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Topic Introduction to
Operations and
1 Productivity
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. define operations management;
2. understand the operations system;
3. understand the objectives of operations
management;
4. understand the strategic decisions of operations
management;
5. establish knowledge about characteristic of
services and goods;
The word operationshad been widely used in armed forces in those days which denote carrying
out special mission in a war or battle to fight against enemy. In winning the wars the generals,
senior staff officers and war strategists would take charge to plan, organise and mobilise strategies
to defeat the enemies. They would introduce various tactical strategies and plans, requirement of
assets and military personnel to prevail in the war.
After the wars the concept of operations which had been used in military strategy has been
adapted and used extensively in process and production activities. The words operations now
bring about the meaning as a process of transforming resources into value-added goods and
services.
Operations system in a way is a SYSTEM, where all the main functions to create goods and
services. A system is a set of interacting or interdependent components forming integrated whole.
It is an organized complex of interdependent component or subsystems designed to achieve some
common objective.
Some systems share common characteristics such as directly or indirectly or directly related to
each other and the systems has its own function or purpose. There are FOUR important
components of an operation systems such as Input,Transformations Process, Output and
Feedback. It can be illustrated as Figure 1.1
2 TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY
Feedback
Figure 1.1 : A basic operating system
1. Input
Input or resources are the basic material needed of producing goods and services
and in this context we emphasis more on services. Examples of inputs are human
resources, financial support, equipment and information
2. Transformation process
Refers to the activities related to the conversion of inputs into outputs which
involve operating startegies
3. Output
Final result obtained after the transformation process
4. Feedback
The transformation process is influenced by the environment that responds to the
organization. Therefore organizations need to be alert to the environment, in order
to control the transformation process. Feedback will acts as a control mechanism,
measuring the actual performance against the planned and expected performance.
Examples in the Table 1.1 is to explain the tangible and intangible for operations system
In every organization, operation management is very important and crucial because to ensure
smooth production of service or production. These objectives can be summarized in Figure 1.2
The ensure the customers satisfaction by providing them with what do they expect
or want from the product or service can utilise on their needs. In terms of cost and
time.
The organization is able to fulfil and deliver all customers demand on time by use
the efficiency of resources with a smooth production process. This lead to
customer satisfaction
Achieving
customer
satisfaction
Adapting to Using
future resources
survival efficiently
Operations
Manageme
nt
Being an Smooth
effective production
producer process
meetingexpec
ted demand
and delivery
dates
SELF-CHECK 1.1
Operations management requires strategic decisions to propel them to high achievement. Heizer
el at., (2011) have itemised ten strategic decisions for management to assess their operations as in
Figure 1.3.
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 5
Customers have a very high expectation on quality of products. Operations management should
set up quality management strategy to improve further on quality. Objectives in quality must be
set and applied in the operations.
Procurement strategy ultimate objectives call for procuring best quality components, at the
cheapest price, just on-time delivery and with best services. Operations management has to
determine and assess the most reliable suppliers that meet the highest level of achievement based
on the requirements.
A product evolves within its product life cycle. From its initiation stage, a product will reach its
highest growth before coming tomaturity and declines to obsoleteness. Product strategy
emphasizes strategic analysis in development of new products and plan for successive products
for more demanding market. It requires R&D strategy, product design, global market dynamics,
consumer attributes and needs.
iv)Process Strategy
Process strategy calls for quality outputs, high variety products, mass customisation, speed, high
degree of product flexibility and economical. It emphasizes on technology, equipment, process
6 TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY
and resources that can give competitive advantage. Process strategy refers to the pattern of
decisions made in managing processes with the aim of achieving competitive priorities.
v) Location Strategy
The open global market and borderless economy allows operations to be carried out all over the
world. In selection of location of business a lot of criteria have to be taken into consideration. The
most importance criterion is the economic and political stability of the new location. Other criteria
that need greater analysis is the availability of skilled workers, relevant standard of education,
infrastructure, availability of raw materials, its strategic position to airport and major ports,
availability of reliable suppliers and lastly the economical advantage.
Operations management should make efforts to have the best operations layout. The best layout
flow will give the most cost saving in operations. Layout flow should take into consideration on
the selection of most appropriate technology for the operations, selection of the right equipment,
efficient layout and positioning of equipment, effective material flow, strategic positioning of
materials/components for process, convenient position of facilities, optimum space of movement
of workers, materials and transportation, effective ventilation system, strategic provision for
expansion and finally incorporating safety and health measures in the planning of plant layout.
