Basic Concepts on

Production and Operations

Management
 BASIC KNOWLEDGE
1. Why study production
and operations
management?
2. What is production and
operations management?
Operations as a competitive
weapon is important to…
1. Accounting, which prepares
financial and cost accounting
information that aids operations
managers in designing and
operating production systems.
The production system consists of
inputs, processes, outputs, and
information flows that connect
with customers and the external
environment. It uses operation
resources to transform inputs into
desired outputs. It is considered
as the heart of Operations
Management.
Inputs – includes human resources
( workers, managers ), capital
(equipment, facilities), purchased
materials and services, land, and
energy
- It may also be raw materials, a
customer, or a finished product from
another system
Process – any activity or group of
activities that takes one or more
inputs, transforms and adds value to
them, and provides output for a
customer
2. Finance, which manages the
cash flows and capital investment
requirements that are created by
the operations function.
3. Human Resources, which hires
and trains employees to match
process needs, location decisions,
and planned production levels.
4. Management Information
Systems, which develops
information systems and decision
support systems for operations
managers.
5. Marketing, which helps create the
demand that operations must
satisfy, link customer demand with
staffing and production plans, and
keep the operations function focused
on satisfying customer’s needs.
6. Operations, which designs and
operates production systems to
give the firm a sustainable
competitive advantage.
Note : In the past, the term
production was considered to
connote only the manufacture
of tangible items. Later, the
term operations was added to
include references to non-
manufacturing operations
Production – creation of goods and/or
services
Management - Denotes both
FUNCTION and PEOPLE who
discharge the functions
- A distinct process of planning,
organizing, staffing, directing
(actuating)and controlling for the
achievement of stated objectives
efficiently and effectively by the use
of human beings and other business
resources
 Examples of Non-
Manufacturing Operations
• Health care
• Retail sales
• Food service
• Education
• Recreation
• Transportation
• Banking
• Hotel management

Note: This broadened scope has given the field the name
production/operations management or more simply operations
management
What is Production/Operations
Management?
- Set of activities that creates goods and
services by transforming inputs into
outputs involving planning, coordinating,
and executing of all activities
- The management of systems or
processes that creates goods and/or
services
- The design, operation and movement of
the production systems that create the
firm’s primary product or service
 Market Place

Corporate Strategy

Finance Strategy Operations Strategy Marketing Strategy

Operations Management

People Plants Parts Processes

Planning and Controlling System

Operations resources consist of
what we term Five P’s of OM
• People – direct and indirect workforce
• Plants – factories or service branches
where production is carried out
• Parts – include the materials that go
through the system
• Processes – equipment and steps by which
production is accomplished
• Planning and Control system – procedure
and information management used to
operate the system
• The market place ( the firm’s
customers for its products/services)
shapes the firm’s corporate strategy
• The corporate strategy must be
based on the corporate mission and
reflects how the firm plans to use all
its resources and functions (
marketing, finance, operations)
• The operation’s strategy specifies
how the firm will employ its
production capabilities to support its
corporate stategy
• The marketing strategy addresses
how the firm will sell and distribute
its g/s
• The finance strategy identifies how
best to utilize the firm’s financial
resources
• Within the operations function,
management decisions can be
divided into three broad areas
a. Strategic (long term) decisions –
Operations management decision at this
level impacts the company’s long-range
effectiveness in terms of how it can
address its customer’s needs. Thus, for
the firm to succeed, these decisions
must be in alignment with the corporate
strategy
b. Tactical (intermediate term ) decisions –
primarily addresses how to efficiently
schedule materials and labor within the
constraints of previously made strategy
decisions
c. Operational planning and control
(short term) decisions – issues at
this level include:
- What jobs do we work on today or
this week?
- Who do we assign to what tasks?
- What jobs are priorities?
Example:
- Airline ( movement of passengers
and their luggage from one location
to another)
- School ( education of students)
- Hospital ( healing of a sick or
wounded patients)
 Transformations that take
place may include:
- Physical, as in manufacturing
- Location, as in transportation
- Exchange, as in retailing
- Storage, as in warehousing
- Physiological, as in healthcare
- Informational, as in telecom
 Input-Transformation-Output
Relation for Typical System
System Primary Inputs Resources Primary Desired Output
Transformation

Hospital patients MDs, nurses, healthcare healthy ind’ls

medical supplies,
equipments

Restaurant hungry food, chef, well prepared & satisfied

customers waiters, staff well served food, customers
environment agreeable env’t

Automobile sheet, steel, tools, workers fabrication of cars brand new

factory engine parts equipment high quality
cars

College/ High school teachers, books imparting knowledge educated

University graduates classrooms and skills individuals
 Functions within Business
Organizations

Production/Operation

Marketing Finance

Note: Organizations are formed to pursue goals that are achieved

more efficiently by the concerted efforts of a group of people
rather than by individuals working alone. They may be profit or
non-profit oriented.
1. Operations – consists of all activities
directly related to producing goods
or providing services
- Usually responsible for the actual
transformation of inputs into
finished products/services
 Types of Operations
a. Goods Producing ( e.g. farming, mining,
manufacturing)
b. Storage/Transportation ( e.g. warehousing,
trucking, mail service, buses, hotel, airlines)
c. Exchange (e.g. retailing, wholesaling,
banking, leasing, library, loans)
d. Entertainment (e.g. films, radio, TV, plays,
concerts, recording)
e. Communication (e.g. newspapers, radio, TV,
telephone, satellites)
2. Finance – secures and invests the
company’s capital assets
Finance and operations management
personnel cooperate by exchanging
information and expertise in activities
such as:
A. Budgeting – budget must be periodically
prepared to plan financial requirements
B. Economic analysis of investment proposal –
evaluation of alternative investments in plant
and equipment requires inputs from both
operations and finance people
 C. Provision of funds – the necessary funding of
operations and the amount and timing of funding
can be important and even critical when funds
are tight
3. Marketing – consist of selling and/or
promoting the g/s of an
organization; generates demand for
the company’s output
- Responsible for assessing customer
wants and needs for communicating
to operations people
Note: The three major functions within a
business are interdependent
• Having the financial resources and the
ability to produce a product are of little
value if there is no market for the product
• Having the finance and a market for a
product are of little value when one
cannot provide the product
• The ability to produce a product and a
market for the product are not sufficient if
one does not have the necessary capital to
employ personnel, buy raw materials and
put the other capabilities into action.