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COLEGIO DE LA PURISIMA CONCEPCION

The School of the Archdiocese of Capiz
CPC DISTANCE EDUCATION (SEMESTER I)
CURRICULAR BS Hospitality YEAR LEVEL III
PROGRAM Management
NAME OF FACULTY Franklin F. Avelino, SEMESTER I
MBA
SUBJECT/CODE CBME 1
DESCRIPTIVE TITLE Operations Management
COURSE DESCRIPTION This course is an introduction to the concepts, principles, problems and
practices of operations management. Emphasis is on managerial
processes for effective operations in both goods – producing and service
– rendering organization. Topics include operations strategy, process
design, capacity planning, facilities location and design, forecasting,
production scheduling, inventory control, quality assurance and project
management. The topics are integrated using a systems model of the
operations of the organization.
INSTRUCTIONAL LEARNING This course aims to improve students’ understanding of the concepts,
GOALS principles, problems and practices of operations management. After
completing this course, students should be able to:
 Develop an understanding of and an appreciation for the
production and operations management function in any
organization;
 Understand the importance of productivity and competitiveness
to both organizations and nations;
 Understand the importance of an effective production and
operations strategy of an organization;
 Understand the various production and operations design
decisions and how they relate to the overall strategies of
organizations;
 Understand the importance of product and service design
decisions and its impact on other decisions and operations;
 Obtain an understanding of quality management practice in
organizations and how total quality management and six –
stigma facilitate organizational effectiveness;
 Understand the relationship of the various planning practices
of capacity planning, aggregate planning, project planning and
scheduling;
 Understand the roles of inventories and basics of managing
inventories in various demand settings;
 Understand contemporary operations and manufacturing
organizational approaches and the supply chain management
activities and the renewed importance of this aspect of
organizational strategy.
ILK DELIVERY DURATION 5 Months (AUGUST-DECEMBER) / 20 Weeks – Semester I

NO. OF TOPICS 12
FIRST QUARTER (PRE-LIM TO MID-TERM)
ILK - TOPIC 1 ORIENTATION (Face to Face by Batch and/or On-line)
Week 1  CPC VMGO
 CPC – CHTM VMGO

Introduction to Operations Management

 What is Operations Management?
 Operation Management’s Contributions to Society
 Emergence of Operations Management
 Ever – changing World of Operations Management
 Historical Development of OM
ILK - TOPIC 2 Operations Strategy: How Firms Compete
Week 2
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
ILK - TOPIC 3 New Product and Service Development, and Process Selection
Week 3
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
Week 4 - 5 PRELIM ASSESSMENT (Face to Face by Batch and/or On-Line)
ILK - TOPIC 4 Project Management
Week 6
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
ILK - TOPIC 5 The Role of Technology in Operations
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Week 7
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
ILK - TOPIC 6 Process Measurement and Analysis
Week 8
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
Week 9 – 10 MID-TERM ASSESSMENT (Face to Face by Batch and/or On-line)

SECOND QUARTER (PRE-FINALS TO FINALS)

ILK - TOPIC 7 Quality Management
Week 11
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
ILK - TOPIC 8 Facility Decisions: Location and Capacity
Week 12
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
ILK - TOPIC 9 Facility Decisions: Layouts
Week 13
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
Week 14 - 15 PRE-FINAL ASSESSMENT (Face to Face by Batch and/or Online)
ILK - TOPIC 10 Forecasting
Week 16
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
ILK - TOPIC 11 Scheduling
Week 17
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
ILK - TOPIC 12 Waiting Line Management
Week 18
CHAPTER ASSESSMENT (Quizzes, Case Studies, Online Exercises)
Week 19 – 20 Aggregate Planning

FINALS ASSESSMENT (Face to Face by Batch and/or Online)

EXHIBIT C (CPC-DE INSTRUCTIONAL LEARNING KIT)

A. ILK TEACHING MATERIAL

PRELIMINARY PERIOD
Introduction to Operations Management

What is it? Operations management is the business organization that is responsible for
planning, coordinating, and controlling the resources needed to provide
products and services for a company.

What is its Place in the Organization Chart?

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Operations can be seen as the central part – or the heart - of a company. Marketing informs about the
demand - operations decide if additional funds are needed to satisfy the reported demand. If so, finance is
needed to provide the funds necessary to get ready to produce or to provide the service demanded.

What is the Role of Operations Management?

Operations Management transforms input to output.

Inputs are resources such as people, facilities, technologies and materials.
Outputs are goods and services.
In the transformation process inputs get transformed into outputs. Performance information and
customer feedback serve as a control to maintain a high standard of goods and/or services.
This principle of ‘Input – Transformation – Output’ can be applied to the entire production process as can
be seen in the following example:

A car producing company may use sheet metal as an input. The transformation is a stamping process and the
output is a car part.

sheet metal car part first step in the production process

This car part can be used as the input of the next transformation which may be a subassembly resulting in e.g.
a door (= output)

sheet metal car part car part door

second step in the production process

The door may be the next input, the next transformation process the attachment of the door to the body
and the output would be the car.

car part door door car

third step in the production process

We can use the above subdivisions to illustrate operations or production processes from the beginning to the
end of the manufacturing process.
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Job Redesign

Employees normally spend more than two thousand hours a year at work. If the job is boring or
unpleasant the employee probably won’t be motivated to perform at a very high level. Many companies
practice a policy of job redesign to make jobs more interesting and challenging. Common strategies include
job rotation, job enlargement, and job enrichment.

