SHS 12

Module

ENTREPRENE
URSHIP
ND
(2 QUARTER:
WEEK 6)
NAME:_______________________________________________________________________

ADDRESS:____________________________________________________________________

CONTACT:____________________________________________________________________
Entrepreneurship

MS. ASNAIRAH M.
____________________________ _______________
DARAGANGAN, LPT.
Teacher’s signature Student’s signature

Contents
DHAYFULLAH ISLAMIC INSTITUTE FOUNDATION, INC.

Title Page
Objectives/ Learning Competencies

PART 2
BUSINESS IMPLEMENTATION

CHAPTER 8: MANAGING THE OPERATIONS FUNCTION

The enterprise delivery system framework and the QDP…………………………….120

The Six Ms of
Operations…………………………………………………………….120
The Nine Critical Sub-Processes or Sub-Systems in the Transformation Process…...121
Technology Application and Utilization……………………………………………..121
Operating Work Flow………………………………………………………………...121
Layouting………………………………………………………………......................122
Production Programming and Scheduling……………………………………………122
Quality Control……………………………………………………………….............123
Operating Systems and Procedures …………………………………………………..124
Operations management, supervision, and control……………………………………124
Worker Motivation, Skilling, Deployment, Compensation, and Control……………..125
Support Services…………………………………………………………………........126
LEARNING ACTIVITIES............................................................................................... 127

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EVALUATION.................................................................................................................. 127

OBJECTIVES:

At the end of the module, the learners are expected to:

A. Identify the six Ms of operation
B. Layout their preferred business set-up
C. Recognize the Operating Work Flow of a business

CHAPTER 8: MANAGING THE OPERATIONS FUNCTION

Operations management is about delivering products and services to customers to meet or surpass
their expectations. It is designing, developing, and executing the Enterprise Delivery System (EDS), from
sourcing of the necessary input to the transformation of these input into the final output which, in turn
assure the intended outcome of delighting the customers. The final output, which come in the form of
goods or services (or both), must carry all the features and attributes that customers are looking for.

All operations managers must, therefore, begin with the customer's wants and desires in mind.
These wants and desires can be classified into three customer outcome expectations: (1) quality
expectations; (2) delivery expectations; and (3) price expectations. Thus, the customers' quality, delivery,
and price (QDP) expectations are crucial to the operations function.

For some products, especially industrial goods, the exact technical specifications demanded by
the customers become the quality parameters. Industrial customers will surely specify the exact size,
weight, strength, color, shape, chemical composition, and performance level of the products that they
want to purchase. Industrial customers are also operating under strict production schedules. Therefore,
they will demand some regularity in the delivery of the products so that they can practice "just-in-time"
production. Industrial customers are also competing in the global marketplace. Hence, they have
alternative global suppliers who can provide relatively lower prices. Thus, price expectations become
important.

For other products or services, especially customized orders, the Quality, Delivery, and Price
expectations of customers might differ from order to order, depending on their preferences. Take the
example of a movie actress who usually has her hair serviced by her favorite hairstylist. Depending on the
occasion she is attending and the mood she is in, she would be specifying a different style and treatment
for her hair. Her QDP expectations may change from occasion to occasion.

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Thus, the customers' quality, delivery, and price expectations necessarily define the EDS.

EDS starts from the Input (resources mobilized), proceeds to the Throughput (or the
transformation process where input is converted into output) and produces the Output (the product). The
output is then marketed to the customers (in the case of goods) or experienced by the customers (in the
case of services). The customer satisfaction level, revenues generated, and the profits realized from the
transactions are the customer market, and financial outcomes of the EDS.

8.1 THE ENTERPRISE DELIVERY SYSTEM FRAMEWORK AND THE QDP

The Six Ms of Operations

The Six Ms of the operations function cover the input portion of the EDS Design Framework. To
better illustrate how the six Ms work across the EDS Design Framework refer to Table 8.1.

