Chapter 7

Business Management: A Malaysian Perspective All Rights Reserved
Oxford University Press Malaysia, 2008 7 1

CHAPTER SEVEN
Operations Management
BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Oxford Fajar Sdn. Bhd. (008974-T), 2012 7 2
LEARNING OUTCOMES
In this chapter, you will learn to:

Explain what operations management is.
Relate operations management as a competitive tool for
business.
Discuss the production system in services and a
manufacturing environment.
Describe the historical development of operations
management in organizations.
Describe manufacturing-based inventory system.
Elaborate on quality control and supply-chain management.

OPERATIONS MANAGEMENT
Operations management (OM) deals with the:

Design
Direction
Control
Integration
Improvement
Of the processes that transform inputs into products

and services, or in short, the production systems.
(cont.)
Like other functional fields of business such as

marketing and finance.
Main goal is to ensure efficient transformation
of production inputs to outputs.
Can be applied in all functional areas.
Operations are doing of work for things like
superior quality, speed-to-market, low cost, or
customization.

VALUE ADDING OF

(cont.)
Operations managers design systems, source materials,

plan work schedule, ensure quality, arrange shipment,
produce products, and deliver services.
Operations decisions can be classified as either strategic
or tactical in nature.
Strategic decisions are long-term and have long-term
consequences.
Strategic decisions are also less structured.
Tactical decisions have relatively short-term
consequence, more structured, routine, and repetitive.
PRODUCTION SYSTEMS
A process that uses operations resources to transform inputs

into some desired output.
Products can exist in two forms:
(1) the tangible form of manufactured goods, and
(2) the intangible form of services rendered.
Main concern of a production system is that to ensure high
productivity.
Productivity is defined as the value of outputs produced
divided by the values of input resources.
PRODUCTION SYSTEMS (cont.)
Many processes involved in a production system.

Main responsibility of an operations manager is
to identify problems and gaps of each process
and establish the connectivity among them
within a production system.

OPERATIONS MANAGEMENT:
ITS HISTORICAL DEVELOPMENT
The history of operations management can be traced

back to early 1910s.
Concept of scientific management by an imaginative
engineer from the United States, Frederick W. Taylor.
In 1913, the concept of moving assembly line was
introduced by Henry Ford.
In 1930s, quantitative procedures dominated the
evolution of operations management.

(cont.)
During 1940s, the production issues surrounding

World War II provided the catalyst for the
development of the interdisciplinary, mathematically
oriented field of operations research (OR).
In the late 1950s and early 1960s, operations
management had slowly gained currency and
prominence as a field of management among
scholars, i.e. Edward Bowman, Robert Fetter and
Elwood S. Buffa.
(cont.)
The 1970s saw an era when the widespread use of
computers in solving operations problems began. The
main contribution was the application of material
requirements planning (MRP) to production control.
In the 1980s, managerial concepts like just-in-time
(JIT) and total quality control (TQC) were
incorporated in the way productions are carried out.
Total Quality Management (TQM) was widely
practised in the 1990s as well as at the present.

TOTAL QUALITY MANAGEMENT
Total Quality Management (TQM) is a management

strategy aimed at embedding awareness of quality in
all organizational processes and involves every
member of the organization to achieve its set goals.
Quality gurus such as W. Edwards Deming, Joseph
M. Juran and Philip Crosby are instrumental in
advocating quality management in business
processes.

IN SERVICE SECTOR
Another major development in OM field saw more and

more attention given to the service sector as the world
economy transforms itself from pure manufacturing-
based to more of service-oriented.
Various concepts were introduced to attain high customer
satisfaction of the services rendered.
Customer relation management (CRM) systems were
implemented to assist enterprises to attract new customers
and to retain old ones.
Customers satisfaction index (CSI) helps to measure the
level of customer satisfaction.
IN ORGANIZATIONAL CHART

DECIDING ON FACILITY
LOCATION
The success of a company greatly depends on

the physical location of its business facilities.
Facility location is the central point for
transforming production inputs into outputs or
the place for the delivery of goods and services
to the customers.
It is a strategic decision in deciding where to
locate new manufacturing facilities, service
outlets, branch offices, as well as how to lay
them out.