Job Rotation

Specialization leads to more efficiency because workers get very good at doing certain tasks. However,
repeating the same task day in and day out gets easily boring. The practice of job rotation allows
employees to rotate from one job to another on a systematic basis. A worker at an assembly line, for
example, might rotate and thus learn a lot of jobs in his department. This gives him a better understanding
of the company’s operations and goals. A hotel might rotate an accounting clerk to the check-in desk for a
few hours each day to add variety to the daily workload. Rotated employees develop new skills and gain
experience that increases their value to the company. Cross-trained employees can fill in for absentees,
thus providing greater flexibility in scheduling.

Job Enlargement

Instead of a job in which workers perform just one or two tasks, job enlargement aims at jobs with many
different tasks. In theory, workers are less bored and more highly motivated if they have a chance to add
tasks at similar skill levels. The job of a sales clerk, for example, might be expanded to include packaging
items for shipment. The additional duties would add variety without bringing more complicated tasks about.

Job Enrichment

Whereas in Job Enlargement only similar tasks are added, Job Enrichment is the practice of adding tasks that
increase both responsibility and opportunity for growth. It provides the kinds of benefits that, according to
Maslow, contribute to job satisfaction:
stimulating work, sense of personal achievement, self-esteem, recognition, and a chance to reach your full
potential.

Cost Focus

The Behavior of Different Kinds of Costs

The behavior of costs refers to the way different types of production costs change when there is a change in
level of production.

There are three main types of costs according to their behavior:

Fixed Costs:

Total Fixed costs do not change with the level of activity. These costs will incur even if no units are
produced. Examples for fixed costs are: rent, maintenance if it is based on a contract, depreciation, interest,
etc.
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Fixed costs per unit decrease with increase in production. This fact is also called fixed cost degression. If a
huge number of units are produced the fixed costs per unit get close to zero. This is why fixed cost
degression is also referred to as ‘Law of Mass Production’.
The following table illustrates fixed cost degression:

total fixed cost $100,000 $100,000 $100,000

units produced 1,000 50,000 100,000
fixed cost per unit $100 $2 $1

Variable Costs:

Variable costs change with the number of parts produced. Examples for variable costs are material (one
chair needs one seat, 10 chairs need ten seats) and wages (for one chair a worker needs 15 minutes to
assemble it, he needs 15 minutes x 10 to assemble 10 chairs).
This is why variable costs change in direct proportion to the level of production. This means that total variable
costs increase when more units are produced and decrease when fewer units are produced. If nothing is
produced there are no variable costs.

The Break Even Point

Every person starting a new business asks, "How many products have to be sold to make a profit?"
Established companies that have had to experience rough years might have similar questions. The break-
even analysis provides a method that may help to answer those questions and to provide some insight as to
how profits change as sales increase or decrease.
At the center of the break even analysis is the relationship between cost and revenue.
Revenue is the amount of money earned by providing services or selling products. (p × x)

Costs can be fix or variable.

Variable costs only occur when goods are produced. (cv × x)

Example: To produce this funny chair you only need three parts: Back, seat and foot. These parts are
needed for every chair. If no chairs are produced, no parts are needed.
We further assume that the back of the chair costs $3, the seat $3 and the foot $4. This means: Material
cost of this chair is $3 + $3 + $4= $10.
In addition to the parts an experienced worker needs 6 minutes to assemble the chair. The hourly wages
the experienced worker gets are $24. 6 minutes are one 10 th of an hour, which means the labor-cost per
chair is 24 ÷ 10  $2.40. Thus the variable cost for our chair is $10 + $2.40 = $12.40.

Fixed costs occur all the time no matter if production is running or not. They are not dependent on the level of
goods or services produced by the business. (Cf)

Examples for fixed costs are the rent that has to be paid for the production building, maintenance, leasing
rates, interest, depreciation, salaries etc. Fixed costs are calculated as a block. Let’s assume we have fixed costs
of $12,400 for our chair production.

Cost function: Using our fixed and variable costs we can set up the following cost function:
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C(x) = 12.40x + 12,400 (x symbolizes the number of chairs produced)

Let us further assume that the retail price of each chair is $24.80. The corresponding revenue function is:

R(x) = 24.80x (x symbolizes the number of chairs sold)

Additional Orders and Price Floors

The planned production program and the planned operational result normally cover the fixed costs (see
previous assignments). So, if a company gets an additional order, the only thing that has to be done is, to
check if the offered price is higher than the variable cost per unit. If this is the case, every additionally sold
product increases the operational result by the difference between price and variable costs (p – c v). If the
price the prospective buyer wants to pay equals the variable costs, the planned operational result will not
change. If the price is less than the variable costs the offer should be rejected because its acceptance would
change the planned operational result for the worse.

Price floors

For a very short time the minimum price a producer can accept equals the variable costs. In this case the
variable costs are covered, but the fixed costs are not. This is why the short-term price floor equals variable
cost (p = cv). In the long run no company can exist if a part of the costs is not covered.

In the long run all costs have to be covered. This means: the long-term price floor equals fixed costs plus
variable costs divided by the number of products produced (p= (C f + Cv) ÷ n).

22: Additional Orders and Floor Prices

Suppose operation planning has released the following production program:

number of drilling machines planned: 12,000

capacity utilization: 75% sales
price: $195
fixed costs: $450,000
variable costs (12,000 units): $1,140,000

Calculate the planned operational result

22.1 Which floor price could be accepted - for a
22.2 very short time? - for a longer time?
The company owner’s best friend places an additional order. He wants to buy 5,000 drilling machines
and offers to pay $110 for each.
22.3 - Please check if there is enough capacity left.
- The friend is a flexible person – what is the new production program.
- He insists on 5,000 machines or nothing.
- What would the operational result be and what should the company do?

