LESSON 2

INTRODUCTION TO OPERATIONS MANAGEMENT

TOPICS: LEARNING OUTCOMES:

 Definition of Operations At the end of the lesson, students
Management must be able to:
 Goods vs. Services 1. Define Operations Management
 Operations as an and recognize the important role
Organizational Function that it plays.
 Why study OM? 2. Explain operations as a function
 What Operations Managers and grasp the importance of
do? studying Operations
 History of Operations Management.
Management 3. Differentiate goods and services.
 Forces that changed OM 4. Identify the Operations
Management eras and different
forces that drove the
development of OM.

Topic 1: Definition of Operations Management

Operations Management is defined as the set of activities that relate to the

creation of goods and services through the transformation of inputs to outputs (Heizer
& Render, 2014). In other words, OM encompasses the transformation of numerous
inputs into various outputs.

Inputs are those

needed by the business to
create their products. On
the other hand, outputs
refer to the products that
the business offers to the
customers. Specifically,
inputs include the factors of
production, namely: land,
capital, labor and
entrepreneur. Land refers
to the natural resources
needed for production like
water, oil, coal and trees.
Labor includes all the
human resources that contribute in the creation of goods and services. Capital, on the
other hand, refers to the machinery, tools and buildings needed to produce outputs.
Money, for the sake of discussion will not be included as a factor of production because
it is the capital good (such as tools, equipment) which is used to produce outputs.
Money is only used to procure those capital goods. Lastly, entrepreneur is the person

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who manages and decides the proper proportion and combination of the other inputs.
Basically, he is a part of the human resource, but an emphasis is given to the
entrepreneur because of his skills and expertise.

Transformation in OM means processing and adding value to inputs. This

transformation process converts the inputs into outputs and makes the
customers/clients buy the goods or services. Furthermore, outputs can either be a good
or a service. Thorough definition and differentiation between goods and services will be

INPUTS TRANSFORMATION OUTPUTS

PROCESS

Land Adding value Goods

Labor Services
Capital
Entrepreneur

provided on the next topic.

Topic 2: Goods VS. Services

Fundamentally, OM is all about managing the creation or production of goods

and services. In this part, the difference between goods and services must be cleared.
The two may be different from each other in some aspects, but understanding them will
lead to a realization that they always come together. Specifically, the differences are
shown below:
¤¤¤¤¤¤GOODS vs. SERVICES ¤¤¤¤¤¤
Goods Services
Tangible: The seat itself Intangible: Ride in an airline seat
Produced and consumed simultaneously:
Product can usually be kept in inventory
Beauty salon produces a haircut that is
(beauty care products)
consumed as it is produced
Unique: Your investments and medical
Similar products produced (iPods)
care are unique
High customer interaction: Often what
Limited customer involvement in
the customer is paying for (consulting,
production
education)
Inconsistent product definition: Auto
Product standardized (iPhone) insurance changes with age and type of
car
Often knowledge based: Legal, education,
Standard tangible product tends to make
and medical services are hard to
automation feasible
automate
Services dispersed: Service may occur at
Product typically produced at a fixed
retail store, local office, house call, or via
facility
Internet.
Many aspects of quality for tangible Quality may be hard to evaluate:
products are easy to evaluate (strength of Consulting, education, and medical

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a bolt) services
Reselling is unusual: Concerts or medical
Product often has some residual value
care
***Heizer J., Render B. & Munson C. (2017).OM: Sustainability and Supply Chain Management, 12 th
Edition, p. 11.
As pointed out earlier, goods and services always come together. It means
“service” aspect is never set aside even if the business focuses on manufacturing goods.
In the same manner, service-oriented businesses still have the “goods” aspect that
comes with the services they offer.