Table 8.1. Enterprise Delivery System and the QDP

Enterprise Delivery System and the Customer, Market and Financial Outcomes

Final Delivery to
Input Throughput Output Outcomes
Customers

Resources Transformation Products Marketing and Customer

Mobilized Process Customer Servicing Expectations
 Money Goods made or  Quality
Services rendered Marketing Program  Delivery
Conversion of
 Men Input into Output Service Level  Price
Experience Market
 Machines Expectations
 Revenues/Sales
 Materials  Market Share
 Market Reach
 Methods
Finance
Expectations
 Management
 Profits
 Return on
Investment

The input is composed of six Ms: Money, Manpower, Management, Methods, Materials, and
Machinery. These six Ms are transformed into the right output through a highly productive system,
meaning one with high efficiency, economy, and effectiveness. The transformation process is called the
Throughput System.

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The first M, that is, Money should flow through the Transformation Process before (or just in
time) as the five other Ms are needed. The second M, that is Management should also come ahead of the
other Ms in order to design and develop the transformation process.

Definitely, Money should ensure that the physical facilities are set up, employees are hired, and
operating systems are installed. The technology for the transformation process should have already been
chosen by the EDS designer and developer. This technology comes in the form or hardware (i.e, all the
machinery and equipment) and software (i.e., all the operating systems and work methods). This gives us
the two additional Ms: Machinery and Methods. The technology will likewise dictate the last two Ms:
Materials and Manpower. Materials are the input that must be converted to the final output. Manpower
enables the entire transformation process to operate by manning the machines or rendering the services
required.

Aside from the choice of technology, the designer and developer of the transformation process
should also determine the organizational modality of the Enterprise Delivery System.

The organizational modality specifies what parts of the EDS would be implemented by the
enterprise itself and what parts would be outsourced or subcontracted. The EDS will designate which
internal or external entities will accomplish particular work processes and under what legal arrangements
or contracts. Organizational modality will also define the precise relationships between and among the
different departments, divisions, and sections of the enterprise as goods and services are being produced.
It will stipulate the terms of reference between the enterprise and its organizational network of
subsidiaries, subcontractors, franchisees, affiliates, or strategic allies. In summary, therefore, the
technology chosen and the organizational modality selected will establish and operationalize the Input-
Throughput-Output continuum.

The Nine Critical Sub-Processes or Sub-Systems in the Transformation Process

The transformation process or throughput system is what differentiates a well- managed from a
poorly-managed EDS. There are nine critical sub-processes or sub- systems that must be managed well in
the transformation process.

Technology Application and Utilization

The enterprise managers and technicians must understand how the technology works and how it
should be properly utilized.

The technology provider should be tasked to transfer all the relevant technical and procedural
information, train the key operators of the technology, provide after-sales and maintenance services,
supply spare parts, and continue giving advisory services. If the technology being applied and utilized is
quite common and known to many, then there will probably be no technology contracts with the
suppliers.

Operating Work Flow

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The Operating Work Flow (OWF) should follow the rationale of the technology being adopted
and used. It is the step-by-step process of sourcing and storing the input, converting these input into
output and delivering the output to the customers. Two guiding principles should dictate the OWF.

1. The OWF must be very efficient in terms of time, movement, and utilization of resources.
Long waiting times, lag times, down times, and wasted times should be avoided. There should be
as little distance as possible between steps of the sequential work process. The movement of
people and materials should be kept to the minimum without sacrificing the quality of the product
or the service. In general, inventory levels should be kept as low as possible. There should be
minimal reworks and returns. The former disrupts the workflow while the latter negates whatever
speed or movement efficiencies have been attained. Good operations flow mapping, good factory
or service shop layout and good standardization of work processes would serve the operations
manager well.

2. The OWF must be balanced capacity-wise. There should not be significant disparities in the
capacity of each step in the process. Otherwise, the steps with very little capacity would create
operating bottlenecks and limit the overall production of the expected output. That is why many
operations managers want a balanced production line. The entrepreneur should accept a reduction
in overall capacity caused by difficult products if they would generate substantially more profits
than the easier products.

Layouting

The operating work flow must translate into an appropriately-designed and executed physical
layout of the factory or service shop.

