Topic 1 Part A

Topic 1 (Part A) Topic: Introduction to Operation Management
• Introduction
• What is Operation Management?
• Why is Operation Management Important?
• Key Factors Affecting Operation Management
• Decision Making in POM
Why This Topic
By the end of this topic, students are able to understand what operation management is and how are they
used in the business world. Each section will discuss how important operation management is.
Introduction
In the business organisation, there are three basic functions that most businesspeople should remember. They
are marketing, finance and operation. In this section, the operation will be discussed in detail.
Operation Management (OM) is also known as Production and Operation Management (POM). By definition,
OM is the management of an organisation’s productive resources which converts the input into products and
services (output).
The production process uses the inputs so that they can convert them into output. Input refers to raw materials,
machines, money, technology, information and other resources. Output, on the other hand, is the production
and service as the outcome.
What is Operation Management?
Operation management (OM) can be considered as a system operation that focuses on decision-making in
the production system. The said production system consists of inputs, processes, outputs and a control
subsystem.
In input, it has materials, personnel, capital and information. It goes through a process in the subsystem to be
converted into an output. For output, the subsystem results in the products and services. This means a chunk
of the output is monitored to determine its acceptability in terms of quantity, cost and quality. As seen in
Figure 1.1, the table shows the progress of the input and output system performance and feedback is given
if corrective actions are required. Figure 1.2 shows the types of organisations and how their OM are controlled.
© UNITAR International University 1

Figure 1.1: Process from the input to output with the ensured feedback
Organisation Inputs Transformation Outputs Control

Process
Bank • Checks
• Money
• Vault
• ATMs
Cinema
Manufacturer
Hospital
Retailer
School
Post Office
Garbage
Service
Figure 1.2

Why is Operation Management Important?
In this section, there are four main points to explain why Operation Management is important in the business
world.
First, it can reduce the cost of producing products and services through its efficiency. Second, it can increase
customer satisfaction through good quality and service, resulting in higher revenue. Next, it reduces the
amount of investment that is necessary to produce and the number of products and services through the
increase of the operation’s capacity. Finally, it can be used for future innovations by producing a solid base
of operation skills and knowledge within the business.
Key Factors Affecting Operation Management
Six factors affect Operation Management (OM) and how it has succeeded in global competition.
First, the reality of global competition can affect OM, which refers to the supply and demand from the
consumers. This leads to the second factor, where the quality, customer service and cost challenge must not
affect the OM to a severe degree. Sometimes, the ever-changing expansion of advanced technology may
cause the production in the OM to be slow because their technology may be obsolete. The continuous
growth of the service sector could lead to more demands in the production of products, resulting in both
input and output being out of control. Having a shortage in the operation resources could lead to a poor
outcome in the output since there is little to process in the subsystem. Finally, there can be social-responsibility
issues between the organisations and their demands of what needs to be prioritised.

In order to succeed, the companies must be committed to how they respond to the customer and improve
toward their goal of producing the best quality of products. This also includes the rapid development of
innovative products and services, punctual delivery, low price and cost; and some concern for the
environment.
Decision Making in POM
To manage in Production and Operation Management (POM), students must understand how POM works
and how it makes decisions when they are tasked by companies and organisations. The decisions can be
made based on three categories, which are strategy decisions, operating decisions and control decisions.
Strategy decisions are concerned with the operations strategy and the game plan for the firm. This includes
gathering people from all of the firm’s departments to study the business opportunities and put the
organisation in the best position to achieve its goals. Examples would be a new facility to be located, new
product development and allocating the resources.
Operating decisions refer to the planning of production to meet the customer’s demands for the products
and services. In this case, the decision takes order from the customer and delivers the products and services
at a reasonable price. Examples are the workforce, planning schedule, inventory and purchasing.
Finally, control decisions are concerned with the problems in an operation. They engage in the planning,
analysing and control of the workers’ activities to improve their performance. This includes the quality of the
products and how well can the equipment performs. For example, improving the failure rate of the
performance, being in charge of quality control and maintaining standards of the products and equipment.
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Topic 1 (Part A) Topic: Introduction to Operation Management

Why This Topic

What is Operation Management?

© UNITAR International University 1

Organisation Inputs Transformation Outputs Control

© UNITAR International University 2

Key Factors Affecting Operation Management

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Decision Making in POM

© UNITAR International University 4

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