Pamantasan ng Lungsod ng Marikina

College of Management
Department of Business Administration & Entrepreneurship

How is it that businesses like IKEA, Amazon, Zara, Spotify, Google, Apple and Maersk achieve
notable results in highly competitive markets? Partly because it is down to their services and
products, but it is also a result of excellence in managing their supply networks. Given the
typically large (and increasing) proportion of activities that are outsourced by operations,
managing supply networks is a particularly vital activity.

SUPPLY CHAIN MANAGEMENT 925

Supply Chain Management (SCM) is a comprehensive approach to

managing the flow of goods, services and information from raw materials to end
customers. It involves coordinating various activities across multiple organizations
including suppliers, manufacturers, distributors and retailers.

The goal of the SCM is to improve efficiency, quality, productivity and

customer satisfaction.

Why is Supply Chain Management important?

1. Improved Efficiency and Productivity: Efficient SCM reduces costs by

minimizing waste, optimizing inventory levels and improving production
and transportation efficiency.
Streamlined processes: By optimizing processes and eliminating
inefficiencies, SCM can significantly reduce lead times and improve
overall productivity.
 Reduced Costs: Efficient supply chain management can lead to
lower costs through reduced inventory levels, improved transportation
and optimized production schedules.

2. Enhanced Customer Satisfaction: SCM ensures that products are

delivered on time and meet quality expectations which is critical for
customer satisfaction and loyalty.
Faster Delivery: A well managed supply chain ensure availability
and timely delivery of products to customers, leading to higher customer
satisfaction.
Improved Quality: By implementing stringent quality control
measures SCM help maintain product quality and reduce returns.

3. Stronger Supplier Relationships:

Collaborative partnership: SCM fosters strong relationships with
suppliers leading to better collaboration, reduced costs and improved
product quality.
Risk Mitigation: by diversifying suppliers and building strong
relationships, organizations can mitigate supply chain risks such as
disruptions and shortages

4. Increased Visibility and Control

Real time Tracking: Advance SCM technologies enable real-time
tracking of inventory, shipments and other supply chain activities.
Proactive Problem Solving: By monitoring key performance
indicators (KPIs) organizations can identify and address potential
issues before they escalate.

5. Sustainable Supply Chains – by optimizing resource use and reducing

waste, SCM contributes to environmental sustainability.
Environmental Impact: SCM can help reduce environmental impact
of operations by minimizing waste, optimizing transportation and
promoting sustainable practices.
Ethical Sourcing: By ensuring ethical sourcing practices,
organizations can enhance their brand reputation and customer loyalty

6. Competitive Advantage - A well managed supply chain allows

companies to be more flexible and responsive, offering customers more
variety, faster deliveries and better service than competitors. This
competitive edge can help attract and retain customers.
 Differentiation: Effective SCM can differentiate organizations by
providing superior customer service, faster delivery times and
innovative products.
Cost Leadership: By optimizing costs and improving efficiency,
SCH can help organizations achieve a cost advantage over
competitors

KEY COMPONENTS OF SUPPLY CHAIN MANAGEMENT

1. Planning
Planning is the initial phase of the supply chain, where the
organizations establish the strategy to balance supply and demand
effectively.
It includes demand forecasting, inventory planning, and resource
allocation to ensure the right products are available when needed,.
Resource allocation – developing detailed production schedules to
ensure efficient utilization or resources and timely delivery of
products to ensure the right products are available when needed.

Effective planning allows companies to avoid issues like stock outs, excess
inventory and production delays.

2. Sourcing
Sourcing involves selecting suppliers that will provide the goods and
services needed to produce products. This components includes
potential suppliers, negotiating contracts, managing relationships
and ensuring that suppliers meet quality standards and deadlines.
Supplier Selection – identifying and selecting reliable suppliers
who can provide quality products or services at competitive prices.
This involves evaluating suppliers based on factors such as cost,
quality, delivery performance and financial stability.

Proper Sourcing ensures that an organization has reliable access to

quality materials and services at a reasonable cost.

3. Manufacturing
Manufacturing is the stage where raw materials are transformed into
finished products through various production processes. This
components includes activities such as product design, production
 scheduling, quality control and managing production capacity.
Ensuring that production is both efficient and flexible enough to
handle demand changes is essential to meeting customer expectations.

Effective manufacturing processes ensures high quality production,

minimize waste, and optimize production timelines.

4. Delivery and Logistics

Delivery and Logistics involves the transportation, warehousing and
distribution of goods to end customers. This components includes
managing transportation network, optimizing warehousing
operations, coordinating with logistics providers, and handling
customers and regulatory compliance. Effective logistics
management ensures products are delivered in a timely and cost
effective manner.

Warehousing and Inventory Management – managing

inventory levels, optimizing storage space and implementing effective
inventory control techniques to minimize holding costs and stockouts
Distribution- ensuring timely and accurate delivery of products to
customers through efficient distribution channels. This involves
coordination with carriers, managing distribution centers and
implementing effective order fulfillment process.

