Lecture #10 UNIT SEVEN OPERATIONS MANAGEMENT

An area of business concerned with the production of goods & services & involves the responsibility of ensuring that business operations are efficient (using as little resources as needed) & effective (meeting customer requirements). An area of business concerned with the production of goods & services & involves the responsibility of ensuring that business operations are efficient (using as little resources as needed) & effective (meeting customer requirements).

OPERATIONS MANAGEMENT Is concerned with managing the processes that convert inputs ( material, labour & energy) into outputs (goods & services) Is concerned with managing the processes that convert inputs ( material, labour & energy) into outputs (goods & services)

OPERATIONS MANAGEMENT Historically the field of operations was focused on manufacturing organizations & was called industrial or production management. Historically the field of operations was focused on manufacturing organizations & was called industrial or production management.

OPERATIONS MANAGEMENT Now-a-days concepts of quality, process analysis, job design, facility location, capacity, layout, inventory & scheduling are applied equally to manufacturing & provision of services Now-a-days concepts of quality, process analysis, job design, facility location, capacity, layout, inventory & scheduling are applied equally to manufacturing & provision of services

OPERATIONS MANAGEMENT Benefits are: improved quality, reduced costs, & increased value to customers Benefits are: improved quality, reduced costs, & increased value to customers

OPERATIONS MANAGEMENT Areas Covered 1. Plant location and layout 1. Plant location and layout 2. Inventory management 2. Inventory management 3. Cost control 3. Cost control 4. Quality Control 4. Quality Control 5. Risk management 5. Risk management

OPERATIONS MANAGEMENT Interfunctional Connections Engineering Operations Marketing Accounting Finance Human Resources

OPERATIONS MANAGEMENT SYSTEM Inputs Workers Managers Equipment Facilities Materials Services Land Energy Operations & Transformations Outputs Goods Services Customer or client participation Information on performance External environment

All businesses (manufacturing or non- manufacturing) should include an operations plan as part of the business plan. All businesses (manufacturing or non- manufacturing) should include an operations plan as part of the business plan. OPERATIONS MANAGEMENT

Retail Operation or Service

OPERATIONS MANAGEMENT If the business contains a Retail Operation or Service: 1. From whom will merchandise be purchased? 2. How will the inventory control system operate? 3. What are the storage needs of the venture and how will they be promoted? 4. How will the goods flow to the customer? 5. Chronologically, what are the steps involved in a business transaction? 6. What are the technology utilization requirements to service customers effectively?

Plant location and layout

Entrepreneur may need information on: Entrepreneur may need information on: 1.Location 2.Manufacturing operations 3.Raw materials 4.Equipment 5.Labor skills 6.Space 7.Overhead Most of the information should be incorporated directly into the business plan. Most of the information should be incorporated directly into the business plan.

Plant location and layout Location: Location: The company’s location and its accessibility to customers, suppliers, and distributors need to be determined.The company’s location and its accessibility to customers, suppliers, and distributors need to be determined.

Plant location and layout Manufacturing Operations: Manufacturing Operations: Basic machine and assembly operations need to be identified, as well as whether any of these operations would be subcontracted and to whomBasic machine and assembly operations need to be identified, as well as whether any of these operations would be subcontracted and to whom

Plant location and layout Raw Materials: Raw Materials: The raw materials needed and suppliers’ names, addresses, and costs should be determined.The raw materials needed and suppliers’ names, addresses, and costs should be determined.

Plant location and layout Equipment: Equipment: The equipment needed should be listed, with its cost and whether it will be purchased or leasedThe equipment needed should be listed, with its cost and whether it will be purchased or leased

Plant location and layout Labour skills: Labour skills: Each unique skill needed, the number of personnel required for each skill, pay rate, and a assessment of where and how these skills will be obtained should be determinedEach unique skill needed, the number of personnel required for each skill, pay rate, and a assessment of where and how these skills will be obtained should be determined

Plant location and layout Space: Space: The total amount of space needed should be determined, including whether the space will be owned or leased.The total amount of space needed should be determined, including whether the space will be owned or leased.

Inventory management

Entrepreneur needs to: Entrepreneur needs to: Determine value of inventory.Determine value of inventory. Determine how inventory affects the cost of goods sold (income statement).Determine how inventory affects the cost of goods sold (income statement). Decide on FIFO (First Items In Inventory) or LIFO (Last Items In Inventory).Decide on FIFO (First Items In Inventory) or LIFO (Last Items In Inventory).

Managing Fixed Assets

Involve long-term commitments and large investments for the new venture. Involve long-term commitments and large investments for the new venture. Equipment Equipment require servicing and insurance.require servicing and insurance. affect utility costs.affect utility costs. depreciate over time.depreciate over time. Leasing can be an alternative to buying. Leasing can be an alternative to buying.

Production Plan

Details how the product(s) will be manufactured. Details how the product(s) will be manufactured. 1. Will you be responsible for all or part of the manufacturing operation? 2. If some manufacturing is subcontracted, who will be the subcontractors? (Give names and addresses.) 3. Why were these subcontractors selected? 4. What are the costs of the subcontracted manufacturing? (Include copies of any written contracts.)

