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CHAPTER
12
OPERATIONS MANAGEMENT
Fundamentals of Entrepreneurship
Oxford Fajar Sdn. Bhd. (008974-T), 2013
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Objectives
The objectives of this chapter are to:
introduce operations management, production system, its
importance in business and how it relates to other business
functions
discuss issues on location, layout, process set up, production
and capacity planning, inventory management, material
requirement planning, quality and cost management
Fundamentals of Entrepreneurship
Oxford Fajar Sdn. Bhd. (008974-T), 2013
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Learning Outcomes
At the end of this chapter, students should be able to:
understand, analyse and apply the knowledge on production
management to their business practicum project and in their
life after graduation.
Fundamentals of Entrepreneurship
Oxford Fajar Sdn. Bhd. (008974-T), 2013
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Introduction to Operations
Management
Operations management or production management can be
defined as:
the management of the process of marshalling resources
(inputs), organizing and designing the transformation process
(production process) to produce products and services
(outputs) according to the target quality, cost, quantity, delivery
time and safety.
Fundamentals of Entrepreneurship
Oxford Fajar Sdn. Bhd. (008974-T), 2013
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Introduction to Operations
Management (cont.)
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Introduction to Operations
Management (cont.)
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Location Planning
It is crucial for an entrepreneur to choose the right location for his
business because a good location can result in higher sale,
lower operating cost and higher profit.
In general, the choice of location will depend on the following
factors:
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easier accessibility
convenient parking space
less risk to crime
availability of services such as school, hospital, bank, sport facilities,
etc.
in case of retail outlet or a restaurant, the monthly sale forecast from
market study for the selected location must be greater than the
break-even sale volume required to cover all the monthly fixed costs
Fundamentals of Entrepreneurship
Oxford Fajar Sdn. Bhd. (008974-T), 2013
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Layout Plan
The layout plan refers to the arrangement of the floor plan of the
operation areas. The following are the objectives that need to be
considered when designing the layout:
Ideally the area required should be economical, i.e. minimal but
adequate. Calculation has to be made to estimate the required area
for each of the activities on the process flow diagram.
Layout design should facilitate higher utilization of space,
equipment, and people. It should improve flow of information,
materials, or people. Based on process flow or sequence, certain
activities may need to be placed in close proximity or clustered
together to facilitate (minimize) material movement, minimize
workers movement, create convenience working arrangement and
enable effective supervision.
Wet area, hot area or dangerous area may need to be separated
for safety reason.
Fundamentals of Entrepreneurship
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Layout Plan
Where possible the layout plan should be flexible and can
possibly accommodate future expansion.
The layout must provide for adequate space and accessibility
for service and maintenance work.
Specific or customized business objectives may need to be
considered depending on the type of business, e.g. a retail
business shall need a layout arrangement that is attractive,
accessible, and convenient to the customers while at the same
time, it is easier for the entrepreneur to protect goods against
theft. The used of gondola will allow more products to be
displayed and generate more sales per square feet of floor
area.
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Type of Layout
office layout
retail layout
warehouse layout
fixed position layout such as ship building or building
construction
process layout such as metal press job shop
product oriented layout such as assembly line
production
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Capacity Management
Capacity is the maximum output, or throughput, or
the number of units a facility or a system can
produce, hold, store or accommodate in a period of
time (Heizer &Render, 2008).
Capacity is the upper limit or yield an operating
system can handle or perform (Stevenson, 2009).
The objective of capacity planning is to specify the
capacity level that will meet the market demands in
a cost efficient way.
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Production Schedule
The main objective of a production schedule is:
to ensure that the quantity of production is enough to fulfil the
expected market demand for the schedule period, say for the next
four months.
Normally the market demand varies from month to month. An
entrepreneur can decide to have a level production strategy where he
produces equal amount of quantities every month and uses the
finished good inventory as a buffer to meet varying demand.
Fundamentals of Entrepreneurship
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Inventory Management
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If stocks are available, we do not need to hassle the production staff to work
longer hours for sudden or rush orders from customers. For example, if the
product demand is high for specific festive seasons, one may build up and
keep stocks during the low demand period. Most businesses keep high
volume stocks on festive cookies for the festive Malay celebration or Chinese
New Year.
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Quality Management
Quality is defined as the totality of features and characteristics of
a product or service that bears on its ability to satisfy stated or
implied needs (MS ISO9001: 2008 Standard).
Quality is defined as a measure of how close a product or service
conforms to standards and specifications (Stevenson, 2009).
Quality is also defined as a products fitness for use; its success
in offering features that consumers want (Juran, J.M).
Quality is simply innate excellence (in appearance, style,
performance, price, delivery, or after sales service).
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Operation Plan
The sales forecast from market study will be the basis of an
entrepreneurs operation plan.
He has to decide on the product design, its specification, type of
production process, capacity of production, input required, i.e.
manpower, equipment, fixed asset, location, layout, control
procedure, etc. He has to prepare operation budget which include
cost of asset, working capital and other items (see Chapter 7).
Fundamentals of Entrepreneurship
Oxford Fajar Sdn. Bhd. (008974-T), 2013
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