Topic 3: Operations as an Organizational Function

All organizations, whether it be profitable or non-profitable, performs

organizational functions. One of those organizational functions is operations. To
understand the functions and their role in an organization, each function will be
discussed.
Marketing generates demand and takes order for a product or service. It consists
of selling and/or promoting the goods or services on an organization. It also assesses
customer wants and needs to come up with products to offer.
Finance/ Accounting tracks how well the organization is doing, pays bills and
collects money. It deals with activities related to securing resources at favourable prices
and allocating resources throughout the organization. It is concerned with budgeting,
economic analysis of investment proposals and provision of funds.
Operations function creates the products.
It consists of all activities directly related to
producing goods or providing services. It is
considered as the “core” or “heart” of an
organization which focuses on adding value during
transformation process. Without the “value”
added during transformation process, it would be
difficult or impossible to offer the products to the
customers/clients. In connection to that, an
operations, as a function is like the heart of an
organization that pumps out goods and services in
a quantity and of a quality that meets the needs of the customer/clients.
At the start of the topic, it is stated that these three are not only present in
profitable or business organizations. It is understandable that these three basic
functions can be found in non-profitable organizations as well. With different outputs
that these organizations intend to offer, they have different ways of utilizing the
functions. Marketing function is employed for promoting their cause or purpose.
Finance/ accounting can be seen on how they handle money matters. Lastly, operations
for creating or generating the output that they want to provide people.

Topic 4: Why Study OM?

There are various reasons and benefits for studying Operations Management.
Aside from being a part of the curriculum and a fundamental course for BSBA students,
the following are the reasons why OM should be studied:

1. OM is one of the three major functions of any organization

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 Studying OM will help in understanding how people organize themselves
for productive enterprise. As an important function of an organization, it should
be studied in order to acquire necessary knowledge and skills
2. To know how goods services are produced
Understanding OM results to comprehending how goods and services are
made by businesses. Almost everything that we use and see is a product of OM.
It would be exciting to know how they were made.
3. To understand what operations managers do
Knowing what OM managers do will help you perform better, regardless
of your job or position in an organization. Understanding what OM managers do
will also aid you in exploring various and beneficial opportunities in OM.
4. Because it is a costly part of an organization
Believe it or not, a large percentage of revenue of most businesses is
spent in OM function. Expenditures and losses may be acquired greatly through
operations management.

Topic 5: What Operations Managers Do?

Apparently, all managers perform the basic functions of management which

includes planning, organizing, staffing, leading and controlling. Thus, OM managers
basically perform the same. The only turning point is that, they must apply these to the
decisions they make in OM. Surprisingly, the decisions that OM managers must handle
are group into the so-called “Ten Strategic OM Decisions”. The following are shown
below: (https://online.kettering.edu/news/2016/09/21/10-critical-decisions-operations-management)

 Design of Goods and services: This includes looking for ways to implement
consistency in costs, quality, and resources across all business divisions.
 Managing Quality: Be clear on the customer’s demands and then meet those
expectations. Use market research to determine customer needs and batch
quality assurance testing on products and services in production.
 Process and Capacity Design: Design strategies which support all production
goals including technology and resources. A value stream map can help
determine what processes are necessary and how to keep them running
efficiently.
 Location Strategy: In developing a location strategy consider supply chain and
how the location will receive supplies, the movement of goods and services
internally and to customers, and the role of marketing and public relations in the
location choice.
 Layout Strategy: Consider the placement of desks, workstations, and how
materials are delivered and used.
 Human Resources and Job Design: Implement continuous improvement
programs with regular reviews, provide continuous training for employees, and
institute employee satisfaction programs to achieve success in this area.
 Supply Chain Management: Determine the best strategies to streamline, be cost
effective, and to develop trusted partners.
 Inventory Management: Different markets mean different challenges when it
comes to inventory but all need to strategize and plan their inventory control.
Weather, supply shortages, and labor all influence how an organization
maintains its inventory.
 Scheduling: Consider both production and people. Ask questions such as how
much product is required to be produced for the customer in the required time?
How many people and how many machines are required to do the job effectively
and efficiently? This differs among industries and business departments. For

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 example, emergency rooms need to maintain different schedules than a
hospital’s corporate office.
 Maintenance: This includes maintaining people and machines, as well as,
process. What do you need to do to maintain quality and keep resources reliable
and stable?
Obviously, the following strategic decisions can also serve as areas for
employment. OM graduates may be able to land a job connected to each strategic area.
The point is that, OM gives a variety of expertise that can be employed by students once
they look for a job.

Topic 6: History of Operations Management

It will take a lot of time to know and analyse the historical development of OM
because of the various factors that lead to its progress across time. To make it simple,
OM’s history will be discussed into different significant “focus”, namely: cost focus;
quality focus; customization focus; and globalization focus.

