BUAD 802-Production & Operation Management

MODULE 1: Review of Fundamental Concepts of Operations Management

Operations management:
✓ This is important because it is essential or vital in every aspect of human endeavour.
✓ Operations management is the heart of the success of the organisation. It is the strategy used to
achieve productive or transformational process of an organisation.
✓ Operations in an organisation can be categorised into manufacturing operations and service operations
✓ Manufacturing operation is a conversion process that includes manufacturing of tangible output like a
product
✓ Service Operation: a conversion process that includes service yields an intangible output: a deed, a
performance, an effort
✓ The distinction between Manufacturing & Service Ops can be summarised thus:
a. Tangible/Intangible nature of output
b. Consumption of output Need help with your assignments
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d. Degree of customer contact
e. Customer participation in conversion
f. Measurement of performance.
✓ By way of summary, one can say that the set of interrelated management activities, which are involved
in manufacturing certain products are called production management and for service management,
then corresponding set of management activities is termed operation management
✓ General management frameworks and functions are
a. Planning: The operations manager defines the objectives for the operations subsystem of the
organisation, and the policies, and procedures for achieving the objectives
b. Organizing: Operation managers establish a structure of roles and the flow of information
within the operations subsystem
c. Controlling: the operations manager must exercise control by measuring actual outputs and
comparing them to planned operations management.
d. Behaviour: how behaviour of subordinates can affect management’s planning, organising, and
controlling actions
e. Models: using models like aggregate planning,break even analysis ,linear programming ,
computer simulation,decision tree analysis and simple median model to solve problems

Operations strategy:
✓ Strategic planning is a process that brings to life the mission and vision of enterprise.
✓ The implicit objective of a business strategy is to deliver sustained superiority, not just average,
performance relative to the competition
✓ To deliver superior performance, a firm must strive to select product attributes that are distinct from
those of its competition and create business processes that are more effective than its competition.
✓ Operational effectiveness refers to any number of practices that allow a company to better utilise its
inputs by reducing defects in products or developing products faster ”
✓ Corporate strategy defines the businesses in which the corporation will participate and specifies how
key corporate resources will be acquired and allocated to each business.
✓ Business strategy defines the scope of each division or business unit in terms of the attributes of the
products that it will offer and the market segments that it will serve.
✓ functional strategy defines the purpose for marketing, operations, and finance—the three main
functions in most organisations:
a. Marketing: identify and target customers BU wants to serve
 b. Operations: designs, plans, and manages processes through which BU servers customers
c. Finance: acquires and allocate resources needed by BU to serve customers

Process analysis
✓ The aim of the analysis phase of a business process design project is to understand how the processes
of a business function and interact; the aim of the design phase is to improve the way that those
processes operate and interact.
✓ Understand the organisation and its purpose or “mission” and relate this to the organisation’s current
business processes.
✓ Identify and analyse the collection of processes and activities currently operational within the
organisation, and ascertain how far they achieve the business objectives.
✓ There are two type: Strategic(Managers) and Tactical(Executors)
✓ The result of process analysis is fed into design phase in order to:
o Investigate options for achieving improvement by redesigning the processes currently in
operation.
o Identify and prioritise areas for improvement.
o Implement process design according to an agreed schedule.

Data protection policy and basic economic decisions

✓ Data: is information that has been translated into a form that is more convenient to move or process
✓ Information: data that are processed to be useful; provides answers to "who," "what," "where," and
"when" questions.
✓ Knowledge: application of data and information; answers "how" questions.
✓ Understanding: appreciation of "why".
✓ Wisdom: evaluating understanding.
✓ Data Protect Act is the main piece of legislation that governs the protection of personal data within a
country.
✓ Basic Economic Decision making is the process of identifying alternative course of action and selecting
an appropriate alternative in a given decision situation.
o Identifying alternative courses of action means that an ideal solution may not exist or might not
be identifiable.
o Selecting an appropriate alternative implies, that there may be a number of appropriate
alternatives and that inappropriate alternatives are to be evaluated and rejected. Thus,
judgment is fundamental to decision making.
✓ The three B.E.D every nation should make include; knowing the commodities to manufacture or
produce, second, the process of manufacturing the best quality and last, the market available and the
competitive advantage.

