Ilaya-Ivisan, Ivisan, Capiz – 5805

Email Address: [email protected]

Tel. #: (036) 651-5101

COO – FORM 12

SUBJECT TITLE: OPERATIONS MANAGEMENT AND TQM

INSTRUCTOR: NEL JANE D. JUNSAY, CPA
SUBJECT CODE: MS1

PRELIM MODULE

Topic 1: Introduction to Operations Management

LEARNING OBJECTIVES:

At the end of this topic, the students are expected to:

1. Appreciate the importance of operations management in business
environment, in all types of organization.
2. Understand the transformation process model.
3. Differentiate product from services.
4. Understand operations performance and its objectives.
5. Define operations strategy and how to put it together.

NOTES:
1.1. Overview of Operations Management

Operations management is about how organizations produce goods and services.

Everything you wear, eat, sit on, use, read or knock about on the sports field comes
to you courtesy of the operations managers who organized its production.

Operations management is the activity of managing the resources which produce and
deliver products and services. It designs, operates, and improves productive
systems—systems for getting work done. Every organization has an operations
function because every organization produces some type of products and/or services.
Operations managers are the people who have particular responsibility for managing
some, or all, of the resources which compose the operations function. They design
systems, ensure quality, produce products, and deliver services. They work with
customers and suppliers, the latest technology, and global partners. They solve
problems, reengineer processes, innovate, and integrate. Operations is more than
planning and controlling; it’s doing. Whether it’s superior quality, speed-to-market,
customization, or low cost, excellence in operations is critical to a firm’s success.

1.2. Operations in the Organization

The operations function is central to the organization because it produces the goods
and services which are its reason for existing, but it is not the only function. It is,
however, one of the three core functions of any organization. These are:

Page 1 of 1
  the marketing (including sales) function – which is responsible for
communicating the organization’s products and services to its markets in order
to generate customer requests for service;
 the product/service development function – which is responsible for
creating new and modified products and services in order to generate future
customer requests for service;
 the operations function – which is responsible for fulfilling customer
requests for service through the production and delivery of products and
services.

In addition, there are the support functions which enable the core functions to
operate effectively. These include, for example:

 the accounting and finance function – which provides the information to

help economic decision-making and manages the financial resources of the
organization;
 the human resources function – which recruits and develops the
organization’s staff as well as looking after their welfare.

Working effectively with the other parts of the organization is one of the most
important responsibilities of operations management. It is a fundamental of modern
management that functional boundaries should not hinder efficient internal
processes. So, operations management is relevant for all functions, and all
managers should have something to learn from the principles, concepts, approaches
and techniques of operations management. It also means that we must distinguish
between two meanings of ‘operations’:

 ‘Operations’ as a function, meaning the part of the organization which

produces the products and services for the organization’s external customers;
 ‘Operations’ as an activity, meaning the management of the processes
within any of the organization’s functions.

1.3. Operations Management is important in all types of organization

In some types of organization it is relatively easy to visualize the operations function
and what it does, even if we have never seen it. The clue lies in the word ‘produce’.
Any business that produces something, whether tangible or not, must use resources
to do so, and so must have an operations activity. Also the automobile plant and the
advertising agency do have one important element in common: both have a higher
objective – to make a profit from producing their products or services. Yet not-for-
profit organizations also use their resources to produce services, not to make a profit,
but to serve society in some way.

It’s a summary of what operations management did was that . . . ‘Operations

management uses machines to efficiently assemble products that satisfy current
customer demands.’ The statements from the other organizations were similar, but
used slightly different language. Operations management used, not just machines
but also . . . ‘knowledge, people, “our and our partners’ resources” ’ and ‘our staff ’s
experience and knowledge’, to efficiently (or effectively, or creatively) assemble(or
produce, change, sell, move, cure, shape, etc.) products (or services or ideas) that
satisfy (or match or exceed or delight) customers’ (or clients’ or citizens’ or society’s)
demands (or needs or concerns or even dreams). So whatever terminology is used
there is a common theme and a common purpose to how we can visualize the
operations activity in any type of organization: small or large, manufacturing or
service, public or private, profit or not-for-profit. Operations management uses
resources to appropriately create outputs that fulfil defined market requirements.

1.4. The Input–Transformation–Output process and Difference of

Product and Services

Operation is often defined as transformation process. All operations produce products

and services by changing inputs into outputs using an ‘input-transformation-output’
process. Figure 1.3 shows this general transformation process model. Put simply,
operations are processes that take in a set of input resources which are used to
transform something, or are transformed themselves, into outputs of products and
services. And although all operations conform to this general input–transformation–
output model, they differ in the nature of their specific inputs and outputs.
A. Inputs to the Process
One set of inputs to any operation’s processes are transformed resources.
These are the resources that are treated, transformed or converted in the
process. They are usually a mixture of the following:

1. Materials – operations which process materials could do so to

transform their physical properties (shape or composition, for example).
Most manufacturing operations are like this.
2. Information – operations which process information could do so to
transform their informational properties (that is the purpose or form of
the information); accountants do this. Some change the possession of
the information, for example market research companies sell
information. Some store the information, for example archives and
libraries.
3. Customers – operations which process customers might change their
physical properties in a similar way to materials processors: for
example, hairdressers or cosmetic surgeons. Some store (or more
politely accommodate) customers: hotels, for example. Airlines, mass
rapid transport systems and bus companies transform the location of
their customers, while hospitals transform their physiological state.
Some are concerned with transforming their psychological state, for
example most entertainment services such as music, theatre, television,
radio and theme parks.