Reliability is concerned on the stability and availability of equipment, facilities and system and
their being at optimum condition. Maintenance is concerned on activities involved in maintaining
the reliability and stability of all equipment, facilities and system at their optimum working
condition. System covers both software and hardware which includes computer system, process
system and human resources.
Scheduling involves efficient way of planning, control and allocation of resources (materials,
equipment, human resources and capital) over time to produce goods or services. In
manufacturing scheduling includes allocations of resources, workforce scheduling and operations
scheduling.
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 7
8 TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY
Inventory means money. Excessive inventory ties up more money. No inventory means lost
money. Just in time (JIT) inventory is to optimize inventory to the lowest economical level. The
purpose of JIT inventory is to manage inventory level and control inventory costs through
collaboration between suppliers and manufacturers. Inventory costs money. Space is required to
keep the inventory. Having additional space means money. Buffer stocks between processes mean
temporary inventory before being used in the next process. Buffer stocks cost money. In JIT
organization buffer stock is non-existent.
SELF-CHECK 1.2
2
List down all the strategic decision of operation management.
Operation management is consequence to the production of output. The outputs can divide into
services and goods. There are organizations that produce tangible products which are reffered to
as goods or manufactured products meanwhile other produce intangible products called services.
However many outputs are combination of goods and services which require almost the same
basic elemnts of inputs, the transformation process and outputs. Although there are similiarities in
the elements both but there also some characteristics that make these two types of output
different.
1. Characteristics of services
i. Intangible Output services are intangible meaning they cannot be seen or
touched. For example delivery services, medical services and transportation
services. Customers can only use the services
ii. Outputs Cannot Be Stored it is impossible to store or categorize them as
inventory. For example a courier company needs to perform quick delivery
services
iii. High interaction with customers services are often difficult to
standardized, thus customers needs to be present to specify what they want
from services thus they pay different prices for this uniqueness. In other
word the uniqueness in demand is what the customersare paying for. At the
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 9
same time, the services provider must be ready to provide the necessary
information pertaining to the services, and deliver as required.
iv. Labour Intensive employees play an inmportant part in services related
companies, because services delivery requires customers to interact face to
face with the service provider. For instance , a courier service company
needs many personnel to perform deliveries at various places at a given
time
v. Difficulty In Measuring Quality Services quality may vary from one
situation to another. The same services delivered to different customers
may result in different acceptance levels from them. For example a
customer who is entertained by talkative staff might enjoy the service. But
another customer who feels annoyed and harassed by the same talkative
staff may not necessarily enjoy the service.
2. Characteristics of goods
i. Tangible Products goods or manufactured products can be seen and
touched, so they are tangible. Some examples of goods include
automobiles, shirts and furniture
ii. Outputs Can Be Stored can stored and deliver until customers need them.
For instance PROTON produces cars and stores them until customers place
an order for the cars
iii. Low Interactions With Customers customers do not specify what they
want from manufactured products. They just purchase the products that suit
their needs
iv. Capital Intensive Using high technology machines during operations thus
they need to invest a huge capital to purchase the machines.
v. Ease In Measuring Quality in certain standards and specifications atht are
set by the manufacturer, in order to produce tangible products. The quality
of these products would depend on whether the manufacturer meets the
standards and specifications or not. For examples a bakery wants their
cakes to have a certain level of thickness. Quality is achieved once this
standard is met.
Service Good
Intangible Tangible
Produced and consumed Produced and stored
stimultaneously
Unique Siniliar
High customer interaction Low customers interaction
Quality may be hard to evaluate Quality is easier to evaluate
Inconsistent product definition Standardization of product
Often knowledge based Feasible automation
Services dispersed Fixed facility
Reselling is unusual Reselling is possible
Table 1.2 : Summarizes characteristic of services and goods
SELF-CHECK 1.3
Discuss the pro and con between characteristic goods and services
10 TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY
1.6 Productivity
Production is the creation of outputs; it is a form of goods and services. To produce a good
services and goods, the input must go through the transformation process that converts them into
outputs. The more efficient the process of transformation, the more productive the organization
will be.
1. What is productivity
Productivity is the ratio of outputs(goods and services) divided by the inputs (resourses,
labour and capital). Efficiency is achieved if an operations manager is able to increase this
ratio. An organization is considered productive if it is able to achieve its goal through the
conversion of inputs into outputs at lower cost.
An organizations productivity can be increased in two ways
Reducing inputs while keeping outputs constant
Increasing outputs while keeping inputs constant
The normal interpretation of productivity is the relative comparison of the outputs against inputs.
