Operations Management | FINANCIAL MANAGEMENT

CBA103 – Operations Management and
Total Quality Management
RESOURCE MANAGEMENT
Resource Management- deals with the
planning, execution, and control of all the
resources that are used to produce goods or
provide services in a value chain.
Resources include:
➔ Materials, equipment, facilities,
information, technical knowledge
and skills, and PEOPLE.
Objectives of Resource Management
● to maximize profits and customer
satisfaction;
● to minimize costs; and
● maximize benefits to their
stakeholders.
LEVELS OF RESOURCE PLANNING
1. Aggregate,
2. Disaggregation
3. Execution
Level 1: Aggregate Planning
- Aggregate planning is the
development of a long-term output
and resource plan in aggregate units
of measure.
- Aggregate planning is driven by
demand forecasts.
Level 2: Disaggregation
- Disaggregation is the process of
translating aggregate plans into short
term operational plans that provide
the basis for weekly and daily
schedules and detailed resource
requirements.
Level 3: Execution
- Execution refers to moving work
from one workstation to another,
assigning people to tasks, setting
priorities for jobs, scheduling
equipment, and controlling
processes.
Resource Planning in Service
Organizations
- Resource management for most
service-providing organizations
generally does not require as many
intermediate levels of planning as it
does for manufacturing.
- Service firms frequently take their
aggregate plans and disaggregate
them down to the execution level as
detailed frontline staff and resource
schedules, job sequences, and
service-encounter execution.

Enterprise Resource Planning
ERP integrates all aspects of a business –
accounting, customer relationship
management, supply chain management,
manufacturing, sales, human resource–into
a unified information system, and they
provide more timely analysis and reporting
of sales, customer, inventory,
manufacturing, human resource, and
accounting data.
ERP systems usually consist of different
modules that can be implemented
individually so that each department still has
a level of autonomy, but they are combined
into an integrated operating system.
Two Prominent Vendors of ERP Software
1. Systems Applications and
Products or (SAP), is a widely-used
ERP software. SAP creates a
centralized system for businesses
that enables every department to
access and share common data to
create a better work environment for
every employee in the company.
2. Oracle ERP system is a
comprehensive software for
managing business processes and
functions, real-time reporting,
business intelligence, and business
decisions.
Aggregate Planning Options
Managers have a variety of options in
developing aggregate plans in the face of
fluctuating demand, workforce changes,
inventory smoothing, and adjustments to
facilities, equipment, and transportation.
AGGREGATE PLANNING
STRATEGIES
DISAGGREGATION IN
MANUFACTURING

Materials Requirement Planning
1. Dependent Demand - demand that
is directly related to the demand of
other SKUs and can be calculated
without needing to be forecasted
(BOM and BOL)
2. Time Phasing - Involves ordering
and scheduling dependent
requirements as necessary rather than
all at once.
a. MRP Explosion
b. Time Buckets
c. Gross Requirements
d. Scheduled or Planned
Receipts
e. Planned Order Receipts
f. Planned Order Release
g. Projected On Hand Inventory
3. Lot Sizing - the process of
determining the appropriate amount
and timing of ordering to reduce
costs.
Lot Sizing Rules
-Lot for Lot Rule
-Fixed Order Quantity Rule
-Period Order Quantity Rule
Capacity Requirements Planning
OPERATIONS SCHEDULING AND
SEQUENCING
Good schedules and sequences lead
to the efficient execution of manufacturing
and service plans and better customer
service.
Scheduling - the assignment of start and
completion times to particular jobs, people
or equipment.
- Many schedules are repeatable over
the long term, such as those for
retail store staff and assembly-line
employees.
- Others might change on a monthly,
weekly, or even daily basis, as might
be the case with call center
employees, nurses, or salespeople.
Sequencing - determining the order in
which jobs or tasks are processed.
SCHEDULING APPLICATIONS AND
APPROACHES
Scheduling applies to all aspects of the
value chain – planning and releasing orders
in a factory, determining work shifts for
employees, and making deliveries to
customers.