The other set of inputs to any operations process are transforming

resources. These are the resources which act upon the transformed
resources. There are two types which form the ‘building blocks’ of all
operations:

1. Facilities – the buildings, equipment, plant and process technology of

the operations
2. Staff – the people who operate, maintain, plan and manage the
operation.

The exact nature of both facilities and staff will differ between operations.
Some will need high-technology facility, some doesn’t necessary needs this.
Some requires highly level of technical skills, and some needs high level of
physical skills.

B. Outputs from the Process

Although products and services are different, the distinction can be subtle.
Perhaps the most obvious difference is in their respective tangibility. Products
are usually tangible. You can physically touch a television set or a newspaper.
Services are usually intangible. You cannot touch consultancy advice or a
haircut (although you can often see or feel the results of these services). Also,
services may have a shorter stored life. Products can usually be stored, at least
for a time. The life of a service is often much shorter.

Most Operations produce both Products and Services

Some operations produce just products and others just services, but most
operations produce a mixture of the two. They are the ‘Pure’ products, ‘Pure’
service, Facilitating services and Facilitating products.

Crude oil producers are concerned almost exclusively with the product which
comes from their oil wells. So are aluminum smelters, but they might also
produce some services such as technical advice. Services produced in these
circumstances are called facilitating services. To an even greater extent,
machine tool manufacturers produce facilitating services such as technical
advice and applications engineering. The services produced by a restaurant
are an essential part of what the customer is paying for. It is both a
manufacturing operation which produces meals and a provider of service in the
advice, ambience and service of the food. An information systems provider
may produce software ‘products’, but primarily it is providing a service to its
customers, with facilitating products. Certainly, a management consultancy,
although it produces reports and documents, would see itself primarily as a
service provider. Finally, pure services produce no products, a psychotherapy
clinic, for example.

C. Process

One will see that all operations consist of a collection of processes (though
these processes may be called ‘units’ or ‘departments’) interconnecting with
each other to form a network. Each process acts as a smaller version of the
whole operation of which it forms a part, and transformed resources flow
between them. In fact within any operation, the mechanisms that actually
transform inputs into outputs are these processes. A process is ‘an
arrangement of resources that produce some mixture of products and
services’. They are the ‘building blocks’ of all operations, and they form an
‘internal network’ within an operation.

Each process is, at the same time, an internal supplier and an internal
customer for other processes. This ‘internal customer’ concept provides a
model to analyze the internal activities of an operation. It is also a useful
reminder that, by treating internal customers with the same degree of care as
external customers, the effectiveness of the whole operation can be improved.
 Within each of these processes is another network of individual units of
resource such as individual people and individual items of process technology
(machines, computers, storage facilities, etc.). Again, transformed resources
flow between each unit of transforming resource. So any business, or
operation, is made up of a network of processes and any process is made up
of a network of resources. But also any business or operation can itself be
viewed as part of a greater network of businesses or operations. It will have
operations that supply it with the products and services it needs and unless it
deals directly with the end-consumer, it will supply customers who themselves
may go on to supply their own customers. Moreover, any operation could have
several suppliers and several customers and may be in competition with other
operations producing similar services to those it produces itself. This network
of operations is called the supply network. In this way the input–
transformation–output model can be used at a number of different ‘levels of
analysis’. Here we have used the idea to analyze businesses at three
levels, the process, the operation and the supply network. But one could
define many different ‘levels of analysis’, moving upwards from small to larger
processes, right up to the huge supply network that describes a whole industry.
This idea is called the hierarchy of operations.

The input-transformation-output process is characteristic of a wide variety of

operations systems. Requirements and feedback from customers are used to adjust
factors in the transformation process, which may in turn alter inputs. In operations
management, we try to ensure that the transformation process is performed
efficiently and that the output is of greater value than the sum of the inputs. Thus,
the role of operations is to create value. The transformation process itself can be
viewed as a series of activities along a value chain (a series of activities from
supplier to customer that add value to a product or service) extending from supplier
to customer.

1.5. Responsibilities of Operations Manager

Operations managers have some responsibility for all the activities in the organization
which contribute to the effective production of products and services. The following
are responsibilities of operations manager:

1. Understanding the operation’s strategic performance objectives.

2. Developing an operations strategy for the organization.
3. Designing the operation’s products, services and processes
4. Planning and controlling the operation
5. Improving the performance of the operation.
6. The social responsibilities of operations management.

1.6. Operations Performance and It’s Objectives

Operations management as being able to either ‘make or break’ any business.

Operations are judged by the way they perform. There are many individuals and
groups doing the judging and there are many different aspects of performance on
which the assessment is being made. The people doing the judging are called
‘stakeholders’ and the aspects of performance they are using are called
‘performance objectives’. And if we want to understand the strategic contribution
of the operations function, it is important to understand how we can measure its
performance. This is not just because the operations function is large and, in most
businesses, represents the bulk of its assets and the majority of its people, but
because the operations function gives the ability to compete by providing the ability
to respond to customers and by developing the capabilities that will keep it ahead of
its competitors in the future.