Proper logistics management reduces shipping times, controls

distributions costs and improves customer satisfaction.

5. Returns (Reverse Logistics)

Returns or reverse logistics deals with handling returned goods,

recycling, repurposing or disposing of products that customers send back.
This components includes customer service, quality inspection,
refurbishment and disposal processes. Managing returns efficiently
helps organization reduce waste and improve sustainability

Effective reversal logistics can reduce environmental impact, recoup costs

and enhance customer satisfaction through flexible return policies.
CORE FUNCTIONS OF SUPPLY CHAIN MANAGEMENT
The core functions of SCM support the main components and ensure a
seamless flow of goods, information and resources across supply chain.

A. Demand Forecasting

Accurately predicting future demand is crucial for aligning supply with

customer needs. This involves analyzing historical data, market trends and
external factors. It helps organization align supply chain activities with market
needs and avoid problems such as overstocking and stock outs.

Example: A beverage company may use demand forecasting to anticipate the

increase in soft drinks sales during summer and plan production accordingly

B. Inventory Management

Determining the optimal level of inventory and production capacity to meet

forecasted demand. Effective Inventory Management involves monitoring and
controlling stock level to meet customer demand while minimizing holding
costs.

Example: A pharmaceutical company may use automated inventory tracking

systems to monitor stock levels of essential drugs and ensure availability
without overstocking

C. Supplier Relationship Management

Building strong relationships with suppliers to foster collaboration, trust and

innovation to ensure reliable delivery of quality materials and services. This
includes sharing information, setting joint performance goals and resolving
issues promptly.

Example: A tech company might establish long-term contracts with key

components suppliers to ensure stable pricing and a steady supply of materials
D. Transportation Management –

Selecting the most efficient mode of transportation (e.g truck, rail, air, or sea)
and optimizing routes to minimize costs and delivery time. Efficient
transportation reduces lead times and enhances the reliability of product
deliveries

Example: A retail chain may use transportation management software to

optimize delivery routes for its fleet of trucks, reducing fuel costs and ensuring
timely deliveries

E. Warehouse and Distribution Management

Warehouse and distribution management involves storing products and

coordination their movement from production facilities to customers. This
function includes warehouse layout, planning, inventory picking and packing
processes

Example: An automotive parts distributor may implement a warehouse

management system (WMS) to streamline order fulfillment, ensuring parts are
quickly located and shipped to repair shops.

F. Customer Service Support

Customer service support ensure that customer are satisfied with the delivery of
products. Effective customer service can help resolve issues related to delivery
delays, product returns and replacement, enhancing the customer experience

Example: A furniture retailer may have a customer support team that assist
customer with delivery tracking, assembly instructions and handling returns if
needed.
Example of Effective Supply Chain Management

Apple Inc.

Apple is renowned for its efficient and innovative supply chain. Apple maintains
close relationships with key suppliers, utilizes demand forecasting to anticipate
product demand, and applies rigorous quality control standards in manufacturing.
Apple also manages its inventory effectively by maintaining minimal stock levels
and leveraging just-in-time (JIT) principles, ensuring high product turnover rates
and minimal waste.

Apple’s focus on logistics allows it to deliver products to customers worldwide

efficiently, using a mix of direct-to-consumer shipping and retail partnerships.
Apple’s effective SCM practices have helped it achieve high customer satisfaction
and consistent product availability while maintaining competitive pricing and
profitability.
 Starbucks like many of the most successful worldwide brands, the coffee shop giants has
been through its period of supply chain pain. In 2007 -2008 they begun to have severe doubts
about their ability to supply their 16,700 outlets. At that time, their sales were falling and at the
same time, supply chain costs rose by more than $75million. In part, they become a victim of its
own success. Because the company was opening stores around the world at a rapid pace, the
supply chain organization had to focus on keeping up with that expansion. “ As a result the cos
of running the supply chain – the operating expenses were rising very steeply” accdg to Peter D.
Gibbons, executive vice president of global supply chain operations

Supply Chain Cost Reduction Challenge: SB supply chain executives began to investigate
their performance issues, and found out that service was indeed falling short of expectation and
found the following problems:

 Fewer than 50% outlets deliveries arrives on time

 Several poor outsourcing decisions led to excessive expenses
 The supply chain had evolved, rather than grown by design, and had become unncecesary
complex

Path to Cost Reduction: SB leadership focus their mind to achieve improved performance and
supply cost reduction on three main objectives:

1. Reorganize the supply chain

2. Reduce cost to serve
3. Lay the groundwork for future capability in the supply chain
To meet this objectives, SB divided all their supply chain functions into main groups known as “
plan” , “make” and “deliver”. They also opened a new production facility.

Next they terminate partnership with all but its most effective 3PLs ( Third Party Logistics).
They began managing the remaining partners via weekly scorecard system, aligned with renewed
service level agreements

Supply Chain Cost Management Results: By the time SB had completed its transformation
program, it had saved more than $500 million over the course of 2009 and 2010 of which large
proportion came out of the supply chain.

