MODULES

Operations Management and TQM

Jellyren Gutierrez, CPA

OVERVIEW: Learning Objectives:

Whatever course you are taking, having a knowledge • Describe operations management and its
about operations management will give you function
advantage on your future job. This module will • Understand the roles of the different
provide you understanding about operations functions in a business organization
management, its trends, and its importance. Also, it
• Understand the process management
will give insight on the major function in a business
organization and also how this function interact with • Identify trends in operations management
each other.

1.1Nature and scope

Have you ever been in a restaurant or fast food chain? Do you observe how these businesses were able to serve its
customers? Have you experience dissatisfaction in their service?

Everyday is a challenge for these businesses to meet the demands of its customer and to provide good service and
satisfaction to them. The operations manager takes responsibility on how those demands and satisfaction will be meet
and to ensure that its staff and employees were working effectively.

ORGANIZATION

Finance Operations Marketing

Represented above is the basic functions of an organization. Finance is responsible for securing financial resources at
favorable prices and allocating those resources throughout the organization, as well as budgeting, analyzing investment
proposals, and providing funds for operations. Marketing is responsible for assessing consumer wants and needs, and
selling and promoting the organization’s goods or services. Operations is responsible for producing the goods or providing
the services offered by the organization. Goods pertain to physical items produced by the firms while services are activities
that provide some combination of time, location, form, and psychological value.

Operations is considered the core of every business organizations. Imagine a car engine, without the engine the car won’t
be able to move and it will have no use, operation is just like that in business organizations. And just like in a car, which
the engine is properly maintained for a smooth drive, operation also needs management and we call it operations
management. Operations management is responsible for the efficient delivery of goods and services to customers through
effective management of the organization’s resources to meet their customer needs.

Most companies are composed of assets may it be finished goods or raw materials. And many of them get into difficulties
because of cash flows problems due to over stocking of materials or under stocking of materials that are needed in the
production. These problems can be eliminated, if not minimized with an effective operations management that employs
good process design, effective planning and control systems.

Supply chain, a sequence of activities and organizations involved in producing and delivering a good or service, is always
interlinked with operations. It shows the activities starting from the purchase of resources/input up until the final
distribution of product/output to consumers.

An example of supply chain is presented below.

*source: Operations Management, Stevenson

The operations function involves the conversion of the inputs/resources into outputs or products and services (shown in
the illustration below). In the conversion process, the organization takes measurements at various points in the
transformation process (feedback) and then compares them with previously established standards to determine whether
corrective action is needed (control).

PROCESS
INPUT OUTPUT
This framework shows that the operations management role is divided into three areas:

• Managing input resources – Operations managers must ensure that the right resources, such as people,
equipment and materials, are available in the right quantity at the right time for the operation’s needs.
• Managing processes – All operations managers are responsible for processes. Processes are defined as a
series of interlinked activities or steps that consume resources to meet a goal or output.
• Managing outputs – The operations function is responsible for meeting customers’ needs by delivering
required products or services. The effectiveness and efficiency of the operation dictates how much
resource is needed and this feeds straight through to unit cost and (where relevant) profitability.

Process management is a key aspect of operations management. Businesses are composed of many interrelated
processes. Generally speaking, there are three categories of business processes:

1. Upper-management processes. These govern the operation of the entire organization. Examples include
organizational governance and organizational strategy.
2. Operational processes. These are the core processes that make up the value stream. Examples include
purchasing, production and/or service, marketing, and sales.
3. Supporting processes. These support the core processes. Examples include accounting, human resources, and IT
(information technology).

In the process management, the key aspect is to have the output meet the demand requirement. Excess capacity is
wasteful and costly; too little capacity means dissatisfied customers and lost revenue. Having the right capacity requires
having accurate forecasts of demand, the ability to translate forecasts into capacity requirements, and a process in place
capable of meeting expected demand. Another key aspect alongside meeting the demand is to deal with process
variability. Basic sources of variation include: variety of goods or services being offered, structural variation in demand,
random variation, assignable variation

THE SCOPE OF OPERATIONS MANAGEMENT

The operations function includes many interrelated activities, such as forecasting, capacity planning, scheduling, managing
inventories, assuring quality, motivating employees, deciding where to locate facilities, and more.

Illustration: Read airline example on the book Operations Management by William J. Stevenson

1.2 Relationship to other management functions

Any business to be successful must have its different departments and functions to understand their roles and
responsibilities and also to have coordination and cooperation among them. Although they have different roles it is
important that each of them makes decisions with reference to others because this decision will also have an impact to
other department/function. To perform well, these different departments and functions may be needing information or
outputs from the other departments/function. That is why there will be a presence of overlapping roles among them.
The three primary functions in business organizations discussed earlier have their decisions impact the other areas of the
organization. Consequently, these functions have numerous interactions as illustrated below.

OPERATIONS

FINANCE MARKETING

Finance and operations management exchange information in activities such as budgeting, economic analysis of
proposals, provision of funds. The finance function prepares periodically budgets to prepare the financial requirements.
To formulate a budget, the finance function needs information about the forecasted performance, production costs and
sales for a period. Investment in machineries and equipment must also be analyzed to evaluate available alternatives.
Necessary funding of operations and the amount and timing of funding can be important and even critical when funds are
tight.

Marketing provides information to the operations management about the wants and needs of consumers that helps in
the operation to forecast demands and to prepare in meeting these demands. Marketing also can supply information on
consumer preferences so that design will know the kinds of products and features needed; operations can supply
information about capacities and judge the manufacturability of designs. The finance function must also be provided of
these information so that it can evaluate the funds needed and its availability. Marketing needs information from
operations about the manufacturing or service lead time in order to give customers realistic estimates of how long it will
take to fill their orders.

Marketing, operations, and finance must interface on product and process design, forecasting, setting realistic schedules,
quality and quantity decisions, and keeping each other informed on the other’s strengths and weaknesses.

1.3 Global trends in operations managements

Different business organizations have been exploring, innovating and modifying operational techniques in order to
prepare for future demands and to maintain their competitive edge. Digital transformation has always been organizations
are seeking and most of the trends in the past years is mainly involved with this. Some of the trends in operations
management includes: investing in digital internal communications, automation of operational process, mobile
communication tools, employee experience investment, and demand responsiveness improvement.

Employee’s level of satisfaction reflects in their effort in their job and also help in employee retention. A transparent and
accessible internal digital communication will promote collaboration among employees, enhance workplace morale, and
improve processes and results. Automation of processes can save a big sum of costs and can also improve efficiency and
effectiveness. With automotive process, organizations are saving employees’ time for concentrating on their products and
their clients. Businesses are investing more in personal growth and labor force development. Satisfied employees will
work much harder than those that find their job to be non-beneficial to their lives. With today’s market having volatile
fluctuations, operations managers will have to master the art of demand forecasting in order to ensure that inventory
levels are consistent with current demand.
 Reference used:

William J. Stevenson, Production Operations Management

Additional Readings:

Production Operations Management Chapter 1 by William J. Stevenson

Learning Activities

Exercise 1: Essay: WHY DO YOU NEED TO LEARN ABOUT OPERATIONS MANAGEMENT

Exercise 2: Choose a product or a service and illustrate its supply chain and its process model.
Evaluation

What am I learning from this

What am I finding hard or

What was the most important