DR. CHRISTENED ARBEE L.

MOSTAJO
Associate Professor V

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Developed and printed for
Polytechnic University of the Philippines
OPEN UNIVERSITY SYSTEM

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 MODULE 1
OPERATIONS MANAGEMENT OVERVIEW

Operations management is commonly defined as the administration of the processes

used in the production of goods and services. All businesses depend on operations
management for its success. A company can assemble a great marketing team only to
fail because its product could not deliver what was promised in the advertisement. A
product can be a good or a service. Many organizations today provide both. The
operations department is managed by the operations manager who ensures that the
company produces its product/s according to set standards. World-class companies like
Ford Motors attribute its success to an effective and efficient operations management.

Learning objectives:

At the end of this module, students are expected to be able to:

1. Describe the concept of Operations and Productivity
2. To appreciate the historical evolution of operations management.
3. To understand the relevance of operations management to business success.
4. To understand the span of operations management.

History of Operations Management “Systems for production have existed since ancient
times. The Great Wall of China, the Egyptian pyramids, the ships of the Roman and
Spanish empires, and the roads and aqueducts of the Romans provide examples of the
human ability to organize for production. The production of goods for sale and the modern
factory system had their roots in the Industrial Revolution.

The Industrial Revolution began in the 1770s in England and spread to the rest of Europe
and to the United States during the nineteenth century. Prior to that time, goods were
produced in small shops by craftsmen and their apprentices. Only simple tools were
available; the machines that we use today had not been invented. Then, a number of
innovations changed the face of production forever by substituting machine power for
human power. Perhaps, the most significant of these was the steam engine, made
practical by James Watt around 1764, because it provided a source of power to operate
machines in factories. Ample supplies of coal and iron ore provided materials for
generating power and making machinery. Despite the major changes that were taking
place, management theory and practice had not progressed much from early days. What

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was needed was an enlightened and more systematic approach to management. The
scientific-management era brought widespread changes to the management of factories.
The movement was spearheaded by the efficiency engineer and inventor Frederick
Winslow Taylor, who is often referred to as the father of scientific management. Taylor
believed in a science of management based on observation, measurement, analysis and
improvement of work methods and economic incentives. During the early part of the
twentieth century, automobiles were just coming into vogue in the United States. Ford’s
Model T was such a success that the company had trouble keeping up with the order for
the cars. In an effort to improve the efficiency of operations Ford adopted the scientific
management principles espoused by Frederick Winslow Taylor. Ford also introduced the
moving assembly line. A second concept used by Ford was the division of labor, which
Adam Smith wrote about in the Wealth of Nations. Whereas the scientific-management
movement heavily emphasized the technical aspects of work design, the human relations
movement emphasized the importance of human element in job design. During the
1930s, Elton Mayo conducted studies at the Hawthorne division of Western Electric. His
studies revealed that in addition to the physical and technical aspects of work, worker
motivation is critical for improving productivity. During the 1940s, Abraham Maslow
developed motivational theories, which Frederick Hertzberg refined in the 1950s. Douglas

McGregor added Theory X and Theory Y in the 1960s. These theories represented the
two ends of the spectrum of how employees view work. Computers have had an
enormous influence on the practice of operations management, particularly in scheduling
and inventory control. Because they are capable of rapid, error-free computations and
keeping track of thousand of bits of information with instantaneous retrieval, computers
have had a major impact on operations management. Moreover, the growing availability
of software packages covering virtually every quantitative technique has greatly increased
management’s use of the computer,” (Stevenson, 2017). Span of Operations
Management The operations manager is responsible for the management of the following
areas needed in production: (1) demand forecasting; (2) product design; (3) capacity
management; (4) process selection; (5) facility layout; (6) inventory management; (7)
location; (8) scheduling and (9) quality management. There is interdependence among
the areas. A failure in one area will lead to failure in another. The operations manager
should plan and execute well to produce a quality product that the company can offer to
its customers. Case: Ford Motors and Model T “Henry Ford was an American automobile
manufacturer who created the Model T in 1908 and went on to develop the assembly line
mode of production, which revolutionized the automotive industry. In 1913, Ford launched
the first moving assembly line for the mass production of the automobile. This new
technique decreased the amount of time it took to build a car from 12 hours to two and a
half, which in turn lowered the cost of the Model T from $850 in 1908 to $310 by 1926 for
a much improved model. Simple to drive and cheap to repair, especially following Ford’s

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invention of the assembly line, nearly half of all cars in America in 1918 were Model T’s,”
([Link]

Summary

Operations management is commonly defined as the administration of the processes

used in the production of goods and services. All businesses depend on operations
management for its success. The production of goods for sale and the modern factory
system had their roots in the Industrial Revolution. A number of innovations changed the
face of production forever by substituting machine power for human power. The scientific-
management era brought widespread changes to the management of factories. The
movement was spearheaded by the efficiency engineer and inventor Frederick Winslow
Taylor. Taylor believed in a science of management based on observation, measurement,
analysis and improvement of work methods and economic incentives. During the 1930s,
Elton Mayo conducted studies at the Hawthorne division of Western Electric. His studies
revealed that in addition to the physical and technical aspects of work, worker motivation
is critical for improving productivity. Computers have had an enormous influence on the
practice of operations management, particularly in scheduling and inventory control.

The operations manager is responsible for the management of the following areas
needed in production: (1) forecasting; (2) product design; (3) capacity management; (4)
process selection; (5) facility layout; (6) inventory management; (7) location; (8)
scheduling and (9) quality management.

Guide Questions

1. What is operations management?

2. Relate operations management to the success of a business.
3. Discuss the invention of steam engine as a turning point in operations
management history.
4. What are the areas of operations management?

Case Analysis

Discuss the importance of the moving assembly line to the success of Ford Motors.

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Videos to Watch

1. The Industrial Revolution | BBC Documentary

[Link]
2. Taylorism ABC World Report [Link]
3. What is the Fourth Industrial Revolution | CNBC Explains
[Link]

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 MODULE 2
PROJECT MANAGEMENT

Project management is a systematic approach to planning, organizing, and controlling a

project to achieve specific objectives within a defined timeframe and budget. It is essential
for ensuring successful project outcomes and maximizing return on investment.