Overall, one can assume that Starbuck’s supply chain is an example of a significantly successful
business strategy.
 Pamantasan ng Lungsod ng Marikina
College of Management
Department of Business Administration & Entrepreneurship

COURSE CODE & TITLE : OPERATIONS MANAGEMENT (TQM)

PROFESSOR/ INSTRUCTOR : RHODORA G. PAGATPAT

INVENTORY MANAGEMENT

Inventory is a term used to describe accumulations of materials, customers or

information as they flow through processes or networks. The term is also used to
described transforming resources, such as rooms in hotels or cars in a vehicle hire firm,
but here we will use the term for the accumulation of the transformed resources that
flow through processes, operations or supply networks.

Effective Inventory Management keeps a company organized. It also provides

critical data to help businesses respond to trends, avoid breakdowns in supply chain
management and maintain profitability

SOME TERMINOLOGY IN INVENTORY MANAGEMENT:

Physical inventory ( sometimes called “stocks” is the accumulation of physical

materials such as components, parts, finished goods or physical (paper) information
records.

Queues are accumulations of customers, physical queuing line or people in an

airport departure lounge, or waiting for service at the end of phone lines or non line
requests or waiting for orders to be taken at a fastfood restaurant..
 Database are stores for accumulations of digital information, such as medical
records or insurance details.

Managing these accumulations is what we call “inventory management”.

And its important why?.

 Material inventory in a factory can represent a substantial proportion of cash tied

up in working capital. Minimizing them can release large quantities of cash.
However, reducing them too far can lead to customer’s order not being fulfilled.

 Customer held up in queues for too long can get irritated, angry and possible leave,
so reducing revenue.

 Database are critical for storing digital information and while storage may be
inexpensive, maintaining database may not be

Operations Principle:

Inventories are accumulations of transformed resources, either physical items (

called stocks), people (called queues) or information (called database).

Here are some benefits of INVENTORY MANAGEMENT

The task of operations management is to allow inventory to accumulate only when
its benefits outweigh its disadvantages.

A. An assurance against uncertainty

Inventory can act as a buffer against unexpected fluctuations in supply and
demand.

For example: A retail operation can never forecast demand perfectly over the lead
time. It will order goods from its suppliers such that there is always a minimum
level of inventory to cover against the possibility that demand will be greater than
expected during the time taken to deliver the goods.
 This is safety or buffer inventor. It can also compensate for the uncertainties in
the process of the supply of goods into the store.

The same applies with the output inventories, which is why hospitals always have a
supply of blood, sutures and bandages for immediate response to accident and
emergency patients. Similarly, auto servicing services, factories and airlines may hold
selected critical spare parts inventories so that the most common faults can be repaired
without delay.

B. Physical inventory can counteract a lack of flexibility

Where a wide range of customers options is offered, unless the operation is
perfectly flexible, stocks will be needed to ensure supply when it is engaged in
other activities. This is sometimes called cycle inventory.

For example: The inventory profile of a baker who makes three types of bread.
Because the nature of the mixing and baking will have to produce each type of
bread in batches large enough to satisfy the demand for each kind of bread
between the times when each batch is ready for sales. So even when demand is
steady and predictable, there will always be inventory to compensate the
intermittent supply of each type of bread.

C. Allows operations to take advantage of short-term opportunities

Sometimes opportunities arise that necessitate accumulating inventory, even
when there is no immediate demand for it.

For example: A supplier may be offering a particularly good deal on selected items
for a limited time period, perhaps because they want to reduce their own finished
goods inventories. Under these circumstances a purchasing department may take
advantage opportunistically of the short term price advantage.
 D. Insights into future demands
Medium-term capacity management may use inventory to cope with demand
capacity. Rather than trying to make a product (such as chocolate) only when it is
needed. It is produced throughout the year ahead of demand and put into
inventory until it is needed.

E. Reduced costs
Holding relatively large inventories may bring savings that are greater than the cost
of holding the inventory. This may be when bulk-buying gets the lowest possible
cost of inputs, or when large order quantities reduce both the number of orders
placed and the associated costs of administration and material handling. This is
the basis of what is called the economic order quantity (EOQ)

F. Increase value
Sometimes the items held as inventory can increase in value and so it become an
investment.

For example: Dealers in fine wines are less reluctant to hold inventory than
dealers in wine that does not get better with age. (However, it can be argued that
keeping fine wines until they are at their peak is really part of the overall process
rather than inventory as such).

A more obvious examples is inventories of money. The many financial

processes within most organizations will try to maximize the inventory of cash they
hold because it is earning them interest.

7 Important Objectives of Inventory Management System:

Operational and financial goals may be examined in regards to Inventory

Management. The operational goals is to have an adequate supply of inventory, so that
the business can fulfill customers demand and the financial objective is to minimize
unnecessary inventory and its associated expenses.