The space available for operations must be able to accommodate all the machinery and
equipment, the inventory of raw materials, work-in-process and finished goods, and the operating and
quality control personnel. For service shops, there should be adequate space for holding customers
waiting to be served, customers being served, and Customers being processed for payment. The
dimensions of the service facility should be configured correctly to provide enough "elbow room" or
human space to serve the customers comfortably and expeditiously. The working environment should be
conducive for carrying out the operating activities with as little physical, emotional, and mental stress as
possible.

The layout should follow four principles:

1. The physical layout must allow the goods or the customers being processed to go from one step to
another with very little distance and time spent between steps.

2. There should be minimal or no crisscrossing of goods or customers within the physical space.
This means that the goods or the customers should not go back and forth from one workplace to
another in a confusing manner. The goods or the customers must follow a sequence of steps that
correspond to the physical layout of the factory or service shop.

3. The layout should capture the physical and psychological atmosphere desired. On the physical
level, there are the aspects of lighting, ventilation, energy- consumption, and waste management

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to consider. On the psychological level, the layout should provide enough "roominess or human
working space, the proper ambience and the desired sense of safety, security, and human
sensitivity.

4. From the management perspective, the layout must be easy to see, follow, monitor, and control.

When the factory or the service shop goes into full operations, management must be able to easily
track the movement and flow of all materials, goods, and people as they pass through the different
processes in the different workspaces. This would allow management to easily spot bottlenecks and work
inefficiencies. Operations monitoring and quality control are likewise easier to do when the sequence of
operating activities follow a well-designed and well-executed physical layout.

Production Programming and Scheduling

Operations management is responsible for Production Programming and Scheduling (PPS). It is

the proper determination of: (1) what goods or services to produce, (2) in what sizes and packaging. (3) in
what machinery and equipment (or production/service line), (4) in how many units, and (5) precisely
when.

For enterprises with multiple products or services, PPS can be a very daunting and complicated
activity. Operations must consider four critical factors in determining the right PPS. These are: (1) market
demand in terms of volume expectations, trends, cycles, and seasonality; (2) capital investment and
financing requirements; (3) product line profitability and capacity utilization; and (4) the number of
products and market segments the enterprise wants to serve and their implications on the complexity and
dexterity of the production system.

Market demand is the hardest to figure out. The enterprise should not produce too many goods,
otherwise there would be a lot of excess or obsolete inventory. It cannot produce too little because there
might be a stock out, hence, substantial opportunity losses. Because of this, enterprises prefer to produce
just enough goods or services to meet the demand. Good market forecasting should therefore dictate the
PPS. However, consumer tastes change over time, competing products become more aggressive,
substitutes enter the marketplace and seasons of the year create peaks and valleys of demand. One
solution is to have excess production capacity to meet unexpected sales increases. Another solution is to
outsource or subcontract production to other producers. However, these have capital and cost
implications.

Having sufficient production capacity to meet excess demand will require a fairly large
production facility. Unfortunately, the larger the facility, the larger the capital investment and financing
requirements needed. Because of this, the enterprise must decide whether it is better to have a very large
production capacity in order to meet peak demand periods, or to have just a small capacity but accumulate
the needed inventory during the lean months of the year.

The third critical factor in determining the PPS is a good product line analysis. Each product line
of the enterprise has its own demand and supply analysis. At the end of the day, the operations manager
must figure out how much production capacity a particular product line would potentially consume. This
would depend on two things: (1) the estimated demand for the product line; and (2) the number of
machine and labor hours the product line would consume in the factory or service shop.

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The operations manager must also compute for the contribution margin of each product line. This
can be derived by subtracting the unit variable cost of the product from the unit price of the product. This
unit contribution margin should then be multiplied by the total expected sales volume of the product line
to derive the total profit contribution of the product line. Of course, it would be natural for the operations
manager to give priority to the product lines that yield the greatest profit contributions.

The fourth critical factor is the number of products and market segments the enterprise wants to
serve. Without discussing the marketing ramifications of having too many products, the production
system is bound to become more and more complex as product lines are added.

Quality Control

The Quality, Delivery, and Price expectations of customers must be matched with the Quality,
Delivery, and Productivity measurement, monitoring and evaluation system at every stage of the
Enterprise Delivery System.