Learning objectives:

At the end of this module, students are expected to be able to:

1. Understand the fundamental principles and practices of project
management. Students will be able to define project management, explain its
key components, and identify the benefits of effective project management.
2. Apply project management tools and techniques to plan, schedule, and
control projects. Students will be able to use techniques like PERT, CPM, and
Gantt charts to create project plans, allocate resources, and track progress.
3. Develop critical thinking and problem-solving skills in the context of project
management. Students will be able to analyze project challenges, identify
potential risks, and develop effective solutions.

Key benefits of project management include:

Improved efficiency: Effective project management can streamline processes, reduce

waste, and optimize resource allocation.

Enhanced decision-making: By analyzing data and considering various factors, project

managers can make informed decisions that drive project success.

Risk mitigation: Project management helps identify potential risks and develop strategies
to mitigate their impact, minimizing project disruptions.

Improved communication: Clear communication channels and effective stakeholder

management are essential for successful projects.

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Project managers play a crucial role in facilitating collaboration and ensuring everyone is
aligned with project goals.

Increased stakeholder satisfaction: By meeting project objectives and delivering value,

project managers can enhance stakeholder satisfaction and build trust.

Project Planning
Project planning involves defining the scope, objectives, deliverables, and resources
required to complete a project. It is a critical phase that sets the foundation for successful
project execution.

Key elements of project planning include:

• Project charter: A document that outlines the project's purpose, objectives, scope,
deliverables, and stakeholders.
• Work breakdown structure (WBS): A hierarchical decomposition of project
deliverables into smaller, manageable tasks.
• Schedule: A timeline that outlines the sequence of tasks and their estimated
duration.
• Resource allocation: The assignment of resources (e.g., people, equipment,
materials) to project tasks.
• Budget: A financial plan that estimates the costs associated with project activities.
• Risk management plan: A strategy for identifying, assessing, and mitigating project
risks.

Project Scheduling
• Project scheduling involves creating a detailed timeline for project activities and
assigning resources to ensure timely completion. Effective scheduling helps
visualize the project's progress, identify potential bottlenecks, and allocate
resources efficiently.

Common scheduling techniques include:

• Gantt charts: Visual representations of project activities, their duration, and

dependencies.
• Network diagrams: Graphical representations of project activities and their
relationships, often used for complex projects.
• Critical path method (CPM): A technique for identifying the longest sequence of
activities (the critical path) that determines the project's overall duration.

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Project Controlling

Project controlling involves monitoring project progress, measuring performance against

established benchmarks, and taking corrective action as needed. Effective control helps
ensure that the project stays on track, within budget, and meets quality standards.

Key aspects of project controlling include:

• Performance measurement: Tracking project progress against key performance

indicators (KPIs).
• Variance analysis: Comparing actual performance to planned performance and
identifying deviations.
• Change management: Managing changes to the project scope, schedule, or
budget.
• Quality control: Ensuring that project deliverables meet specified quality standards.

Project Management Techniques: PERT and CPM

PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method) are
two widely used project management techniques for planning and scheduling complex
projects.

PERT:

Uses probabilistic estimates for activity durations (optimistic, most likely, pessimistic).
Calculates expected activity durations and project duration using statistical analysis.
Provides a range of possible project completion dates, allowing for risk assessment and
contingency planning.

CPM:

Uses deterministic estimates for activity durations.

Identifies the critical path, the sequence of activities that determines the project's overall
duration.

Helps in resource allocation and scheduling, as activities on the critical path must be
completed on time to avoid project delays.
Both PERT and CPM can be used in conjunction with other project management tools
and techniques to effectively plan, schedule, and control complex projects.

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Guide Questions:
1. How can project management be adapted to different project types and industries?
2. What are the challenges and best practices for managing remote or virtual
projects?
3. How can project management contribute to organizational innovation and strategic
goals?
4. What are the emerging trends and technologies in project management?

Case Study: A Philippine Infrastructure Project

Consider a large-scale infrastructure project in the Philippines, such as the construction
of a new highway or railway. Implementing PERT and CPM could provide significant
benefits, including: Identifying critical activities: Identifying activities that are critical to the
project's overall timeline. Managing resource allocation: Ensuring that resources are
allocated efficiently to avoid delays. Mitigating risks: Developing strategies to address
potential risks such as natural disasters or supply chain disruptions.
Improving communication: Enhancing communication between project stakeholders,
including government agencies, contractors, and suppliers.
However, challenges may arise, such as:

Data accuracy: Obtaining accurate estimates for activity durations and dependencies.
Cultural factors: Addressing potential cultural differences that may impact project
management practices.
Complexity: Dealing with the complexity of a large-scale infrastructure project.
Resistance to change: Overcoming resistance from stakeholders who may be
accustomed to traditional project management methods.

What can you recommend using PERT in this organization?

Here are some YouTube videos that you can watch to learn more about project
management:

• Project Management Simplified: Learn The Fundamentals of PMI's Framework ✓

by Deniz Sasal
• What is Project Management? | Explained in 10 Minutes by Max Mao
• What is Project Management? by Adriana Girdler
• Project Management Full Course In 8 Hours | Project Management Training |
Simplilearn by Simplilearn
• The Complete Project Management Body of Knowledge in One Video (PMBOK
7th Edition) by David McLachlan

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 MODULE 3
FORECASTING

A fundamental practice in business is the conduct of a feasibility study prior to the

establishment of a company. And part of the study is a demand forecast which determines
the need for the contemplated product of the business to be started. A demand forecast
is an educated prediction of the market’s need or want for a good or service. In operations
management a demand forecast is needed to produce the right quantities of products at
a given time to maximize the profits of the company. “There are two general approaches
to forecasting: qualitative and quantitative. Qualitative methods consist mainly of
subjective inputs, which often defy precise numerical description. Quantitative methods
involve either the extension of historical data or the development of associative models
that attempt to utilize causal variables to make a forecast,” (Stevenson, 2017).