For Operational tasks, Inventory Management is done to help streamline

operations. Some of the most important objectives it is used are:
 1. Materials Availability – the primary goal of inventory management is to ensure
that all kinds of materials are accessible whenever the production department needs
them, ensuring that production is not stopped or slowed down due to a lack of resources.
It is then prudent to maintain a buffer stock of all critical goods in order to keep
production on track

2. Better Level of Customer Service – It is impossible to fulfil a received order if

the company do not have an accurate count of the items in their possession. To fulfill the
needs for quality products, the company maintain an adequate supply of completed
items to guarantee that customers orders are fulfilled. It will increase company’s brand
image. Otherwise they may end in a state of confusion.

3. Keeping Wastages and Losses to a Minimum – Inventory Management is very

successful in mitigating losses. When there is no monitoring system in place, it is very
normal for an item to be squandered or misplaced. Keeping track of the goods reduced
the likelihood of loss, if not completely eliminates it. Having document in hand helps
avoid waste and protects the business from theft. Normal or uncontrolled waste should
not be allowed to exceed a permissible level, whereas abnormal and unmanageable
wastage should be carefully regulated.

4. Maintaining Sufficient Stock - Supplies should be easily available for all stages
of production, from raw materials to completed goods. The company needs to make
sure they have enough of the necessary material on hand to meet client demand without
having to cut corners. The manufacturing department no longer has to be concerned
about running out of raw materials or products because of the steady supply.

5. Cost Effective Storage – It eliminates the possibility of keeping extra stock,

since the needs are predetermined, thus eliminating needless storage expenses

6. Cost Value of Inventories can be Reduced – When purchasing products or stock

on a regular bases, an organization may negotiate discounts and other incentives to
lower the overall cost.
 7. Optimizing Product Sales – Inventory Management may be used to determine
the volume of product sales. Sales is one of the most essential and crucial phases of the
whole process. Understanding the present condition as well as making future
assumptions from the analysis are two key elements in making a successful prediction.

Types of Inventory:
There are four main types of inventory commonly used: Raw Materials, Work-In-
Process (WIP), Finished Goods and Maintenance, Repair and Overhaul (MRO). Any
business can practice better inventory control and smarter inventory management when
they know the type of inventory they have. And that includes choosing the best inventory
management software to keep track of all that inventory

1. Raw materials:

Materials used in the manufacturing of products. Usually they appear in the

early phases of production, they are currently in stock but have not yet been used in
either work-in-process or finished goods inventory

There are two types of raw materials:

direct materials – which are used directly in finished goods. Example might
be leather to make belts or bags or shoes and
indirect materials – which are part of overhead or factory costs. Example
might be lightbulbs, batteries or anything else that are indirectly contributes to
keeping the shop running.

2. Work-In-Process (WIP):

Inventory that is a partially finished product, that is waiting to be completed or

that is being work on is a Work-In-Process. WIP take account of production costs such as
raw materials that are still “in production” which are then later attributed to costs of
goods when the accounting period ends.

In short, whatever direct and indirect raw materials the business is using to
create finished goods is a WIP inventory.
Example in a pharmaceutical company, tablets or medicines would be
considered WIP. Because the medicine cannot be sold to the consumer until it is labeled
and stored in proper packaging, it is literally a work-in-process.
Another example is a custom made wedding dress that’s not quiet finished at
the end of the year. All the lace, silk, taffeta are no longer raw materials, but they’re not
quite a “finished goods” wedding dress either.

3. Finished goods:

The most straightforward of all inventory types is finished goods inventory.

Inventory that was listed for sale on the company’s website, products that are available
in stock for customers to buy, those are finished goods. When a WIP is complete, it
becomes part of finished goods inventory.
Example of this is finished goods could be a pre-packed fruit salad, a
monogrammed bathrobe, or a custom-built laptop ready for an employee to use

4. Materials, repair and operations goods (MRO):

MRO is all about the small details, these are materials and equipment that are
used in production but do not count as part of final product or is not built into the
product itself. This may include personal protective equipment, office and cleaning
supplies and more.
Example are gloves to handle the packaging of a product would be considered
MRO. Basic office supplies such as pens, highlighters, and paper would also be in this
category. Absorbent paper, trays, pots and pans on a food industry.
Inventory Management Methods
Inventory Management methods vary depending on business structures and sizes
but ultimately enhance operations by reducing waste and managing costs.
While there are others, these are the four most common methods used to manage
inventory.

1. Just in time (JIT)

Just-in-time (JIT) inventory is a system where businesses only order enough

stock to meet current customer demand.
It aims to maximize efficiency and lower costs by coordinating inventory
arrival with the start of production. The goal of this method is to keep as little inventory
on hand as possible and still meet a high production volume level for the products
demand.

