose a company that creates a product or offers a service that you are familiar
with. Using the company website and additional research, list the inputs that the
company uses to produce outputs. Define the outputs created. After creating
this list, discuss the additional functional units within the organization that are
important to the final product. How important do you believe the quality of the
operations management is to the final output? Explain your answer.

Example:

Company: Tesla Inc.

Inputs:
• Raw materials (e.g., aluminum, lithium, cobalt, nickel)
• Components (e.g., batteries, electric motors, inverters, chargers)
• Labor (e.g., engineering, manufacturing, logistics, customer service)
• Energy (e.g., electricity, natural gas, solar power)
• Intellectual property (e.g., patents, software)

Outputs:
• Electric vehicles (e.g., Model S, Model X, Model 3, Model Y, Cybertruck, Semi)
• Energy products (e.g. solar panels, solar roofs, energy storage systems)

Functional units:
• Research and development (designing and improving the products)
 • Manufacturing (assembling the products in factories)
• Supply chain (sourcing materials, managing suppliers, logistics)
• Sales and marketing (promoting and selling the products)
• Service and support (maintaining and repairing the products, customer
relations)

Operations management is crucial to the final output of Tesla. The company has built
a reputation for producing high-quality, innovative electric vehicles and energy
products, which require efficient and effective operations management to achieve.
Tesla's manufacturing processes involve cutting-edge technologies and automation,
which require skilled technicians and engineers to maintain and optimize. The
company's supply chain is also complex and requires coordination and collaboration
with suppliers and logistics partners to ensure the timely delivery of raw materials and
components. The quality of Tesla's operations management affects not only the final
product but also the company's financial performance and overall competitiveness in
the market.

Unit 1 Activity (GROUP)

For this activity, you will apply the concepts of operations management to real-world
situations. You will use this unit to begin developing an operation management plan
by writing a 2–3 page paper on a business concept of your choosing.

Learning Outcome: Explain the role of operations and their relationship with the other
functional areas of a business organization.

Specifications:

2–3-page paper
Created in a Word document.
Follows APA, 7th edition formatting.
Includes a Reference page for cited sources.

Instructions: For this activity, you will apply the concepts of operations
management to real-world situations. You will use this unit to begin developing
an operation management plan by writing a 2–3-page paper on a business
concept of your choosing. You may wish to develop a business such as a retail
sales operation, an online service like tutoring, or maybe a personal service
such as lawn care or pet grooming as your business. Use the information from
Unit 1 to help you identify what aspects are to be covered and explain, in detail,
why you made certain choices. In writing your paper, you should research and
consider at least 4 scholarly sources (i.e., textbooks, scholarly articles from a
peer-reviewed journal, etc.) As you write the paper, make sure to address the
following topics:

1. Will the company be business-to-consumer or business-to-business?

2. Will the business manufacture a product, deliver a service, broker information,
offer goods for sale, or distribute goods for others?
3. Will the business offer one product or service, or a range of products and
services?
4. Will the company have a brick-and-mortar presence, or sell strictly over the
Web?
5. Will the firm be a large company, a medium-sized enterprise, or a small
business?
 6. How will you provide /transport the service or product to the consumer?
7. Will there be a need for inventory storage?

EXAMPLE:

Introduction:

The business concept that I have chosen is a retail sales operation that will specialize
in selling high-end fashion apparel for women. The store will be located in a prominent
shopping mall, and it will offer a range of products, including dresses, skirts, blouses,
and accessories. In this paper, I will address the questions posed in the prompt and
develop an operations management plan for the retail sales operation.

1. Business Model:

The business model will be a business-to-consumer (B2C) model, where the company
will provide fashion apparel to individual customers. This model will allow the company
to directly engage with its customers and provide personalized services based on their
unique needs. This will help the company to build a strong relationship with its
customers, which is crucial for a retail-based business.

2. Product Delivery:

The business will deliver a product, which is high-end fashion apparel for women. The
company will source its products from reputable manufacturers and designers to
ensure the quality and exclusivity of its products.

3. Range of Products:

The company will offer a range of products, including dresses, skirts, blouses, and
accessories. Offering a range of products will increase the company's revenue streams
and provide additional opportunities for growth.

4. Brick-and-Mortar Presence:

The company will have a brick-and-mortar presence and will sell its products through
its retail store located in a prominent shopping mall. This approach will allow the
company to reach a wider audience and provide a unique shopping experience to its
customers.

5. Company Size:

The company will be a medium-sized enterprise initially, with a team of sales staff and
administrative staff. As the business grows, it may expand its operations and increase
its staff size.

6. Product Delivery:

The company will provide its products to customers through its retail store. Customers
will be able to visit the store, browse through the products, and make purchases. The
company will also provide online ordering and delivery services to customers who
prefer to shop from the comfort of their homes.
7. Inventory Storage:

The company will require inventory storage to keep its products safe and organized.
The company will use a warehouse management system to manage its inventory,
which will help in optimizing inventory levels, reducing costs, and improving efficiency.

Conclusion:

In conclusion, a retail sales operation that specializes in selling high-end fashion

apparel for women is a promising business concept that can provide high-quality
products to customers. The business model of the company will be B2C, and it will
provide fashion apparel to individual customers through its brick-and-mortar store and
online ordering and delivery services. The company will offer a range of products and
will require inventory storage to keep its products safe and organized. As the business
grows, it may expand its operations and increase its staff size. Overall, this business
concept has great potential, and with proper planning and execution, it can become a
successful venture.

References:

Chase, R. B., Jacobs, F. R., & Aquilano, N. J. (2021). Operations management for
competitive advantage. McGraw-Hill Education.

Krajewski, L. J., & Ritzman, L. P. (2020). Operations management: Processes and

supply chains. Pearson.

Schniederjans, M. J., & Schniederjans, A. M. (2021). Operations management in the

supply chain: decisions and cases. McGraw-Hill Education.

Slack, N., Brandon-Jones, A., & Johnston, R. (2019). Operations management.

Pearson Education.