Learning Outcomes:
1. Understand the concept of demand forecasting and common forecasting
approaches used in business.
2. Understand the concept of Demand Management.

Qualitative Forecasting Methods Executive Opinions is a forecasting method based on

the experience of managers as to market demand. Sales-force Opinion is a forecasting
method based on the knowledge of sales staff with regard to market demand. Consumer
Survey is a forecasting method based on the feedback of customers with regard to
demand for a product.

Delphi Method is a forecasting method based on the opinions of managers, sales staff,
consultants and customers.

Quantitative Forecasting Methods Simple Moving Average is a forecasting method that

computes for the average of the recent actual demand for a product.

The formula is: (A1 + A2 + …… + An) / n. Weighted Moving Average is a forecasting

method that assigns a weight to the recent actual demand for a product.

The formula is: (A1*W1 + A2*W2 + …… + An*Wn). Exponential Smoothing is a

forecasting method based on past forecast and a margin of error. The formula is: (C – P)
* (2 / (n + 1)) + P. Linear Regression is a forecasting method based on a statistical tool
that uses dependent and independent variables.

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The equation is: Demand Management “The purpose of demand management is to
coordinate and control all sources of demand so the productive system can be used
efficiently and the product delivered on time. There are two basic sources of demand:
dependent demand and independent demand,” (Chase, Aquilano and Jacobs, 2018).

An example for dependent demand is car battery needed for cars which is independent
demand. One million cars will need one million car batteries. Companies can increase
demand for its products through sales promotions and decrease demand by price hikes.
Demand management is also done through effective supply chain management.

Case:

Unilever and Demand Sensing “Unilever, with 400 brands spanning 14 categories of
home, personal care and food products, is one of the world’s largest consumer products
goods companies with a product portfolio that includes brands such as Lipton, Knorr and
Dove. It is also one of the first multinationals to implement demand sensing technology
designed to enable companies to detect changes in customer preferences more quickly
and adjust operations accordingly. In particular, Unilever wanted to avoid the high costs
of carrying too much inventory and reduce the risk that it would need to discount prices
of surplus inventory or potentially write it off. Many manufacturers rely on statistical
analysis and Microsoft Excel spreadsheets or traditional planning systems to predict
demand. But both approaches rely mainly on historical data to help forecast product sales
at specific times of year and most are unable to incorporate current information in the
supply chain such as customer inventory levels, point of sale and other information.
Unilever began testing Terra Technology’s Demand Sensing Software in one of its North
American personal care categories for several months in 2006 and followed this up with
a broader rollout across the region in 2009. In the initial implementation, Unilever fed all
its inputs—its existing sales forecast, historical shipment data, and customer orders as
they came through—into Terra’s pattern recognition software to produce much more
accurate daily forecast,” ([Link] 8931-
00144feab49a).

Summary

A forecast is an educated prediction of the market’s need or want for a good or service.
In operations management a demand forecast is needed to produce the right quantities
of products at a given time to maximize the profits of the company. Demand forecasting
approaches can be broadly classified into qualitative and quantitative methods. The
qualitative approaches are: (1) executive opinions, (2) sales force opinions, (3) consumer

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surveys and (4) Delphi method. On the other hand, the quantitative approaches are: (1)
simple moving average, (2) weighted moving average, (3) exponential smoothing and (4)
linear regression. To deliver the products to customers on time a company may use
demand management which is coordinating and controlling the independent and
dependent demand to achieve effective operations.

Review Questions
1. What is a demand forecast?
2. Distinguish qualitative and quantitative demand forecasting.
3. What is demand management?

Case Analysis

Discuss the reasons of Unilever in using Demand Sensing Software.

Videos to Watch
1. What is Forecasting [Link]
2. Exponential Smoothing, Moving Average and Simple Average
[Link]
3. Forecasting – Linear Regression
[Link]

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 MODULE 4
DESIGN OF GOODS AND SERVICES

A business can effectively compete in the marketplace with a good product and service
design. A product that the company can produce efficiently and satisfies the needs or
wants of customers is certain to bring profits. Designing products is process that a
company should continuously do to achieve long-term success and is commonly done
through a research and development department. A new design for a product can be
proposed by the company’s owner, employee, customer and supplier. It can even be
inspired by a competitor’s product. The company should be open to accepting new ideas
and should be willing to invest in its research and development. Successful companies
are known to make their research and development department work with operations and
purchasing departments to ensure that products in development can be produced by the
company’s facilities and that the components needed can be sourced from suppliers.
Concepts in Product and Service Design Reverse Engineering is when a product is
deconstructed to determine how it was made and what are its parts. Companies that
intend to follow a competitor’s product do this.

Learning Outcomes:

1. Understand the concepts in product and service design.

2. Understand product life cycle and product design. Introduction

Standardization is using the same parts for different products of the company. It is
commonly used to save on costs and simplify purchasing of components. Robust Design
is drawing up a product that is more durable and long-lasting even when used in tough
conditions or subjected to harsh conditions. Concurrent Engineering is the collaboration
of design, production and purchasing staff in the development of a new product to ensure
its viability. Computer-Aided Design is the use of a computer-software to draw and view
a new product. Quality Function Deployment is an approach wherein customers’
suggestions are factored-in in the design of the product. Remanufacturing is the
reconditioning of a used product by replacing its worn-out parts with new ones. Customer
Contact means that the service provider will directly interact with the customer in the
process of giving the service. The service design should be based on the service strategy
of the company. Product Life Cycle and Product Design “Many new products and services
go through a life cycle in terms of demand. When an item is introduced, it may be treated
as a curiosity. Demand is generally low because potential buyers are not yet familiar with
the item. Many potential buyers recognize that all of the bugs have probably not been

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worked out and that the price may drop after the introductory period. Production methods
are designed for low volume.