Benefits of JIT:
 Reduces waste on unnecessary stock
 Lower costs by avoiding having unused goods
 Avoids having more storage space for inventory than necessary

JIT inventory management can also be risky. If demand unexpectedly

spikes, the manufacturer may not be able to source the inventory it needs to meet the
demand, damaging its reputation with customers and driving business to competitors.
Even the smallest delays can be disruptive, if a key input does not arrive “just in time”, a
bottleneck can result. To have a successful JIT inventory business, it needs proper
forecasting of needs and close relationship with dependable suppliers.
Example: A car manufacturer needs to install airbags in its cars, it arranges
to receive those airbags as the cars come onto the assembly line instead of having a stock
of them on supply at all times.

2. Material requirements planning (MRP)

This inventory management method is a sales-forecast dependent, meaning

the manufacturers rely on detailed sales record to anticipate their inventory needs and
communicate those needs to suppliers in a timely manner. It is a supply planning system
that helps manufacturing businesses determine the inventory requirements to meet a
product’s demand.

Using required inputs, MRP calculates what materials are needed, how much
is needed to compete a build and exactly when materials are needed in the build process.
This allow business to use just-in-time production, scheduling production based on
material availability. This minimizes inventory levels and businesses can move materials
through the manufacturing process efficiently.

Example a ski manufacturer using an MRP inventory system might ensure

that materials such as plastic, fiberglass, wood, and aluminum are in stock based on
forecasted orders. Inability to accurately forecast sales and plan inventory acquisitions
will result in the manufacturers inability to fulfill orders.

Benefits of MRP:
 Gives businesses a balance inventory
 Allows businesses to have the right amount of material for production
 Eliminates manual processes, like looking up past sales and existing
inventory
 3. Economic Order Quantity (EOQ)

It is an important cash flow tool. It helps the company control the amount of
cash tied up in the inventory balance.

The EOQ model goal is to ensure that the right amount of inventory is
ordered per batch so a company does not have to make orders too frequently and that
there is not an excess of inventory sitting on hand, reducing the amount of over-ordering
and waste, lower the cost of storage and maximize quantity discounts offered by
vendors.

Example: Two components of Inventory costs is ordering and carrying.

Ordering cost includes shipping and labor costs associated with purchasing the items.
Carrying costs includes warehousing expenses, spoilage and the cost of money tied up in
paying for the inventory items.

Purchasing smaller items more frequently could reduce carrying cost, but
doing so increasing ordering costs. These costs are interrelated and must counterbalance
one another.

Benefits of EOQ:
 Minimize storage and holding costs
 Helps maintain inventory levels that match customer demand
 Provides specific numbers for how much inventory to hold
 4. Day of Sales Inventory (DSI)

The DSI is also called the average of age of inventory because it calculates
how long it takes for a business to sell its inventory and consider how long the current
inventory will last. ( Inventory turnover)

Indicating the liquidity of the inventory, the figure represents how many
days a company’s current stock of inventory will last. Generally, a lower DSI is preferred
as it indicates a shorter duration to clear off the inventory, though the average DSI varies
from one industry to another

Benefits of DSI:
 Reduce cost from overspending on inventory
 Effective manage cash flow
 Prevent waste from outdated inventory
 Helps determine the statistical data for a company’s inventory
management, tracking and sales
INVENTORY MANAGEMENT SYSTEM
An inventory management system (IMS) is the process of organizing and tracking
inventory management. Some advance technological tools today allow automatic
processes and streamlining data entry to track products from supplier to customer.

Three types of Inventory Management System:

1. Perpetual Inventory system:

The most accurate because they track inventory in real time. This means
that every time a product is purchased, sold or returned the system is
updated to reflect the change in inventory.

How it works:
1. Purchased orders: when a purchase order is created the system records
the increase in inventory
2. Sales: when a product is sold, the system records the decrease in
inventory and updates the costs of goods sold (COGS)
3. Returns and adjustment: any returns or adjustments to inventory are
recorded to maintain accuracy.

Benefits of Perpetual Inventory Sytem:

 Accurate Inventory records: real time update ensure accurate
inventory levels
 Better demand forecasting: by analyzing sales data, businesses can
predict future demand more accurately
 Efficient inventory management: timely identification of slow moving
or obsolete inventory can help optimize inventory levels
 Improved financial reporting: accurate inventory valuations and
COGS calculations lead to more reliable financial statements

Disadvantgages of a Perpetual Inventory System:

 Higher Initial Costs; implementing a perpetual inventory system
can be costly, especially for businesses with large inventories
 Reliance on technology: the system relies on accurate data entry
and system maintenance.
 Potential for errors: human errors or system glitches can lead to
inaccurate inventory records.
 2. Periodic Inventory system
It counts inventory at the beginning and end of a specific period of time (e.g.
weekly, monthly) rather than after every sales and purchases. Involves conducting
physical counts of inventory to assess quantities on hand, suitable for smaller operations
without high transaction volume.