Staff Scheduling
1. Accurately forecasting demand and
translating it into the quantity and
timing of work be done
2. Determining the staffing required to
perform the work by time period
3. Determining the personnel available
and the full time and part time mix
4. Matching capacity to demand
requirements, and developing a work
schedule that maximizes service and
minimize costs
Appointment Systems
Appointments can be viewed as a
reservation of service time and capacity.
- Maximizes the use of time dependent
service
- Reduce the risk of no shows
Four decisions to make regarding
designing an appointment system:
1. Determine the appointment time
interval
2. Determine the length of each
workday and the time off duty.
3. Decide how to handle overbooking
4. .Develop customer appointment rules
SEQUENCING
- Is necessary when several activities
use a common resource
Sequencing Rules: Customer-Focused
Performance Criteria
1. Lateness - the difference between
the completion time and the due date
(either positive or negative)
2. Tardiness - the amount of time
which the completion exceeds the
due date
Sequencing Rules:
1. First come First Served
2. Shortest Processing Time
3. Earliest Due Date
Dispatching - the process of selecting jobs
for processing and authorizing work to be
done.
Scheduling and Sequencing
1. Two resource sequencing problem
(Johnson’s Rule)
2. Schedule monitoring and control
3. Vehicle Routing and Scheduling
(Clarke-Wright Method)

Schedule Monitoring and Control
In scheduling environments that
change rapidly, organizations must have the
capability to closely monitor and adjust
schedules as necessary
Short-term capacity fluctuations also
necessitate changes in schedules. Factors
affecting short-term capacity include
absenteeism, labor performance, equipment
failures, tooling problems, labor turnover,
and material shortages. They are inevitable
and unavoidable. Some alternatives
available to operations managers for coping
with capacity shortages are overtime,
short-term subcontracting, alternate process
routing, and reallocations of the workforce.
Gantt (Bar) Charts - are useful tools for
monitoring planned schedules.
Vehicle Routing and Scheduling
A common scheduling problem in
logistics involves determining routes from a
central depot or warehouse to many
customers.
Clarke-Wright Heuristic Method - this
procedure starts by assuming that each
customer is serviced individually from the
depot, and then seeks to combine customers
into larger routes to reduce the total travel
time and remain within the capacity
restrictions.
1. Compute the savings for all pairs of
customers.
2. Find the pair of customers with the
largest savings, and determine if
there is sufficient capacity to link
these customers together. If so,
construct a new route by combining
them. If not, try the next largest , and
so on.
3. Continue to apply step 2 as long as
the next largest savings is positive.
When all positive savings have been
considered, stop.
LEAN OPERATING SYSTEMS
Lean Thinking - refers to approaches that
focus on the elimination of waste in all
forms, and smooth, efficient flow of
materials and information throughout the
value chain to obtain faster customer
response, higher quality and lower costs
Principles of Lean Operating Systems
1. Elimination of Waste - the goal is
zero waste in all value-creation and
support processes in the entire value
chain.
- Any activity, material or
operation that does not add
value to an organization is
considered WASTE.
7 Sources of WASTE
1. Overproduction
2. Waiting Time
3. Transportation
4. Processing
5. Inventory
6. Motion
7. Production Defects
2. Increased Speed and Response -
lean operating systems focus on
quick and efficient responses in
designing and getting goods and

