Technopreneurship WBB10102 CHAPTER 5 OPERATIONS MANAGEMENT.

Technopreneurship WBB10102

CHAPTER 5CHAPTER 5

OPERATIONS MANAGEMENTOPERATIONS MANAGEMENT


LEARNING OUTCOMESLEARNING OUTCOMES

At the end of the module, students At the end of the module, students should be able to:should be able to:

understand the concept of operations understand the concept of operations function in businessfunction in business

understand the topics that are included in understand the topics that are included in an operations planan operations plan

prepare an operations plan for their prepare an operations plan for their proposed projectproposed project


INTRODUCTIONINTRODUCTION

Operation is one of an important function in Operation is one of an important function in a business organizationa business organization

Managing operations is crucial to make sure Managing operations is crucial to make sure that the business is able to produce product that the business is able to produce product or deliver services according to the or deliver services according to the specification, quality and time specified by specification, quality and time specified by the customerthe customer

Operations management can be defined as Operations management can be defined as the process of marshalling business input to the process of marshalling business input to transform them into output in the form of transform them into output in the form of product or servicesproduct or services


Components in an operations systemComponents in an operations system

The components of an operations system that The components of an operations system that is involved in the transformation of business is involved in the transformation of business input into output comprises of the following:input into output comprises of the following:

Business InputBusiness Input Transformation ProcessTransformation Process OutputOutput FeedbackFeedback External EnvironmentExternal Environment


Schematic Diagram of an Operations SystemSchematic Diagram of an Operations System

The components of an operations system can The components of an operations system can be portrayed in the schematic diagram as be portrayed in the schematic diagram as shown below:shown below:

Input OutputTransformation

Process

TransformationProcess

Feedback

External Environment Factors


OPERATIONS PLANOPERATIONS PLAN

The operations plan is the one of the section The operations plan is the one of the section that is included in the business plan that is included in the business plan

This section will demonstrate the operational This section will demonstrate the operational aspect of the business that is crucial in aspect of the business that is crucial in transforming the business input into outputtransforming the business input into output

The operations plan will ensure the business The operations plan will ensure the business is able to produce the product or to provide is able to produce the product or to provide the services that the business had planned the services that the business had planned in the marketing planin the marketing plan


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


PROCESS PLANNINGPROCESS PLANNING Process planning involve the identification of Process planning involve the identification of

the step-by-step processes from beginning the step-by-step processes from beginning to end in making the product or in providing to end in making the product or in providing the servicesthe services

For manufacturing business, the processes For manufacturing business, the processes involved will be explained clearly such as the involved will be explained clearly such as the activity involved, its duration and the activity involved, its duration and the equipment used equipment used

For service business, the process planning For service business, the process planning will explain all the steps that should be taken will explain all the steps that should be taken from start to finish to provide the service to from start to finish to provide the service to the customerthe customer


PROCESS PLANNING (cont.)PROCESS PLANNING (cont.)

The step by step processes can be The step by step processes can be illustrated using diagram such as a flow illustrated using diagram such as a flow chart or a process chartchart or a process chart

The process chart will use symbols that are The process chart will use symbols that are universally recognized in the operations universally recognized in the operations management fieldmanagement field

These symbols are also used in the job These symbols are also used in the job activity chart to show a worker’s activityactivity chart to show a worker’s activity


Symbols Used in the Process ChartSymbols Used in the Process Chart

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

Symbol Activity Description

Delay Process is delayed because in process materials are waiting for next activity

Storage Finished product or goods are stored in the storage area or warehouse


Flow Chart for the Production of Mixed Fruits JellyFlow Chart for the Production of Mixed Fruits Jelly

Transfer the fruits from the store to the Transfer the fruits from the store to the production areaproduction area

Check the quality of the fruits and segregate the Check the quality of the fruits and segregate the bad fruitsbad fruits

Clean the fruits under running waterClean the fruits under running water

Put the fruits into the fruit chopper for Put the fruits into the fruit chopper for chopping processchopping process

Use electric ladle to stir the fruit until the Use electric ladle to stir the fruit until the fruits change into pulpfruits change into pulp

Add ten parts of water into the mixtureAdd ten parts of water into the mixture

Boil the mixture for 90 minutesBoil the mixture for 90 minutes

Put the chopped fruits into the boiler for Put the chopped fruits into the boiler for steaming processsteaming process


Activity Chart for Web Designing ServicesActivity 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


OPERATIONS LAYOUTOPERATIONS LAYOUT Illustrate the layout of the operationsIllustrate the layout of the operations

Layout refers to the arrangement of Layout refers to the arrangement of machine, equipment, workers and other machine, equipment, workers and other facilities used in the operations facilities used in the operations

The layout must be design in such a way The layout must be design in such a way that the production of goods and services that the production of goods and services can be done smoothly and efficientlycan be done smoothly and efficiently

There are three types of layout:There are three types of layout:o Layout based on processLayout based on processo Layout based on productLayout based on producto Layout based on marketingLayout based on marketing


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

Types of LayoutTypes of Layout


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

Types of Layout (cont.)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

Types of Layout (cont.)Types of Layout (cont.)


