Chapter 5 operation management


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Chapter 5 operation management

  1. 1. LEARNING OUTCOMES 1. To work out on material requirement in producing a product. 2. To calculate cost per unit, selling price, and profit margin. 3. To construct process flow of production.
  2. 2. ACTIVITY 1 Work in group. Assuming that you are about to start a selling burger business via roadside stall at Taman Seroja. List down all the raw materials needed to produce burger.
  3. 3. ACTIVITY 2 Assuming the following list of raw materials, work out on cost per unit of your burger. Suggest your selling price and calculate your profit margin. • Burger Bun – 40pcs @ RM15.00 • Tomato Sos – 340g @ RM2.20 (enough for 40 pcs of finished burger) • Chili Sos – 330g @ RM2.00 (enough for 40 pcs of finished burger) • Beef Paste – RM4.20 of 10 pcs of Ramly beef paste. • Mayonaise – 230g @ RM3.30. (enough for 40 pcs of finished burger) • Cucumber – RM0.60 per piece. (enough for 70 pcs of finished burger)
  4. 4. ACTIVITY 2 Work in group. Assuming that you are about to start a selling burger business via roadside stall at Taman Seroja. List down all the raw materials needed to produce burger.
  5. 5. Operation Management 1. 2. 3. 4. 5. 6. 7. The Transformation Process Productivity Index Process Planning Material Requirement Planning Layout Plan Selection of Location Calculation of Operational Costs
  7. 7. 2. Productivity Index Total Value of Output Productivity Index = Total Value of Input The productivity index (P.I) can be more or less than 1. P.I > 1 = business running efficiently P.I < 1 = business running inefficiently
  8. 8. 3. Process Planning Symbol Type of Activities Description Operation Activities that modify, transform or give values to the output Transportation When materials are transported from one point to another. Inspection Measures standard of the in-process material, finished product or services Delay When in-process material is restrained in a location waiting for next activity Storage When in-process materials or finished products are stored in the storage area.
  9. 9. 4. Material Requirement Planning Step I : Step II : Step III: Step IV: Identify and list down the raw materials required Prepare the bill of materials Calculate the quantity of raw material required Identify supplier
  10. 10. Step I Identify and list all the raw materials required to manufacture the product or provide the service. – Restaurant: the raw materials required depend on the menu for the day – Cleaning service: the materials required include consumable items like detergents and scrubbing pads. – Retail business: fresh goods, sundry goods, canned goods. – Burger Stall: the raw materials used are proportionate to each layer of ingredients inside the burger.
  11. 11. Step II • Prepare a bill of materials required for a unit of product. Ingredient Amount required for 100 cookies Flour 2 kg Margarine 0.5 kg Sugar 1 kg Eggs 4 units Water 0.5 litre
  12. 12. • Therefore, the bill of materials for a unit of cookies will be: Ingredient Amount Required/Cookie Flour 0.02 kg Margarine Sugar 0.005 kg 0.01 kg Eggs 0.04 of an eggs (1 egg for 25 cookies) 0.005 litre Water
  13. 13. Step III • Estimate the raw material requirement by multiplying the bill of materials with the total number of cookies to be produced monthly. • The number of units to be produced must be based on the sales forecast in the marketing plan.
  14. 14. Example: If the forecast demand per month is 50,000 units of cookies. If the amount of stock at the end of the month is 5% of the amount. = 50,000 + 5%(50,000) = 50,000 + 2,500 = 52,500 cookies/month
  15. 15. The materials required for the month: Ingredient Amount Required/Month Flour 0.02kg/unit x 52,500 = 1050kg Margarine 0.005kg/unit x 52,500 = 2025kg Sugar 0.01kg/unit x 52,500 = 525kg Eggs 0.04/unit x 52,500 = 2100 units Water 0.005litre/unit x 52,500 = 262.5 litre
  16. 16. Step IV Identify supplier • Look through internet/publications/survey by trade associations, and seek quotations from suitable suppliers. 1. 2. 3. 4. Price and discount offered Quality of materials Sales terms & conditions e.g payment terms After sale service and warranty 5. 6. 7. Lead time i.e the time between orders and delivery Delivery terms e.g free transportation Reliability of supplier
  17. 17. Capacity Planning • The capacity of any production operation refers to the amount of output that can be produced within a specified time. • It is a method to calculate machinery and manpower requirements so that production demand based on sales forecast can be met.
