Technopreneurship WBB10102

CHAPTER 5

OPERATIONS MANAGEMENT
 Technopreneurship WBB10102

LEARNING OUTCOMES

At the end of the module, students

should be able to:

 understand the concept of operations

function in business
 understand the topics that are included in
an operations plan
 prepare an operations plan for their
proposed project
 Technopreneurship WBB10102

INTRODUCTION
 Operation is one of an important function in
a business organization
 Managing operations is crucial to make sure
that the business is able to produce product
or deliver services according to the
specification, quality and time specified by
the customer
 Operations management can be defined as
the process of marshalling business input to
transform them into output in the form of
product or services
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Components in an operations system

The components of an operations system that is

involved in the transformation of business input
into output comprises of the following:

 Business Input
 Transformation Process
 Output
 Feedback
 External Environment
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Schematic Diagram of an Operations System

The components of an operations system can be

portrayed in the schematic diagram as shown
below:
External Environment Factors

Input Transformation Output

Transformation
Process
Process

Feedback
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OPERATIONS PLAN
 The operations plan is the one of the section
that is included in the business plan
 This section will demonstrate the operational
aspect of the business that is crucial in
transforming the business input into output
 The operations plan will ensure the business
is able to produce the product or to provide
the services that the business had planned
in the marketing plan
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The operations plan comprises of the following topics:

 Process Planning
 Operations Layout
 Production Planning
 Material Planning
 Machine and Equipment Planning
 Manpower Planning
 Overheads Requirement
 Location Plan
 Business and Operations Hours
 License, Permits and Regulations Required
 Operations Budget
 Implementation Schedule
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PROCESS PLANNING
 Process planning involve the identification
of the step-by-step processes from
beginning to end in making the product or in
providing the services
 For manufacturing business, the processes
involved will be explained clearly such as the
activity involved, its duration and the
equipment used
 For service business, the process planning
will explain all the steps that should be taken
from start to finish to provide the service to
the customer
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PROCESS PLANNING (cont.)

 The step by step processes can be
illustrated using diagram such as a flow
chart or a process chart
 The process chart will use symbols that are
universally recognized in the operations
management field
 These symbols are also used in the job
activity chart to show a worker’s activity
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Symbols Used in the Process Chart

Symbol Activity Description

Operation Activity that modify, transform or give added

value to the input
Transportation Movement of materials or goods from one
place to another

Inspection Activity that measure the standard or quality

Delay Process is delayed because in process materials

are waiting for next activity

Storage Finished product or goods are stored in the

storage area or warehouse
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Flow Chart for the Production of Mixed Fruits Jelly

Transfer the fruits from the store to the production area

Check the quality of the fruits and segregate the bad fruits

Clean the fruits under running water

Put the fruits into the fruit chopper for chopping process

Put the chopped fruits into the boiler for steaming process

Use electric ladle to stir the fruit until the fruits change
into pulp

Add ten parts of water into the mixture

Boil the mixture for 90 minutes

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Activity Chart for Web Designing Services

Greet the client

Invite the client into the discussion room

Get the relevant information from the client

Brief the client about terms and conditions

Get the agreement from the client regarding terms and

condition

Send the client to the door

Work on the design of the web

Make a presentation to the client

Get the feedback from the client

Make the amendment accordingly

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OPERATIONS LAYOUT
 Illustrate the layout of the operations
 Layout refers to the arrangement of
machine, equipment, workers and other
facilities used in the operations
 The layout must be design in such a way
that the production of goods and services
can be done smoothly and efficiently
 There are three types of layout:
o Layout based on process
o Layout based on product
o Layout based on marketing
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Types of Layout
Layout based on product
 This type of layout is suitable for a business that
has product focus or continuous flow production
 The design of this layout is made according to the
sequence of activities to product the product
 Example of a business that have this kind of layout
is a food processing factory
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Types of Layout (cont.)

Layout based on process
 This layout is suitable for a business that produce
several products using similar processes
 This type of layout is design based on the similarity
of processes where by machine and equipment that
perform similar function will be grouped together
 Example of business with this type of layout is a
steel workshop and a tailor store
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Types of Layout (cont.)

