1. CHAPTER 5 OPERATIONS MANAGEMENT

2. LEARNING OUTCOMES At the end of the module, students should be able to:
understand the concept of operations function in business
understand the topics that are included in an operations plan
prepare an operations plan for their proposed project

3. INTRODUCTION
Operation is one of an important function in a business organization
Managing operations is crucial to make sure that the business is able to produce product or deliver services according to the specification, quality and time specified by the customer
Operations management can be defined as the process of marshalling business input to transform them into output in the form of product or services

4. Transformation Process Output Feedback External Environment
Components in an operations system The components of an operations system that is involved in the transformation of business input into output comprises of the following:
Business Input
Transformation Process
Output
Feedback
External Environment

5. External Environment Factors
Schematic Diagram of an Operations System The components of an operations system can be portrayed in the schematic diagram as shown below:
External Environment Factors
Transformation
Process
Output
Input
Feedback

6. OPERATIONS PLAN
The operations plan is the one of the section that is included in the business plan
This section will demonstrate the operational aspect of the business that is crucial in transforming the business input into output
The operations plan will ensure the business is able to produce the product or to provide the services that the business had planned in the marketing plan

7. The operations plan comprises of the following topics:
Process Planning
Operations Layout
Production Planning
Material Planning
Machine and Equipment Planning
Manpower Planning
Overheads Requirement
Location Plan
Business and Operations Hours
License, Permits and Regulations Required
Operations Budget
Implementation Schedule

8. PROCESS PLANNING
Process planning involve the identification of the step-by-step processes from beginning to end in making the product or in providing the services
For manufacturing business, the processes involved will be explained clearly such as the activity involved, its duration and the equipment used
For service business, the process planning will explain all the steps that should be taken from start to finish to provide the service to the customer

9. PROCESS PLANNING (cont.)
The step by step processes can be illustrated using diagram such as a flow chart or a process chart
The process chart will use symbols that are universally recognized in the operations management field
These symbols are also used in the job activity chart to show a worker’s activity

10. Symbols Used in the Process Chart
Activity
Description
Operation
Activity that modify, transform or give added value to the input
Transportation
Movement of materials or goods from one place to another
Inspection
Activity that measure the standard or quality
Process is delayed because in process materials are waiting for next activity
Delay
Storage
Finished product or goods are stored in the storage area or warehouse

11. Flow Chart for the Production of Mixed Fruits Jelly
Transfer the fruits from the store to the production area
Check the quality of the fruits and segregate the bad fruits
Clean the fruits under running water
Put the fruits into the fruit chopper for chopping process
Put the chopped fruits into the boiler for steaming process
Use electric ladle to stir the fruit until the fruits change into pulp
Add ten parts of water into the mixture
Boil the mixture for 90 minutes

12. Activity Chart for Web Designing Services
Greet the client
Invite the client into the discussion room
Get the relevant information from the client
Brief the client about terms and conditions
Get the agreement from the client regarding terms and condition
Work on the design of the web
Get the feedback from the client
Make the amendment accordingly
Make a presentation to the client
Send the client to the door

13. OPERATIONS LAYOUT Illustrate the layout of the operations
Layout refers to the arrangement of machine, equipment, workers and other facilities used in the operations
The layout must be design in such a way that the production of goods and services can be done smoothly and efficiently
There are three types of layout:
Layout based on process
Layout based on product
Layout based on marketing

14. Types of Layout Layout based on product
This type of layout is suitable for a business that has product focus or continuous flow production
The design of this layout is made according to the sequence of activities to product the product
Example of a business that have this kind of layout is a food processing factory

15. Types of Layout (cont.) Layout based on process
This layout is suitable for a business that produce several products using similar processes
This type of layout is design based on the similarity of processes where by machine and equipment that perform similar function will be grouped together
Example of business with this type of layout is a steel workshop and a tailor store

16. Types of Layout (cont.) Layout based on marketing
This layout is designed with an intention to maximized the area available to display goods
Examples of layout based on marketing can be observed in the retail business such as book store or departmental store

17. Example of Layout Based on Product
Filling Area
Office
Steaming
Receiving
Area
Finished
Goods
Storage
Fruits Cleaning Area
Washing Area
Fruits Chopper