Adaptation to Changes in Production

A company may be confronted with the situation that more than 100% of their capacity is needed to
complete an order but a decline is not possible because the customer could order elsewhere in the future.
Basically the company can choose from three different ways to adapt to the new situation:

 They can decide to work overtime. This way to adapt to a workload of more than 100%
capacity is called time related adaptation. The number of hours worked is extended,
the overtime hours usually cost the normal wage rate plus an overtime premium of
usually 50% of hourly wages.
 Intensity adaptation. If this way to adapt to an increased workload is chosen, the speed
at which a machine runs is increased. Intensity adaptation causes additional costs.
 The third possibility to adapt to an increased workload is the so called quantitative
adaptation. In this adaptation additional machines are used to deal with the situation.
 A further possibility could be to choose a combination of time related - and intensity
adaptation.
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A company may also have to decide how to cut down production because a customer canceled an order or
because a recession which goes hand in hand with less demand. Again the company can choose different
ways to adapt to the new situation:

 They can decide to work reduced working hours. This way to adapt to a decreasing
workload is also called time related adaptation. The number of hours worked is
reduced, the reduced hours usually cost the normal wage rate plus a compensation to
enable the worker to keep up the standard of living.
 Intensity adaptation. If this way to adapt to a decreased workload is chosen, the
speed at which a machine runs is reduced. This also causes additional cost because
the machine cannot work at the optimal speed at which costs are minimal.
 The third possibility to adapt to a reduced workload is the so called quantitative
adaptation. Here existing machines are switched off.
 A further possibility could be to choose a combination of time related and intensity
adaptation.

The decision which form of adaptation is realized depends on the time frame of the change. If the change in
production is only on a short-term basis, time related adaptation or intensity adaptation or a combination of
both should be preferred. Is the change permanent, the quantity adaptation is the best alternative.

Quality Focus

Product Life Cycle

The product life cycle was developed by the economist Raymond Vernon in 1966. It is still a widely used
model in economics and marketing.

Products enter the market and gradually disappear again. According to Raymond Vernon, each product has a
certain life cycle that begins with its development and ends with its decline.

There are five stages in a product’s life cycle: “development”, “introduction”, “growth”, “maturity” and
“decline”. As sales cannot start before the “introduction” stage, the product life cycle is often said to have
the four stages: “introduction”, “growth”, “maturity” and “decline”. The length of a stage varies for
different products, one stage of the product life cycle may last some weeks (e.g. Pokemon Go) while others
even last decades (VW-Beetle or Coca Cola). The life span of a product and how fast it goes through the
entire cycle depends on market demand and how marketing instruments are used.
The graph below shows a Product Life Cycle. Sales start in the second stage, when the product enters the
market. As the development of new products is very expensive the profit line is negative at first because
there are costs but no revenue during product development.
The picture shows the product life cycle. The two graphs (sales and profit) give an idea of a product which
starts its “life” with the development phase and goes through all phases until it reaches the last phase, the
decline.1

BCG Matrix

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The BCG matrix or Boston Consulting Group Matrix is a valuable tool to help companies to analyze their
portfolio (all the products they produce) and understand their potential.

It was created by Bruce Henderson of the Boston Consulting Group in 1968 and aims to identify high-
growth prospects by categorizing the company's products according to growth rate (in %) and relative
market share (relative to the market share of the most successful competitor). By optimizing positive cash
flows in high-potential products, a company can take advantage of growth opportunities.
How to set up a BCG Matrix
To set up a BCG matrix, companies gather information about relative market-share
growth rate of the individual products.
Products which have entered the market and are on their way to get known by the customers have a high
growth rate but a small relative market share. To arouse customer awareness it takes high investments in the
promotion of these products. In this phase it is not clear yet whether the product will continue growing and
gaining a bigger market share. This is why such a product is called question mark (or sometimes problem
child). If they are successful and grow rapidly they do have the potential to turn into stars. Companies should
invest in question marks if the product has potential for growth, or drop if it does not.
A successful question mark turns into a star. Stars have a high relative market share and at the same time a
high growth rate. They are highly profitable products and thus generate cash-flow which is however
mostly used for promotion to help making the product even more successful. Stars can eventually become
cash cows if they sustain their success until a time when the market growth rate declines.

Total Quality Management

What is it?

Total Quality Management (TQM) is a management philosophy that aims at

integrating all organizational functions (marketing, finance, development,
engineering, production, customer service, etc.) to focus on meeting customer
needs.

TQM defines an organization as a series of successive processes. Organizations

must try to continuously improve these processes by using the knowledge and
experiences of workers.
The simple objective of TQM is

“Do the right things, right the first time, every time.”

TQM is variable and adaptable. Although it was originally designed for

manufacturing operations, and for a number of years only used in that area, TQM
is now seen as a management tool, just as applicable in service and public sector
organizations.
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Which are typical

features of TQM?
There are a number of typical features that are vital for TQM:

• meeting customer requirements

• reducing development cycle times
• just in time
• reducing product and service costs
• employee involvement and empowerment
• focus on processes
• continuous improvement

TQM can be practiced in all activities, by all personnel, in manufacturing,

marketing, engineering, sales, purchasing, human relations (HR), etc. 4

Inventory Management

Stock Control Chart

Inventory management is the way a company controls its stock of material necessary for
production. If the system used is effective there will always be enough parts available for
production without holding too much stock.
There are different methods to control stock. The oldest and traditional methods are stock
control charts.