How it works:
1. Beginning Inventory: the system starts with the value of inventory at
the beginning of the accounting period.
2. Purchases: all purchases made during the period are recorded in a
separate purchase account.
3. Ending Inventory: at the end of the period, a physical inventory count is
conducted to determine the quantity and value of inventory on hand.
4. Cost of Goods Sold (COGS): the COGS is calculated by subtracting the
ending inventory from the sum of beginning inventory and purchases

Advantages of Periodic Inventory system:

 Simpler: it’s a relatively simple system to implement, especially for
small businesses
 Lower costs: it requires less technology and fewer resources
compared to perpetual systems

Disadvantages:
 Less accurate: inventory levels are only updated periodically, leading
to potential inaccuracies
 Delayed Financial reporting: financial statements cannot be prepared
until the physical inventory count is completed
 Increased Risk of theft and loss: without real time tracking its harder
to detect inventory discreancies

3. Manual Inventory system

A traditional method of tracking and managing inventory using physical
records rather than automated technology. Businesses rely on paper-based
documents or simple spreadsheets to record inventory levels, sales,
purchases, and other related transactions.

Advantages of Manual Inventory System

  Low cost: Fewer upfront costs since there is no need for expensive
software or hadware
 Simplicity: Easy to implement and undertand, especially for small
businesses with limited inventory
 No technology dependency: Functions without the need for internet
access or advance technology

Disadvantages of a Manual Inventory System

 Time consuming: Data entry and physical counts can take
considerable time, especially with larger inventories.
 Prone to Errors: Higher risk of inaccuracies due to human error in
data entry and calculations.
 Limited Scalability: As a business grows, managing inventory
manually becomes increasingly complex and inefficient
 Difficult to Analyze: Generating reports and insights is cumbersome,
making decision-making based on data more challenging

Inventory Management is a crucial part of business operations. Proper Inventory

management depends on the type of business and the product itself. There may
not be a perfect type of inventory management because there are pros and cons for
each. But taking advantage of the most appropriate type of inventory
management can go a long way towards ensuring a company’s success
 Pamantasan ng Lungsod ng Marikina
College of Management
Department of Business Administration & Entrepreneurship

COURSE CODE & TITLE : OPERATIONS MANAGEMENT (TQM)

PROFESSOR/ INSTRUCTOR : RHODORA G. PAGATPAT

PART IV: DEVELOPMENT

TOTAL QUALITY MANAGEMENT p1293

Quality Management is the act of overseeing all activities and tasks that must be
accomplished to maintain a desired level of excellence. It includes the
determination of a quality policy, creating and implementing quality planning and
assurance and quality control and quality improvement. It is also referred to as
total quality management (TQM)
 Quality Management has always been an important part of Operations
Management, but its position and role within the subject have changed. At one
time it was seen largely as an essential but routine activity that prevented errors
having an impact on customers.

Quality Management is viewed also as having a part to play in how

operations improve. Quality Management can contribute to improvement by
making the changes to operations processes that lead to better outcomes for
customers. In most organization, Quality Management is one of the main drivers
of improvement since it focuses on long-term goals through the implementation
of short term initiatives.
Importance of Total Quality Management
1. Holistic Approach to Quality

TQM emphasize the importance of quality at every level and in every

functions of an organization. By involving employees in the pursuit
of quality. TQM ensured that improvement are integrated
throughout the entire organization, leading to a comprehensive and
consistent approach to quality

2. Process Optimization

TQM promotes the elimination of waste and inefficiencies by

streamlining processes and improving resource management. This
leads to increase operational efficiency, higher productivity and
reduced costs which can enhance overall business performance

3. Cross-Functional Collaboration

TQM promotes collaboration between different department and

teams. This cross functional cooperation leads to a more cohesive
approach to solving quality related issues, optimizing processes and
sharing best practices.

4. Problem Prevention

Rather than merely addressing issues after they arise, TQM focuses
on preventing problems through proactive measures and root cause
analysis. This approach reduces the likelihood of defects and errors,
leading to higher quality products and services.

5. Strengthened Market Position

By consistently delivering high-quality products and services,

organization build a strong reputation and differentiate themselves
 from competitors. This enhanced market position can attract new
customers, retain existing ones and support growth and expansion.

6. Quality Culture Development

TQM help build a quality-centric culture where every employee is

committed to maintaining high standards. This culture promotes
accountability, pride in work and a shared commitment to quality
across the organization

7. Benchmarking and Best Practices

TQM involves benchmarking against industry standards and best

practices. This process helps organizations identify performance
gaps, adopt successful strategies and continuously improve their
operations.

8. Customer Feedback Integrations

TQM emphasize the importance of integrating customer feedback

into the quality management processes. By actively seeking and
using customer input, organizations can make informed
improvement and better align their offering with customer
expectations.
 One of the definitions of a “principle” is that it is a basic belief, theory or
rule that has a major influence on the way in which something is done.

“Quality Management Principles” are a set of fundamental beliefs, norms,

rules and values that are accepted as true and can be used as a basis for quality
management.