18. Example of Layout Based on Process
Milling
Machine
Grinding
Drilling
Office
Tool
Room
Storage
Area

19. Example of Layout Based on Marketing
Store
Cashier
Aisle
Frozen Food
Pastry Products

20. Example of Layout in a Restaurant
Cashier
Food Display Counter
Beverages
Dining Area
Kitchen
Store
Food
Counter
Toilet

21. PRODUCTION PLANNING
It is important to make sure that the business is able to produce output or to provide services that is enough to fulfill the expected market demand or sales
This can be achieved by having a good production planning
In production planning, the business will determine how much output to produce for a certain period of time such as in a day, a week or a month
The business may need the information from the marketing plan, e.g. average sales forecast

22. Example of calculation for output per day
Average sales forecast per month = RM 25,200.00
Price per unit = RM 15.00
Number of output per month = RM 25,200.00
RM 15.00
= 1,680 units
If the number of working days per month is 24 days
The amount of output to be produced per day is:
24 days
= 70 units per day

23. MATERIAL PLANNING
Material planning is done to determine the type and amount of raw materials need for the production
Material planning involved four steps:
Identify and list down the raw materials required
Prepare the Bills of Materials
Calculate the quantity of raw material required
Identify the suppliers of raw materials

24. Identify and list down the raw materials required
Usually in manufacturing business, the raw materials used is easily identified
For example, to manufacture pencils, raw materials needed are hollow wood, lead, eraser, metal band, paint, glue and packaging box
In case of retail business, the raw materials is known as goods. The business need to estimate the amount of initial goods to be purchased to start the business operation

25. Prepare the bills of materials
The bills of materials will contains a complete list of materials, parts or components and the amount needed to produce a unit of product
To prepare the bill of material, the entrepreneur must understand the design of the product
This bill of material is important information for purchasing activities

26. Example of Bills of Materials
To produce a unit of pencil, the bills of materials is as follows:
Product No.
Description
Specification
Quantity
101
Half hollow wood
17 cm long 2
102
Lead
1.5mm diameter 1
103
Eraser
0.75 cm long
6mm diameter
104
Metal band
2 cm long
105
Paint
0.5 ml
106
Glue

27. Examples of Materials Requirement Schedule
Quantity
Safety
Stock
Total Material Requirement
Price / unit (RM)
Total price (RM)
Flour
50 Kg
5 kg 55
1.2 66
Sugar
5kg
2.8
154
Eggs
200 units 20
220
0.15 33
Corn Syrup
100 Liter 10
110 3
330
Margarine
100 Kg 2
Total
803

28. MACHINE & EQUIPMENT PLANNING
Steps to determine machine and equipment requirement:
List out all machine and equipment required base on the process flow chart or process plan
Determine the amount of machine and equipment required based on the venture capacity requirement
Identify the suppliers that are reliable in term of price and after sale services

29. Quality and reliability Availability of spare parts
Factors to be considered in purchasing machine and equipment
Price
Quality and reliability
Availability of spare parts
Break down maintenance facility
Technology & user friendly
Supplier reputation
After sale services

30. Examples of Machine & Equipment Requisition Planning Schedule
No.
Machine
Quantity
Price / Unit (RM)
Total Price (RM) 1.
Mixer 1
2000 2.
Cutter 2
1000 3.
Cash Register
1500
Total
5500

31. Steps to determine quantity for machine & equipment
Determine the planned rate of production per day
Determine the standard production time per unit for the planned machine
Determine the machine productive time:
Operation hours – (Setting up time + Down Time)
4. Calculate the amount of machine required using the formula given in the next slide

32. Formula To Calculate the amount of machine require:
Machine Productive Time per day
Planned Rate of Production per day X
Standard Production
Time / Unit =
No. of Machine Required

33. Steps to determine the amount of direct labor required by the venture:
MANPOWER PLANNING
Steps to determine the amount of direct labor required by the venture:
Determine the planned rate of production per day for the particular section of job
Determine the standard time for a worker to produce one unit of product or to complete a particular job
Determine workers productive hours:
Working hours per day – rest time or workers idling time
4. Calculate the amount of direct labor required

34. Formula To Calculate the amount of direct labor required
Worker Productive Time per day
Planned Rate of Production per day X
Worker Standard Production Time / Unit =
No. of Worker Required

35. Example of Direct Labour Planning ScheduleNo
Position
No. of Staff Required
Salary/Month (RM)
EPF (RM)
12 %
Socso (RM) 2%
Total (RM) 1
Operation Manager
240.00
40.00 2
Total