Stock control chart

A typical chart is shown on the left.
The vertical axis shows the
inventory level, the horizontal axis
shows the time. When an order
is received, stock can be filled up
to the maximum order
quantity. In the following time the
stock is used up, the level of stock
gradually falls from left to right
(blue line). When the reorder
point is reached, the next
order has to be

placed. This reorder point has to be calculated carefully by multiplying the parts needed
per day by the number of days it takes to receive the next order. The time between
placing and receiving the order is called lead time, or time to process the order and
make the delivery. If the order is placed too late or the delivery takes too long, there will
be not enough stock to continue production. This is why many companies keep a
minimum stock level which is also known as buffer stock.
The chart gives an idea of how stocks get filled up, used up and replenished, however it
does not show a realistic stockholding. In reality a constant usage of stock is the
exception. The slope of the stock level line will rather vary. Sometimes it might be steeper
or shallower than shown in the graph.

41: Stock Control Chart:

The order quantity of raw material is 1,000 units per ordering-event, the daily consumption of raw
material is 200 units, the supplier needs two days to process the order and to deliver the raw
material.
Draw a detailed, traditional inventory chart that reflects the situation described.

Historical Development of OM
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For over two centuries, operations and production management has been recognized as an important factor in

a country’s economic growth. The traditional view of manufacturing management began in eighteenth century

when Adam Smithrecognized the economic benefits of specialization of labor. He recommended breaking of

jobs down into subtasks and recognizes workers to specialized tasks in which they would become highly

skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories and developed

scientific management. From then till 1930, many techniques were developed prevailing the traditional view.

Brief information about the contributions to manufacturing management is shown in the following table.

Historical summary of operations management

Production management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s works become

more widely known, managers developed techniques that focused on economic efficiency in manufacturing.

Workers were studied in great detail to eliminate wasteful efforts and achieve greater efficiency. At the same

time, psychologists, socialists and other social scientists began to study people and human behavior in the

working environment. In addition, economists, mathematicians, and computer socialists contributed newer,

more sophisticated analytical approaches.

With the 1970s emerge two distinct changes in our views. The most obvious of these, reflected in the new

name operations management was a shift in the service and manufacturing sectors of the economy. As

service sector became more prominent, the change from ‘production’ to ‘operations’ emphasized the

broadening of our field to service organizations. The second, more suitable change was the beginning of an

emphasis on synthesis, rather than just analysis, in management practices.

Contemporary Period

In the latter half of the 20th century, several operation and production management systems have been

developed. The focus of most of these systems is on creating even greater efficiency in the production process.
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Some of the more popular systems have included Six Sigma, which was developed by Motorola; lean

manufacturing, which was developed by Toyota; and ISO 9000, which was developed by the International

Organization for Standardization.

Operations Strategy: Defining How Firms Compete

Operations Strategy

After collectively considering the products and services demanded by customers, strengths and weaknesses of
competitors, the environment, and the firm's own strengths, weaknesses, cultures, and resources, proficient
firms can formulate their vision as expressed through the mission statement. This statement expresses the
organization's values and aspirations; basically its reason or purpose for existence. Based on this mission
statement the firm will formulate its business strategy. This business strategy is a long-term plan for
accomplishing the mission set forth in the mission statement. Each function within the business can then
derive its own strategy in support of the firm's overall business strategy (financial strategy, marketing
strategy, and operations strategy).

Operations strategy is the collective concrete actions chosen, mandated, or stimulated by corporate strategy.
It is, of course, implemented within the operations function. This operations strategy binds the various
operations decisions and actions into a cohesive consistent response to competitive forces by linking firm
policies, programs, systems, and actions into a systematic response to the competitive priorities chosen and
communicated by the corporate or business strategy. In simpler terms, the operations strategy specifies how
the firm will employ its operations capabilities to support the business strategy.

Operations strategy has a long-term concern for how to best determine and develop the firm's major
operations resources so that there is a high degree of compatibility between these resources and the business
strategy. Very broad questions are addressed regarding how major resources should be configured in order to
achieve the firm's corporate objectives. Some of the issues of relevance include long-term decisions regarding
capacity, location, processes, technology, and timing.

The achievement of world-class status through operations requires that operations be integrated with the
other functions at the corporate level. In broad terms, an operation has two important roles it can play in
strengthening the firm's overall strategy. One option is to provide processes that give the firm a distinct
advantage in the marketplace. Operations will provide a marketing edge through distinct, unique technology
developments in processes that competitors cannot match.

The second role that operations can play is to provide coordinated support for the essential ways in which the
firm's products win orders over their competitors, also known as distinctive competencies. The firm's
operations strategy must be conducive to developing a set of policies in both process choice and
infrastructure design (controls, procedures, systems, etc.) that are consistent with the firm's distinctive
competency. Most firms share access to the same processes and technology, so they usually differ little in
these areas. What is different is the degree to which operations matches its processes and infrastructure to its
distinctive competencies.

Key Success Factors

Industries have characteristics or strategic elements that affect their ability to prosper in the marketplace (i.e.,
attributes, resources, competencies, or capabilities). The ones that most affect a firm's competitive abilities
are called key success factors (KSFs). These KSFs are actually what the firm must be competent at doing or
concentrating on achieving in order to be competitively and financially successful; they could be called
prerequisites for success. In order to determine their own KSFs, a firm must determine a basis for customer
choice. In other words, how do customers differentiate between competitors offering the same or similar
products or services and how will the firm distinguish itself from these competitors? Once this is determined,
the firm has to decide what resources and competitive capabilities it needs in order to compete successfully,
and what will it take to achieve a sustainable competitive advantage. These KSFs can be related to technology,
operations, distribution, marketing, or to certain skills or organizational capability. For example, the firm may
derive advantages from superior ability to transform material or information (technology or operations), to
quickly master new technologies and bring processes online (technology or organizational capability), or to
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quickly design and introduce new products, service a broad range of products, customize products or services
on demand, or provide short lead times (skills).