Layout based on marketing
 This layout is designed with an intention to
maximized the area available to display goods
 Examples of layout based on marketing can be
observed in the retail business such as book store
or departmental store
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Example of Layout Based on Product

Office

Filling Area
Finished
Goods

Steaming
Storage

Fruits Chopper
Fruits Cleaning Area

Receiving
Area
Washing Area
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Example of Layout Based on Process

Office

Milling Grinding
Machine Machine

Drilling
Machine
Tool
Storage
Room
Area
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Example of Layout Based on Marketing

Frozen Food
Pastry Products

Store

Aisle Aisle

Aisle

Cashier
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Example of Layout in a Restaurant

Counter
Food
Store

Cashier

Kitchen

Dining Area

Toilet
Beverages Food Display Counter
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PRODUCTION PLANNING
 It is important to make sure that the business
is able to produce output or to provide
services that is enough to fulfill the expected
market demand or sales
 This can be achieved by having a good
production planning
 In production planning, the business will
determine how much output to produce for a
certain period of time such as in a day, a
week or a month
 The business may need the information from
the marketing plan, e.g. average sales
forecast
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Example of calculation for output per day

Average sales forecast per month = RM 25,200.00

Price per unit = RM 15.00
Number of output per month = RM 25,200.00
RM 15.00
= 1,680 units
If the number of working days per month is 24 days
The amount of output to be produced per day is:
= 1,680 units
24 days
= 70 units per day
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MATERIAL PLANNING
 Material planning is done to determine the
type and amount of raw materials need for
the production
 Material planning involved four steps:
o Identify and list down the raw materials required
o Prepare the Bills of Materials
o Calculate the quantity of raw material required
o Identify the suppliers of raw materials
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Identify and list down the raw

materials required
 Usually in manufacturing business, the raw
materials used is easily identified
 For example, to manufacture pencils, raw
materials needed are hollow wood, lead,
eraser, metal band, paint, glue and packaging
box
 In case of retail business, the raw materials is
known as goods. The business need to
estimate the amount of initial goods to be
purchased to start the business operation
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Prepare the bills of materials

 The bills of materials will contains a
complete list of materials, parts or
components and the amount needed to
produce a unit of product
 To prepare the bill of material, the
entrepreneur must understand the design of
the product
 This bill of material is important information
for purchasing activities
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Example of Bills of Materials

 To produce a unit of pencil, the bills of
materials is as follows:
Product No. Description Specification Quantity
101 Half hollow wood 17 cm long 2
102 Lead 17 cm long 1
1.5mm diameter
103 Eraser 0.75 cm long 1
6mm diameter
104 Metal band 2 cm long 1
105 Paint 0.5 ml 1
106 Glue 0.5 ml 1
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Examples of Materials
Requirement Schedule
Material Quantity Safety Total Material Price / Total price
Stock Requirement unit (RM)
(RM)

Flour 50 Kg 5 kg 55 1.2 66
Sugar 50 Kg 5kg 55 2.8 154
Eggs 200 units 20 220 0.15 33
Corn Syrup 100 Liter 10 110 3 330

Margarine 100 Kg 10 110 2 220

Total         803
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MACHINE & EQUIPMENT PLANNING

Steps to determine machine and equipment
requirement:
1. List out all machine and equipment
required base on the process flow chart or
process plan
2. Determine the amount of machine and
equipment required based on the venture
capacity requirement
3. Identify the suppliers that are reliable in
term of price and after sale services
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Factors to be considered in purchasing machine

and equipment

• Price
• Quality and reliability
• Availability of spare parts
• Break down maintenance facility
• Technology & user friendly
• Supplier reputation
• After sale services
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Examples of Machine & Equipment Requisition

Planning Schedule

No. Machine Quantity Price / Total

Unit (RM) Price
(RM)
1. Mixer 1 2000 2000
2. Cutter 2 1000 2000
3. Cash 1 1500 1500
Register
Total 5500
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Steps to determine quantity for

machine & equipment
1. Determine the planned rate of production per day
2. Determine the standard production time per unit
for the planned machine
3. Determine the machine productive time:
Operation hours – (Setting up time + Down Time)
4. Calculate the amount of machine required using
the formula given in the next slide
 Technopreneurship WBB10102

Formula To Calculate the amount of machine

require:

No. of Planned Rate of Production per day Standard

Machine = X Production
Required Machine Productive Time per day
Time / Unit
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MANPOWER PLANNING
Steps to determine the amount of direct labor
required by the venture:
1. Determine the planned rate of production per day for
the particular section of job
2. Determine the standard time for a worker to produce
one unit of product or to complete a particular job
3. Determine workers productive hours:
Working hours per day – rest time or workers idling time
4. Calculate the amount of direct labor required
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Formula To Calculate the amount of direct labor

required

No. of Planned Rate of Production per day Worker Standard

Worker = X Production Time /
Worker Productive Time per day
Required Unit
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Example of Direct Labour Planning Schedule

No Position No. of Salary/ EPF Socso Total

Staff Month (RM) (RM) (RM)
Required (RM) 12 % 2%
1 Operation 1 2000.0 240.00 40.00 2280.00
Manager 0
2