 How does the operations function incorporate all Stakeholders

objectives?
 All operations have a stakeholders. Stakeholders are the people and groups
that have a legitimate interest in the operation’s activities. At a strategic level,
performance objectives relate to the interests of the operation’s stakeholders.
They relate to the company’s responsibility to customers, suppliers,
shareholders, employees, and society in general.

 What does top management expect from the operations

function?

Operations can contribute to the organization as a whole by:

– reducing the costs of producing products and services, and being efficient
– achieving customer satisfaction through good quality and service
– reducing the risk of operational failure or should be able to recover faster
and with less disruption (resilience)
– reducing the amount/need of investment to produce by increasing effective
capacity of the operation of operation and being innovative in hot to use
resources
– providing the basis for future innovation thru its experiences, knowledge and
capabilities

 What are the performance objectives of operations and what are

the internal and external benefits which derive from excelling in
each of them?

Broad stakeholder objectives form the backdrop to operations decision-

making, and top management’s objectives provide a strategic framework, but
running operations at an operational day-to-day level requires a more tightly
defined set of objectives. These are the five basic ‘performance objectives’
and they apply to all types of operation. What kind of things are you likely to
want to do in order to satisfy customers and contribute to competitiveness?

 By ‘doing things right’, that is, you would not want to make mistakes,
and would want to satisfy your customers by providing error-free goods
and services which are ‘fit for their purpose’. Operations seek to
influence the quality of the company’s goods and services. Externally,
quality is an important aspect of customer satisfaction or dissatisfaction.
Internally, quality operations both reduce costs and increase
dependability.

 By ‘doing things fast’, minimizing the time between a customer asking

for goods or services and the customer receiving them in full, thus
increasing the availability of your goods and services. Operations seek
to influence the speed with which goods and services are delivered.
Externally, speed is an important aspect of customer service. Internally,
speed both reduces inventories by decreasing internal throughput time
and reduces risks by delaying the commitment of resources.

 By ‘doing things on time’, you would want to do things on time, so

as to keep the delivery promises you have made. Operations seek to
influence the dependability of the delivery of goods and services.
Externally, dependability is an important aspect of customer service.
Internally, dependability within operations increases operational
reliability, thus saving the time and money that would otherwise be
taken up in solving reliability problems and also giving stability to the
operation.

 By ‘changing what they do’, that is, being able to vary or adapt the
operation’s activities to cope with unexpected circumstances or to give
customers individual treatment. Being able to change far enough and
 fast enough to meet customer requirements. Operations seek to
influence the flexibility with which the company produces goods and
services. Externally, flexibility can:
– produce new products and services (product/service flexibility);
– produce a wide range or mix of products and services (mix flexibility);
– produce different quantities or volumes of products and services
(volume flexibility);
– produce products and services at different times (delivery flexibility).

Internally, flexibility can help speed up response times, save time

wasted in changeovers, and maintain dependability.

 By ‘doing things cheaply’, that is, produce goods and services at a

cost which enables them to be price appropriately for the market while
still allowing for a return to the organization; or, in a not-for-profit
organization, give good value to the taxpayers or whoever is funding
the operation. Operations seek to influence the cost of the company’s
goods and services. Externally, low costs allow organizations to reduce
their price in order to gain higher volumes or, alternatively, increase
their profitability on existing volume levels. Internally, cost performance
is helped by good performance in the other performance objectives.

Keeping Operations costs down

All operations have an interest in keeping their costs as low as is compatible
with the levels of quality, speed, dependability and flexibility that their
customers require. The measure that is most frequently used to indicate how
successful an operation is at doing this is productivity. Productivity is the
ratio of what is produced by an operation to what is required to produce it or
simply calculated by dividing units of outputs by units of inputs.

Output can be expressed in units or dollars in a variety of scenarios, such as

sales made, products produced, or customers served. Single-factor
productivity compares output to individual inputs, such as labor hours,
investment in equipment, material usage, or square footage. Multifactor
productivity relates output to a combination of inputs, such as (labor
+capital) or (labor + capital + energy + materials). Capital can include the
value of equipment, facilities, inventory, and land.
1.7. Operations Strategy

Operations strategy concerns the pattern of strategic decisions and actions which set
the role, objectives and activities of the operation. It is how the mission of a company
is accomplished. It unites an organization, provides consistency in decisions, and
keeps the organization moving in the right direction. It is also conventional to
distinguish between the ‘content’ and the ‘process’ of operations strategy. The
content of operations strategy is the specific decisions and actions which set the
operations role, objectives and activities. The process of operations strategy is the
method that is used to make the specific ‘content’ decisions.

The strategic planning process involves a hierarchy of decisions. Senior management,

with input and participation from different levels of the organization, develops a
corporate strategic plan in concurrence with the firm’s mission and vision, customer
requirements (voice of the customer), and business conditions (voice of the
business). The strategic plan focuses on the gap between the firm’s vision and its
current position.
It identifies and prioritizes what needs to be done to close the gap, and it provides
direction for formulating strategies in the functional areas of the firm, such as
marketing, operations, and finance. It is important that strategy in each of the
functional areas be internally consistent as well as consistent with the firm’s overall
strategy.