With the passage of time, design improvements usually create a more reliable and less
costly product. Demand then grows for these reasons and because of increasing
awareness of the product or service. Higher production volume will involve different
methods and contribute lower costs. At the next stage in the life cycle, the product or
service reaches maturity: there are few, if any, design changes, and demand levels off.
Eventually, the market becomes saturated, which leads to a decline in demand. In the
last stage of a life cycle, some firms adopt a defensive research posture whereby they
attempt to prolong the useful life of a product or service by improving its reliability,
reducing costs of producing it, redesigning it, or changing the packaging,” (Stevenson,
2017). Case: Ikea’s Design and Product Development

“The design of home furnishings products at IKEA starts with an understanding of

people’s everyday needs at home, especially the needs of the majority of people, who
have limited incomes and limited living spaces. This is how IKEA succeeds in offering
well-designed, functional products at prices so low that most people can afford them. In
order to make products saleable and right for the IKEA identity, IKEA co-workers in
product design and product development focus on price and quality, design and function,
environment and health. They scrutinize every product idea with regard to the best use
of raw materials and manufacturing opportunities,”
([Link]
ign_product_development.html).

Summary A business can effectively compete in the marketplace with a good product and
service design. A new design for a product can be proposed by the company’s owner,
employee, customer and supplier. It can even be inspired by a competitor’s product. The
important concepts in product and service design are: (1) reverse engineering, (2)
standardization, (3) robust design, concurrent engineering, (4) computer-aided design,
(5) quality function deployment, (6) remanufacturing, and (7) customer contact. A
product’s design may also evolve as it goes through its lifecycle.

Review Questions
1. What is the importance of product and service design?
2. What are the concepts in product and service design?
3. How does the product life-cycle affect the product’s design?

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Case Analysis
Where does IKEA get its ideas for product design?

Videos to Watch
1. What does Reverse Engineering mean?
[Link]
2. A Look Inside the TESLA Model Chevy Bolt and BMW i3
[Link]
3. IKEA to introduce furniture that snaps together in minutes without requiring tools
[Link] (4)A Walk Through the History
of CAD [Link]

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 MODULE 5
LOCATION STRATEGIES

In marketing it is said that location is everything. The same is true for production and
operations. It involves a lot of investment and is crucial in operating costs and sales. It
can make or break a company. Location for Production of Goods In many cases the
factories of companies are located near the source of its raw materials. It makes sense if
delays in production are to be avoided. However the challenge in this situation is getting
the finished product as fast as possible to the market. This is where logistics comes in. It
is also important that zoning rules are observed. Hence many factories are built inside
industrial parks. When a company supplies different regions it may choose to have
multiple plants. “When companies have multiple manufacturing facilities, they can
organize operations in several ways. One is to assign different product lines to different
plants. Another is to assign different market areas to different plants. And a third is to
assign different processes to different plants. Each strategy carries certain cost and
managerial implications, as well as competitive advantages,” (Stevenson, 2017).

Learning Objectives:

1. Understand the selection of location for the production of goods.

2. Understand the selection of location for providing services.

Location for Production of Services Businesses involved in the provision of services often
place their facilities close to their consumers. The logic behind this is to afford consumers
convenience. In some instances some companies even go to the extent of going to the
homes of consumers to provide their services. “Service and retail are typically governed
by somewhat different considerations than manufacturing organizations in making
location decisions. For one thing, nearness to raw materials is usually not a factor, nor is
concern about processing requirements. But customer access is usually a prime
consideration. Manufacturers tend to be cost-focused, concerned with labor, energy, and
material costs and availability, and distribution costs. Service and retail businesses tend
to be revenue focused, concerned with demographics such as age, income, and
education, population/drawing area, competition, traffic volume/patterns, and customer
access/parking,” (Ibid).

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Case: Mega Sardines is Fresh “Based in Zamboanga City, Mega Global Fishing and
Canning, continues to deliver its promise of a 12 hour catching to canning process to
ensure the freshness of its products. The process begins with actual fishing of sardines
through Mega Fishing Corp., the fishing arm of Mega Global, at the helm. The caught fish
are preserved in zero-degree chilled sea water in insulated bins that keep them fresh and
free from contaminant. On arrival at the fish port, the catch is mechanically unloaded
using the vacuum pump to tanks in the holding dock, and are then transported to Mega
Global’s canning plant. Once unloaded in the canning plant, the fish are cleaned in cold
water, submerged in brine tanks and go through the process of agitation in conveyor belts
to remove scales naturally. Workers then grade the fish according to size in preparation
for further sorting and nobbing to cut the head, tails and remove entrails. The fish are then
put into the can using an automated process,”

([Link]
technology-keeps-mega-sardines-fresh-fromcatch-can).

Summary

A business should properly locate its facility because it involves so much capital and may
affect operating costs and sales. In many cases the factories of companies are located
near the source of its raw materials. It makes sense if delays in production are to be
avoided. Businesses involved in the provision of services often place their facilities close
to their consumers. The logic behind this is to afford consumers convenience.

Review Questions

1. Where should a production-facility be located?

2. Where should a service-facility be located?

Case Analysis Why is Mega Global Fishing and Canning located in Zamboanga City?

Videos to Watch

1. Facility Location – Introduction [Link]

2. How to Choose a Location for a Store or Restaurant
[Link]
3. The Canning Process | How Sardines are Made | The Mega Global Story
[Link]

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 MODULE 6
PROCESS AND LAYOUT STRATEGIES

Operation or production as it is traditionally called is converting inputs to goods and/or

services and a process is needed for that. The kind of process should be based on the
kind of product to be made. Production can be manual, semiautomated or automated.
The layout or configuration of the factory / facility also depends on the type of process
and the machines and tools to be used.

The company should get it right the first time to be profitable. Types of Processes In
deciding the type of process to be adopted the company should consider the following:
(1) type and variety of products to be made and (2) present and future demand for the
product. The company can select Job Shop as a process if the kinds of products or
services to be made are few and the volume is low and work changes from one minor job
to the next. Examples of job shop are small tailoring store and dental clinics. If the
operation involves the production of different products in sets in medium amounts Batch
Processing is the correct process that should be selected.

Examples of businesses that use batch processing are bakeries and tarpaulin printing
shops. If the product to be made is the same all the time the suitable process is Repetitive.
Example of this is bottled water factory. If the company will be providing a service on an
uninterrupted basis the right process is Continuous. Examples of this are electricity and
water utility companies. Lastly, if the company produces unique products at a time Project
is the process to be used. Example of this is construction companies.