services to market, producing to
customer demand and delivery
requirements, etc.
3. Improved Quality - eliminating the
sources of defects and errors in all
processes in the value chain greatly
improves speed, reduces variability
and supports the notion of
continuous flow.
4. Reduced Costs - important objective
of Lean enterprise.
Lean Tools and Approaches
1. 5S - are derived from japanese terms:
seiri (sort), seiton (set in order), seiso
(shine), seiketsu (standardize), and
shitsuke (sustain).
2. Visual Controls - indicators for
operating activities that are placed in
plain sight of all employees so that
everyone can quickly and easily
understand the status and
performance of the work system.
3. SMED (Single Minute Exchange
Dies) - refers to the quick setup or
changeover of tooling and fixtures in
processes so that multiple products
in smaller batches can be run on the
same equipment.
4. Batch and Single Piece Flow
a. Batch - the process of
producing large quantities of
items as a group before they
are transferred to the next
operation.
b. Single Piece Flow - is the
concept of ideally using batch
sizes of one
5. Quality and Continuous
Improvement - developing quality
at the source.
6. Total Productive Maintenance
(TPM) - focused on ensuring that
operating systems will perform their
intended function reliably
a. TPM seeks to:
i. Maximize overall
equipment
ii. Create worker
“ownership” of the
equipment
iii. Foster continuous
efforts to improve
equipment operation
- TPM has been called “lean
maintenance - is more than
preventing failures of
equipment and processes; it
now includes maintenance
and backup systems for
software and electronic
network systems”
Lean Six Sigma
- Lean tools might be applied to
streamline an order entry process.
- Six Sigma tools might be used to
drill down to the root cause of the
problems and identify a solution.
Difference between Lean Production and
Six Sigma
- Lean production addresses visible
problems in processes; for example,
inventory, material flow, and safety.
Six Sigma is more concerned with

less visible problems; for example,
variation in performance.
- Lean tools are more intuitive and
easier to apply by anybody in the
workplace, whereas many Six Sigma
tools require advanced training and
expertise of specialists, particularly
in statistical analysis, commonly
called Black Belts and Master Black
Belts.
Just in Time (JIT)- was introduced at
Toyota during the 1950s to 1960s to address
the challenge of coordinating successive
production activities.
Just in Time Systems
1. Push system - produces finished
goods inventory in advance of
customer demand using a forecast of
sales (traditional)
2. Pull System - employees at a given
operation go to the source of
required parts, such as machining or
subassembly, and withdraw the units
as they need them (basis for JIT)
3. Kanban - a flag or piece of paper
that contains all relevant information
for an order.
4. Takt Time - the production rate for
one good or service based on the rate
of sales.
PROJECT MANAGEMENT
Project - a temporary and often customized
initiative that consists of many smaller tasks
and activities that must be coordinated and
completed to finish the entire initiative on
time and within budget.
- Requires systematic management
Project Management - involves all
activities associated with planning,
scheduling, and controlling processes.
- Good project management ensures
that an organization’s resources are
used efficiently and effectively
- Project management skills are also
essential to coordinate the multiple
project disciplines needed to
successfully accomplish the project
with complete or partial
sustainability objectives.
In many firms, projects are the major
value-creation process, and the major
activities in the value chain revolve around
projects.
The Scope of Project Management:
Project Life Cycle
1. Define
2. Plan
3. Organize
4. Control
5. Close
Responsibilities of Project Managers:
➔ Build an effective team
➔ Manage the relationships
➔ Sufficient technical expertise

The Scope of Project Management:
Project Managers
1. Manage people individually and as a
project team
2. Reinforce the commitment and
excitement of the project team
3. Keep everyone informed
4. Build agreements and consensus
among the team
5. Empower the project team
Organizational Structure
- Pure project
- Pure Functional
- Matrix
Techniques for Planning, Scheduling, and
Controlling Projects
1. Project Definition
a. Activities - discrete tasks
b. Immediate Predecessors -
activities that must be
completed immediately
c. Work Breakdown Structure
(WBS) - a hierarchical tree of
end items that will be
accomplished by the project
team during the project
d. Project Network - a set of
circles or boxes called nodes,
which represent activities,
and a set of arrows called
arcs, which define the
precedence relationships
between activities.
2. Resource Planning -
a. The Critical Path Method -
is an approach to scheduling
and controlling project
activities
b. Critical Path - is the
sequence of activities that
takes the longest time and
defines the total project
completion time.
c. CPM assumes the
following:
i. The project network
defines a correct
sequence of work in
terms of technology
and workflow.
ii. Activities are
assumed to be
independent of one
another, with clearly
defined start and
finish dates.
iii. The activity time
estimates are accurate
and stable. • Once an
activity is started, it
continues
uninterrupted until it
is completed
3. Project Scheduling
4. Project Control
a. Schedule - specifies when
activities are to be performed
b. Managers must monitor the
performance of the project
and take corrective action
when needed.
Gantt Chart - is defined as a graphical
representation of activity against time; it
helps project professionals monitor progress.
Gantt charts are essentially task scheduling
tools: project management timelines and