Strategy formulation consists of five basic steps:

1. Defining a primary task – that is the purpose of a firm and determining the
competitive areas.

2. Assessing core competencies (core competencies are more likely to be

knowledge, processes, a company’s ability to do certain things better than a
competitor that should be nurtured, enhanced, and developed over time).

3. Determining order winners and order qualifiers

A firm is in trouble if the things it does best are not important to the customer.
That’s why it’s essential to look toward customers to determine what
influences their purchase decision. Order qualifiers are the characteristics
of a product or service that qualify it to be considered for purchase by a
customer. An order winner is the characteristic of a product or service that
wins orders in the marketplace—the final factor in the purchasing decision.

4. Positioning the firm

Strategic positioning involves making choices—choosing one or two
important things on which to concentrate and doing them extremely well. A
firm’s positioning strategy defines how it will compete in the marketplace—
what unique value it will deliver to the customer. An effective positioning
strategy considers the strengths and weaknesses of the organization, the
needs of the marketplace, and the positions of competitors.

5. Deploying the strategy - a planning system that helps align day-to-day

operating decisions with the company’s overall strategy

Perspectives on Operations Strategy

 Operation strategy is a top-down reflection of what the whole group or

business wants to do.
 Operations strategy is a bottom-up activity where operations improvements
cumulatively build strategy.
 Operations strategy involves translating market requirements into
operations decisions.
 Operations strategy involves exploiting the capabilities of operations
resources in chosen markets.

How can an Operations Strategy be put together?

There are many different procedures which are used by companies, consultancies
and academics to formulate operations strategies. Although differing in the stages
that they recommend, many of these models have similarities.

Any operations strategy process should result in strategies that are comprehensive,
coherent, provide correspondence and prioritize the most critical activities or
decisions.

Exercises:
1. What are the core organizational functions and their relationship to
operations functions?
2. Differentiate the product from services?
3. What are the operations performance objectives and their
importance?
4. Compute the productivity using the information below:

5. Explain the concept of core competency and its role in Operations

Strategy?
 Ilaya-Ivisan, Ivisan, Capiz – 5805
Email Address: [email protected]
Tel. #: (036) 651-5101

Topic 2: Product and Process Design

LEARNING OBJECTIVES:

At the end of this topic, the students are expected to:

1. Understand the design and its effectivity.
2. Understand the product design, it’s features, factors could affect and stages of
design.
3. Define Process of Design and types of process design and it’s contribution in
the achievement of Operations performance objectives.

NOTES:

2.1. DESIGN

All operations managers are designers, because design is the process of satisfying
people’s requirements through the shaping or configuring products, services, and
processes. This part looks at how managers can manage the design of the products
and services they produce and the processes that produce them. Designs can provide
a competitive edge by bringing new ideas to the market quickly, doing a better job
of satisfying customer needs, or being easier to manufacture, use, and repair.

Effective Design Process

Design has a tremendous impact on the quality of a product or service. Poor designs
may not meet customer needs or may be so difficult to make that quality suffers.
Costly designs can result in overpriced products that lose market share. If the design
process is too lengthy, a competitor may capture the market by being the first to
introduce new products, services, or features. However, rushing to be first to the
market can result in design flaws and poor performance, which totally negate first-
mover advantages. Design may be an art, but the design process must be managed
effectively.

An effective design process:

• Matches product or service characteristics with customer requirements,
• Ensures that customer requirements are met in the simplest and least costly
manner,
• Reduces the time required to design a new product or service, and
• Minimizes the revisions necessary to make a design workable.

2.2. The Design of Products and Services

Product design is the process of deciding on the unique characteristics and features
of the company’s product. Service design defines a service’s characteristics such as
physical elements, aesthetic & psychological benefits. Good design satisfies
customers, communicates the purpose of the product or service to its market, and
brings financial rewards to the business. The objective of good design, whether of
products or services is to satisfy customers by meeting their actual or anticipated
needs and expectations. This, in turn, enhances the competitiveness of the
organization. Product and service design, therefore, can be seen as starting and
ending with the customer. So the design activity has one overriding objective: to
provide products, services and processes which will satisfy the operation’s customers.

Page 12 of 12
All products and services can be considered as having three aspects:

 a concept, which is the understanding of the nature, use and value of the
service or product;
 a package of ‘component’ products and services that provide those benefits
defined in the concept;
 the process defines the way in which the component products and services
will be created and delivered.

A good product design has following common features:

a. Utility. The product design should make product utility as per expectation of
customers and provide steady performance through the product life.
b. Aesthetics. Product aesthetics is important in success of the product. The product
aesthetics is dependent on market and end customer.
c. Producible. Product design should enable effective production of product through
available production methods.
d. Profitability. Product design should make economic sense as to deliver value to
customer and sustainability to the organization.
e. Differentiable. A good product design should enable product to be differentiate
among its competition. This can be achieved by attractive packaging and also by
providing additional service on the product.