Learning Objectives:

1. Understand Process Selection.

2. Understand Facility Layout
3.

Types of Layouts

Product Layout is used for products that are repetitively made in an assembly line like
cars. Process Layout is used for products or services that require different machines and
tools like in an auto-repair shop or emergency room of a hospital.

Fixed-Position Layout is used for the production of products that are so big that the
machines are in a fixed position like shipyards and aerospace facilities.

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Cellular Layout is used when a company is producing different products and machines
used for a particular product is grouped together like that of a hotel that has a kitchen for
cooking food and laundry-room for washing linens.

A business may also use a combination of the aforementioned layouts.

Case:

Boeing’s Aerospace Factory “Boeing’s Everett Site is heralded as having the largest
manufacturing building in the world, producing the 747, 767, 777, and the 787 airplanes.
Thousand of aerospace employees in Everett support aircraft fabrication and production,
product development, aviation safety and security and airplane certifications. Other
production areas at the site include the plant hangars, flight line and delivery center.
Originally built in 1967 to manufacture the 747, the main assembly building has grown to
enclose 472 million cubic feet of space over 98.3 acres. Boeing built its Everett facility
specifically to produce the jumbo jet. Manufacturing of the first 747 began May 1, 1967
and it rolled out the factory door just 16 months later— making world headlines and
landing a page in the history books,”([Link]
bca/[Link]).

Summary

The kind of process should be based on the kind of product to be made. Production can
be manual, semi-automated or automated The layout or configuration of the factory also
depends on the process to be adopted. The types of processes a company can adopt are
(1) job shop, (2) batch, (3) repetitive, (4) continuous and (5) project. With regard to layout
the company can choose from (1) product layout, (2) process layout, (3) fixed position
layout, and (4) cellular layout.

Review Questions

1. What should be the basis in process selection?

2. What are the types of production processes?
3. What are the types of plant layouts?

Case Analysis

What is the production process and plant layout of Boeing Everett Factory? Explain.

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Videos to Watch

1. Process Selection – Continuous Flow, Batch Flow, Job Shop WGU C720
[Link]
2. Types of Layout [Link]

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 MODULE 7
INVENTORY MANAGEMENT

An important part of operations and directly related to forecasting is inventory

management. Inventory is commonly defined as a stock of goods for use or for sale by
the business. It may be raw materials, work-in-process, finished goods and replacement
parts. A business that always delivers and satisfies customers does not experience stock-
outs. Inventory management is an essential tool in minimizing costs such as holding
costs, setup costs, ordering costs and shortage costs. Inventory Counting Systems
Traditional inventory system or Periodic System involves an actual physical count of items
in stock at certain intervals. This is still used by small and medium businesses to this day.
Modern inventory system makes use of universal product code or bar code in a Perpetual
Inventory System wherein management continuously monitors items that leave the
inventory. This allows timely replenishment of stocks. Supermarkets and department
stores are best examples of businesses that use perpetual inventory system.

Learning Objectives:

1. Understand inventory counting systems.

2. Understand inventory classification system and economic order quantity.
3. Understand just-in-time production and inventory.

Inventory Classification System and Economic Order Quantity

It is essential to classify inventory based on importance because the company does not
always have the funds to buy everything it needs at the same time in the right amounts.
“The A-B-C Approach classifies inventory items according to its importance in the
operations of the business. Items that are often used in production or commonly bought
by customers can be classified under

A while items that are not regularly used or frequently bought may be classified under A
and C,” (Stevenson, 2017). Economic order quantity identifies the optimal order quantity
by minimizing the sum of certain annual costs that vary with order size. Simply put, it
determines the best amount of inventory to order at a specific period to minimize holding
and carrying costs. Using EOQ will allow a business to avoid ordering too little thus
wasting ordering costs and ordering too much thus causing too much holding cost. The
formula is: . Reorder point or when to order must also be determined. Just-in-Time
Production and Inventory Management Just-in-time production means that the company’s
purchasing department will only place orders for items that will be immediately processed
by the production department and that the finished product will be sold right away. In just-

22
in-time production there are no raw materials and finished goods inventory. Dell Computer
is an American computer company that became successful by using JIT. “One way to
minimize inventory storage in a JIT system is to have deliveries from suppliers go directly
to the production floor, which completely eliminates the need to store incoming parts and
materials,” (Ibid).

Case:

Unilever Lowers Inventory “Unilever, one of the world’s leading manufacturers of

consumer goods, has implemented Terra Technology’s Demand Sensing and Multi-
Enterprise Inventory Optimization solutions across Europe in order to improve forecast
accuracy and help create a more agile and efficient supply chain, contributing to
significantly lower inventory and improved on-shelf availability,”
([Link]
lowers-inventory/).

Summary

Inventory is commonly defined as a stock of goods for use or for sale by the business. It
may be raw materials, work-in-process, finished goods and replacement parts. Traditional
inventory system or Periodic System involves an actual physical count of items in stock
at certain intervals. The A-B-C Approach classifies inventory items according to its
importance in the operations of the business. Just-in-time production means that the
company’s purchasing department will only place orders for items that will be immediately
processed by the production department and that the finished product will be sold right
away.

Review Questions

1. What are the inventory counting systems?

2. What is ABC classification system?
3. What is EOQ?
4. What is JIT? Case Analysis How did Unilever achieve efficient inventory
management?

Videos to Watch

1. What is inventory management?

[Link]

23
2. Types of inventory and purpose of holding inventory
[Link]
3. EOQ Calculation in 13 min. [Link] (4)
Reorder Point Calculation in 7 minutes
[Link]

24
 MODULE 8
AGGREGATE PLANNING

Aggregate planning is a strategic decision-making process that involves determining the

optimal level of production and inventory over a specific planning horizon. Its goal is to
balance supply and demand while minimizing costs. Aggregate planning is particularly
crucial for organizations that face fluctuating demand, limited resources, or significant
production costs.

