Operations

Management

© Leilanie Mohd Nor 2018

Operations Plan

 Operations Management
 Definition of transformation process
 Productivity Index
 The process planning
 Production Schedule
 Material requirement planning
 Capacity planning
 Layout planning
 Physical location planning
 Operations costs
Operations Management

 Operations management can be defined as the process of

marshalling / bring together resources to produce output through the
transformation process.

 The operation process consists of three (3) main components:

 Input
 Transformation system
 Output
Definition of Transformation Process

 Transformation process is activities to change input into output.

 Input:
 all resources required to produce a particular output

 example: manpower, raw materials, machines and equipment

 Output:
 end products created as a result of the transformation process

 end products can be either products or services

Refer to Figure 7.1: pg. 150 Fundamentals of Entrepreneurship

Transformation Process
 There are also external environmental factors and internal feedback
that need to be considered during the transformation process:

 External environmental factors

 Factors: politics, economics, new technology, socio-cultural
factors, climactic conditions, suppliers, customers,
competitors, new entrants, substitutes products/services
 Each factor could be an opportunity or threat to input,
transformation process and output

 Internal feedback
 By constantly monitoring the quality of the input, processes
and the output
 To improve the whole production system
Productivity Index

 The efficiency of the transformation process is measured by

comparing the ratio of the total value of output to the total value of
input.

 The ratio is called “Productivity Index”

 Formula:
Productivity Index = Total Value of Output
Total Value of Input

 Ratio > 1 : indicates the business operation is running efficiently

 Ratio < 1 : indicates the business operation is inefficient
Calculating the Productivity Index

 Total sale per month = RM 15,000

 Total operational cost per month = RM8,000

Productivity Index (PI) = Total Value of Output

Total Value of Input

= Total Sale Per Month

Total Operations Cost Per Month

= RM 15,000
RM 8,000

= 1.88
The Process Planning
 Process planning involves identifying the step-by-step processes
from beginning to end to make the product or to provide the services.

 The process can be illustrated by using a flow chart – activity chart,

process chart:

 Activity chart:
 Entrepreneur must identify all the activities involved in the
manufacture of the product
 Activities will be arranged in sequence

 Process chart:
 A schematic representation of the step-by-step sequence that
takes place in a production process/service using recognized
symbols
The Process Planning
Symbol Type of Activity Description
Operation Activities that modify, transform or give
values to the input.

Transportation Transport activity occurs when materials

are transported from one point to another.

Inspection Activity that measure standard of the in-

process material, finished products or
services.
Delay When in-process material is restrained in
a location waiting for next activity.

Storage When the in-process materials or finished

products are stored in the storage area.
The Process Planning

 To prepare process chart:

 Step 1: identify all the operational activities required for the
production of the product/service
 Step 2: arrange these activities according to sequence
 Step 3: draw the process chart

 Note:
 The symbols used in the process chart can also be used to
make a job activity chart.
 Job activity chart show the sequence of jobs need to be done by
a worker (example refer to Figure 7.7 page 159: Fundamentals
of Entrepreneurship)
Production Schedule

 Objective of production schedule:

 To ensure the quantity of production is enough to fulfill expected
market demand or sale forecast over the scheduled period.
Material Requirement Planning

 Delivery of materials must be planned and controlled to ensure the

entrepreneurs get those materials at the right quantity, quality time
and cost.

 The quality and timely delivery of products or services depend very

much on the quality and delivery of materials.

 Material requirement planning involves four (4) steps:

 Step 1: identify and list down the raw materials required
 Step 2: prepare the bill of materials
 Step 3: calculate the quantity of raw material required
 Step 4: identify supplier

Refer to page 160 – 165

Capacity Planning

 Refers to the amount of output that can be produced within a

specified time.

 A method to calculate machinery and manpower requirements so

that production demand based on sales forecast can be met.

 To determine the daily production capacity.

 Formula:
Daily production rate = Monthly sales forecast
No. of working days per month

Refer to page 162 – 165 for examples

Layout Planning

 Definition of Layout:
 The arrangement of machinery, equipment, workers and other
facilities used in the operation.

 Why? To ensure production of goods and services can be done

efficiently

 Layout planning should take into consideration other factors

such as:
 work station, tool room, store, office, prayer room, and toilet.

 Safety and conducive working environment

Layout Planning
 Types of Layout:

 Type 1: Layout based on product

 Layout based on the sequence of activity

 Example: food processing factory

 Type 2: Layout based on process

 Layout based on the production process

 Suitable for factory producing several products that undergo a

similar process
 Examples: steel workshops, clothing factory

 Type 3: Layout based on marketing

 Layout designed to utilize the available space to display goods

 Example: retail business such as bookshop

Physical Location Planning
 It is crucial to choose the right location for the business.

 Strategic location can contribute to the success of the business i.e.

higher sales, lower operational costs

 In general, choice of physical location will depend on the following

factors:
 Distance from the source of raw materials
 Availability of manpower
 Transportation facilities
 Distance from customer
 Price of premises
 Other factors (such as utilities, banks, schools, housing,
government policies)
Operations Costs
 It is essential to determine the total operational cost.
 Why? To enable us to calculate the cost per unit of the foods
produced.

 Operations costs include:

 Costs of direct material:

 the money spent on materials that are directly used to
produce the products/services

 Direct labor costs:

 the money paid as wages, salaries and benefits to the
workers involves directly in the production.

 Overheads:
 expenses include rent, insurance, wages of indirect labor,
maintenance and depreciation
Operations Costs

 Operations cost : Direct materials cost

+ Direct labour cost
+ Overhead costs

 Cost per unit : Total operations cost (RM)

Total Number of Outputs (Units)
Operations Plan
 Operations budget

 Lists all costs under operations

 Operations budget is divided into three main categories:

 1st: Fixed asset

- purchase of assets such as purchase of machineries,
furniture and fittings, business premises and/or renovation
of premises

 2nd: Monthly expenses

– monthly payments such as inventories, raw materials,
wages, etc

 3rd: Other expenses

– expenses that do not fall under 1st or 2nd categories.
Examples: road tax, insurance, business registration fees,
deposit for utilities, legal fees
Conclusion

 Types of operation facilities differ greatly between industries.

 Therefore, the entrepreneur have to study in detail the uniqueness

of each industry operations process, and make the necessary
modifications and adjustments to his production plan to suit his
business requirements.
END