POM

Module 1: Overview of Production Operations Management

Unit 3: POM & the Other Functional Areas of Management

Overview:

Just as each of us has one body with many members,

and these members do not all have the same function,
so in Christ we who are many form one body,
and each member belongs to all the others.
Romans 12:4-5 (NIV)

Watch:
Human Body 101: National Geographic
[Link]

• According to the video, how many systems does the human body have? Can you
describe the major functions of three of them?
• In what sense are organizations similar to the human body?
• For whom do the various parts of the body exist and function? Can we say the
same for the various parts of an organization?

Module Objectives:

After successful completion of this Unit, you should be able to:

• Discuss the major and minor functional areas of management and their
respective responsibilities in the organization;
• Explain how the various functional areas work together to accomplish the
purpose of the organization; and
• Diagram and explain the input-process-output (IPO) framework of a certain
business organization.

Course Materials
1. YouTube video: Human Body 101: National Geographic
[Link]
2. Handout: The Functional Areas of Management in Organizations
 Read:
THE FUNCTIONAL AREAS OF MANAGEMENT IN ORGANIZATIONS

An organization may be considered as a system – a whole unit composed of

interacting, interconnected, and interdependent elements or parts. These parts,
which perform distinct but interrelated functions, are the functional areas of
management in an organization.

To clarify: the term management functions refers to planning, organizing,

staffing, leading, and controlling; while the term functional areas of
management refers both to the major functional areas (marketing, finance, and
production/operations) and the minor functional areas (personnel or human
resource management, purchasing, maintenance, industrial engineering,
accounting, management information systems, distribution, public relations,
and so on).

The Major Functional Areas of Management

The three major functional areas of management are marketing, finance, and
production/operations. As parts of a system, they are interrelated and
interdependent. Although each of them has its respective roles to play and
decisions to make in the organization, there are certain areas where the
formulation and implementation of these decisions overlap. A decision made
and implemented in one functional area may affect not only that part, but the
other parts and the whole organization as well; they are interdependent.

The diagram in Figure 3.1 illustrates the concept just described. Three
overlapping circles represent the three major functional areas. The area
bounded by each circle shows that each functional area has a distinct set of
decisions to make and implement. The overlaps indicate that there are certain
decision areas that these three functions are jointly responsible for and
therefore, need to work together. To put this illustration in the proper
perspective, imagine it to be a zoom-in view of the box at the center of Figure
1.1 of Module 1, Unit 1 – the Organization.
Figure 3.1. The Major Functional Areas in Organizations

ORGANIZATION

Production
Operations

Finance Marketing

MARKETING: the functional area responsible for making the decisions related
to the 5 Ps – people (customers), product (goods/services), promotion, place
(distribution) and pricing. “People” is also referred to as the target market;
product, promotion, place, and price are the 4Ps that comprise the marketing
mix.

Following are some of the basic questions involved in each of these decision
areas:

People:
• Who are our customers?
• What are their needs, wants, and demands?
• How would they want their needs, wants and demands satisfied?
Product:
• What goods or services would satisfy the needs, wants, and
demands of our customers?
• What features should these goods or services have?
Promotion:
• How do we make our customers aware of the existence of our
products?
• How do we attract their attention to our products?
• How do we arouse their desire to avail of our products?
Place:
• How do we make our products readily accessible to our customers?
• How do we make it easy for our customers to avail of our
products?
Price:
• How do we price our products?
• How much do we charge for the products that our customers avail
of?

FINANCE: the functional area

responsible for making the
financing, investment and dividend
decisions. We will discuss only the
first two of these, in more detail.

Financing decisions – those concerned with the acquisition of

financial resources – basically involve the question: Where would our
financial resources come from? How do we raise our money? Sources of
financial resources could be capital or equity (the amount invested by the
owners of the organization plus retained earnings, if any); loans or debt;
and selling of assets (such as inventories of finished goods, or non-
performing fixed assets, and so on).

Investment decisions – those concerned with the allocation of financial

resources – primarily involve the question: Where would our financial
resources go or how do we spend them? How do we distribute our
financial resources among the various parts of the organization or among
its various ventures, projects, or operations? This decision area involves
performing activities such as economic analysis of investment
alternatives, capital budgeting, and actual provision of funds.
PRODUCTION/OPERATIONS: the functional area directly responsible for
making the decisions related to the creation of goods or provision of services. It
is the part of the organization that is directly involved in transforming inputs
(resources: 6Ms + information) into outputs (goods/services) through a
transformation or conversion process. Shown below is the input-process-
output (IPO) diagram of the production/ operations system.