Before the input is accepted by the Transformation Process, it must conform strictly to certain
QDP specifications at this input acceptance stage. The materials and supplies used must adhere to strict
technical standards that would produce the desired output. The input must be delivered to the factory or
service shop at optimal schedules. They should also come at a reasonably low cost, arrive in sufficient
quantities, and be adequately prepared for easy convertibility into output in order to ensure high
productivity.

Every step in the Transformation Process must also be measured, monitored, and evaluated
according to the QDP standards of the transformation stage. Every machine, every worker, and every
conversion process has an impact on the customers QDP expectations. Some of these machines, workers,
and processes are critical because they are the major determinants of Quality, or of Delivery, or of
Productivity and Cost, which affects Price. Some affect all three. More rigor and emphasis should be
exerted on these critical factors.

Finally, there are QDP specifications at the output stage. 1If the QDP at the input and the
throughput stages were done properly, then the output should pass the final QDP tests. The output should
be very acceptable to customers. They should be delivered at the right times and under the best terms and
conditions. They should be produced at high levels of productivity and at relatively low costs, enabling
the enterprise and its customers to settle at a mutually acceptable price.

Operating Systems and Procedures

Operating Systems and Procedures (OSP) are the enterprise standards for running the entire
operations of the factory or service shop. They are "engineered methods." This means that these operating
systems or methods have been subjected to conceptual, analytical, critical, and creative thinking
processes. They have been experimented on and tested successfully in the actual work setting. They have
been judged optimally for the market being served. They have been proceduralized and standardized for
consistency and manualized for replicability (.e, Operations Manual). The optimal OSP would differ from
enterprise to enterprise depending on the environmental conditions and the market dynamics of supply
and demand.

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Operations Management, Supervision, and Control

Operations managers and supervisors orchestrate and control the entire EDS. There are three
distinct phases of managing and controlling the EDS: (1) Pre-operations: (2) Operations Proper; and (3)
Post-operations.

Pre-operations management is concerned with: (a) designing and developing the EDS; (b)
choosing the operations site and the technology to be used; (c) acquiring the technology, machinery and
equipment, and all the relevant service contracts: (d) constructing, layouting, installing, and testing the
operations facilities and systems; (e) planning and programming the production of goods and services;
and (f) standardizing and manualizing all the operating and administrative processes and procedures.

Operations proper implements and runs the factory or service shop that converts the input into
output or goods and services. Operations managers are responsible for: (a) selecting, sourcing, and storing
the appropriate raw materials and supplies; (b) recruiting and deploying the right manpower; (c) running
and maintaining the factory or service shop using all the proper technical, supervisory, and control
methods; (d) continuously improving operations and upgrading facilities; (e) quality assurance; and (f)
productivity, cost, and profit management.

Post-operations unit manages the logistics of warehousing, distributing, and delivering the
finished products to the customers. For service establishments, post- operations is mainly concerned with
obtaining customer feedback in order to improve customer servicing practices. The marketing and brand-
building program of the enterprise provides the connection between operations and the customers. The
results of the marketing efforts and the feedback from the customers should propel operations managers
to create better operating templates for future production.

Post-operations management should likewise be concerned about evaluating the output and the
outcomes of operations in order to improve the input and the transformation process.

Good operations management, supervision, and control should focus on: (1) creating eight
metrics of performance; (2) perfecting the enterprise operating methods, and (3) optimizing the mix of
men, materials, and machines. The metrics should measure efficiency, economy, and effectiveness.

Efficiency measurements relate the output produced to the input provided. The higher the output
to input ratio, the better the efficiency. Efficiency also looks at the throughput or the cycle time to convert
input into output. The shorter the time, the more efficient the operating system is. Another efficiency
measure is the level or wastage or rejects. The lower the wastage or reject level, the more efficient the
system is.

Economy measures the cost of the input, the cost of transforming the input into output, and the
cost of the final output. It also measures the investment cost in relation to the benefits, revenues, returns,
or profits generated.

