CBME 1 Midterms
 Operation management is I the business limelight
Management – Application of the
management functions
to achieve goals  Learn how people organize themselves to be
efficiently and
effectively
 Learn how goods and services are produced.
 To learn what Operation Managers do to use in
Finance (Laurence Graham) - Art
and science of managing  To learn what makes it such a costly part of an org.
money
Marketing How companies sell
(Philip Cutler), meeting
the needs and wants of
customers profitably.
Accounting System meant for
measuring business
activity, processing
information into report
and making the finding
available to decision-
makers
Production/ Operations – A function of system
that transforms input
into outputs at a greater
value.
-How to materialize a
concept from
marketing/ providing
products.
Goods Tangible, the Outputs
Products Intangible, the Outputs
OPERATIONS MANAGEMENT (3 Functions:
Operations, Finance, and Marketing)
Service jobs closely related to operations:
 Finance Services : Stock Market Analyst,
Broker, Investment banker, Loan Officer
 Marketing services: Market analyst, Market
Researcher, advertising manager, product
manager
 Accounting services: Corporate accountant,
public accountant, budget analyst
 Information Services: Corporate
intelligence, library services, management
information systems, design systems
because it is the function through which companies
can achieve this type of competitiveness.
productive and profitable at their chosen enterprise
numerous opportunities.
ad how to manage those costs through informed
decisions.
SCOPE OF OPERATIONS MANAGEMENT
1. Forecasting- external factors that may
affect operations. To have correct
forecast, use historical data.
2. Capacity Planning – Reduce opportunity
cost. Compute possible capacity point
and break even point.
3. Facilities and Layout – important in
achieving effective use of workers and
equipment.
4. Scheduling
5. Managing Inventories
6. Assuring Quality
7. Motivation and Training employees
8. Location Facilities
Operations
- What do you do?
- Part of business responsible for producing
goods and services
Operations Management
- Administration of business practices
*opportunities to make the highest level of
efficiency (minimize waste).
- Maximum level of efficiency is necessary to
achieve profitability
Goods Services
Tangible Intangible
TYPES OF SERVICES
1. Professional services
2. Mass services ( e.g. Media, Utilities,
internet)
3. Service Shops ( Tailoring, Repair)
4. Personal care (Barbershops, spas
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5. Government ( Police protection, Fire Ability to
protection, sss, Philhealth) Patent
6. Education
7. Food/Catering Role of an Operation Manager
8. Service within Orgs (Payroll, Human  Decision Making
Resources, Janitorial, Maintenance.  Exerts considerable influence over the
9. Delivery and Shipping degree to which the organizations goals are
10. Residential Services realized.
11. Travel and Hospitality Key Decision Making of an OP Manager
12. Transportation - What resources are needed and in what
13. Miscellaneous Services amount
- When would each resources be needed
TRANSFORMATION PROCESS - When would it be scheduled
- Convert/ Transform inputs into outputs - When would materials and supplies be
- Adds Value to products. ordered
- Where would the work begin
ILLUSTRATION - How will the products and services be
designed
- Who will do the work
MODEL
- It is known as an abstraction of reality or a
simple representation of something.
Classifications:
1. Physical- Looks like real life representation
2. Schematic- as a more abstract as its physical
counterpart.
3. Mathematical – Most Abstract
- does not look at all as to
ots physical counterparts.
- would be used a s decision making aids and
VALUE ADDED simplification of more complex phenomenon.
*can also be information given to you Each model has the following:
*adding value to a product more aligned with 1. Purpose
goods. 2. How it would be used to generate reports
GOODS SERVICES 3. How the results are interpreted and used
Degree of
4. What assumptions and limitations would
Customer
Contact apply
Labor Content Benefits in using models?
Uniformity of 1. Easy to use and less expensive
Input 2. Requires users to organize and at times
Measurement quantify data/ info
of Productivity 3. Increases understanding of the problem
Quality 4. Enables managers to analyze “What-if”
Assurance
situations
Inventory
5. Serves as a tool for evaluation and provides
Wage
a standard format for analyzing a problem
CBME 1 Midterms
6. Enables users to use mathematics to - Businesses make plans for future operation
problems based on anticipated future demandderived
Limitations of models from 1. Actual customer order and
1. Quantitative information may be Forecasts.
emphasized at the expense of quantitative 2 Aspects
information  Expected level of demand
2. Models may be incorrectly applied as a o Can be a function of some
result of misinterpretations structural variation such as a trend
3. Models does not guarantee a good decision or seasonal variation
 Degree of accuracy that can be assigned to
Features*** a forecast
1. Quantitative approaches o A function of the ability of
2. Performance Metrics forecasters to correctly model
3. Analysis of trade off demand, random variation and
4. Degree of customization sometimes unforeseen events.
5. Systems approach Made with reference of a specific time horizon.
6. Establishing Priorities 1. Short term forecast – pertain to
ongoing operations.