MODULE 2: Plant Location and Layout, Inventory Management and

Forecasting

Plant location and Layout

✓ Plant location consists of picking a region for the plant, as well as the selection of the locality and the
site.
✓ Plant location is needed when a brand new plant is being started or when an old plant is being
expanded
✓ An ideal location is one where the cost of the product is kept to minimum, with a large market share,
the least risk and the maximum social gain
✓ Locational analysis is a dynamic process where entrepreneur analyses and compare the
appropriateness or otherwise of alternative sites with the aim of selecting the best site for a given
enterprise. It includes:
o Demographic Analysis: Study area in terms of population size, age, per capital, occupation e.t.c
o Trade Area Analysis: analysis of the geographical area that provides continued customers to
the firm.
o Competitive Analysis: analysis the nature, location, size and quality of competition in
a given trade area.
o Traffic analysis: helps with rough idea about the number of potential customers
passing by the proposed site
o Site economics: Alternative sites are evaluated in terms of establishment costs and operational
costs under this.
✓ Location Selection Criteria
o Natural or climatic conditions.
o Availability and nearness to the sources of raw material.
o Transport costs-in obtaining raw material and also distribution or marketing finished products
to the ultimate users.
o Access to market
o Availability of Infrastructural facilities
o Availability of skilled and non-skilled labour
o Banking and financial institutions are located nearby.
o Locations with links major roads
o Safety and security
o Government influences
✓ Plant layout is primarily concerned with the internal setup of an enterprise in a proper manner
o Plant layout is an important decision as it represents long-term commitment.
o An ideal plant layout should provide the optimum relationship among output, floor area and
manufacturing process.
o It facilitates the production process, minimizes material handling, time and cost, and allows
flexibility of operations, easy production flow, makes economic use of the building
o It promotes effective utilisation of manpower, and provides for employees convenience, safety,
comfort at work, maximum exposure to natural light and ventilation

✓ Objectives of Plant Layout:

o Proper and efficient utilisation of available floor space.
o To ensure that work proceeds from one point to another point without any delay.
o Provide enough production capacity.
o Reduce material handling costs
o Reduce hazards to personnel.
o Utilise labour efficiently.
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o Increase employee morale.
o Reduce accidents.

✓ Techniques Used For Plant Layout:

o Space (adequate area to house each function)
o Affinity (functions located in proximity to other related functions)
 o Material handling
o Communications (telephone, data, telemetry and other signal items)
o Utilities (electricity, gas, water and other utility services)
o Buildings (structural and architectural forms; site work)

Inventory management:
✓ An Inventory is:
o A detailed, itemised list, report, or record of things in one’s possession, especially a periodic
survey of all goods and materials in stock.
o The process of making such a list, report, or record.
o The items listed in such a report or record.
o The quantity of goods and materials on hand; stock.
o An evaluation or a survey, as of abilities, assets, or resources.

✓ Inventory Management: It is a science primarily about specifying the shape and percentage of stocked
goods
✓ Inventory is divided into:
o Merchandize: Items purchased from other crafters to be sold in your shop.
o Manufacturing
▪ Raw Materials: Materials purchased to produce a product
▪ Work-In-Progress: Materials in various stages of production
▪ Finished Goods: Finished goods ready for market.

✓ Inventories are needed because of:

o Time lag between placing orders and getting supplies at the point of consumption.
o Variability in Lead Time: JIC and JIT
o Demand Variability
o Seasonal Inventory
o Pipeline Inventory
o Other factors

Economic order quantity (EOQ)

✓ It is the order quantity of inventory that minimises the total cost of inventory management.
✓ EOQ applies only when demand for a product is constant over the year and each new order is delivered
in full when inventory reaches zero.
✓ There is a fixed cost for each order placed, regardless of the number of units ordered.
✓ There is also a cost for each unit held in storage, commonly known as holding costs
✓ Reasons for holding inventory:
• Customer service: Ensure high service level.
• Demand uncertainty: Buffer against larger than expected demands.
• Supply uncertainty: Delay and uncertainty in transportation.
• Psychological impact: Consumer behaviours are affected by inventory.
• Economies of scale: Allocate setup cost over a larger number of quantities.
• Quality issues: Defective parts and workstation breakdowns.
• Working-In-Process (WIP) inventory: Necessary for production.
Forecasting
 ✓ Forecasting is a planning tool that helps management in its attempts to cope with the uncertainty of
the future, relying mainly on data from the past and present and analysis from the trends.
✓ There are two basic reasons for the need for forecast in any field
✓ Purpose – Actions devised in the present to take care of the future
✓ Time – Time needed to plan, implement and gather resources.
✓ General steps in forecasting process:
o Identify the general need.
o Select the period (Time Horizon) of forecast.
o Select forecast model to be used
o Data Collection
o Prepare forecast: Apply the model using the data collected and calculate the value of the forecast.
o Evaluate: The forecast obtained through any of the model should not be used, as it is, blindly. It
should be evaluated in terms of ‘confidence interval’
✓ Techniques for Forecasting
o Qualitative Forecasting Methods: Uses non-numeric data like survey
o Quantitative Methods: Uses data such as web traffic, subscribers’ trends etc.
o Explanatory Methods: use data to attempt to explain trends and to predict future market
direction based on existing data.
o Time-series Methods: Time-series methods are used only with historical data to predict
future performance.