Effectiveness measures the results or the outcomes realized by the enterprise in relation to the
resources utilized and time and effort exerted to produce these outcomes, Effectiveness evaluates the
QDP satisfaction levels of customers, the marketing results (Sales volume, market share, market reach,
market leadership), and the financial outcomes (rates of return, profits, stock prices).

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Methods included are the operating systems, technologies, practices, and procedures, and are
used by the enterprise in order to obtain the best performance metrics. Methods ways of doing things.
They are engineered by the enterprise through constant experimentation, testing, application, evaluation,
and reinvention. Methods also include control mechanisms that allow the enterprise to monitor and
correct the operating system.

The proper mix of Men, Machines, and Materials maximizes and optimizes the productivity and
performance of the operating system. The operations manager must match the proficiency of Men with
the rated capacity of the Machines and the suitability of the Materials used. The production line must be
balanced and running at the right tempo. Each of the three vital elements of Men, Machines, and
Materials must not, in any way, hinder the full potential of the other elements.

Worker Motivation, Skilling, Deployment, Compensation, and Control

People run factories and service establishments. Even factories with the most automated
machines require good people to calibrate and maintain the machines.

For service shops, people are everything. No customer will patronize a bad barber or a lousy chef.
Hiring the right people is the first step to good operations management. Once hired, the job of the
operations manager is to properly motivate the people. A good working environment and professionally-
run establishment are good starting points. Beyond that, the operations manager must be able to inspire
the people to exert and do their best.

Advising, coaching, and mentoring people are critical to this inspirational process. Giving people
a sense of belonging in the workplace is another important ingredient. Allowing people to participate in
the planning and decision-making processes will give them a sense of authorship and a degree of
empowerment. If people see a future in the enterprise and they feel that their work is valued, then they
can be readily motivated. Job enlargement and job enhancement programs will definitely help raise the
morale of people. They have to be sufficiently challenged to aspire for higher levels of production and
productivity.

Gaps in the competency or skills and attributes of people must be addressed by operations
managers through proper orientation and training programs.

Finally, there is people control. This is less of a problem with highly competent, highly
motivated, and highly conscientious people, which must be the first order of the day. However, control
mechanisms do play a good secondary role.

Control of people should start with a fair, just, but challenging scorecard. This scorecard should
contain all the metrics of performance expected from the people. The performance evaluation and reward
system must put a lot of emphasis on the attainment of good scores based on transparent scorecards and
scorekeeping.

Support Services

The Operations Function cannot perform well without soliciting and getting the support of all the
other units of the enterprise. Cross-functional coordination is important to the success of any operations.

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First, Operations must obtain a good sales forecast from the Marketing department. It must also
be briefed about the inventory levels being held by distributors or retailers in order to recalibrate
production schedules. Second, Operations must obtain the required resources from Finance in order to
acquire machinery and equipment, improve facilities, purchase materials, compensate workers, and pay
suppliers. Third, Operations must coordinate with the Human Resource Department for the hiring and
training of workers and supervisors. Fourth, Operations must make sure that the Maintenance department
is able to do its preventive maintenance and its trouble-shooting interventions in case problems erupt.
Fifth, Operations must get the support of the Logistics department for the delivery of the materials to the
factory or service shop and the distribution of goods to the customers.

The list can go on and on. In short, Operations cannot operate well without the support of other units.
This, the operations manager must carve in stone.

ACTIVITIES

Challenge 1: How do you want your business set up be like?

Draw the physical layout or a blue print of your preferred business both external
and internal output,

Ex. Bakeshop or anything you preferred, how are you going to design it.

EVALUATION

Challenge 2: (by Partner)

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The Bakery (or Small Shop) Layout

Visit a local bakery shop (or any other type of shop). Interview the owner by asking whether he or she is
satisfied with the current production area of the bakery (or small shop). Otherwise, would he or she prefer
to have it revised? Ask permission to be allowed to take a picture of the production area.

From the photo taken, create a top view floor layout. If the owner admits that his or her
production area needs to be revised, then, try to work on the current floor layout and see how you can
improve the workflow. Show the 'before' and 'after of the drafted workflow and layout for critiquing of
your classmates or teacher.

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