2.3. Factors Affecting Product Design

A successful product design is combination factors as follows:

a. Correct Team Selection: This is very essential to get the correct team in
place which has expert designers who are not only aware and comfortable
with technology but also understanding of customer expectation.
b. Customer Involvement: Involvement of customer in product design and
testing can provide insight into the direction of the project
c. Prototyping and testing: Product design is high risk concept as it involves
commitment of capital and man-power; therefore, it is imperative that
extensive prototyping and testing are done with customer and market.
d. Raw Material: It is essential that raw material to be used in the production
meets the quality standards of the end product. Furthermore, procurement
system needs to be in place to ensure continuous, cost effective supply.
e. Production method and process layout: Feasibility of production method
and process layout determines future success of the product.
f. External Factors: Environmental and government regulations plays an
important part in product design. And these norms are updated from time to
time, so product design should have the flexibility to adapt.

2.4. The Stages of Design – from Concept to Specification

1. Concept Generation
The ideas for new product or service concepts can come from sources outside the
organization, such as customers or competitors, and from sources within the
organization, such as staff (for example, from sales staff and front-of-house staff )
or from the R&D department.

We can get ideas from customers through market research tools for gathering data
using questionnaires and interviews or having focus group or informal groups who
are not familiar with each other that will share perception and opinions in a group
discussion to identify trends and patterns. Or through listening to daily customers’
feedback. We can also get ideas from competitors through reverse engineering or
taking apart a product to understand how a competing organization has made it.

Ideas from research and development can be used concept generation. Research
usually means attempting to develop new knowledge and ideas in order to solve a
particular problem or to grasp an opportunity. Development is the attempt to try to
utilize and operationalize the ideas that come from research. R and D is mainly
concerned with the ‘development’ part of R&D – for example, exploiting new ideas
that might be afforded by new materials or new technologies.

2. Concept Screening
Not all concepts which are generated will necessarily be capable of further
development into products and services. Designers need to be selective as to which
concepts they progress to the next design stage. The purpose of the concept-
screening stage is to take the flow concepts and evaluate them. Evaluation in design
means assessing the worth or value of each design option, so that a choice can be
made between them. This involves assessing each concept or option against a
number of design criteria. While the criteria used in any particular design exercise
will depend on the nature and circumstances of the exercise, it is useful to think in
terms of three broad categories of design criteria:

3. Preliminary Design
The objective of this stage is to have a first attempt at both specifying the component
products and services in the package, and defining the processes to create the
package.

The first task in this stage of design is to define exactly what will go into the product
or service: that is, specifying the components of the package. This will require the
collection of information about such things as the constituent component parts which
make up the product or service package and the component (or product)
structure, the order in which the component parts of the package have to be put
together.

The product/service structure and bill-of-materials specifies what goes into a product.
It is around this stage in the design process where it is necessary to examine how
a process could put together the various components to create the final product or
service. It is important to understand that processes should at least be examined in
outline well before any product or service design is finalized. We outlined some of the
basic ideas behind process design. The techniques of process mapping (see later
discussion) can be used during this stage.

4. Design Evaluation and Improvement

The purpose of this stage in the design activity is to take the preliminary design and
see if it can be improved before the product or service is tested in the market. There
are a number of techniques that can be employed at this stage to evaluate and
improve the preliminary design like the Quality Function Deployment and Value
Engineering.
The key purpose of quality function deployment (QFD) is to try to ensure that the
eventual design of a product or service actually meets the needs of its customers. It
is also known as the ‘house of quality’ (because of its shape) and the ‘voice of the
customer’ (because of its purpose). The technique tries to capture what the customer
needs and how it might be achieved. The QFD matrix is a formal articulation of how
the company sees the relationship between the requirements of the customer (the
whats) and the design characteristics of the new product (the hows).

The purpose of value engineering is to try to reduce costs, and prevent any
unnecessary costs, before producing the product or service. Simply put, it tries to
eliminate any costs that do not contribute to the value and performance of the
product or service. (‘Value analysis’ is the name given to the same process when it
is concerned with cost reduction after the product or service has been introduced.)
Value-engineering programs are usually conducted by project teams consisting of
designers, purchasing specialists, operations managers and financial analysts. The
chosen elements of the package are subject to rigorous scrutiny, by analyzing their
function and cost, then trying to find any similar components that could do the same
job at lower cost. The team may attempt to reduce the number of components, or
use cheaper materials, or simplify processes.

5. Prototyping and Final Design

At around this stage in the design activity it is necessary to turn the improved design
into a prototype so that it can be tested. It may be too risky to go into full production
of the telephone, or the holiday, before testing it out, so it is usually more appropriate
to create a prototype. Product prototypes include everything from clay models to
computer simulations. Service prototypes may also include computer simulations but
also the actual implementation of the service on a pilot basis. Many retailing
organizations pilot new products and services in a small number of stores in order to
test customers’ reaction to them.

2.5. Process Design and the achievement of Performance Objectives

To ‘design’ is to conceive the looks, arrangement, and workings of something before

it is created. In that sense it is a conceptual exercise. Design is also an activity that
can be approached at different levels of detail. One may envisage the general shape
and intention of something before getting down to defining its details. This is certainly
true for process design. Process design is a macroscopic decision-making of an overall
process route for converting the raw material into finished goods. These decisions
encompass the selection of a process, choice of technology, process flow analysis and
layout of the facilities.