Example of Layout Based on Product

Fill

ing

Are

a Office

Ste

amin

gReceivingArea

FinishedGoodsStorage

Fruits Cleaning Area

Washing Area Fru

its

Ch

opp

er


Example of Layout Based on Process

MillingMachine

GrindingMachine

DrillingMachine

Office

ToolRoom

StorageArea


Example of Layout Based on Marketing

Store

Cashier

Aisle

Frozen Food

Ais

lePas

try

Pro

duct

s

Aisle


Cashier

Food Display CounterBeverages

Dining Area

Kitchen

StoreF

oodC

ounter

Toilet

Example of Layout in a Restaurant


PRODUCTION PLANNINGPRODUCTION PLANNING It is important to make sure that the business It is important to make sure that the business

is able to produce output or to provide is able to produce output or to provide services that is enough to fulfill the expected services that is enough to fulfill the expected market demand or salesmarket demand or sales

This can be achieved by having a good This can be achieved by having a good production planningproduction planning

In production planning, the business will In production planning, the business will determine how much output to produce for a determine how much output to produce for a certain period of time such as in a day, a certain period of time such as in a day, a week or a monthweek or a month

The business may need the information from The business may need the information from the marketing plan, e.g. average sales the marketing plan, e.g. average sales forecastforecast


Example of calculation for output per Example of calculation for output per dayday

Average sales forecast per monthAverage sales forecast per month = RM 25,200.00= RM 25,200.00

Price per unitPrice per unit = RM 15.00= RM 15.00

Number of output per monthNumber of output per month = = RM 25,200.00RM 25,200.00

RM 15.00RM 15.00

= 1,680 units= 1,680 units

If the number of working days per month is 24 daysIf the number of working days per month is 24 days

The amount of output to be produced per day is:The amount of output to be produced per day is:

= = 1,680 units1,680 units

24 days24 days

= 70 units per day= 70 units per day


MATERIAL PLANNINGMATERIAL PLANNING

Material planning is done to determine the Material planning is done to determine the type and amount of raw materials need for type and amount of raw materials need for the productionthe production

Material planning involved four steps:Material planning involved four steps:o Identify and list down the raw materials requiredIdentify and list down the raw materials required

o Prepare the Bills of MaterialsPrepare the Bills of Materials

o Calculate the quantity of raw material requiredCalculate the quantity of raw material required

o Identify the suppliers of raw materialsIdentify the suppliers of raw materials


Identify and list down the raw Identify and list down the raw materials requiredmaterials required

Usually in manufacturing business, the raw Usually in manufacturing business, the raw materials used is easily identifiedmaterials used is easily identified

For example, to manufacture pencils, raw For example, to manufacture pencils, raw materials needed are hollow wood, lead, materials needed are hollow wood, lead, eraser, metal band, paint, glue and packaging eraser, metal band, paint, glue and packaging boxbox

In case of retail business, the raw materials is In case of retail business, the raw materials is known as goods. The business need to known as goods. The business need to estimate the amount of initial goods to be estimate the amount of initial goods to be purchased to start the business operationpurchased to start the business operation


Prepare the bills of materialsPrepare the bills of materials The bills of materials will contains a The bills of materials will contains a

complete list of materials, parts or complete list of materials, parts or components and the amount needed to components and the amount needed to produce a unit of productproduce a unit of product

To prepare the bill of material, the To prepare the bill of material, the entrepreneur must understand the design of entrepreneur must understand the design of the productthe product

This bill of material is important information This bill of material is important information for purchasing activitiesfor purchasing activities


Example of Bills of MaterialsExample of Bills of Materials To produce a unit of pencil, the bills of To produce a unit of pencil, the bills of

materials is as follows:materials is as follows:

Product No.Product No. DescriptionDescription SpecificationSpecification QuantityQuantity

101101 Half hollow woodHalf hollow wood 17 cm long17 cm long 22

102102 LeadLead 17 cm long17 cm long1.5mm diameter1.5mm diameter

11

103103 Eraser Eraser 0.75 cm long0.75 cm long6mm diameter6mm diameter

11

104104 Metal bandMetal band 2 cm long2 cm long 11

105105 PaintPaint 0.5 ml0.5 ml 11

106106 GlueGlue 0.5 ml0.5 ml 11


Examples of Materials Examples of Materials Requirement ScheduleRequirement Schedule