Productivity is basically the ratio of outputs against inputs. It measures the efficiency of a process.
Inputs Transformation
Process Outputs
(Adding value)
In normal process not all outputs will turn out to be of acceptable quality. In measuring
productivity only quality outputs are taken in the calculation. All defects and rejects will not be
considered in the calculation of productivity.
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 11
Productivity is a ratio that compares output (goods and services) against input (labour, materials,
energy, machines, facilities and capital). Productivity can be differently expressed as the ratio of
output against partial input, multiple inputs and total inputs.
12 TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY
Output Output
Multiple Productivity = =
Labour +machine labour +capital +energy
Goodsservice
Total Productivity =
All inputs
In measuring total productivity of a larger unit of operation the equation of productivity will as
follow:
Total Output
Total Productivity =
Total Inputs
We have to take note that, when production increases it does not mean that there is an increase in
productivity. In certain situation you may need to add more people in order to increase the output
and achieve target schedule on time. In this situation you are creating a false output. When you
are adding more people it means you are adding more input resources. When you compute the
productivity with your output against your new inflated input you will find that the productivity
becomes lower.
Higher productivity means the production of higher output against the same expenditure of
resources. It can be illustrated by the situation when all the inputs (resources, building, materials,
machines, time and labour) remains the same, however, you still manage to produce higher
output.
Higher productivity is achieved when the output increases and the input remains the same.
Output (increases)
Higher Productivity = Input (remains the same)
Alternatively, higher productivity is achieved when the output remains the same but you manage
to do it with much less cost. For example, you are given a certain number of personnel to carry
out a job within a stipulated time. However, with the skill you have in the work you are able to
accomplish the same job with lesser number of personnel. Thus, you have achieved higher
productivity in your job.
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 13
Hence, higher productivity is achieved when the same output is produced with much lesser
amount of inputs (resources, building, materials, machines, time and labour).
Alternatively, higher productivity is achieved when the same output is achieved against reduced
input.
The second criterion related to input. Sometime management may decide to increase the output
urgently due to tardiness in delivery.Since there is no other alternative, the management may
decide to mobilise additional number of personnel, re-schedule more equipment for the particular
job or working overtime for the purpose of accomplishing the job. By doing this we are increasing
the cost of the input and creating false productivity.
As illustrated in Figure 1.4, the cost of the input includes labour cost, capital costs (machines,
running capital, resources, raw materials, components, energy, facilities) and management costs
(administration, staff salary, staff benefits, R&D costs, bank loans interests), returned products,
company image and market prospects. It is utmost important for all personnel in any organisation
to place productivity of work as their highest priority and main concern in carrying out their duty
and responsibility.
14 TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY
The main priority in productivity improvement is cost of the inputs. Figure 1.5 shows the list of
competitive priorities for productivity improvement. Cost is top in the list. Consciousness in costs
during the production process will greatly benefit in achieving the highest productivity. Costs of
process include costs of material, labour, energy, machines and equipment, facilities,
administration, R&D, defects, etc.
Quality is another critical criterion in productivity. Achieving higher output with poor quality
does not mean anything to productivity. Poor quality will results in defects, wastage and rework.
The worst consequence of bad quality is when the products were released to the market
undetected. The more such products get to the market the company will get into more problems. It
may cause continuous customers' complaints, bad reputation to the company and loss of market.
Flexibility in a process will allow production of different products in the same process with a
minimal adaptability or adjustment to the process. The advantage of flexibility is more different
products will be able to be produced in the same process. This adaptability will be able to fulfil
much of customers' orders. The disadvantage of flexibility is it limits the capacity of each product
when more customers' orders are required.
Delivery and response time on schedule will improve customers' satisfaction. The problem will
arise when the company accept more orders. More orders will make prioritisation of orders
becomes more complex resulting in tardiness in delivery and affecting customers' satisfaction. In
this case consistent communication with the customers is critical to keep the customers in the loop
on the progress of their orders. Continuous customers' dissatisfaction will result in loss of market.
It is possible to create the most economical manufacturing processes when the product and its
components are produced according to their specification, tolerance and standard. The machines
or equipment used in producing the products or components have to be standardised.
Quality must be built into the product at each stage, from design to assembly, rather than
relying on quality testing after the product is made.
Production methods must be sufficiently flexible so as to respond to changing market
demands, types of products, production rates, production quantities and on-time delivery
to the customer.
Look for new developments in materials, production methods and computer integration of
technological and managerial activities in a manufacturing organization and evaluate for
their usefulness.