6.What will be the layout of the production process? (Illustrate steps if possible.) 7.What equipment will be needed immediately for manufacturing? 8.What raw materials will be needed for manufacturing? 9.Who are the suppliers of new materials and what are the appropriate costs? 10.What are the costs of manufacturing the product? 11.What are the future capital equipment needs of the venture? Production Plan

Cost control

Entrepreneur needs to: Entrepreneur needs to: Assess each item to determine cost reductionAssess each item to determine cost reduction Determine raising prices to ensure positive profits.Determine raising prices to ensure positive profits. Compare current actual costs with prior incurred costs.Compare current actual costs with prior incurred costs. Allocate expenses as effectively as possible, by product.Allocate expenses as effectively as possible, by product. Avoid arbitrary cost allocation.Avoid arbitrary cost allocation.

Record Keeping

Helpful to consider using a software package. Helpful to consider using a software package. Maybe necessary to enlist the support and services of an accountant/ consultant. Maybe necessary to enlist the support and services of an accountant/ consultant. Vitally important to use a system for storing and using customer information. Vitally important to use a system for storing and using customer information.

Taxes

Taxes Entrepreneur will be required to: Entrepreneur will be required to: Withhold taxes for employees.Withhold taxes for employees. Pay a number of taxesPay a number of taxes Allocate taxes as part of any budget.Allocate taxes as part of any budget. File end-of-year returns of the business.File end-of-year returns of the business. Consider use of a tax accountant.Consider use of a tax accountant.

Quality control

Two problems for the entrepreneur: Two problems for the entrepreneur: 1. Maintaining quality control of products and services 2. Establishing effective managerial controls

Quality control Standardization in the supplies, products, and services provided helps ensure that quality standards are maintained. Standardization in the supplies, products, and services provided helps ensure that quality standards are maintained. Standardization also supports a consistent image on which the business depends for expansion. Standardization also supports a consistent image on which the business depends for expansion.

Risk management

Identifies potential hazards and alternative strategies to meet business plan goals and objectives. Identifies potential hazards and alternative strategies to meet business plan goals and objectives. Assessment of risk should be based on: Assessment of risk should be based on: Potential risks to the new venture.Potential risks to the new venture. Discussion of what might happen if risks become reality.Discussion of what might happen if risks become reality. Strategy employed to prevent, minimize, or respond.Strategy employed to prevent, minimize, or respond.

Risk management Major risks for a new venture could result from: Major risks for a new venture could result from: Competitor’s reaction.Competitor’s reaction. Weaknesses in marketing/ production/ management team.Weaknesses in marketing/ production/ management team. New advances in technology.New advances in technology.

Management/ Supervision of Workers

Preparation of job descriptions. Preparation of job descriptions. Itemizing specifications. Itemizing specifications. Outsourcing of HR responsibilities: Outsourcing of HR responsibilities: Recruiting.Recruiting. Hiring.Hiring. Establish benefit programs.Establish benefit programs. Payroll.Payroll. Firing.Firing. Permanent vs. part-time.Permanent vs. part-time. Corporate Culture.Corporate Culture.

Overcoming Pressures on Employee Management Activities to institute a more participative style of management: Activities to institute a more participative style of management: Establishing a team spirit.Establishing a team spirit. Communicating with employees.Communicating with employees. Providing feedback.Providing feedback. Delegating some responsibility to employees.Delegating some responsibility to employees. Providing continuous training for employees.Providing continuous training for employees.

Overcoming Entrepreneur’s Time Management Pressure

Benefits of effectively managing time: Benefits of effectively managing time: Increased productivity.Increased productivity. Increased job satisfaction.Increased job satisfaction. Improved interpersonal relationships.Improved interpersonal relationships. Reduced time anxiety and tension.Reduced time anxiety and tension. Better health.Better health.

Basic Principles of Time Management (1 of 2) Principle of desire: a recognition of the need to change personal attitudes and habits regarding the allocation of time. Principle of desire: a recognition of the need to change personal attitudes and habits regarding the allocation of time.

Basic Principles of Time Management (1 of 2) Principle of effectiveness: a focus on the most important issues. Principle of effectiveness: a focus on the most important issues.

Basic Principles of Time Management (1 of 2) Principle of analysis: understanding how time is currently being allocated, and where it is being inefficiently invested. Principle of analysis: understanding how time is currently being allocated, and where it is being inefficiently invested.

Basic Principles of Time Management (2 of 2) Principle of teamwork: acknowledgment that only a small amount of time is actually under one’s control and that most of one’s time is taken up by others. Principle of teamwork: acknowledgment that only a small amount of time is actually under one’s control and that most of one’s time is taken up by others.

Basic Principles of Time Management (2 of 2) Principle of prioritized planning: categorization of tasks by their degree of importance and then the allocation of time to tasks based on this categorization. Principle of prioritized planning: categorization of tasks by their degree of importance and then the allocation of time to tasks based on this categorization.

Basic Principles of Time Management (2 of 2) Principle of reanalysis: periodic review of one’s time management process. Principle of reanalysis: periodic review of one’s time management process.

The End