MaterialMaterial Quantity Quantity SafetySafetyStockStock

Total Material Total Material RequirementRequirement

Price / Price / unit unit (RM)(RM)

Total price Total price (RM)(RM)

FlourFlour 50 Kg50 Kg 5 kg5 kg 5555 1.21.2 6666

SugarSugar 50 Kg50 Kg 5kg5kg 5555 2.82.8 154154

EggsEggs 200 units200 units 2020 220220 0.150.15 3333

Corn SyrupCorn Syrup 100 Liter100 Liter 1010 110110 33 330330

MargarineMargarine 100 Kg100 Kg 1010 110110 22 220220

TotalTotal 803803


MACHINE & EQUIPMENT PLANNINGMACHINE & EQUIPMENT PLANNING

1.1. List out all machine and equipment List out all machine and equipment required base on the process flow chart or required base on the process flow chart or process planprocess plan

2.2. Determine the amount of machine and Determine the amount of machine and equipment required based on the venture equipment required based on the venture capacity requirementcapacity requirement

3.3. Identify the suppliers that are reliable in Identify the suppliers that are reliable in term of price and after sale servicesterm of price and after sale services

Steps to determine machine and equipment requirement:


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


No.No. MachineMachine QuantityQuantity Price / Price / Unit (RM)Unit (RM)

Total Total Price Price (RM)(RM)

1.1. MixerMixer 11 20002000 20002000

2.2. CutterCutter 22 10001000 20002000

3.3. Cash Cash RegisterRegister

11 15001500 15001500

TotalTotal 55005500

Examples of Machine & Equipment Requisition Planning Schedule


Steps to determine quantity for Steps to determine quantity for machine & equipmentmachine & equipment

1. Determine the planned rate of production per day

2. Determine the standard production time per unit for the planned machine

3. 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


Formula To Calculate the amount of machine require:

Machine Productive Time per day

Planned Rate of Production per dayX

Standard ProductionTime / Unit

=No. of Machine Required


MANPOWER PLANNINGMANPOWER PLANNINGSteps to determine the amount of direct labor Steps to determine the amount of direct labor required by the venture:required by the venture:

1. Determine the planned rate of production per day for the particular section of job

2. Determine the standard time for a worker to produce one unit of product or to complete a particular job

3. Determine workers productive hours:

Working hours per day – rest time or workers idling time

4. Calculate the amount of direct labor required


Formula To Calculate the amount of direct labor required

Worker Productive Time per day

Planned Rate of Production per dayX

Worker Standard Production Time / Unit

=No. of Worker Required


Example of Direct Labour Planning Schedule

NoNo PositionPosition No. of No. of Staff Staff RequiredRequired

Salary/Salary/Month Month (RM)(RM)

EPF EPF (RM)(RM)

12 %12 %

Socso Socso (RM)(RM)

2%2%

Total Total (RM)(RM)

11 Operation Operation ManagerManager

11 2000.02000.000

240.00240.00 40.0040.00 2280.002280.00

22

TotalTotal


OVERHEADS REQUIREMENTOVERHEADS REQUIREMENT Determine the overheads that are required in Determine the overheads that are required in

the operationsthe operations

Overheads refers to requirements other than Overheads refers to requirements other than direct raw materials and direct labourdirect raw materials and direct labour

Examples of overheads are indirect labour Examples of overheads are indirect labour costs, indirect material, insurance, costs, indirect material, insurance, maintenance and utilitiesmaintenance and utilities


LOCATION PLANLOCATION 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


Factors that Influence the Factors that Influence the Choice of LocationChoice of Location

1.1. MANUFACTURING ACTIVITY MANUFACTURING ACTIVITY Priority should be given to the cost factorsPriority should be given to the cost factors In manufacturing cost saving would contribute to In manufacturing cost saving would contribute to

profitprofit2.2. SERVICE ACTIVITYSERVICE ACTIVITY

In service priority should be given to distance from In service priority should be given to distance from market or customers.market or customers.

Distance from customers will influence sales Distance from customers will influence sales revenuerevenue

In service business cost saving may not contribute In service business cost saving may not contribute to sales revenueto sales revenue

Increase in revenue will contribute to increase in Increase in revenue will contribute to increase in profitprofit


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


BUSINESS AND OPERATIONS HOURSBUSINESS AND OPERATIONS HOURS

Business hours refer to the time the business Business hours refer to the time the business is open to the customersis open to the customers

Operation hours refer to the hours the Operation hours refer to the hours the workers have to work.workers have to work.