The Quality Management Principle’s (QMP’s) is used as a foundation to

guide an organization’s performance improvement. They were develop and
updated by international experts of ISO/TC176, which is responsible for
developing and maintaining ISO’s quality management standards.
What is a Quality Management Principles?
Quality Management Principles are a set of guidelines that can help
businesses establish and improve their quality management systems (QMS).

The International Organization for Standardization (ISO) 9001:2015 standard

identifies:

Seven Quality Management Principles

1. Customer Focus
The primary focus of quality management is to meet customer
requirements and to strive to exceed customer expectations.
Sustained success is achieved when an organization attracts and
retains confidence of customers and other interested parties.
Every aspect of customer interactions provides an opportunity to
create more value for the customer. Understanding current and future
needs of customer contributes to sustained success of the organization.
Key Benefits:
 Increased customer value, customer satisfaction and loyalty
 Enhance repeat business
 Expanded customer base
 Increased revenue and market share

2. Leadership
Leaders at all levels establish unity of purpose and direction and
create conditions in which people are engaged in achieving the
organization’s quality objectives.
Creation of unity of purpose and direction and engagement of people
enable an organization to align its strategies, policies, processes and
resources to achieve its objectives.
Key Benefits:
 Increased effectiveness and efficiency in meeting the
organization’s quality objectives
 Better coordination of the organization’s processes
 Improved communication between levels and functions of the
organization
  Development and improvement of the capability of the
organization and its people to deliver desired results

3. Engagement of People
Competent, empowered and engaged people at all levels throughout
the organization are essential to enhance its capability to create and deliver
value.
To manage an organization effectively and efficiently, it is important
to involve all people at all levels and to respect them as individuals.
Recognition, empowerment and enhancement of competence
facilitate the engagement of people in achieving the organization’s quality
objectives.
Key Benefits:
 Improved understanding of the organization’s quality
objectives by people in an organization and increased
motivation to achieve them
 Enhance involvement of people in improvement activities
 Enhance personal development, initiatives and creativity
 Enhance people satisfaction.
 Enhance trust and collaboration throughout the organization.

4. Process Approach
Consistent and predictable results are achieved more effectively and
efficiently when activities are understood and managed as interrelated
processes that functions as a coherent system.
The quality management system consists of inter-related processes.
Understanding how results are produced by this system enables an
organization to optimize the system and its performance. These processes
are continually analyzed to better understand deficiencies in the process.
Consider activities as a set of sub-activities , each using input data to
produce output data
Key Benefits:
 Enhanced ability to focus effort on key processes and
opportunities for improvement.
 Consistent and predictable outcomes through a system of
aligned processes.
  Optimized performance through effective process
management, efficient use of resources, and reduced cross-
functional barriers

5. Improvement
Successful organization have an ongoing focus on improvement.
Improvements is essential for an organization to maintain current
levels of performance, to reach to change in its internal and external
conditions and to create new opportunities.
Key Benefits:
 Improved process performance, organizational capabilities and
customer satisfaction
 Enhanced focus on root-cause investigation and
determination, followed by prevention and corrective actions.
 Enhance ability to anticipate and react to internal and external
risks and opportunities
 Improved use of learning for improvement
 Enhanced drive for innovation

6. Evidence –based decision making –

Make decisions based on facts, data and observation rather than
unsupported assumptions. Decisions based on the analysis and evaluation
of data and information are more likely to produce desired results.
Decision making can be a complex process and it always involves
some uncertainty. It often involves multiple types and sources of inputs, as
well as their interpretation which can be subjective. It is important to
understand unintended cause-and-effect relationships and potential
unintended consequences.
Key Benefits:
 Improved decision-making process
 Improved assessment of process performance and ability to
achieve objectives
 Improved operational effectiveness and efficiency
 Increased ability to review, challenge and change options and
decisions

7. Relationship Management
 For sustained success, an organization manages its relationship with
interested parties, such as suppliers.
Maintain mutually beneficial supplier relations because it is of
particular importance.
Interested parties influence the performance of an organization.
Sustained success is more likely to be achieved when the organization
manages relationships with all of its interested parties to optimize their
impact on its performance.
Key benefits:
 Enhanced performance of the organization and its interested
parties through responding to the opportunities and
constraints.

Total Quality Management (TQM) tools for Improvement

Kaizen (Continuous Improvement)
Kaizen is an approach to creating continuous improvement based on the
idea that small, ongoing positive change can reap significant improvements.
Typically it is based on cooperation and commitment and stands in contrast to
approaches that use radical or top-down changes to achieve transformation.
Kaizen is a compound of two Japanese words that together translates as
“good change” or “improvement”. However, Kaizen has come to mean
“continuous improvement” through its association with lean methodology and
principles.