The set of KSFs that are delegated totally or substantially to the operations function has been termed
the manufacturing mission. It represents what top management expects from operations in terms of its
strategic contribution.

All decisions made relative to system design, planning, control and supervision must aim at accomplishing the
manufacturing mission. As such, the manufacturing mission is the principal driver of the operations function
and gives it its reason for existence. All world-class manufacturers have an explicit, formal manufacturing
mission.

From the manufacturing mission the operations function derives its distinctive competencies (also called
competitive priorities or competitive weapons). Distinctive competence is defined as the characteristic of a
given product/service or its producing firm that causes the buyer to purchase it rather than the similar
product/service of a competitor. It is generally accepted that the distinctive competencies are cost/price,
quality, flexibility, and service/time. Various experts include other competencies, such as location, but these
can usually be categorized within one of the generally accepted four. Some experts also feel that innovation is
quickly becoming a fifth distinctive competency, if it hasn't already. It should be noted that a firm's position on
the product-process matrix is a controlling factor for the manufacturing mission and the firm's competitive
priority or priorities.

Distinctive Competencies

Details relative to each distinctive competency are provided, along with the implications of each and some
examples.

Price/Cost. A firm competing on a price/cost basis is able to provide consumers with an in-demand product
at a price that is competitively lower than that offered by firms producing the same or similar good/service. In
order to compete on a price basis, the firm must be able to produce the product at a lesser cost or be willing to
accept a smaller profit margin. Firms with this competency are generally in a position to mass produce the
product or service, thereby giving the firm economies of scale that drive the production cost per unit down
considerably. Commodity items are mass-produced at such volume that they utilize a continuous process, thus
deriving tremendous economies of scale and very low prices Consumers purchasing commodity-type
products are usually not greatly aware of brand difference, and will buy strictly on the basis of price; e.g., as
long as it is a major brand of gasoline and location is not a factor, consumers will opt for the lowest price. Wal-
Mart is able to offer low prices by accepting a lower profit margin per unit sold. Their tremendous volume
more than makes up for the lower profit margin.

Quality. David Garvin lists eight dimensions of quality as follows:

 Performance. Performance refers to a product's primary operating characteristics. For an automobile

this could mean fast acceleration, easy handling, a smooth ride, or good gas mileage. For a television it
could mean bright color, clarity, sound quality, or the number of channels it can receive. For a service
this could merely mean attention to details or prompt service.

 Conformance. Conformance is the degree to which a product's design and operating characteristics
meet predetermined standards. When a manufacturer utilizing coils of steel receives a shipment from
the mill, it checks the width of the coil, the gauge (thickness) of the steel, and the weight of the coil,
and puts a sample on a Rockwell hardness tester to check that the specified hardness has been
provided. The receiving inspector will also check to see if specified characteristics are met (e.g., hot-
rolled, pickled, and oiled). Services may have conformance requirements when it comes to repair,
processing, accuracy, timeliness, and errors.

 Features. Features are the bells and whistles of a product or service. In other words, they are the
characteristics that supplement the basic function of the product or service. Desirable, but not
absolutely necessary, features on a VCR include four heads, slow-motion capability, stereo or
surround sound, split screens or inset screens, and 365-day programming ability. Service examples
include free drinks on an airline flight or free delivery of flowers.

 Durability. Durability is defined as mean time until replacement. In other words, how long does the
product last before it is worn out or has to be replaced because repair is impossible? For some items,
such as light bulbs, repair is impossible and replacement is the only available option. Durability may
be had by use of longer life materials or improved technology processes in manufacturing. One would
expect home appliances such as refrigerators, washer and dryers, and vacuum cleaners to last for
many years. One would also hope that a product that represents a significant investment, such as an
automobile, would have durability as a primary characteristic of quality.

 Reliability. Reliability refers to a product's mean time until failure or between failures. In other
words, the time until a product breaks down and has to be repaired, but not replaced. This is an
important feature for products that have expensive downtime and maintenance. Businesses depend
on this characteristic for items such as delivery trucks and vans, farm equipment and copy machines
since their failure could conceivably shut down the business altogether.
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 Serviceability. Serviceability is defined by speed, courtesy, competence and ease of repair. This can be
an extremely important characteristic as witnessed by the proliferation of toll-free hot lines for
customer service. A number of years ago, a major television manufacturer advertised that its product
had its “works in a box.” This meant that the television set was assembled out of modular units.
Whenever there were problems with the set, a repairman making a house call simply had to replace
the problem module, making the product easily and quickly serviceable.

 Aesthetics. A product's looks, feel, smell, sound, or taste are its aesthetic qualities. Since these
characteristics are strictly subjective and captive to preference, it is virtually impossible to please
everyone on this dimension.

 Perceived Quality. Perceived quality is usually inferred from various tangible and intangible aspects
of the product. Many consumers assume products made in Japan are inherently of high quality due to
the reputation of Japanese manufacturers, whereas 50 years ago, the perception was the complete
opposite. Other characteristics such as high price or pleasing aesthetics may imply quality.

Firms competing on this basis offer products or services that are superior to the competition on one or more
of the eight dimensions. Obviously, it would be undesirable if not impossible for firms to compete on all eight
dimensions of quality at once. This would be prohibitively expensive, and there are some limitations imposed
by trade-offs that must be made due to the nature of the product. For example, a firm may sacrifice reliability
in order to achieve maximum speed.