  18. 18. • Based on monthly sales forecast, the daily production capacity can be determine by dividing it by the number of working days per month. • This capacity should be divided by the number of working hours per day to give the capacity per hour.
  19. 19. • If sales forecast is 520 units of ‘tudung’ per month. • If working days per month is assumed to be 26 days per month, the daily production rate is: 910 days = 35 ' tudung' per day 26 35 hours = 5 ' tudung' per hour 7
  20. 20. Purchasing of ‘tudung’ materials Storage of ‘tudung’ materials Cutting of raw materials to size. i.e large, medium and small Quality inspection Transport the materials that have been cut to tailor’s table Sewing by tailors Ironing Packaging Storage before shipping out
  21. 21. Activity: ‘Tudung’ cutting If one cutter can cut 1 ‘tudung’ in 1/3 hour, the reciprocal of this is: = the cutter’s capacity to cut per hour = 3 ‘tudung’ per hour Therefore, the number of cutter required is: = Production capacity per hour/cutter’s capacity per hour = 5/3 = 1.67 (needs 2 cutters)
  22. 22. Manpower Requirement Determine the number of workers required If one tailor can sew 1 ‘tudung’ in ½ hour, then his hourly capacity is: = 1/0.5 hr = 2 ‘tudung’ per hour Therefore, the number of tailors required is: = 5/2 = 2.5 tailors (3 tailors) and also, at least 3 sewing machines + 1 (standby)
  23. 23. If one tailor requires a working space of 8 ft by 10 ft, than the total space required for 4 tailors is: = 8ft x 10 ft x 4 tailors = 320 square ft
  24. 24. 5. Layout • Layout refers to the arrangement of machinery, equipment, workers and other facilities used in the operation. • The arrangement should be made in such a way that the production of goods and services can be done efficiently. • It should take into consideration the integration of several factors including work station, tool room, store, office, prayer room and toilet.
  25. 25. Types of layout Layout based on product – The design is done according to the sequence of activity to produce the product.
  26. 26. Layout based on process – The design is based on the production process. – It is suitable for a factory producing several products that undergo a similar process.
  27. 27. Layout based on marketing – The layout is designed to utilise the available space to display goods. – Example: retailed shop and bookshop. •Arrangement of goods are interactive •Goods are easily accessible and convenient for the customers •It is easy for the entrepreneur to protect goods from theft •The entrepreneur can maximize the return of investment form the space used.
  28. 28. 6. Physical Location • It is crucial to choose the right location for the business because a strategic location can contribute to the success of the business. • The choice of location will depend on the following factors: – Distance of operation centre/factory is near from the source of raw materials – Near to the source of manpower
  29. 29. – Easy access to transportation facilities. •Highways e.g. LPT •Port e.g. Klang •Airport e.g. Sepang – Distance from targeted customers. – Other factors •Basic infrastructure, Utilities, banks, schools and housing, government policies and safety of surrounding.
  30. 30. 7. Operations Costs • It is essential to determine the total operational cost in order to calculate the cost per unit of the goods produced. • Operations costs include costs of direct material, direct labour and overheads
  31. 31. • Direct materials costs – Money spend on materials that are directly used to produce the products or services. • Direct labour costs – The money paid as wages, salaries and benefits to the workers involved directly in the production of the products and services. • Overhead costs – Include electricity, water, rents, insurance, wages of indirect labour, maintenance and depreciation.
  32. 32. Operations Costs = Direct material + Direct labour + Overhead Total Operations Cost (RM) Cost per Unit = Total Number of Output (Units)
  33. 33. Q&A THANK YOU!!