For manufacturing, usually the business will For manufacturing, usually the business will operate on 8-hours per shift. Thus the operate on 8-hours per shift. Thus the entrepreneur will only decide whether the entrepreneur will only decide whether the business will runs for one shift or more. This business will runs for one shift or more. This will depends upon the planning for will depends upon the planning for productionproduction


BUSINESS AND OPERATIONS HOURS (cont.)BUSINESS AND OPERATIONS HOURS (cont.)

For service business, the entrepreneur will has For service business, the entrepreneur will has to state the business hours in terms of days and to state the business hours in terms of days and hourshours

For example, a restaurant may open to the For example, a restaurant may open to the customer from 7 a.m. to 10 p.m. every daycustomer from 7 a.m. to 10 p.m. every day

However, the operations hours for the workers However, the operations hours for the workers will be differentwill be different

The working hours may be from 5 a.m. to 12.a.mThe working hours may be from 5 a.m. to 12.a.m

The entrepreneur may have 2 shifts for the The entrepreneur may have 2 shifts for the workers; the first shift will starts from 5 a.m. to 3 workers; the first shift will starts from 5 a.m. to 3 p.m. and the second shift starts from 3p.m. to 12 p.m. and the second shift starts from 3p.m. to 12 a.m.a.m.


LICENSE, PERMITS and REGULATIONSLICENSE, PERMITS and REGULATIONS

Find out and list down all the license/permits/ Find out and list down all the license/permits/ regulations that are required to operate the regulations that are required to operate the businessbusiness

Identify which agency is responsible to Identify which agency is responsible to approve the particular license/permitapprove the particular license/permit

For example, a restaurant among others will For example, a restaurant among others will need the following license/permit/regulations:need the following license/permit/regulations:o License for signboardLicense for signboard

o Permits for emigrant workersPermits for emigrant workers

o Typhoid injection for the workersTyphoid injection for the workers


OPERATIONS BUDGETOPERATIONS 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


OPERATIONS BUDGET (cont.)OPERATIONS BUDGET (cont.)

•Fixed Asset Expenditureo Refers to the investment on long term assets used

in the operations to produce the product or services

o Examples are the purchase of machines and equipment

•Monthly Expenseso Refers to the payment made every month in the

operations departmento Examples are wages for workers and raw

materials purchased


OPERATIONS BUDGET (cont.)OPERATIONS BUDGET (cont.)•Other Expenses

o These are expenses that are made and could not be categorized as fixed asset expenditure or monthly expenses

o Examples are deposits and insurance


Example of Operations BudgetExample of Operations Budget

ItemItem Fixed Fixed Asset Asset

Monthly Monthly ExpensesExpenses

Other Other ExpensesExpenses

Machine and EquipmentMachine and Equipment

Factory RenovationFactory Renovation

Raw MaterialsRaw Materials

Wages + EPF + SOCSOWages + EPF + SOCSO

Utilities Utilities

Factory RentFactory Rent

Deposit for rentDeposit for rent

Deposit for utilitiesDeposit for utilities

RM 35,500RM 35,500

RM 45,000RM 45,000

RM 20,000RM 20,000

RM 6,500RM 6,500

RM 600RM 600

RM 3,000RM 3,000

RM 6,000RM 6,000

RM 1,000RM 1,000

TotalTotal RM 80,500RM 80,500 RM 30,100RM 30,100 RM 7,000RM 7,000


IMPLEMENTATION SCHEDULEIMPLEMENTATION 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


The Importance of Project Scheduling

Project scheduling serves several purposes:1. It shows the relationship of each activity to

others and to the whole project2. It identifies the precedence relationship

among activities3. It encourages the setting of realistic time

and cost estimate for each activity4. It helps make better use of people, money

and material by identifying critical bottlenecks in the project


Example of Project Implementation ScheduleExample of Project Implementation Schedule

ActivitiesActivities DeadlinesDeadlines DurationsDurations

Incorporation of businessIncorporation of business Jan – Mac 2009Jan – Mac 2009 3 months3 months

Application for permits and Application for permits and licenselicense

Jan – April 2009Jan – April 2009 4 months4 months

Searching for business Searching for business premisepremise

Feb – Mac 2009Feb – Mac 2009 3 months3 months

Renovation of premiseRenovation of premise April 2009April 2009 1 month1 month

Procurement of machines Procurement of machines and raw materialand raw material

April – June April – June 20092009

3 months3 months

Recruitment of laboursRecruitment of labours June 2009June 2009 1 month1 month

Installation of machinesInstallation of machines June 2009June 2009 1 month1 month


END OF CHAPTER 5END OF CHAPTER 5

Technopreneurship WBB10102 CHAPTER 5 OPERATIONS MANAGEMENT.

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