Total
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OVERHEADS REQUIREMENT
 Determine the overheads that are required in
the operations
 Overheads refers to requirements other than
direct raw materials and direct labour
 Examples of overheads are indirect labour
costs, indirect material, insurance,
maintenance and utilities
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LOCATION PLAN
 The entrepreneur has to make decision which
premise is the best for the business to operate
 Choice of location is important because it will
affect:
•Sales revenue
•Business operation cost
•Long term investment
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Factors that Influence the Choice

of Location
1. MANUFACTURING ACTIVITY
 Priority should be given to the cost factors
 In manufacturing cost saving would contribute to
profit
2. SERVICE ACTIVITY
 In service priority should be given to distance from
market or customers.
 Distance from customers will influence sales revenue
 In service business cost saving may not contribute to
sales revenue
 Increase in revenue will contribute to increase in
profit
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Factors to be considered for Choice of Location

• Distance from raw • Local Government

material / suppliers Policy
• Labor supply • Security
• Transportation
• Facility for expansion
• Price of Land or
and business
rentals
development
• Infrastructure
• Climate
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BUSINESS AND OPERATIONS HOURS

 Business hours refer to the time the business
is open to the customers
 Operation hours refer to the hours the
workers have to work.
 For manufacturing, usually the business will
operate on 8-hours per shift. Thus the
entrepreneur will only decide whether the
business will runs for one shift or more. This
will depends upon the planning for
production
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BUSINESS AND OPERATIONS HOURS (cont.)

 For service business, the entrepreneur will has
to state the business hours in terms of days and
hours
 For example, a restaurant may open to the
customer from 7 a.m. to 10 p.m. every day
 However, the operations hours for the workers
will be different
 The working hours may be from 5 a.m. to 12.a.m
 The entrepreneur may have 2 shifts for the
workers; the first shift will starts from 5 a.m. to 3
p.m. and the second shift starts from 3p.m. to 12
a.m.
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LICENSE, PERMITS and REGULATIONS

 Find out and list down all the license/permits/
regulations that are required to operate the
business
 Identify which agency is responsible to
approve the particular license/permit
 For example, a restaurant among others will
need the following license/permit/regulations:
o License for signboard
o Permits for emigrant workers
o Typhoid injection for the workers
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OPERATIONS BUDGET
 The business need to estimate the budget for the
operations activities
 The operations budget can be categorized into:
• Fixed asset expenditure
• Monthly expenses
• Other expenses
 This operation budget is important because it
will be one of the input to prepare the financial
plan
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OPERATIONS BUDGET (cont.)

•Fixed Asset Expenditure
o Refers to the investment on long term assets used
in the operations to produce the product or
services
o Examples are the purchase of machines and
equipment
•Monthly Expenses
o Refers to the payment made every month in the
operations department
o Examples are wages for workers and raw
materials purchased
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OPERATIONS BUDGET (cont.)

•Other Expenses
o These are expenses that are made and could not be
categorized as fixed asset expenditure or monthly
expenses
o Examples are deposits and insurance
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Example of Operations Budget

Item Fixed Monthly Other

Asset Expenses Expenses
Machine and Equipment RM 35,500
Factory Renovation RM 45,000
Raw Materials RM 20,000
Wages + EPF + SOCSO RM 6,500
Utilities RM 600
Factory Rent RM 3,000
Deposit for rent RM 6,000
Deposit for utilities RM 1,000

Total RM 80,500 RM 30,100 RM 7,000

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IMPLEMENTATION SCHEDULE
 Implementation scheduling involves
sequencing and allotting time to all project
activities
 To prepare implementation schedule,
entrepreneurs has to decide how long each
activity and compute the requirement on
people and other resources
 Scheduling normally use Gantt Chart which is
a planning chart used to schedule resources
and allocate time
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The Importance of Project Scheduling

Project scheduling serves several purposes:
1. It shows the relationship of each activity to
others and to the whole project
2. It identifies the precedence relationship
among activities
3. It encourages the setting of realistic time
and cost estimate for each activity
4. It helps make better use of people, money
and material by identifying critical
bottlenecks in the project
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Example of Project Implementation Schedule

Activities Deadlines Durations

Incorporation of business Jan – Mac 2009 3 months
Application for permits and Jan – April 2009 4 months
license
Searching for business Feb – Mac 2009 3 months
premise
Renovation of premise April 2009 1 month
Procurement of machines April – June 3 months
and raw material 2009
Recruitment of labours June 2009 1 month
Installation of machines June 2009 1 month
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END OF CHAPTER 5