Figure 3.2. The Production/Operations System

The decision areas under Production Operations may be classified into

planning and design decisions, and operation and control decisions. Under
each category, listed below are some of the major decision areas in
production/operations management and the primary concern addressed in
each:

Planning and Design Decisions

• Quality Management – how do we make sure that our products

meet or exceed the requirements of our customers?
• Demand Forecasting – how many units of our products will be
demanded by our customers or how many customers may avail of
our services in some future time?
• Product/Service Design – what products and product attributes
would best satisfy our customers?
• Process Selection and Design – what’s the most effective and
efficient way to create our products or provide our services?
• Capacity Planning – how large should our facility be; i.e., how
many units of the product should it be able to produce or how
many customers should it be able to accommodate at any given
time?
 • Facility Location – where do we locate our facility, near suppliers or
near customers?
• Facility Layout – how do we arrange the various equipment,
departments, and workstations in our facility?
• Design of Work Systems – how do we make a good fit between our
workers, their work, and the work environment to maintain their
motivation and productivity?

Operation and Control Decisions

• Inventory Management – which of the inventory items should we

prioritize and closely monitor? How much of each should we stock?
When do we order or make each item and how much do we order?
• Scheduling – which worker, equipment, or workstation will perform
which task, and when or in what sequence?
• Maintenance – how do we maintain our equipment and facilities in
good working condition?
• Project Management – how do we finish the project on time, at
minimum cost, and according to the requirements of the client who
commissioned it?

Among these, we will discuss in more detail only the highlighted decision areas.

The Minor Functional Areas of Management

The minor functional areas of management in organizations include, among

others: personnel or human resource management, purchasing, maintenance,
industrial engineering, accounting, management information systems,
distribution, and public relations.

Personnel or human resource management: responsible for

the manpower resources of the organization. Its responsibility
involves assisting other departments in manpower needs
analysis, recruitment, selection, placement, training and
development, promotion, and separation. Other human
resource concerns include: labor relations, wage and salary
administration, and health and safety.

Purchasing: responsible for providing the organization’s

machine and material resources. Its responsibility involves
evaluating and selecting suppliers; actual purchasing of
materials, supplies and equipment; and receiving, inspecting
and conducting value analysis on purchased items.
 Maintenance: responsible for keeping the organization’s
equipment and facilities in proper working condition. Its
responsibility may also involve waste management and
security.
Industrial engineering: responsible for the work methods that
enable the organization to effectively and efficiently create the
goods or provide the service. Its responsibility involves process
selection and design, facility layout, management of materials
and energy, and integrating the workers into the overall system.

Accounting: responsible for recording the business

transactions of the organization as well as preparing its
financial statements – balance sheet, income statement, and
cash flow statement. These financial statements provide useful
information in the decision making of the organization’s
managers for the productive performance of their respective
functions.

Management information systems: responsible for gathering,

processing, organizing, and disseminating information so as to
provide various levels of management within the organization
with accurate and timely information needed for supervising
activities, tracking progress, making decisions, and isolating
and solving problems.

Distribution: responsible for transporting the organization’s

goods to warehouses, wholesalers or retailers, or final
customers.

Public relations: responsible for establishing and promoting

favorable relationship with the public. Its responsibility involves
building and maintaining a positive reputation for the
organization from the point of view of its publics or
stakeholders – its customers, its employees, its suppliers, its
investors, the government, the community where it operates,
and even its competitors.

Once again, although these functional areas of management have their

respective roles to play in the organization, they all are interconnected and
interdependent. They must work together for the organization to reach its full
potential.
HOW THE FUNCTIONAL AREAS OF THE ORGANIZATION WORK
TOGETHER

To better understand how a typical organization works and how its various
parts work together, it would be helpful to start with a basic premise: that the
production/operations function is the core function – the most essential part
– of the organization. This premise is based on at least two reasons:

(1) Recall that the primary purpose of any organization is to satisfy needs and it
can do so by either creating goods or providing service, or both. Among the
various functional areas, production/operations is the function that is
directly involved with the creation of goods or provision of service.

Without the production/operations function, the organization will not be

able to accomplish its purpose for existence. Comparing Figures 1.1 and 3.2
would bear this out. Notice that the diagram for the P/O system is a replica
or a miniature image of that of the whole organization.

(2) The second reason logically derives from the first. Being the core function,
most of the controllable assets of any organization are allocated to the
production/operations function. A random survey of organizations would
reveal that most of their manpower, equipment, materials, and facilities are
assigned to the production/operations function – the functional area
directly responsible for creating the organization’s products or for providing
its service to customers.