The whole point of process design is to make sure that the performance of the process
is appropriate for whatever it is trying to achieve. For example, if an operation
competed primarily on its ability to respond quickly to customer requests, its
processes would need to be designed to give fast throughput times. This would
minimize the time between customers requesting a product or service and their
receiving it. Similarly, if an operation competed on low price, cost-related objectives
are likely to dominate its process design. Some kind of logic should link what the
operation as a whole is attempting to achieve and the performance objectives of
its individual processes. The overall purpose of process design is to meet the needs
of customers through achieving appropriate levels of quality, speed, dependability,
flexibility and cost.
But, because processes are managed at a very operational level, process design also
needs to consider a more ‘micro’ and detailed set of objectives. These are largely
concerned with flow through the process. When whatever are being ‘processed’ enter
a process they will progress through a series of activities where they are ‘transformed’
in some way. Between these activities they may dwell for some time in inventories,
waiting to be transformed by the next activity. This means that the time that a unit
spends in the process (its throughput time or the average elapsed time taken for
inputs to move through the process and become outputs) will be longer than the sum
of all the transforming activities that it passes through.

2.6. Different Process Types

The position of a process on the volume–variety shapes its overall design and the
general approach to managing its activities. These ‘general approaches’ to designing
and managing processes are called process types. The overall nature of any process
is strongly influenced by the volume and variety of what it has to process. The concept
of process types summarizes how volume and variety affect overall process design.

A. Project processes are those which deal with discrete, usually highly
customized products. Often the timescale of making the product or service is
relatively long, as is the interval between the completion of each product or
service. The activities involved in making the product can be ill-defined and
uncertain, sometimes changing during the production process itself. Examples
of project processes include shipbuilding, most construction companies, and
movie production companies. The essence of project processes is that each job
has a well-defined start and finish, the time interval between starting different
jobs are relatively long and the transforming resources which make the product
will probably have been organized especially for each product.
B. Jobbing processes. Whereas in project processes each product has
resources devoted more or less exclusively to it, in jobbing processes each
product has to share the operation’s resources with many others. The
resources of the operation will process a series of products but, although all
the products will require the same kind of attention, each will differ in its exact
needs. Examples of jobbing processes include many precision engineers such
as specialist toolmakers, furniture restorers, and the printer who produces
tickets for the local social event. Jobbing processes produce more and usually
smaller items than project processes but, like project processes, the degree of
repetition is low.

C. Batch processes can often look like jobbing processes, but batch
does not have quite the degree of variety associated with jobbing. As
the name implies, each time batch processes produce a product they
produce more than one. So each part of the operation has periods when
it is repeating itself, at least while the ‘batch’ is being processed. The
size of the batch could be just two or three, in which case the batch
process would differ little from jobbing, especially if each batch is a
totally novel product. Conversely, if the batches are large, and especially
if the products are familiar to the operation, batch processes can be
fairly repetitive.

D. Mass processes are those which produce goods in high volume and
relatively narrow variety.

E. Continuous processes are one step beyond mass processes insomuch

as they operate at even higher volume and often have even lower variety.
They also usually operate for longer periods of time. Sometimes they are
literally continuous in that their products are inseparable, being produced in
an endless flow. Continuous processes are often associated with relatively
inflexible, capital-intensive technologies with highly predictable flow. Example
include petrochemical refineries, electricity utilities, steel making and some
paper making.

F. Professional services are defined as high contact organizations where

customers spend a considerable time in the service process. Such services
provide high levels of customization, the service process being highly
adaptable in order to meet individual customer needs. Professional services
tend to be people-based rather than equipment-based, with emphasis placed
on the process (how the service is delivered) rather than the ‘product’ (what
is delivered). Professional services include management consultants, lawyers’
practices, architects, doctors’ surgeries, auditors, health and safety inspectors
and some computer field service operations.

G. Service shops are characterized by levels of customer contact,

customization, volumes of customers and staff discretion, which position them
between the extremes of professional and mass services. Service is provided
via mixes of front- and back-office activities. Service shops include banks, high
street shops, holiday tour operators, car rental companies, schools, most
restaurants, hotels and travel agents.

H. Mass services have many customer transactions, involving limited

contact time and little customization. Such services may be equipment-based
and ‘product’-oriented, with most value added in the back office and relatively
little judgement applied by front-office staff. Staff are likely to have a closely
defined division of labor and to follow set procedures. Mass services include
supermarkets, a national rail network, an airport, telecommunications
services, libraries and television stations.
Exercises:
1. Differentiate the product design and process design.
2. What should be the most important aspect in product design?
3. Why should we need to perform testing and prototyping before
producing a goods and services?
4. Explain the significance of process design in Operations
management?
5. Among the different processes, which of them is the most efficient?
Why?
 Ilaya-Ivisan, Ivisan, Capiz – 5805
Email Address: [email protected]
Tel. #: (036) 651-5101

Topic 3: Facility Location and Layout

LEARNING OBJECTIVES:

At the end of this topic, the students are expected to:

1. Explain the concept of facility location.
2. Discuss the steps and factors affecting facility location decision.
3. Explain the facility layout and its objectives.
4. Discuss the different types of Facility Layout.