10 Principles of Kaizen

1. Let Go of Assumptions
2. Be proactive about solving problems
3. Don’s accept the status quo
4. Let go or perfectionism and take an attitude of iterative, adaptive change.
5. Look for solutions as you find mistakes
6. Create an environment in which everyone empowered to contribute
7. Don’t accept the obvious issue, instead ask :why” five times to get to the
root cause.
8. Cut information and opinions from multiple people
9. Use creativity to find low-cost small improvements
10. Never stop improving

How Kaizen works

Kaizen is based on the belief that everything can be improved and nothing is
the status quo. It also rests on Respect for People principle. Kaizen involves
identifying issues and opportunities, creating solution and rolling them out and
then cycling through the process again for inadequately addressed issues and
problems.

Kaizen includes seven steps from identifying problems to finding solution,

testing them out, analyzing the results and then doing it all again.

Kaizen cycle for continuous improvement

1. Get employee involve. Seek the involvement of employees, during
soliciting their help in identifying issues and problems. Doing so creates
buy-in for change.
2. Find problems. Using a widespread feedback from all employees,
gather a list of problems and potential opportunities.
3. Create a solution. Encourage employees to offer creative solutions with
all manner of ideas encouraged. Pick a winning solution from the idea
presented
 4. Test the solution. Implement the winning solution chosen with
everyone participating in the roll out
5. Analyze the result. At various intervals, check progress with specific
plans for who will be the point or contact and how best to keep ground
level workers engaged.
6. If result is positive, adopt the solution throughout the organization.
7. These seven steps should be repeated on an ongoing basis with new
solutions tested where appropriate or new lists of problems attacked.

Kaizen 5S framework
A 5S framework is a critical part of the Kaizen system and establish an ideal
physical workplace. The 5S focuses on creating visual order, organization,
cleanliness and standardization to improve profitability, efficiency, service and
safety.

 Seiri / Sort (organize). Separate necessary workplace

items from unnecessary ones and remove unnecessary
items

 Seiton/Set in order (create orderliness). Arrange

items to allow for easy access in the way that makes
the most sense for work

 Seiso/Shine (Cleanliness). Keep the workspace clean and

tidy

 Seiketsu/Standardize (standardize cleaning)

Systematize workplace cleanup best practices.

 Shitsuke/Sustain (Discipline) Keep the effort going

Six Sigma

Six Sigma is a defined and disciplined business methodology to increase customer

satisfaction and profitability by streamlining operations, improving quality and
eliminating defects in every organization-wide process

The term six sigma originates from statistical quality control , a reference to the
fraction of a normal curve that lies within six standard deviation of the mean,
used to represent a defect rate. Six Sigma – 3.4 per million opportunities or
99.99997% error free.

Six Sigma methodology is a powerful tool for enhancing the quality of goods and
services. It is a step by step approach called DMAIC. A business may solve any
seemingly unsolvable problem by following these five steps

DEFINE
The first step in the Six Sigma Methodology is Define. This involves clearly
defining the problem, project goals, scope and deliverables.

MEASURE
Once the problem is defined, the next step is Measure. Teams collect data
to quantify the current state of the process. This may involve gathering historical
data, conduction process observations or administering surveys. The goal is to
establish a baseline measurement of process performance,
ANALYZE
After gathering data, Analyze phase focus on identifying root cause of
defects or variations in the process..

IMPROVE
With the clear understanding of the root cause, the improved phase is
where solutions are developed and implemented. Teams brainstorm potential
solution, pilot test them and refine as necessary. The goal is to improve changes
that will result in significant process improvement.

CONTROL
Once improvement are implemented, the Control phase ensures that gains
are sustained overtime. This involves establishing control mechanisms, such as
process documentation, standard operating procedures and performance
metrics. Continuous monitoring and auditing help ensure that the process
remains stable and within specifications.

Six Sigma is a powerful methodology for process improvement and quality

management.

Stages of Quality Improvement Methods

Total Quality Management is the strategic approach to ensuring quality.
This includes planning as well as evaluation, helping to change QA scores from
negative to positive through targeted action. While Quality Assurance methods
are vial for a business to provide services that are productive and memorable,
quality management takes things one step further.

Most quality improvement methods follow these core steps:

1. Establish Expectations
Rubricks or scorecards often evaluate performance by examining
desired behavior and outcomes. Some of these may be easier to
consistently measure that others but the goal here is to figure out
what the ideal scenario is
 2. Evaluate
In the example of a contact center, it will evaluate a percentage of
representative customer interactions. Auditors look to compare
adherence to the expected behaviors
3. Coach and Adjust
If the auditor finds discrepancies or areas for improvement in the
example contact center, then they will coach and adjust
representative performance to reinforce the organizational
standards and expectations.
4. Analyze Trends
QM programs build on QA processes by uncovering trends – these
trends are then turned into operation-wide improvements. At the
end of the process, auditors will analyze the results, and begin the
process over again to keep things continuous and cyclical.

Quality Management can help businesses. Ensure high-quality products

and services. Support customer satisfaction, increase revenue and
customer retention rates and improve productivity.