Service. Service can be defined in a number of ways. Superior service can be characterized by the
term “customer service” or it could mean rapid delivery, on-time delivery, or convenient location.

Flexibility. Firms may compete on their ability to provide either flexibility of the product or volume. Firms
that can easily accept engineering changes (changes in the product) offer a strategic advantage to their
customers. Also, some firms are able to absorb wide fluctuations in volume allowing customers with erratic
demand the luxury of not holding excessive inventories in anticipation of change in demand.

Tradeoffs. Firms usually focus on one distinctive competency (rarely more than two). For some competencies
there are tradeoffs involved. An automobile manufacturer producing a product that is considered to be of high
quality (leather seats, real wood trim, and an outstanding service package) will not be able to compete on a
cost/price basis as the cost of manufacture prohibits it. An automotive parts house would like to keep their
customers happy by offering the lowest prices possible. However, if the automotive parts house also wants to
be able to fill almost every single order from walk-in customers, it must maintain an extensive inventory. The
expense of this inventory could preclude the parts house from offering prices competitive with other similar
firms not choosing to provide this level of service. Therefore, one parts house is competing on the basis of
service (but not cost/price) while the other is competing on the basis of cost/price (but not service). The
customer may have to wait a few days to get the desired part; if the customer cannot wait, he or she can pay
more and purchase the part immediately from the competitor.

The Need for an Operations Strategy

In too many instances, a firm's operations function is not geared to the business's corporate objectives. While
the system itself may be good, it is not designed to meet the firm's needs. Rather, operations is seen as a
neutral force, concerned solely with efficiency, and has little place within the corporate consciousness. Steven
C. Wheel-wright and Robert H. Hayes described four generic roles that manufacturing can play within a
company, from a strategic perspective. While they specifically discuss the manufacturing function, the term
operations can be substituted with no loss in relevance. These generic roles are labeled stages 1 to 4, as
explained below.

Stage 1 firms are said to be internally neutral, meaning that the operations function is regarded as being
incapable of influencing competitive success. Management, thereby, seeks only to minimize any negative
impact that operations may have on the firm. One might say that operations maintain a reactive mode. When
strategic issues involving operations arise, the firm usually calls in outside experts.

Stage 2 firms are said to be externally neutral, meaning they seek parity with competitors (neutrality) by
following standard industry practices. Capital investments in new equipment and facilities are seen as the
most effective means of gaining competitive advantage.

Stage 3 firms are labeled internally supportive, that is, operations' contribution to the firm is dictated by the
overall business strategy but operations has no input into the overall strategy. Stage 3 firms do, however,
formulate and pursue a formal operations strategy.

Stage 4 firms are at the most progressive stage of operations development. These firms are said to be
externally supportive. Stage 4 firms expect operations to make an important contribution to the competitive
success of the organization. An operation is actually involved in major marketing and engineering decisions.
They give sufficient credibility and influence to operations so that its full potential is realized. Firms within
Stage 4 are known for their overall manufacturing capability.

Since the bulk of many, if not all, firms have the bulk of their labor force and assets tied to the operations
function, it makes sense for most firms to strive for a position in Stage 3 or Stage 4. Firms can, of course,
 14

evolve from one stage to the next with few, if any, skipping a stage. In fact, most outstanding firms are in Stage
3, as Stage 4 is extremely difficult to reach.

The need for an operations strategy that reflects and supports the corporate strategy is not only crucial for the
success of the corporate strategy but also because many decisions are structural in nature. In other words, the
results are not easily changed. The firm could be locked into a number of operations decisions, which could
take years to change if the need arose. These could range from process investment decisions to human
resource management practices. For example, Dell runs a complete chain of operations that links all the key
stakeholders right from the customers to the suppliers. In effect, Dell records huge volumes of profits as a
result of high levels of responsiveness and product success.

Firms that fail to fully exploit the strategic power of operations will be hampered in their competitive abilities
and vulnerable to attack from those competitors who do exploit their operations strategy. To do this
effectively, operations must be involved throughout the whole of the corporate strategy.

Bell Helicopter has demonstrated success in incorporating its operations strategy into the overall corporate
strategy of the organization. In 2008, the global leader in aircraft manufacturing announced the
rationalization of the company's product line through concentrating on the production of the popular models
that are in high demand. The management of Bell Helicopters projects to yield significant increase in the
production capacity of the company and subsequent increase in its capacity to meet customer demands from
this pragmatic strategy.

Corporate executives have tended to assume that strategy has only to do with marketing initiatives. They
erroneously make the assumption that operation's role is strictly to respond to marketing changes rather than
make inputs into them. Secondly, corporate executives assume that operations have the flexibility to respond
positively to changing demands. These assumptions place unrealistic demands upon the operations function.
Moreover, some target markets lack the fundamentals of capitalism such as free flow of information. It is
therefore incumbent upon corporate executives to pursue operational strategies that create competitive
advantage through innovation and increased research and development. For example, Apple iTunes draws the
majority of its market share through strategic and persistent pursuit of competitive advantage.

Operations management's attention must increasingly be toward strategy. The balance and direction of its
activity should reflect its impact on the firm's performance toward achieving its goals through its strategy, and
on the performance of operations itself, recognizing that both need to be done well. Linda Nielsen-Englyst
recommends a four-phase process for formulating and updating operations strategy: learning, reviewing,
aligning, and redirecting. Phase one is a learning stage where alternatives to the intended strategy are
evaluated in practice. Phase two involves reviewing alternatives over time, allowing ideas to grow and
mature. Phase three, the alignment stage, is an analytical process where the firm attempts to identify and
document financial rationale for changing the intended strategy. Finally, in the redirecting phase, the firm
tests its ideas in practice through local initiatives.