Cost Focus
In this era, as the name suggests, operations management focused on
minimizing cost of production. This development was led by various contributions of
personalities who, that time, thought of ways to make operations efficient.
Adam Smith introduced “division of labor”, also known as “labor specialization”,
where production process is broken into a series of small tasks and each task is assigned
to different workers. So instead of one worker doing all the processes for producing an
output, the entire process is divided into smaller processes and assigned to different
workers. The traditional way lets a worker perform process 1, 2 and 3 to create an
output. On the other hand, labor specialization assigns one worker for each process to
make an output.
Eli Whitney was known for popularizing “interchangeable parts” which is
achieved through standardization and quality control.
Frederick Taylor introduced “scientific management” and was titled as its father.
Scientific management upholds being more resourceful and aggressive in the
improvement of work methods and maximizing output. This includes personnel
selection (the right man for the right job), planning and scheduling, motion study and
ergonomics.
Henry Ford and Charles Sorensen enhanced the concept of standardized parts
and pioneered “mass production” with their “moving assembly line”. In moving
assembly line, workers stood still while materials are moved.

Quality Focus
This period was distinguished by several contributions that focused on
maximizing quality of outputs. It was in this era that William Edwards Deming, the father
of Total Quality Management (TQM), proposed quality management as an integral part
of an organization. Furthermore, Just-in-Time (JIT) and Kanbans, as means for optimizing
quality control, were also introduced.

Customization Focus
In this era, operations leaned towards “mass customization”. OM focused on
producing customized outputs instead of standardized ones. Customized outputs are
products or services designed for specific customers. Customized goods include
eyeglasses and custom-fitted clothing, while tailoring, taxi rides and surgeries are
examples of customized services.

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Globalization Focus
From the name itself, contributions in this period aimed at achieving global
operations. This happened with the help of technological advancements that made
operations easier and faster.

Topic 7: Forces that Changed OM

The last topic of the lesson will focus on the different forces that led the
development of Operations Management. Basically, these are the driving forces that
influenced OM to change as time passes by.
 Economic forces
Changes in the economy have beneficial effects in businesses. The high
income, wealth and purchasing power of the customers begets more
possibilities of producing products.

 Social forces
These include the demographic profile of markets. The changing fashion
and characteristics of the markets make businesses to innovate and change as
well.

 Technological forces
These include the advancements and inventions that aided production in
various ways. Technology has been a big part of Operations Management since
it makes everything faster and easier.

ACTIVITY/ TASK

Answers on the activity/task shall be written on whole sheet/s of yellow paper

and must be submitted not later than the agreed deadline. Late submissions will not
be accepted and will result to a failing grade.

A. Discuss how these non-profitable/ non-business organizations perform the basic

functions of an organization, i.e. marketing, finance and operations. Specify and
provide examples of how they perform each function.

a. Religious organizations
b. Foundations such as GMA Kapuso Foundation, etc.
c. State Colleges such as OMSC, etc.
d. Clubs such as Society of Young Financial Analysts (SYFA) and Youth
Operations Management Club (YOMC), etc.

B. Explain how “division of labor” or “labor specialization” minimizes production

costs.

ASSESSMENT

DIAGRAMMING: On a long white bond paper, draw a diagram that will show
the process of how you wash your clothes. Include all the inputs and process for
obtaining the output of clean clothes ready for wearing. Follow the sample diagram
below. Make sure to make the diagram as creative as you can, but don’t compromise
the content. The diagram must be submitted not later than the agreed deadline. Late
submissions will not be accepted and will result to a failing grade.

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 INPUT/S PROCESS OUTPUT

Itemize all the Enumerate the Clean clothes

inputs you use. in procedures in ready for
washing your sequential order wearing
clothes These must lead
to the desired
output

RUBRICS FOR WRITTEN OUTPUT

This criterion shall include the reliability and
ingenuity of the output. Its reliability shall be
Content evaluated based on the truthfulness, while 50%
ingenuity indicates the originality and creativity
of the incorporated ideas and concepts.
This criterion encompasses the ways how the
Organization of ideas and concepts are presented. Coherence
30%
Ideas and structure of the content are the focus of the
criterion.
Grammar & This criterion shall include the grammatical
20%
Mechanics correctness, format and use of punctuations.
TOTAL 100%

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