Learning Objectives:

1. Understand the concept of aggregate planning and its importance in business.

Students will be able to define aggregate planning, explain its goals, and recognize
its significance in managing supply and demand.
2. Identify key factors affecting aggregate planning decisions. Students will be able
to discuss demand patterns, production capacity, inventory costs, labor costs, and
production costs as relevant factors in aggregate planning.
3. Evaluate different aggregate planning strategies. Students will be able to compare
and contrast various strategies such as level production, chase demand, mixed
strategies, overtime/undertime, backordering, and subcontracting.
4. Apply quantitative and qualitative methods for aggregate planning. Students will
be able to use graphical methods, mathematical models, and computer software
to analyze demand, capacity, and production options.
5. Analyze case studies to understand the practical application of aggregate
planning. Students will be able to apply aggregate planning concepts to real-world
scenarios and evaluate the effectiveness of different strategies.

Key Concepts

Demand forecasting: Predicting future demand for products or services.

Capacity planning: Determining the level of resources needed to meet forecasted

demand.

Inventory management: Deciding how much inventory to hold and when to replenish it.

Production planning: Determining the production rate and timing to meet demand.

Cost analysis: Evaluating the costs associated with different production and inventory
strategies.

25
Aggregate Planning Strategies

There are several strategies that can be used for aggregate planning, each with its own
advantages and disadvantages:

Level production: Maintaining a constant production rate throughout the planning horizon,
regardless of demand fluctuations.

Chase demand: Adjusting production rates to match demand fluctuations, often resulting
in fluctuating workforce levels.

Mixed strategy: A combination of level production and chase demand, aiming to balance
the costs and benefits of both approaches.

Overtime/undertime: Adjusting production rates by working overtime or undertime to meet

demand.

Backordering: Delaying customer orders until production capacity becomes available.

Subcontracting: Outsourcing production to external suppliers to meet demand.

Factors Affecting Aggregate Planning Decisions

Demand patterns: Seasonal, cyclical, or irregular demand patterns.

Production capacity: Available resources and constraints.

Inventory costs: Holding costs, ordering costs, and stockout costs.

Labor costs: Regular wages, overtime pay, and hiring/layoff costs.

Production costs: Costs associated with production, such as materials, energy, and
equipment.

Aggregate Planning Models

Graphical methods: Visualizing demand, capacity, and production options.

Mathematical models: Using quantitative techniques to optimize production and inventory

decisions.

Computer software: Utilizing specialized software for aggregate planning calculations.

26
Case Studies

Manufacturing company: A manufacturing company faces seasonal demand fluctuations.

Analyze different aggregate planning strategies to determine the optimal production plan.

Retail chain: A retail chain needs to manage inventory levels for a variety of products.
Evaluate the impact of different inventory policies on costs and customer satisfaction.

Service industry: A service industry experiences peak demand during certain periods.
Explore strategies for balancing capacity and demand.

Summary:

Aggregate planning is a critical tool for organizations seeking to optimize production and
inventory decisions. By carefully considering demand forecasts, capacity constraints, and
costs, businesses can develop effective strategies to meet customer needs while
maximizing profitability.

Guide Questions for Aggregate Planning

1. How can organizations effectively forecast demand for their products or services
in the face of uncertainty and variability?
2. What are the trade-offs between different aggregate planning strategies, and how
can businesses choose the optimal approach for their specific circumstances?
3. How can technology and data analytics be used to enhance aggregate planning
capabilities and improve decision-making?

Here are some YouTube videos that you can watch to learn more about aggregate
planning:

• Operations Management: Aggregate Planning – Chase Strategy by The

Business Doctor
• Aggregate Planning III: Chase and Level Plans by The Business Doctor
• Introduction to aggregate planning and the 3 plans. (level and chase strategy
included) by Anna Shaju
• Aggregate planning Part 2 by Let's_Talk_ Ops_Mgt
• Aggregate Planning Problem by Sridhar DR

27
 MODULE 9
MATERIAL REQUIREMENTS PLANNING (MRP)

Material Requirements Planning (MRP) is a computerized planning and control system

used to effectively manage inventory levels and production schedules. It ensures that
the right materials are available at the right time and in the right quantities to meet
production demands. MRP is a critical component of manufacturing and operations
management, helping organizations optimize resource utilization, reduce costs, and
improve customer satisfaction.

Learning Objectives for Material Requirements Planning (MRP)

1. Understand the fundamental concepts and components of MRP. Students

will be able to define MRP, explain its key components (MPS, BOM, inventory
records), and describe the MRP process.
2. Apply MRP principles to optimize inventory management and production
planning. Students will be able to calculate net requirements, create planned
orders, and schedule receipts using MRP techniques.
3. Evaluate the benefits and challenges of implementing MRP systems.
Students will be able to discuss the advantages of MRP, such as improved
inventory management and reduced costs, as well as potential challenges like
data accuracy and system complexity.

Key Components of MRP

1. Master Production Schedule (MPS): A detailed plan outlining the quantities

and timing of products to be produced.
2. Bill of Materials (BOM): A structured list of all components, subassemblies, and
raw materials required to manufacture a product.
3. Inventory Records: Information on the quantity, location, and value of inventory
items.
4. MRP Calculations: A set of algorithms that calculate the net requirements,
planned orders, and scheduled receipts based on the MPS, BOM, and inventory
records.

MRP Process

The MRP process typically involves the following steps:

1. Demand Forecasting: Predicting future demand for products or services.

28
 2. Master Production Scheduling: Creating a detailed production plan based on
demand forecasts and capacity constraints.
3. Bill of Materials Processing: Breaking down products into their component
parts and subassemblies.
4. Inventory Record Updating: Maintaining accurate records of inventory levels
and locations.
5. Net Requirements Calculation: Determining the net quantity of each item
needed to meet production requirements, considering on-hand inventory and
scheduled receipts.
6. Planned Order Release: Generating planned orders for items that need to be
purchased or produced.
7. Scheduled Receipt Creation: Scheduling the receipt of purchased or produced
items.

Benefits of MRP

• Improved inventory management: Reduces excess inventory and stockouts.

• Enhanced production planning: Optimizes production schedules and resource
utilization.
• Better customer service: Ensures timely delivery of products.
• Reduced costs: Minimizes costs associated with excess inventory, stockouts,
and production inefficiencies.
• Improved decision-making: Provides valuable data and insights for strategic
planning.