Look at manufacturing activities on a broader aspect as a large system not confined to
process only. Study the effect of factors such as changes in market demands, product
design, materials, production methods, product quality and cost.
Determine the optimum use of all resources used: materials, machines, energy, capital,
labour and technology, production output, machine efficiency and workers' productivity.
Analyse and form a task force to continuously improve further.
Productivity improvement can be improved by analysing the process starting from design stage to
efficient usage of resources, selection of the right process and change of working culture.
a) At design stage
i) R&D and production are totally two different entities. R&D personnel are normally
optimistic. They always claim their designs are perfect and made for easy
manufacturability. in the real situation there is always a conflict between R&D and
production. Both R&D and production have to eliminate their bigotry and work together
for greater productivity of the company.
b) At operation stage
i) Standardised Equipment
Selection of the right equipment is essential in the manufacturing of products. Not all
equipment can produce the same product. At the same time, having a fewsimilar equipment
does not mean all have the same capability. In reality there are equipment that may differ to
another and produce more or otherwise less output as compared to others. For that very
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 17
reason all similar type of equipment has to be standardised to the best time as much as
possible. Each similar equipment should have the same accessories, the same machine and
materials layout as the others and each similar machine should have the same processing
and set-up times, By having done this we will be able to have similar equipment with very
minimal difference in their capabilities.
SELF-CHECK 1.4
Operations manager plays very important role and has high responsibility for
the success of organisation. The success and failure of an organisation is heavily
shouldered by operations manager. The function of operations manager has myriad roles from
being a good listener to goals setting champion.
Management Process
Operations managers are responsible for the four basic functions of managers: planning,
organizing, leading and controlling. Operations managers are fully in charge of
management of resources in accomplishing the organisation's objectives and goals. The
four management processes are as illustrated in Figure 1.6.
1. Planning
Operations planning is the process of setting long term and short term strategies in
prevailing the growthand achieving the objectives of the organisation.Operations
Manager is responsible for effective workforce and resource planning and machine
utilisation optimisation. By consolidating a well organised and effective strategies
operations manager will be able to fortifythe position andgrowth of the company.
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 19
3. Leading
Leading is more concern in building trust, respects and sense of belonging and
inspiring the enthusiasm of the workforce in achieving high performance outcomes
in orgnisation's objectives and goals.
4. Controlling
2. Public Relations
One of the managerial roles of operations manager include being a spokesperson of the
organisation. Operations manager must have high esteem and good leadership quality in
disseminating information to the public. He should be willing to meet customers in ironing
out their problems, complaints and dissatisfaction and take immediate action for
rectification.
3. Communication
5. Financial Management.
Operations managers play a key role in budgeting, controlling costs and keeping the
organization on track financially. Their management of the supply chain and other
resources helps minimize costs of production. They study business forecasts, sales reports
and financial statements to find ways to maximize results. They use methods such as cost-
benefit analysis to improve efficiency. Modern operations management even includes
sustainability in the financial equation.
6. Management of Resources
Operations managers play a leading role in managing both raw materials and personnel.
Oversight of inventory, purchasing and supplies is central to the job. Human resources
tasks include determining needs, hiring employees, overseeing assignment of employees
and planning staff development.
7. Goal-setting
Operations managers has to coordinate regularly, either monthly or quarterly, with
marketing, procurement and R&D counterparts in setting consolidated output targets for
short term and long term objectives. Operations manager has to take into account his
operations' capability before committing his agreement on the proposed operations' target.
Once the target has been established operations manager will be able to organise and set
his operations' goals and objectives and establish targets and expectations for various
departments in the organisation.
9. People skills
People skills consist of skills in directing, motivating, coordinating, training &
development. He has to set work discipline at workplace, provide clear job functions for
each member of workforce and create rules and regulations for employees to improve their
efficiency. Refer Figure 1.7
The main challenge of productivity is in understanding the overall strategy of the organisations
and its competitiveness and how the management effectively use its resources in achieving its
operations performance objectives. Management has limited resources, technology, expertise and
capital. Improving productivity will be a great challenge to them.
1. Global Focus
The great challenge to do business on a global scale is to understand the type of market
and demand for the products and services. The products have to be competitive in global
pricing. Product costing has to be as low possible by improving productivity, use of
economical and low price resources, maximise process agility and flexibility and have
high degree of control in meeting global demands.
2. Just-in-time
Just-in-time (JIT) production refers to a production management system with objectives of
having products readily available to meet demand. Just in time requires precise
coordination between supply and demand to ensure on time delivery of products.
