DON HONORIO VENTURA STATE UNIVERSITY

UNIVERSITY

CBME 11
OPERATIONS MANAGEMENT AND TQM

Prepared by:

Hail D. Malabanan, MM
Ma. Jenalyn G. Flores, MBA
Eduardo Paulino, MBA
Jomar B. Torres, MBA
DON HONORIO VENTURA STATE UNIVERSITY
UNIVERSITY
CHAPTER ONE: INTRODUCTION TO OPERATIONS MANAGEMENT

Chapter Objectives:
1. Define the terms operations management and supply chain.
2. Identify the three major functional areas of organizations and describe how they interrelate.
3. Identify similarities and differences between production and service operations.
4. Identify the other functional areas of the organization
5. Identify the scope of operations management
6. Explain the key aspects of operations management decision making.
7. Briefly describe the historical evolution of operations management.
8. Describe current issues in business that impact operations management.

INTRODUCTION:
Operations is that part of a business organization that is responsible for producing goods and/or
services. Goods are physical items that include raw materials, parts, subassemblies such as
motherboards that go into computers, and final products such as cell phones and automobiles. Services
are activities that provide some combination of time, location, form, or psychological value. Examples of
goods and services are found all around you. Every book you read, every video you watch, every e-mail
or text message you send, every telephone conversation you have, and every medical treatment you
receive involves the operations function of one or more organizations. So, does everything you wear,
eat, travel in, sit on, and access the Internet with. The operations function in business can also be viewed
from a more far-reaching perspective: The collective success or failure of companies’ operations
functions has an impact on the ability of a nation to compete with other nations, and on the nation’s
economy.

The ideal situation for a business organization is to achieve an economic match of supply and
demand. Having excess supply or excess capacity is wasteful and costly; having too little means
lost opportunity and possible customer dissatisfaction. The key functions on the supply side are
operations and supply chains, and sales and marketing on the demand side. While the operations
function is responsible for producing products and/or delivering services, it needs the support and input
from other areas of the organization.

BUSINESS ORGANIZATIONS HAVE THREE BASIC FUNCTIONAL AREAS

1. Finance is responsible for securing financial resources at favorable prices and allocating those
resources throughout the organization, as well as budgeting, analyzing investment proposals, and
providing funds for operations. Finance and operations management personnel cooperate by
exchanging information and expertise in such activities as the following:
a. Budgeting. Budgets must be periodically prepared to plan financial requirements.
Budgets must sometimes be adjusted, and performance relative to a budget must be
evaluated.
b. Economic analysis of investment proposals. Evaluation of alternative investments in
plant and equipment requires inputs from both operations and finance people.
DON HONORIO VENTURA STATE UNIVERSITY
UNIVERSITY
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. Careful planning can help
avoid cash-flow problems.
2. Marketing Marketing’s focus is on selling and/or promoting the goods or services of an
organization. Marketing is also responsible for assessing customer wants and needs, and for
communicating those to operations people (short term) and to design people (long term). That is,
operations needs information about demand over the short to intermediate term so that it can
plan accordingly (e.g., purchase materials or schedule work), while design people need
information that relates to improving current products and services and designing new ones.
Marketing, design, and production must work closely together to successfully implement design
changes and to develop and produce new products. Marketing can provide valuable insight on
what competitors are doing. Marketing also can supply information on consumer preferences so
that design will know the kinds of products and features needed; operations can supply
information about capacities and judge the manufacturability of designs.
3. Operations is responsible for producing the goods or providing the services offered by the
organization.

To put this into perspective, if a business organization were a car, operations would be its engine. And
just as the engine is the core of what a car does, in a business organization, operations is the core of
what the organization does. Operations management is responsible for managing that core. Hence,
operations management is the management of systems or processes that create goods and/or
provide services.

Operations and supply chains are intrinsically linked, and no business organization could exist without
both. A supply chain is the sequence of organizations—their facilities, functions, and activities—that
are involved in producing and delivering a product or service. The sequence begins with basic suppliers
of raw materials and extends all the way to the final customer, as seen in Figure 1.2. Facilities might
include warehouses, factories, processing centers, offices, distribution centers, and retail outlets.
Functions and activities include forecasting, purchasing, inventory management, information
management, quality assurance, scheduling, production, distribution, delivery, and customer service.
Figure 1.3 provides another illustration of a supply chain: a chain that begins with wheat growing on a
farm and ends with a customer buying a loaf of bread in a supermarket. Note that the value of the product
increases as it moves through the supply chain.

SUPPLY CHAINS ARE BOTH EXTERNAL AND INTERNAL TO THE ORGANIZATION