Challenges and Considerations

• Data accuracy: Ensuring the accuracy of demand forecasts, BOMs, and

inventory records.
• Complexity: Dealing with complex product structures and multiple levels of
components.
• Dynamic environments: Adapting to changes in demand, lead times, and
production capacities.
• Integration with other systems: Integrating MRP with other business systems
such as enterprise resource planning (ERP) and supply chain management
(SCM).

Advanced MRP Concepts

• MRP II (Manufacturing Resource Planning): Extends MRP to include

production planning, capacity planning, and shop floor control.
• Closed-loop MRP: Integrates MRP with feedback loops to continuously refine
production plans and inventory levels.
• Enterprise Resource Planning (ERP): A comprehensive system that integrates
various business functions, including MRP, finance, and human resources.

29
Summary

Material Requirements Planning is a powerful tool for managing inventory and

production in manufacturing and operations environments. By effectively planning and
controlling materials, organizations can improve efficiency, reduce costs, and enhance
customer satisfaction.

Guide Questions for Material Requirements Planning (MRP)

1. How can MRP be used to improve inventory management and reduce costs
in manufacturing operations?
2. What are the key factors to consider when selecting and implementing an
MRP system, and how can organizations ensure a successful
implementation?
3. How can MRP be integrated with other business systems, such as ERP and
SCM, to create a more holistic and efficient supply chain management
approach?

Here are some YouTube videos that you can watch to learn more about material
requirements planning (MRP):

• What is Materials Requirement Planning (MRP)? by NetSuite

• MRP - Material Requirements Plan by Professor Dansereau
• What is the Material Requirement planning (MRP)? | MRP Process by
Educationleaves
• What is MRP (Material Requirements Planning)? Why is it Important? by Eye on
Tech
• Dependent Demand and Materials Requirement Planning (MRP) Overview by
Operations & Supply Chain Management University

These videos cover a variety of topics related to MRP, including the basics of MRP, its
benefits and challenges, and how to implement it. They are all relatively short and easy
to understand, making them a great resource for beginners and experienced managers
alike.

30
 MODULE 10
SHORT-TERM SCHEDULING

A business that produces goods has to deliver on time to its buyers while a business that
provides services should be open at regular times known to its customers. This requires
scheduling which is defined as planning the dates and hours of the utilization of machines,
tools and labor of an organization. Scheduling is crucial in satisfying customers because
goods and services are needed at a certain time. Food that is meant for lunch should be
delivered at lunchtime otherwise the customer will go hungry. A flight should be on time
otherwise passengers might miss an important appointment or event in their destination.

Learning Objectives:

1. Understand scheduling for production of goods.

2. Understand scheduling for providing services.

Scheduling for Production of Goods A schedule is made in the production of goods to

maximize the use of factors of production through a timely flow that starts with raw
materials and ends with a finished product. Measures are undertaken to avoid disruptions
like machine failures, raw material shortages, absences, tardiness and accidents in the
production area. Preventive maintenance is conducted to prevent machine breakdowns.
Job time is established to help in determining when a product or a batch of it will be
completed. For projects, a GANTT Chart, is prepared to detail its completion. Loading is
done to assign tasks to people or work units. Sequencing is made to ensure the correct
flow of work to finish the product or project.

Scheduling for Production of Services “An important goal in service systems is to match
the flow of customers and service capabilities. An ideal situation is one that has a smooth
flow of customers through the system. This would occur if each new customer arrives at
the precise instant that the preceding customer’s service is completed, as in a physician’s
office, or in air travel where the demand just equals the number of available seats,”
(Stevenson, 2017). To hopefully attain on-schedule, timely and fast delivery of services
to customers, companies use various strategies, such as appointment systems,
reservation system and first come first serve system. A business like a medical clinic that
provides services that can be timed usually uses appointment system. Medical doctors
usually know the span of time needed for a consult. A business like a restaurant that
provides food, service and dine-in area commonly uses a reservation system and/or first
come first serve to seat customers. Case: Philippine Airlines’ On-Time Performance
“Four-Star carrier Philippine Airlines registered an all-time high on-time performance

31
among Filipino air carriers for flight departures out of Manila in the second half of 2019.
This, as PAL’s mainline services achieved an all-time high of 92 percent on-time flights in
October 2019, for international and domestic flights combined. PAL’s surge in OTP since
July is the result of concerted initiatives by PAL and PAL Express network and operations
team to achieve more efficient aircraft movement and schedule management, pre-flight
passenger and ground handling processes, post-flight evaluation designed to refine and
improve all action steps and closer coordination with the airport and aviation authorities,”
([Link]
among-phl-carriers/)

Summary

A business that produces goods has to deliver on time to its buyers while a business that
provides services should be open at regular times known to its customers. This requires
scheduling which is defined as planning the dates and hours of the utilization of machines,
tools and labor of an organization. A schedule is made in the production of goods to
maximize the use of factors of production through a timely flow that starts with raw
materials and ends with a finished product. Measures are such as preventive
maintenance and loading are undertaken to avoid disruptions like machine failures, raw
material shortages, absences, tardiness and accidents in the production area. For
services, appointment system, reservation system and first-come-first serve system are
used to avoid long lines and customer inconvenience.

Review Questions

1. Identify and discuss the ways that can be used to produce goods on schedule.
2. Identify and discuss the ways that can be used to provide convenient and
accessible services to customers.

Case Analysis How did Philippine Airline attain on-time performance?