tasks are converted into horizontal bars
(also called Gantt bars) to form a bar chart.
Time / Cost Trade Offs
- Crashing a Project - refers to
reducing the total time to complete
the project to meet a revised due date
- Crash Time is the shortest possible
time in which the activity can be
realistically completed
- Crash Cost is the total additional
cost associated with completing an
activity in its crash time rather than
in its normal time.
Uncertainty in Project Management;
PERT
PERT (Project Evaluation and Review
Technique) - developed as a means of
handling the uncertainties in activity
completion times.
- Optimistic Time - the activity time
if everything progresses in an ideal
manner
- Most Probable Time - most likely
activity under normal conditions
- Pessimistic Time - the activity time
if significant breakdowns and/or
delays occur
INTRODUCTION TO QUALITY
MANAGEMENT
Quality - meeting or exceeding customer’s
expectations.
Quality of Conformance - the extent to
which a process is able to deliver output that
conforms to the design specifications.
Specifications - targets and tolerances
determined by the designers of goods
/services.
Service quality - consistently meeting or
exceeding customer’s expectations (external
focus)
SERVQUAL
1. Reliability
2. Responsiveness
3. Competence
4. Access
5. Courtesy
6. Communication
7. Credibility
8. Security
9. Knowing the Customer
10. Tangibles
Quality can be defined from 6 diff.
perspectives:
1. Transcendent - to rise above or
extend notably beyond ordinary
limits
2. Product - quantity of some product
attribute
3. User - fitness for intended use
4. Value - relationship of product
benefits to price
5. Manufacturing - conformance to
specifications
6. Customer - meeting or exceeding
customer expectations.

Integrating Quality Perspectives in the
Value Chain
different quality perspectives at different
points in the value chain are important to
ultimately create and deliver goods and
services that will satisfy customers’ needs
and expectations
Understanding Quality
- Total Principles
1. Focus on customers and
stakeholders
2. Process focus supported by
continuous improvement and
learning
3. Participation and teamwork
by everyone in the
organization
QUALITY MANAGEMENT - systematic
policies, methods and procedures used to
ensure that goods and services are produced
with appropriate levels of quality to meet the
needs of customers.
TQM - is a people focused management
system that aims at continual increase in
customer satisfaction at continually lower
real cost.
Early Management Failures
reasons for TQM failures were most-often
rooted in flawed organizational approaches
and management systems, such as poor
quality strategies or good strategies that
were poorly executed, and not because of
the underlying principles of quality
management
Performance Excellence can be defined as
an integrated approach to organizational
performance management that results in:
1. delivery of ever-improving value
to customers and stakeholders,
contributing to ongoing
organizational success
2. improvement of overall
organizational effectiveness and
capabilities, and
3. learning for the organization and
for people in the workforce
Globalization of Quality
➔ The global marketplace and
domestic and international
competition have made organizations
around the world realize that their
survival depends on high quality.
The GAP Model
Quality Standards
➔ ISO 9000 defines quality system
standards, based on the premise that
certain generic characteristics of
management practices can be
standardized and that a