Just-in-time (JIT) production requires high level of coordination. Every aspect of JIT
process must be well synchronized. Delay in arrival of supply of components will cause
great loss to production. Delivery of raw materials or components needed for
manufacturing has to be timely. This is where high technology is required and ICT
implementation will be necessary for tracking the supply and enabling automatic
notification to suppliers for next delivery schedule.
There are four distinct approaches to customization, i.e., collaborative, adaptive, cosmetic
and transparent. Operations manager has to examine each of the approaches and decide
how best to serve their customers. In most cases, a single approach is able to handle the
customization problem. In other situation, operations managers will have to determine
whether they need to have a mix of some or all of the four approaches to serve the
customers. As in the case of tyres, operations manager has to understand the needs of the
customers and works together with R&D to produce similar tyres but with the additional
qualities required by the customers. In this case the operations manager is using
collaborative and adaptive methods to handle the tyre customization problems.
A good operations manager will be more successful when he can develop a strong
teamwork with built up spirit and enthusiasm. In facing the acute challenges from
competitors, now companies are turning their attention to empower employee teams.
Operations manager will have to consider forming such empowered teams composed of
experience, most knowledgeable and skilled employees from different departments to
undertake company projects. The teams should have the authority to make final decisions
on the projects. Forming such teams will need proper training, guidance and trust.
Some of the areas of operations that can be handled by empowered teams includes in
solving complex operations problems, reducing costs projects, quality improvement,
productivity improvement which indirectly improving the overall operations efficiency.
Empowered teamwork has become the icons, in particular, in facing the challenge of
today's global business environment.
By the way, Operations management continues to be encountered with new challenges. The latest
challenges are the coming implementation of TPPA, fast depletion of fossil fuels, emphasis on
sustainable development and advancement of technology and ICT.In term of scope and techniques
of operations management, it has changed drastically the way operations is being managed.
Previously operations management is more concerned on economic order quantity (EOQ),re-order
point (ROP), materials resource planning (MRP) later we haveenterpriseresources planning (ERP)
and supply chain management (SCM).Operations management has now facing a real challenge in
transforming their operations to the technology of operations management going towards JIT
philosophy, lean production and agile manufacturing.
1. Implementation of TPPA
With the coming implementation of TPPAandnewglobalisation the world has now become
a borderless economy and free market. There will be free flow of products and services
participating countries. Such development will pose great challenge to operations
TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY 25
management. Competition will become greater, market pricing will become more
competitiveandfulfilment of TPPA provisions will open up more open market and trade
facilitative measures and bigger and better market access. This situation will cause greater
challenges, in particular, to low productive operations. Operations managers will have a
touch responsibility to improve their productivity,qualityand cost to compete with external
influence.
3. Sustainable Development
Another challenge to operations management is the continuous deterioration of the
environment.The world is very serious on sustainable development programme all over
the world. Among the main goals sustainable development is to reduce carbon footprint,
greenhouse gases emission and protect the planet from further degradation. It will become
a great challenge to operations management to develop new processes that ensure
sustainable production.
SELF-CHECK 1.5
The word operations came about from the words operations used in the armed forces
which denote carrying out special mission in a war or battle to fight against enemy.
Operations refer day to day activity that involves economic transformation. The smallest
element of operations is process, characterised by three basic elements: input, process
and output
Functions of operations management involve all chains of production from design stage
to selection of raw materials, delivery, storage, preparation, process, finishing,
warehousing and distribution.
Operations manager has high responsibility for the success of organisation.
Operations management is the effective management of value adding transformation
processes, integrating resources and achieves specified performance measures in
products/services productivity.
Operations management continues to face new challenges such as implementation TPPA
calling for broader liberalised marketing, fast depletion of fossil fuels, greenhouse gas
effects, advanced technology and ICT.
Rosliza Md Zani, Mohd Radzi Mohd Khir. (2015).Operations Management (1th ed.), Kuala
Lumpur : Oxford Fajar Sdn Bhd.
SELF-CHECK 1.6
SHORT QUESTIONS
C. Question
1) Under capacity options the company decides to vary the production output by varying
the time, workforce or outsourcing. What are the basic capacity options a company can
choose to meet demand?
2) Describe the three major business functions necessary to all organizations
3) Considering no upgrading for now, explain how you are going to increase the
productivity of your operation.
4) Two car wash employees are paid $8.00 an hour each and are capable of washing 12
cars per hour, using $1.00 of water and $2.00 of soap and other cleaning supplies,
determine the multifactor productivity of this operation.
28 TOPIC1 INTRODUCTION TO OPERATIONS AND PRODUCTIVITY