Videos to Watch

1. Operations Processes: Sequencing and Scheduling | Business Studies

[Link]
2. Scheduling at Hard Rock Café
[Link]

32
 MODULE 11
QUALITY MANAGEMENT SYSTEMS

A business has to produce quality products to be successful both in the short-term and
long-term. In this day of information and social media, consumers easily get word of which
brand is quality and which is a waste of money. Quality can be defined as the excellence
in fulfilling a user’s need or a want by a product. Quality is measured and attained in many
ways. Brief History of Quality Management “Prior to the Industrial Revolution, skilled
craftsmen performed all stages of production. Pride of workmanship and reputation often
provided the motivation to see that a job was done right. Lengthy guild apprenticeships
caused this attitude to carryover to new workers. Moreover, one person or a small group
of people were responsible for an entire product. A division of labor accompanied the
Industrial Revolution; each worker was then responsible for only a small portion of each
product. Pride of workmanship became less meaningful because workers could no longer
identify readily with the final product. The responsibility for quality control shifted to the
foremen. Inspection was either nonexistent or haphazard, although in some instances
100 percent inspection was used.

Learning Objectives:

1. Appreciate the evolution of quality management.

2. Understand the quality criteria for goods and services.
3. Understand the principles of quality.
4. Understand the quality tools.

Frederick Winslow Taylor, the father of Scientific Management, gave new emphasis to
quality by including product inspection and gauging in his list of fundamental areas of
manufacturing management. G.S. Radford improved Taylor’s methods. Two of his most
significant contributions were the notions of involving quality considerations early in the
product design stage and making connections between high quality, increased
productivity, and lower costs. In 1924, W. Shewhart of Bell Telephone Laboratories
introduced statistical control charts that could be used to monitor production. Around
1930, H.F. Dodge and H.G. Romig, also of Bell Labs, introduced tables for acceptance
sampling. Nevertheless, statistical quality control procedures were not widely used until
World War II when the U.S. government began to require vendors to use them. World
War II caused a dramatic increase in emphasis on quality control. The U.S. Army refined
sampling techniques for dealing with large shipments of arms from many suppliers. By
the end of the 1940s, the U.S. Army Bell Labs, and major universities were training
engineers in other industries in the use of statistical sampling techniques. About the same
time, professional quality organizations were emerging throughout the country. One of

33
these organizations was the American Society for Quality Control. Over the years, the
society has promoted quality with its publications, seminars and conferences, and training
programs. During the 1950s, the quality movement evolved into quality assurance.
Quality guru W. Edwards Deming encouraged Japanese manufacturers to adopt
statistical quality control methods, promising that this would help them to rebuild their
manufacturing base and to compete in the world markets. In the 1960s, the concept of
zero defects gained favour. Championed by quality guru Philip Crosby, this approach
focused on employee motivation and awareness and the expectation of perfection from
each employee. In the 1970s, quality assurance methods gained increasing emphasis in
services, including government operations, health care, banking and the travel industry,”
(Stevenson, 2017).

Criteria in Evaluating Quality in Goods and Services A good is said to be of good quality
if it is characterized by performance (its main function is performed); features (it has
additional functions); reliability (its main function is performed without fail); conformance
(it performs as designed); durability (it is long-lasting); serviceability (it can be repaired);
aesthetics (it is attractive looking) and perceived quality (it has a good reputation). A
service is said to be of good quality if it is characterized by timeliness (it is done on time);
completeness (it is done thoroughly); courtesy (it is done with respect); accessibility (it is
easily availed); accuracy (it is done without mistake) and responsiveness (it satisfies
requests). Principles of Quality Management The International Organization for
Standardization says that quality can be attained thru the observance of principles such
as Customer Focus (understanding needs of customers); Leadership (uniting all
employees to achieve quality); Engagement of People(involving all employees to achieve
quality); Process Approach(all employees should understand the interdependence of all
activities) ; Improvement (continuous improvement is pursued); Evidence-Based Decision
Making (judgments are based on facts) and Relationship Management (development of
partnership with suppliers). Quality Tools Attaining high quality through a thorough
process necessitates the use of quality tools. A Checklist is a tool in ensuring that all
required and important actions have been done to achieve quality especially in providing
a complete service. A Flowchart is a diagram of the steps needed in a process to guide
employees in providing service and customers in obtaining it. Analyzing the value added
by each step in a process also requires the use of a flowchart. The Fishbone Diagram is
a tool used in tracing the cause/s and effect/s of a problem to arrive at a solution. The
Scatter Plot is a tool that uses a graph to show a relationship between independent

and dependent variables involved in a problem. It can be used to confirm the finding in
the Fishbone Diagram. A Histogram is a tool that graphically shows data for better
appreciation and analysis. A Control Chart is a statistical process control tool to determine
if a process is in control or changing. And the Pareto Chart shows that 80 percent of
problems in an organization arise from 20 percent of the causes. Case: St. Luke’s Medical

34
Center and Quality Healthcare “St. Luke’s Medical Center has provided high-quality
healthcare for over a century. It was founded in 1903 with a mission to provide outstanding
out-patient care. Today it is the foremost and most admired hospital in the Philippines
and an acknowledged leader in Asia. St. Luke’s delivers on its mission of healing by
gathering under one roof the finest medical expertise, the most sophisticated medical
technology and facilities, and a deep-rooted culture of compassion. The 650-bed hospital
is home to 10 institutes, eight departments, and 23 centers. These centers of excellence
bring to the Philppines the latest medical advances and treatment modalities. Over 1,700
hospital-affiliated medical consultants see outpatients in more than 450 clinics,”
([Link] Summary Quality can be
defined as the excellence in fulfilling a user’s need or a want by a product. Quality is
measured and attained in many ways. A good is said to be of good quality if it is
characterized performance, features, reliability, conformance, durability, serviceability,
aesthetics and perceived quality. A service is said to be of good quality if it is
characterized by timeliness, completeness, courtesy, accessibility, accuracy and
responsiveness.

Attaining high quality through a thorough process necessitates the use of quality tools
such as checklist, flowchart, fishbone diagram, scatter plot histogram, control chart and
pareto chart.

Review Questions

1. What are the criteria in evaluating quality in goods?

2. What are the criteria in evaluating quality in services?
3. What are the quality tools?

Case Analysis How does St’ Luke’s provide quality healthcare to its patients?

Videos to Watch

1. Module 11: Quality Management ASU’s W.P. Carey School

[Link]
2. Quality Timeline – Brief History of Quality Management
[Link]
3. Seven Quality Management Principles
[Link] (4) Learn What the 7 Quality
Control Tools Are in 8 Minutes [Link]

35