NOTES:

Location and layout of facilities for operations is a long-term capacity decision which
involves a long term commitment about the geographically static factors and the
physical arrangement of the facility to meet the output requirements that affect a
business organization. It is an important strategic level decision-making for an
organization. It deals with the questions such as ‘where our main operations should
be based?’ and “how should we arrange our operation?

3.1. Facility Location

Facility location may be defined as a place where the facility will be set up for
producing goods or services. Facility Location is the right location for the
manufacturing facility, it will have sufficient access to the customers, workers,
transportation, etc.

The need for location selection may arise under any of the following conditions:

 When a business is newly started.

 When the existing business unit has outgrown its original facilities and
expansion is not possible; hence a new location has to be found.
 When the volume of business or the extent of market necessitates the
establishment of branches.
 When the lease expires and the landlord does not renew the lease. e. Other
social or economic reasons.

Facility location planning is also required for providing a cost benefit to the
organization. The location planning should help in reducing the location,
transportation, and distribution cost for the organization. This ultimately helps in
decreasing the cost of production and generating cost advantage for the organization.
It is also needed to identify proximity to the sources of raw materials and
transportation facilities. A facility should ideally be located at a place where raw
materials are available. This is necessary for maintaining continuity in the production
process. In service organization, the facility location decision is also major, but the
major consideration is the nearness of the customer rather than resource
consideration.

Factors Affecting Facility Location Decisions

If the organization can configure the right location for the manufacturing facility, it
will have sufficient access to the customers, workers, transportation, etc. For
commercial success in selecting a facility location, an organization should consider

Page 19 of 19
various factors that may have significant impact on its performance. These factors
are explained below:

1. Availability of power: A good electricity supply located in area is

important aspect especially for those power intensive business that uses
big and continuous power supply.

2. Customer Proximity: Facility locations are selected closer to the

customer as to reduce transportation cost and decrease time in reaching
the customer.

3. Business Area: Presence of other similar manufacturing units around

makes business area conducive for facility establishment.

4. Availability of Skill Labor: Education, experience and skill of available

labor are another important, which determines facility location.

5. Free Trade Zone/Agreement: Free-trade zones promote the

establishment of manufacturing facility by providing incentives in
custom duties and levies. On another hand free trade agreement is
among countries providing an incentive to establish business, in
particular, country.

6. Suppliers: Continuous and quality supply of the raw materials is

another critical factor in determining the location of manufacturing
facility and their location proximity.

7. Government and Environmental Policy: The law and regulations

implement by the authority and in current globalized world pollution,
control is very important, therefore understanding of environmental
policy for the facility location is another critical factor.

ERRORS IN LOCATION SELECTION

Facility location is critical for business continuity and success of the organization. So
it is important to avoid mistakes while making selection for a location. Errors in
selection can be divided into two broad categories: behavioral and non-behavioral.
Behavioral errors are decision made by executives of the company where personal
factors are considered before success of location, for example, movement of personal
establishment from hometown to new location facility. Non-behavioral errors
include lack of proper investigative practice and analysis, ignoring critical factors and
characteristics of the industry.

3.2. STEPS IN LOCATION SELECTION

1. Define the Location Objectives and Associated Constraints

The location objectives and associated constraints are defined on the basis of
the views and requirements of the owners, employees, suppliers and
customers of the firm.

2. Identify the Relevant Decision Criteria

Firms should select a location by formulating relevant decision criteria. The
criteria should include several economic factors such as labor and material
costs, and non-economic factors such as impact of the plant on the surrounding
environment.

3. Relate the Objectives to the Criteria Using Analysis

 Using the models like break-even analysis, and cost-benefit analysis, the
relevant decision criteria should be evaluated. Though it is preferred to model
the location decision process in a systematic and quantitative manner, it is
difficult to quantify the intangible criteria. Therefore, the judgment of
responsible managers is taken into consideration to obtain a solution.

4. Do Field Research to Get Relevant Data and Use the Models to Evaluate
Alternative Locations
Firms should collect the possible primary and secondary data to evaluate
different alternative locations. Primary data is the data that is collected for a
specific purpose for the first time. Firms mainly use survey methods like
personal interviews, telephonic interviews, and mail interviews to collect the
primary data. Secondary data is the data that is already available but might
have been collected for some other purpose or by some other institutions.

5. Select the Location that Best Satisfies the Criteria

A location, which can meet the defined objectives, is able to satisfy the criteria
and provides benefits to the community should be selected.

3.3. Facility Layout

Facility layout may be defined as the arrangement of machinery, equipment, and

other amenities in a facility, which should ensure a smooth movement of materials.
Facility layout considers available space, final product, safety of users and facility and
convenience of operations.

According to Moore, “facility layout is the plan of or the act of planning an optimum
arrangement of facilities, including personnel, operating equipment, storage space,
material handling equipment, and all other supporting services along with the design
of the best structure to contain these facilities.”

An effective facility layout ensures that there is a smooth and steady flow of
production material, equipment and manpower at minimum cost. Facility layout looks
at physical allocation of space for economic activity in the plant. Therefore, main
objective of the facility layout planning is to design effective workflow as to make
equipment and workers more productive.