36. OVERHEADS REQUIREMENT
Determine the overheads that are required in the operations
Overheads refers to requirements other than direct raw materials and direct labour
Examples of overheads are indirect labour costs, indirect material, insurance, maintenance and utilities

37. LOCATION PLAN
The entrepreneur has to make decision which premise is the best for the business to operate
Choice of location is important because it will affect:
Sales revenue
Business operation cost
Long term investment

38. Factors that Influence the Choice of Location
MANUFACTURING ACTIVITY
Priority should be given to the cost factors
In manufacturing cost saving would contribute to profit
SERVICE ACTIVITY
In service priority should be given to distance from market or customers.
Distance from customers will influence sales revenue
In service business cost saving may not contribute to sales revenue
Increase in revenue will contribute to increase in profit

39. Factors to be considered for Choice of Location
Distance from raw material / suppliers
Labor supply
Transportation
Price of Land or rentals
Infrastructure
Climate
Local Government Policy
Security
Facility for expansion and business development

40. BUSINESS AND OPERATIONS HOURS
Business hours refer to the time the business is open to the customers
Operation hours refer to the hours the workers have to work.
For manufacturing, usually the business will operate on 8-hours per shift. Thus the entrepreneur will only decide whether the business will runs for one shift or more. This will depends upon the planning for production

41. BUSINESS AND OPERATIONS HOURS (cont.)
For service business, the entrepreneur will has to state the business hours in terms of days and hours
For example, a restaurant may open to the customer from 7 a.m. to 10 p.m. every day
However, the operations hours for the workers will be different
The working hours may be from 5 a.m. to 12.a.m
The entrepreneur may have 2 shifts for the workers; the first shift will starts from 5 a.m. to 3 p.m. and the second shift starts from 3p.m. to 12 a.m.

42. LICENSE, PERMITS and REGULATIONS
Find out and list down all the license/permits/ regulations that are required to operate the business
Identify which agency is responsible to approve the particular license/permit
For example, a restaurant among others will need the following license/permit/regulations:
License for signboard
Permits for emigrant workers
Typhoid injection for the workers

43. OPERATIONS BUDGET
The business need to estimate the budget for the operations activities
The operations budget can be categorized into:
Fixed asset expenditure
Monthly expenses
Other expenses
This operation budget is important because it will be one of the input to prepare the financial plan

44. OPERATIONS BUDGET (cont.)
Fixed Asset Expenditure
Refers to the investment on long term assets used in the operations to produce the product or services
Examples are the purchase of machines and equipment
Monthly Expenses
Refers to the payment made every month in the operations department
Examples are wages for workers and raw materials purchased

45. OPERATIONS BUDGET (cont.)
Other Expenses
These are expenses that are made and could not be categorized as fixed asset expenditure or monthly expenses
Examples are deposits and insurance

46. Example of Operations Budget
Item
Fixed Asset
Monthly Expenses
Other Expenses
Machine and Equipment
Factory Renovation
Raw Materials
Wages + EPF + SOCSO
Utilities
Factory Rent
Deposit for rent
Deposit for utilities
RM 35,500
RM 45,000
RM 20,000
RM 6,500 RM
RM 3,000
RM 6,000
RM 1,000
Total
RM 80,500
RM 30,100
RM 7,000

47. IMPLEMENTATION SCHEDULE
Implementation scheduling involves sequencing and allotting time to all project activities
To prepare implementation schedule, entrepreneurs has to decide how long each activity and compute the requirement on people and other resources
Scheduling normally use Gantt Chart which is a planning chart used to schedule resources and allocate time

48. The Importance of Project Scheduling
Project scheduling serves several purposes:
It shows the relationship of each activity to others and to the whole project
It identifies the precedence relationship among activities
It encourages the setting of realistic time and cost estimate for each activity
It helps make better use of people, money and material by identifying critical bottlenecks in the project

49. Example of Project Implementation Schedule
Activities
Deadlines
Durations
Incorporation of business
Jan – Mac 2009
3 months
Application for permits and license
Jan – April 2009
4 months
Searching for business premise
Feb – Mac 2009
Renovation of premise
April 2009
1 month
Procurement of machines and raw material
April – June 2009
Recruitment of labours
June 2009
Installation of machines

50. END OF CHAPTER 5