Business forecasting
✓ Sales Forecast: to forecast the demand for those goods. Manufactures need to know how much to
produce. Wholesalers and retailers need to know now much to stock

✓ Forecast Techniques (Qualitative Techniques in Forecasting)

o Grass Roots: Forecasting from bottom up, getting facts from sources closest to the entity in
question and move to the next level etc.
o Market Research: the data collection methods are primarily surveys and interviews.
o Panel Consensus: Panel forecasts are developed through open meetings with free exchange of
ideas form all levels of management and individuals
o Historical Analogy: Forecasting based on previous researches on similar products
o Delphi Method: Anonymous gathering of facts from different level of employees without being
intimidated by superiors.

✓ Applications of Business Forecast:

o Operations management: forecast of product sales; demand for services
o Marketing: forecast of sales response to advertisement procedures, new promotions etc.
o Finance and Risk management: forecast returns from investments
o Economics: forecast of major economic variables, e.g. GDP, population growth, unemployment
rates, inflation; useful for monetary and fiscal policy; budgeting plans & decisions
o Industrial Process Control: forecasts of the quality characteristics of a production process
o Demography: forecast of population; of demographic events (deaths, births, migration); useful
for policy planning

MODULE 3: Evaluation and Review Techniques

✓ PERT: The Programme (or Project) Evaluation and Review Technique, commonly abbreviated as PERT,
is a model for project management designed to analyse and represent the tasks involved in completing
a given project.

✓ Event: marks start and end of one or more tasks.

✓ A predecessor event: an event (or events) that immediately precedes some other event without
any other events intervening.

✓ A successor event: an event (or events) that immediately follows some other event without any
other events intervening.

✓ Activity: is the actual performance of a task. It consumes time, it requires resources (such as
labour, materials, space, machinery), cannot be completed until the event preceding it has
occurred.

✓ Optimistic time (O): the minimum possible time required to accomplish a task, assuming
everything proceeds better than is normally expected.

✓ Pessimistic time (P): the maximum possible time required to accomplish a task, assuming
everything goes wrong (but excluding major catastrophes).

✓ Most likely time (M): the best estimate of the time required to accomplish a task, assuming
everything proceeds as normal.

✓ Expected time (TE): the best estimate of the time required to accomplish a task. TE = (O + 4M + P)
÷6

✓ Float or Slack is the amount of time that a task in a project network can be delayed without
causing a delay

✓ Critical Path: the longest possible continuous pathway taken from the initial event to the terminal
event.it determines total calendar time

✓ Critical Activity: An activity that has total float equal to zero. Activity with zero float does not
mean it is on the critical path.

✓ Lead time: the time by which a predecessor event must be completed in order to allow sufficient
time for the activities that must elapse before a specific PERT event reaches completion.

✓ Lag time: the earliest time by which a successor event can follow a specific PERT event.

✓ Slack: the slack of an event is a measure of the excess time and resources available in achieving
this event. Positive slack would indicate ahead of schedule; negative slack would indicate behind
schedule; and zero slack would indicate on schedule.

✓ Fast tracking: performing more critical activities in parallel.

✓ Crashing critical path: Shortening duration of critical activities.