In an article titled Operational Strategy: Bold Moves, Break out Performance, Tom Godward and Mark Deck
suggest that successful management of operations strategy requires facilitation and integration of key
organizational factors that include management systems, organizational culture, information and technology
systems, and process innovation. The availability and proper utilization of the key organizational dynamics go
a long way in determining the probabilities of success of the operational strategies and the entire corporate
strategies of the organization.
 15

New Product and Service Development, and Process Selection

Why the emphasis on new goods and services: Organizations today are under more pressure than ever
before to develop new goods and services and the processes necessary to produce and deliver them. Two of
the major causes for this increased emphasis on developing new products are (a) increased competition and
(b) advances in the technology.

a)      Increased competition: The reasons for this increase in foreign competition are many, including

 Advances in IT
 A trend to lower trade barriers and the creation of trade organization.
 The faster speed at which goods can be transported. 

b)       Advances in technology: Rapid advances in technology are causing many products to become obsolete
more quickly. Computers are good example of products that have been significantly impacted by advances in
technology.

                The benefits of introducing new product faster:

1. Greater Market Share: That firm with the ability to bring new products to market quickly has
several advantages over their slower competitors.

2. Price premiums: When a firm is the first to bring a new product to market, it has little or no
competition, and can therefore charge premium prices.

3. Quick reaction to competition: To bring new products to market quickly is also in a much better
position to respond quickly to a competitor’s surprise announcement of the introduction of a new
product.

4. Set industry standards: For revolutionary products, the first firm into the market often has the
luxury of setting the standards for that industry.

Categories of New Products

New products can be grouped according to the degree of innovation associated with them in comparison to
existing products. Within this framework, we define 3 broad categories of new products

a. Incremental or derivative products are those products that have least amount of innovation and are
typically hybrids or enhancements of existing products. These products are often cost-reduced
versions of existing products or simply similar products with added features or functions.

Companies usually can bring incremental products to market quickly. However, this does not occur
automatically. A minor design change in a product sometimes can significantly impact a firm’s production
process. Decision on proceeding with such changes in a product therefore must be made with careful
considerations.

b. Next generation or platform products are the middle of these three categories of new products
which often represent new ‘system’ solutions for the customer. They provide broad base for a product
family that can be leveraged over several years and, therefore, require significantly more resources
than do derivative or incremental products. Pentium, Pentium II, Pentium III, and Pentium 4
microprocessors an excellent example of products that fall into this category.

c. Breakthrough or Radical Products are those products that are defined as new products. The
development of these products typically requires substantial product design and process change.
When successfully introduced, this type of product often creates an entirely new product category,
 16

which becomes a new core business for the firm. In so doing, it creates an opportunity for it to be the
first to enter an entirely new market.

The New Product Development (NPD) Process

 With the trend toward shorter product life cycles, the successful company must be able to
 Continuously generate new product ideas
 Convert these ideas into reliable functional designs that are user-friendly
 Ensure that these designs are readily producible, and
 Select the proper processes that are most compatible with the needs of the customer.

        Designing new products and delivering them to the market quickly are the challenges facing
manufacturers in every industry. As a result, the more successful firms are focusing their resources on
reducing the new product development process to a fraction of what it once was.
The trend toward shorter product development times

The NPD process includes most of the functions within an organization which play the most prominent
roles, like;

 Marketing (which identifies the target market and forecasts demand for the product);
 Research and development (which develops the technology and subsequently designs the product);
and
 Operations (which involves supplier selection and designing the manufacturing process).

In order to shorten the NPD process, many of these activities are now done in parallel or concurrently.
This coordinated effort from all of the functional areas is known as concurrent engineering / concurrent
design/ simultaneous engineering.

Steps of New Product Development process

1. Idea Generation: The NPD process begins with an idea for a new product, which can come from one of
several sources. Most often it comes from marketing, which developed the idea through its
 17

transaction with customers and is often referred to as the voice of the customer (customer feedback
used in quality functional development process to determine product specification).

When a new product is identified in this manner, it is often called market pull, which refers to the primary force
driving its development. In other words, the customer’s identified need for the product in the market is ‘pulling’ it
from the firm.

The other major method for generating new products is called technology push. It is developed by the company’s
R&D function and ‘pushed’ through the company to the market place.

2. Concept development: Once a new product idea has been generated, it needs to be further developed
and tested. This includes an initial design of the product (which is conducted by R&D) along with a
detailed analysis of the market and the customers’ requirements (which is conducted by
marketing). Businesses today recognize the need to involve their customers in all aspects of the design,
production, and delivery of the goods and services that they offer. There are many approaches for
obtaining information from customers, such as surveys and focus groups etc.

3. Quality function development: The QFD process is a rigorous method and begins with the studying
and listening to customers to determine the characteristics of a superior product. This approach,
which uses inter - functional teams from marketing, design engineering, and manufacturing, has been
created by Toyota for the costs on its cars by more than 60 percent by significantly shortening design
times.

4. Design for manufacturability (DFM): In translating the functional product design into a
manufacturable product, designers must consider many aspects

•          They can use a variety of methods and alternative materials to make a product

•          Material choices can be ferrous (iron and steel), aluminum, copper, brass, magnesium, zinc, tin, nickel,
titanium, or several other metals.

•          The non-metals include plastic, wood, leather, rubber, carbon, ceramics, glass, gypsum, concrete, as well
as several others

•          Further, all of these materials can be formed, cut, and shaped in many ways. There are extrusions,
stampings, rolling, powder-metal, forgings, castings, injection molding along with a very large selection of
machining processes.