This observation has two implications. First, if the organization is to be

managed productively, priority should be given to effective and efficient
production/operations management. Second, although finance, HRM,
purchasing, maintenance, IE, MIS, and the other functions provide
resources and support to the various parts of the organization, P/O is their
major internal customer. Even marketing supports P/O with the needed
information regarding the organization’s external customers to better satisfy
their needs.

Thus, if we look at the workings of an organization as if it were a play or a

movie, the production/operations function may be considered as performing
the lead role, and the other functions as the supporting cast. All parts are
important, but the production/operations role is the most essential.

So, how do these functional areas work together?

Marketing’s role is to identify who the organization’s customers are

(through market segmentation and targeting), to intimately know them and to
determine how their needs would best be satisfied. However, although most
concerns regarding customers and customer relations are within the domain of
Marketing, decisions related to product or service design, promotion,
distribution, and pricing are better performed in coordination with at least P/O
and Finance. Designing the organization’s product or service must consider not
just the voice of the customer, as expressed through Marketing, but also the
capability of the P/O system to create the good or to provide the service, as well
as the organization’s financial capability.

Promoting the organization’s product would be better performed if

Marketing coordinates with P/O as to the product’s distinctive features.
Deciding on the product’s channel of distribution would be better done if P/O
informs Marketing on certain product characteristics, such as susceptibility to
spoilage or breakage, the need for special technical assistance to end users,
and so on. Deciding on the price of the good or service would require that
Marketing, through Accounting, be informed of the production cost, as well as
consider the informational input from Finance.

Once an inter-functional team has jointly made the decision on the

product/service design, P/O will then create the good or provide the service. To
be able to do so, it would need resources, which the other functional areas
would provide. Finance, HRM, Purchasing, Maintenance, IE, Accounting, MIS,
and the other functions would provide money, manpower, materials, machines,
methods, and information, respectively. The Distribution function, which in
most cases is under Marketing, would then ensure that the product eventually
reaches the organization’s target market. Figure 3.3 illustrates the
interdependence among these functions.

Figure 3.3. The functional areas are interdependent with P/O as the core
function.
 Review:

1. The three major functional areas of management in organizations are Marketing,

Finance and Production Operations.
2. These three major functions, as well as the minor functions, have their respective
responsibilities, but are interdependent and need to harmoniously work together to
accomplish the organization’s purpose for existence: to satisfy the needs of others
and their own needs.
3. Among these, Production Operations is the core functional area.
4. An important tool for visualizing the production operations system of an organization
is the input-process-output (IPO) diagram.

Activities/Assessments:
Activity 3

1. Solve the crossword puzzle in the succeeding pages, as a Group

2. Fill out the Class Code and Member blanks
3. Snap a picture of your solved puzzle, then submit individually to our Google
classroom; deadline to be announced later
4. Filename format: [Link].act3; e.g., [Link].act3
 2
ACROSS
2 Responsible for the decisions related to the 5 Ps

4 Responsible for acquiring and allocating monetary resources

6 Concerned with human resource management

9 Means that the functional areas of management in organizations complement and

must support each other as each is affected by the decisions made by the others

12 With 8 DOWN, directly responsible for creating goods and providing service

13 With 11 DOWN, responsible for building and maintaining a positive image for the

organization

14 Responsible for preparing financial statements and providing cost information

DOWN
1 Responsible for the upkeep and repair of equipment and facility

3 With 5 DOWN, concerned with scheduling, performance standards, etc.

5 With 3 DOWN, concerned with work methods, material handling, etc.

7 Responsible for shipping of goods to warehouses, retail outlets, or final customers

8 With 12 ACROSS, directly responsible for creating goods and providing service

10 Responsible for procurement of materials, supplies, and equipment

11 With 13 ACROSS, responsible for building and maintaining a positive image for the

organization
Activity 4

1. Group

2. Identify a specific business organization that your group is familiar with; don’t choose
an organization similar with the example given in Item 9.

3. Identify and describe its target market

4. Describe the needs and wants of this target market

5. Describe the major outputs (goods or services) being offered by your chosen
organization to satisfy these needs and wants

6. Identify the specific inputs (resources) needed and used by this organization to
provide these goods or services to its customers
a. Manpower
b. Machines
c. Materials
d. Method: the process by which the good or service is provided; better if
presented in a flowchart

7. Create a Powerpoint® presentation that your group will submit to our Google
classroom and share with your classmates during a Google meet. Maximum
presentation time: 5 minutes per group. Schedule to be announced later

8. Filename format: [Link].act4; e.g., 1725.grp2.act4

9. To inspire your creativity, your group may look at a sample Powerpoint® presentation
(an output of my former students) that I will post at our Google classroom.