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Network analysis:

✓ Steps in Network Analysis:

o List what needs to be done
o Order the tasks
o Assign duration to each task
o Compute Earliest Start and End Time
o Get Critical Path

Critical Path Method (CPM)

✓ The critical path method (CPM) is a step-by-step project management technique for process
planning that defines critical and non-critical tasks with the goal of preventing time-frame
problems and process bottlenecks.
✓ Main Objective: to determine how best to reduce the time required to perform routine and
repetitive tasks that are needed to support an organization
✓ Critical path analysis is an extension of the bar chart. The CPM uses a work breakdown
structure, where all projects are divided into individual tasks or activities.
✓ It helps decision makers to identify the best estimates (based on accurate information) of the
time that is needed to complete the project.

Advantages Critical Path Method (CPM)

✓ It helps decision makers to identify the best estimates (based on accurate information) of the time
that is needed to complete the project
✓ CPM encourages managers and project members to graphically draw and identify various activities
that need to be accomplished for project completion.

✓ The network diagram also offers a prediction of the completion time of the project, and can help in
the planning and scheduling of the activities needed for the completion of the project.

✓ Identifying the critical path for the project is the next stage of the analysis of the network diagram.
✓ CPM also encourages a disciplined and logical approach to planning, scheduling and managing a
project over a long period of time.
✓ Optimisation of the time-cost relationship in project management is also possible using the CPM, as
managers can visually identify the activities that can pose a problem if not managed and monitored
effectively over a period of time.
✓ Tracking the CPM is also helpful. Managers can identify areas where attention needs to be focused.
✓ Scheduling of activities is possible. The CPM identifies the entire chain of activities.
✓ The CPM also identifies slack and floats time in the project. Thus, project managers can identify
when resources can be reallocated to different activities and the shifting and moving of activities to
best optimize the utilisation of the resources.
 ✓ In many large projects, there can be more than one critical path in the network diagram mapped
out. When such a situation arises, CPM can help managers identify suitable plan of actions to
handle these multiple critical paths.

Disadvantages of Critical Path Method (CPM)

✓ Becomes complicated as scope of project increase
✓ It depends on the assumption that managers and co-workers are vast in the activities
✓ The task of understanding the needs of the critical path get more complicated when there is more
than one critical path in the project.
✓ CP might change and a new one emerges, managers need to continually monitor network diagram

The key rules of a CPM

✓ Nodes are numbered to identify each, and show the Earliest Start Time (EST) of the activities that
immediately follow the node, and the Latest Finish Time (LFT) of the immediately preceding
activities.
✓ The CPM must begin and end on one ‘node’ – see below.
✓ There must be no crossing activities in the CPM.
✓ Each activity is labelled with its name e.g. ‘print brochure’, or it may be given a label, such as ‘D’,
below.
✓ The activities on the critical path are usually marked with a ‘//’.

Project evaluation and review technique (PERT)

✓ A project is a set of activities with a defined start point and a defined end state, which pursues a
defined goal and uses a defined set of resources
✓ The main objective of PERT is to facilitate decision making and to reduce both the time and cost
required to complete a project.
✓ PERT is intended for very large-scale, one-time, non-routine, complex projects with a high degree of
inter-task dependency, projects which require a series of activities, some of which must be performed
sequentially and others that can be performed in parallel with other activities.

✓ PERT planning involves the following steps which are described below:
o Identify the specific activities and milestones.
o Determine the proper sequence of the activities
o Construct a network diagram
o Estimate the time required for each activity
✓ PERT assumes a beta probability distribution for the time estimates:
o Expected time = ( Optimistic + 4 x Most likely + Pessimistic ) / 6
o This expected time may be displayed on the network diagram.
o To calculate the variance for each activity completion time, if three standard deviation times
were selected for the optimistic and pessimistic times, then there are six standard deviations
between them, so the variance is given by:[(Pessimistic - Optimistic) / 62]
 ✓ A PERT chart presents a graphic illustration of a project as a network diagram consisting of numbered
nodes (either circles or rectangles) representing events, or milestones in the project linked by labeled
vectors (directional lines), representing tasks in the project.
✓ PERT planning involves the following steps:
o Identify the specific activities and milestones.
o Determine the proper sequence of the activities.
o Construct a network diagram.
o Estimate the time required for each activity.
o Determine the critical path.
o Update the PERT chart as the project progresses.

Linear programming (LP)

✓ Linear programming is a mathematical technique used in computer modelling (simulation) to find the
best possible solution in allocating limited resources (energy,machines, materials, money, personnel,
space, time etc.) to achieve maximum profit or minimum cost.
Developments in operations management

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