•             The output of the product design activity is the product’s specifications. These specifications provide
the basis for production related decisions such as the purchase of materials, selection of equipment,
assignment of workers, and the size and layout of the production facility.

•              Product specifications, while commonly thought of as blueprints or engineering drawings, often take
other forms ranging from precise quantitative and qualitative statements to rather fluid guidelines

•              While designing for manufacturability, we must still remember to design for the consumer. A basic
rule in design is to –

•              Be obvious. Design a product so that a user can look at it, and figure out how to use it – quickly, and
without an instruction manual.

Process selection in manufacturing

Types of processes:

       Manufacturing operations are categorized into 3 broad types of process structures, each category
depending to a large extent on the volume of item (s) to be produced. These 3 categories are often referred to
as project processes, intermittent processes, and line-flow processes.

1. Project process: A project-oriented process usually involves the manufacture of a single, one-of-a-
kind product. Examples here include the production of a movie etc.

2. Intermittent process: Intermittent – type processes can be further subdivided into job shop  and
batch processes.

a. Job-shop, where a specific quantity of a product is produced only once. Example, numbered prints from a
printing, programs for concerts.

b. Batch process: A batch process produces the same item again and again, usually in specific lot sizes.
McDonald’s is a good example of a batch process where hamburgers are cooked throughout the day in
lot sizes of 12.

3. Line-flow process: As with intermittent processes, line –flow processes also are frequently subdivided
into two processes;
 18

a. Assembly line processes manufacture individual, discrete products, like, cars, electronic products,
kitchen appliances etc.

b. Continuous processes are exactly what their name implies –continuous producing product that are not
discrete, like,

                Line-flows are characterized by high fixed costs and low variable costs, and are often viewed as the
most efficient of the 3 types of processes. Moreover, it is inflexible.
 19

MIDTERM PERIOD

Project Management

What Is Project Management?

Project management involves the planning and organization of a company's resources to move a specific task,
event, or duty towards completion. It can involve a one-time project or an ongoing activity, and resources
managed include personnel, finances, technology, and intellectual property.

Project management is often associated with fields in engineering and construction and, more lately, health
care and information technology (IT), which typically have a complex set of components that have to be
completed and assembled in a set fashion to create a functioning product.

No matter what the industry is, the project manager tends to have roughly the same job: to help define the
goals and objectives of the project and determine when the various project components are to be completed
and by whom. They also create quality control checks to ensure completed components meet a certain
standard.

Key Takeaways

 On a very basic level, project management includes the planning, initiation, execution, monitoring,
and closing of a project.
 Many different types of project management methodologies and techniques exist, including
traditional, waterfall, agile, and lean.
 Project management is used across industries and is an important part of the success of construction,
engineering, and IT companies.

Understanding Project Management

Generally speaking, the project management process includes the following stages: planning, initiation,
execution, monitoring, and closing.

From start to finish, every project needs a plan that outlines how things will get off the ground, how they will
be built and how they will finish. For example, in architecture, the plan starts with an idea, progresses to
drawings and moves on to blueprint drafting, with thousands of little pieces coming together between each
step. The architect is just one person providing one piece of the puzzle. The project manager puts it all
together.

Every project usually has a budget and a time frame. Project management keeps everything moving smoothly,
on time, and on budget. That means when the planned time frame is coming to an end, the project manager
may keep all the team members working on the project to finish on schedule.

Example of Project Management

Let's say a project manager is tasked with leading a team to develop software products. They begin by
identifying the scope of the project. They then assign tasks to the project team, which can include developers,
engineers, technical writers, and quality assurance specialists. The project manager creates a schedule and
sets deadlines.

Often, a project manager will use visual representations of workflow, such as Gantt charts or PERT charts, to
determine which tasks are to be completed by which departments. They set a budget that includes sufficient
funds to keep the project within budget even in the face of unexpected contingencies. The project manager
also makes sure the team has the resources it needs to build, test, and deploy a software product.

When a large IT company, such as Cisco Systems Inc., acquires smaller companies, a key part of the project
manager's job is to integrate project team members from various backgrounds and instill a sense of group
purpose about meeting the end goal. Project managers may have some technical know-how but also have the
 20

important task of taking high-level corporate visions and delivering tangible results on time and within
budget.

Types of Project Management

Many types of project management have been developed to meet the specific needs of certain industries or
types of projects. They include the following:

Waterfall Project Management

This is similar to traditional project management but includes the caveat that each task needs to be completed
before the next one starts. Steps are linear and progress flows in one direction—like a waterfall. Because of
this, attention to task sequences and timelines are very important in this type of project management. Often,
the size of the team working on the project will grow as smaller tasks are completed and larger tasks begin.

Agile Project Management

The computer software industry was one of the first to use this methodology. With the basis originating in the
12 core principles of the Agile Manifesto, agile project management is an iterative process focused on the
continuous monitoring and improvement of deliverables. At its core, high-quality deliverables are a result of
providing customer value, team interactions and adapting to current business circumstances.

Agile project management does not follow a sequential stage-by-stage approach. Instead, phases of the project
are completed in parallel to each other by various team members in an organization. This approach can find
and rectify errors without having to restart the entire procedure.

Lean Project Management

This methodology is all about avoiding waste—both of time and of resources. The principles of this
methodology were gleaned from Japanese manufacturing practices. The main idea behind them is to create
more value for customers with fewer resources.

There are many more methodologies and types of project management than listed here, but these are some of
the most common. The type used depends on the preference of the project manager or the company whose
project is being managed.