DECIDING ON FACILITY
LOCATION (cont.)
There are several principal issues to consider before

deciding on business facilities location such as:
Proximity to customers
Business climate
Costs of doing business
Infrastructure
Supplier and supporting industries
Quality of labour and technical expertise

INVENTORY SYSTEM
Inventory is a list of goods and materials, or those

goods and materials themselves, held available in
stock by a business.
Inventory can be grouped in the following categories:
Raw materials
Work-in-progress
Finished goods
Raw materials are inventories needed as inputs for the
production of goods and services.

INVENTORY SYSTEM (cont.)
Work-in-process consists of input parts

(manufacturing) or processes (service) that have been
transformed or processed but have yet to reach the
final products stage.
Sometimes work-in-process is also called semi-
finished goods.
Finished goods are the items that have come out from
the entire transformation process and ready to be sold
to the firms customers.

INVENTORY MANAGEMENT
Inventory provides cushion or buffer for the effect of

imperfections such as defect and sub-standard quality
parts and materials in the manufacturing process.
However, keeping high inventory level is costly.
Key to an efficient and effective inventory management
is to create the safety net for the just-in-case
manufacturing scenario but at the same time to keep the
inventory cost as low as possible.

JUST-IN-TIME
Inventory management philosophy made popular by

the Japanese.
JIT system eliminates manufacturing wastes by
producing only the right amount and combination of
parts at the right place at the right time.
Parts are moved from one stage to the next in the
production process as they are needed, with only
minimal buffer inventories in between stages.

SUPPLYCHAIN MANAGEMENT
Supply-chain is the interconnected set of linkages

between suppliers of materials and services that spans
the transformation of raw materials into finished
products and services, and the delivery of the finished
products to a firms customers.
Supply-chain management (SCM) involves overseeing
and controlling materials, information, and finances as
they move in a process from supplier to manufacturer,
to wholesaler to retailer, and finally to consumer.

SUPPLYCHAIN MANAGEMENT
(cont.)
Benefits of effective supply-chain management:

Improved delivery performancequicker customer response and
fulfilment rates
Greater productivity and lower costs
Reduced inventory throughout the chain
Improved forecasting precision
Fewer suppliers and shorter planning cycles
Improved quality and products that are more technologically
advanced
Enhanced interoperational communications and cooperation
Shortened repair times and enhanced equipment readiness
More reliable financial information

QUALITY ASSURANCE
PROGRAMME
Quality-control programme in manufacturing and

service processes is crucial to ensure that customers
are happy and satisfied with the money spent on
their purchased products.
The most internationally renowned institution for
quality assurance is the International Organization
for Standardization (ISO).

QUALITY ASSURANCE
PROGRAMME (cont.)
TQM advocates businesses to incorporate quality

values in the aspects of leadership, design planning
and improvement initiative.
TQM forms a part of the corporate strategic
management that encompasses all aspects of
business processes and involves everyone in the
organization.


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Business Management: A Malaysian Perspective All Rights Reserved

Oxford University Press Malaysia, 2008 7 1

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

In this chapter, you will learn to:

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Operations management (OM) deals with the:

Of the processes that transform inputs into products

Like other functional fields of business such as

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Operations managers design systems, source materials,

A process that uses operations resources to transform inputs

Many processes involved in a production system.

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

The history of operations management can be traced

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

During 1940s, the production issues surrounding

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Total Quality Management (TQM) is a management

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Another major development in OM field saw more and

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

The success of a company greatly depends on

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

There are several principal issues to consider before

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Inventory is a list of goods and materials, or those

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Work-in-process consists of input parts

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Inventory provides cushion or buffer for the effect of

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Inventory management philosophy made popular by

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Supply-chain is the interconnected set of linkages

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Benefits of effective supply-chain management:

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

Quality-control programme in manufacturing and

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

TQM advocates businesses to incorporate quality

BUSINESS MANAGEMENT: A Malaysian Perspective (Second Edition) All Rights Reserved

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