well-designed, well implemented and
carefully managed quality system
provides confidence that the outputs
will meet customer expectations and
requirements.
➔ Principles:
◆ Customer Focus
◆ Leadership
◆ Engagement of People
◆ Process of Approach
◆ Improvement
◆ Evidence-based Decisions
◆ Relationship Management
Six Sigma - a business improvement
approach that seeks to find and eliminate
causes of defects and errors in
manufacturing and service processes by
focusing on outputs that are critical to
customers, resulting in a clear financial
return.
Defect - any mistake or error that is passed
on to the customer.
Unit of Work - the output of a process or an
individual process step
Implementing Six Sigma
1. Define
2. Measure
3. Analyze
4. Improve
5. Control
Cost of Quality Measurement
- Cost of Quality - costs associated
with avoiding poor quality or those
incurred as a result of poor quality.
- Prevention Costs - those expended
to keep nonconforming goods and
services from being made and
reaching the customer.
- Appraisal Costs - those extended on
ascertaining quality levels through
measurement and analysis of data
and correct problems
- Internal Failure Costs - costs
incurred as a result of unsatisfactory
quality is found before the delivery
of goods.
- External Failure Costs - incurred
after poor-quality goods reach the
customer

Quality Tools
1. Flowcharts
2. Run & Control Charts
3. Checksheets
4. Histograms
5. Pareto Diagrams
6. Cause-and-Effect Diagrams
7. Scatter Diagram
Other Quality Improvement Strategies
1. Kaizen / Kaizen Event - focuses on
small, gradual and frequent
improvements over the long term,
with minimum financial investment
and with participation by everyone in
the organization
2. Breakthrough Improvement -
discontinuous change, as opposed to
the gradual, continuous improvement
philosophy of Kaizen
3. Benchmarking - search for industry
best practices that lead to superior
performance
4. Best Practices - approaches that
produce exceptional results, are
usually innovative in term of the use
of technology or human resources,
and are recognized by customers /
industry experts
Quality in Manufacturing
❖ Marketing and Sales
❖ Product Design and Engineering
❖ Purchasing and Receiving
❖ Production Planning and Schedule
❖ Manufacturing and Assembly
❖ Tool Engineering
❖ Industrial Engineering and Process
Design
❖ Finished Goods Inspection and
Testing
❖ Packaging, Shipping, and
Warehousing
Quality in Service Organizations
Service quality has been defined as:
- The delivery of excellent or superior
service relative to customer
expectations.
- Quality is behavior – an attitude –
that says you will never settle for
anything less than the community,
your stockholders or colleagues with
whom you work every day.
- When we want to be effective –
delivering good quality to the
customer – we must produce services
that meet “as much as possible” the
needs of the consumer.
- Quality is providing a better service
than the customer
Components of Service Quality
Service quality may be viewed from a
manufacturing analogy, for instance,
technical standards such as the components
of a properly made-up guest room for a
hotel, service transaction speed, or accuracy
of information.

The two most important drivers of service
quality are: PEOPLE and TECHNOLOGY
Quality in Business Support Functions
In addition to manufacturing and service
activities, other business support activities
are necessary for achieving quality. Some of
these activities are:
- Finance and Accounting
- Legal Services
- Quality Assurance
Quality and Competitive Advantage
A strong competitive advantage provides
customer value, leads to financial success
and business sustainability, and is difficult
for competitors to copy.
PIMS research found the following:
- Product quality is an important
determinant of business profitability.
o Businesses that offer
premium-quality products and
services usually have large market
shares and were early entrants into
their markets.
- Quality is positively and
significantly related to a higher
return on investment for almost all
kinds of products and market
situations. o Instituting a strategy of
quality improvement usually leads to
increased market share, but at the
cost of reduced short-run
profitability.
- High-quality producers can usually
charge premium prices.
Quality and Personal Values
- organizations are asking employees
to take more responsibility for
acting as the point of contact
between the organization and the
customer, to be team players, and to
provide better customer service.

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