Facility Layout Objectives

A model facility layout should be able to provide an ideal relationship between raw
material, equipment, manpower and final product at minimal cost under safe and
comfortable environment. An efficient and effective facility layout can cover following
objectives:

 To provide optimum space to organize equipment and facilitate movement of

goods and to create safe and comfortable work environment.
 To promote order in production towards a single objective
 To reduce movement of workers, raw material and equipment
 To promote safety of plant as well as its workers
 To facilitate extension or change in the layout to accommodate new product
line or technology upgradation
 To increase production capacity of the organization

An organization can achieve the above-mentioned objective by ensuring the

following:

 Better training of the workers and supervisors.

 Creating awareness about of health hazard and safety standards
 Optimum utilization of workforce and equipment
  Encouraging empowerment and reducing administrative and other indirect
work

3.4. Considerations of Facility Layout

Facility layout designing and implementation is influenced by various factors. These
factors vary from industry to industry but influence facility layout. These factors are
as follows:

 The design of the facility layout should consider overall objectives set by the
organization.
 Optimum space needs to be allocated for process and technology.
 A proper safety measure as to avoid mishaps.
 Overall management policies and future direction of the organization

Design of Facility Layout

Principles which drive design of the facility layout need to take into the consideration
objective of facility layout, factors influencing facility layout and constraints of facility
layout. These principles are as follows:

 Flexibility: Facility layout should provide flexibility for expansion or

modification.
 Space Utilization: Optimum space utilization reduces the time in material
and people movement and promotes safety.
 Capital: Capital investment should be minimal when finalizing different models
of facility layout.

3.5. Types of Facility Layout

Most practical layouts are derived from only four basic layout types. These are:

1. Fixed-position layout is in some ways a contradiction in terms, since the

transformed resources do not move between the transforming resources.
Instead of materials, information or customers flowing through an operation,
the recipient of the processing is stationary and the equipment, machinery,
plant and people who do the processing move as necessary. This could be
because the product or the recipient of the service is too large to be moved
conveniently, or it might be too delicate to move, or perhaps it could object to
being moved.
2. Functional layout is also called process layout because it conforms to the
needs and convenience of the functions performed by the transforming
resources within the processes. In functional layout, similar resources or
processes are located together. This may be because it is convenient to group
them together, or that the utilization of transforming resources is improved. It
means that when materials, information or customers flow through the
operation, their route is determined according to their needs. For example, a
machine shop, all drills would be located in one work center, lathes in another
work center, and milling machines in still another work center. In a department
store, women’s clothes, men’s clothes, children’s clothes, cosmetics, and shoes
are located in separate departments.

3. Cell layout is one where the transformed resources entering the operation are
pre-selected (or pre-select themselves) to move to one part of the operation
(or cell) in which all the transforming resources, to meet their immediate
processing needs, are located. After being processed in the cell, the
transformed resources may go on to another cell. In effect, cell layout is an
attempt to bring some order to the complexity of flow which characterizes
functional layout.

Although the idea of cell layout is often associated with manufacturing, the
same principle can be, and is, used in services. In Figure shown, the ground
floor of a department store is shown, comprising displays of various types of
goods in different parts of the store. In this sense the predominant layout of
the store is a functional layout. However, some ‘themed’ products may be put
 together, such as in the sports shop. This area is a shop-within-a-shop which
will stock sports clothes, sports shoes, sports bags, sports books and videos,
sports equipment and energy drinks, which are also located elsewhere in the
store. They have been located in the ‘cell’ not because they are similar goods
(shoes, books and drinks would not usually be located together) but because
they are needed to satisfy the needs of a particular type of customer. Enough
customers come to the store to buy ‘sports goods’ in particular to devote an
area specifically for them. Also, customers intending to buy sports shoes might
also be persuaded to buy other sports goods if they are placed in the same
area.

4. Product layout involves locating the transforming resources entirely for the
convenience of the transformed resources. Each product, piece of information
or customer follows a prearranged route in which the sequence of activities
that are required matches the sequence in which the processes have been
located. The transformed resources ‘flow’ as in a ‘line’ through the process.
This is why this type of layout is sometimes called flow or line layout. The
flow of work is orderly and efficient, moving from one workstation to another
down the assembly line until a finished product comes off the end of the line.
Since the line is set up for one type of product or service, special machines can
be purchased to match a product’s specific processing requirements. Product
layouts are suitable for mass production or repetitive operations in which
demand is stable and volume is high.

Exercises:
1. Why do we need to consider facility location in operations
management?
2. What should be the procedures in selecting a facility location?
3. Among the factors affecting facility location, which of them is the
most significant?
4. Explain the facility layout and what is the most important objectives
of it?
5. Choose one business/firm and identify what type of facility layout
should best fit to it’s operations?
 Ilaya-Ivisan, Ivisan, Capiz – 5805
Email Address: [email protected]
Tel. #: (036) 651-5101

END OF PRELIM MODULE

REFERENCES:
1. Slack, N., Chambers, S., and Johnston, R., 2010. Operations Management
Sixth Edition. Pearson Education Limited.
2. Russell, R., and Taylor III, B., 2011. Operations Management: Creating
Value along the Supply Chain Seventh Edition. John Wiley & Sons, Inc.
3. Prachi, Juneja, 2015. Production and Operations Management. Management
Study Guide.Com

Page 25 of 25