HISTORICAL EVOLUTION OF OPERATIONS 2. Long term – Pertain to new products or
MANAGEMENT services, new equipment, facilities or
I. Industrial Revolution things that require lead time to
 1770: England – 19th Century: USA and develop, construct or implement.
England USES
 18th Century – Steam Engine 1. Help managers plan a system – generally
II. Scientific Management involves long range plans
 Fredrick Winslow Taylor- Father of Scientific 2. Help managers plan the use of the system.
Management. Maximum output: Can – refers to short range plans.
destroy quality of the service/ good. There FEATURES
is no checking) a. Generally assumes that the same
 Frank Gilbreth – Father of Motion study underlying casual system existing in the
 Henry Gantt – Founder of the Gantt chart, past will continue to exist in the future.
illustrates a project’s schedule. b. Are not perfect – they are assumptions
III. Human Relation Movement c. Forecasting for groups of items tend to be
a. Work Privilege more accurate than individual items.
b. Worker motivation is critical in (groups-raw materials)
improving productivity. d. Forecasting accuracy decreases as the time
c. Motivational Theories period covered by the Forecast (time
d. Theory X & Y horizon) increases.
e. Theory Z ELEMENTS
FORECASTING 1. Timely
- For there to be enough inventory to sell 2. Accurate
3. Reliable
- Basic inputs in the decision process of
4. Meaningful Units
operations management because they
5. In writing
provide information on future demand.
6. Simple to understand and use
7. Cost effective
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STEPS FORECASTS BASED ON TIME-SERIES DATA
1. Determine the purpose of the forecast - A time-series is a time ordered sequence of
2. Establish a time horizon observations taken at regular intervals. (e.g.
3. Obtain clean and analyze appropriate data hourly, daily, weekly, monthly etc.)
4. Select a forecast technique - Forecasting techniques based on time-
5. Make the forecast series data are made on the assumption
6. Monitor the forecast events that future values of the series can be
ACCURACY estimated from past values.
Et=At-Ft - Analysis of time series data requires the
Where: analyst to identify the underlying behavior
E= Error of the series. This can often be
A= Actual accomplished by merely plotting the data
F= Forecast and visually examining the plot
 TREND refers to a log term upward or
Forecast error is the difference between the value downward movement in the data
that occurs and the value that was predicted for a  IRREGULAR VARIATION is caused by unusual
given period of time. circumstances not reflective of typical
Accuracy and control is vital, so minimize errors. behavior.
 RANDOM VARIATIONS are residual
2 General Approaches variations that remain after all other
1. Qualitative behaviors have been accounted for
- Qualitative techniques permit inclusion of  SEASONALITY refers to short term regular
soft information in the forecasting process variations related to the calendar or time of
a. Executive opinion day.
b. Sales force Opinion  CYCLES are wavelike variations of more
c. Consumer Surveys than one year’s duration.
d. Delfi Method NAÏVE METHOD
e. Other approaches - Uses a single precious value of a time series
2. Quantitative as the basis of forecast
- Consists mainly of subjective inputs witch - Can be used with a stable series with
often defy numerical description seasonal variations or with a trend.
Techniques
1. Judgmental Forecast
- Relies on analysis of subjective inputs such
as opinions from customer surveys, sales
staff etc.
2. Time-Series Forecast AVERAGING
- Projects patterns identified in recent time - Smooths fluctuations in a time series
series observations. because the individual highs and lows in
- Based on past events. data are offset.
3. Associative model SIMPLE MOVING AVERAGE
- Use explanatory variables to predict future ∑𝑛𝑖=1 𝐴𝑡−𝑖 𝐴𝑡𝑛 + ⋯ + 𝐴𝑡−2 + 𝐴𝑡−1
𝐹𝑡 = 𝑀𝐴𝑡 = =
demand 𝑛 𝑛
F= Forecast for time period
MA= Period Moving Average
At-i= Actual value in period t-i
CBME 1 Midterms
N= Number of periods (data points) in moving
average

CAPACITY PLANNING
- Upper limit on load (may be no. of units produced or no.
of services rendered) an operating unit (may be a plant,

department, machine, store or worker) can handle

- Goal of strategic capacity planning is to

achieve a match between long term supply
capabilities and predict level of long term
demand.
CAPACITY DECISIONS are STRATEGIC
- Have a real impact on the activity of the
organization to meet future demands for
products and services.
- Affect cost
- Capacity is usually a major determinant of
initial cost.
- Often involve long-term commitment of
resources.
- Can affect competitiveness
- Capacity affects the ease of management
- Globalization has increased the importance
and the complexity of capacity decisions.
- Because CD often involve substantial
financial and other resources, it is necessary
to plan for them far in advance
DEFINING and MEASURING CAPACITY
1. Design capacity – Max output an operation,
process, or facility is designed for.
2. Effective capacity – Design Cap minus
allowances.
 The different measures of capacity are
useful in defining two measures of system
effectiveness:
Utilization % of design capacity achieved
𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝐷𝑒𝑠𝑖𝑔𝑛 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦
𝑥 100%
Efficiency % of effective capacity achieved
𝐴𝑐𝑡𝑢𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡
𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦
𝑥 100%