Operations Management Module I

Module I

Operations and Productivity

Introduction to Operations Management

Operations management (OM) is the administration of business practices to create the highest
level of efficiency possible within an organization. Operations management is concerned with
converting materials and labour into goods and services as efficiently as possible. Corporate
operations management professionals try to balance costs with revenue to maximize net
operating profit.

Operations management involves utilizing resources from staff, materials, equipment, and
technology. Operations managers acquire, develop, and deliver goods to clients based on
client needs and the abilities of the company.

Operations management handles various strategic issues, including determining the size of
manufacturing plants and project management methods and implementing the structure of
information technology networks. Other operational issues include the management of
inventory levels, including work-in-process levels and raw materials acquisition, quality
control, materials handling, and maintenance policies.

Operations management entails studying the use of raw materials and ensuring that minimal
waste occurs. Operations managers use numerous formulas, such as the economic order
quantity formula, to determine when and how large an inventory order to process and how
much inventory to hold on hand.

Some examples of the Operation Management:

1. Healthcare: An operations manager of a healthcare facility is generally responsible

for ensuring efficiency in delivery of high-quality care. That can include overseeing
administrative costs, managing claims and billing, and legal compliance.

2. Manufacturing: A company that makes home appliances, for example, has processes
for sourcing materials, managing factories, maintenance, overseeing inventory, and
ensuring quality.

3. Restaurant: An operations manager for a restaurant or chain of restaurants is usually

responsible for facility maintenance, employee training and supervision, financial
planning, inventory management, compliance, and payroll.

4. Retail: In an industry that can span multiple environments, from brick-and-mortar to

e-commerce and single stores to chains, business operations can encompass many
functions, including sourcing, inventory, staffing, logistics, store management, and
customer service.

5. Transportation: Operations management for a transportation company includes

overseeing vehicle maintenance, fuel supply, routing, staffing, and communication,
among other functions.

Page 1 of 26
Operations Management Module I

Difference between Operation and Production

The primary objective of production and operations management is to effectively manage and
utilize those resources of the firm that are essential for the production of goods and
services. Production management refers to the management of activities related to the
production of goods. On the other hand, operations management is a step ahead of production
management, or it can be said that the production management is a part of the operations
management. Operations Management, as the name suggests is the administration of business
operations, by the managers of the organization.

BASIS FOR
PRODUCTION
COMPARISO OPERATIONS MANAGEMENT
MANAGEMENT
N
Meaning Production Management connotes Operations Management refers to
the administration of the range of the part of management concerned
activities belonging to the creation with the production and delivery of
of products. goods and services.
Decision Related to the aspects of Related to the regular business
Making production. activities.
Found in Enterprises where production is Banks, Hospitals, Companies
undertaken. including production companies,
Agencies etc.
Objectives To produce right quality goods in To utilize resources, to the extent
right quantity at right time and at possible so as to satisfy customer
least cost. wants.

The difference between production and operation management, are presented

hereunder:

1. Production Management can be defined as the administration of the set of activities

concerning the creation of goods or transformation of raw material into finished
goods. Conversely, Operations Management is used to mean that branch of
management which deals with the administration both production of goods and
provision of services to the customers.

2. In production management, the manager has to make decisions regarding the design,
quality, quantity and cost of the product manufactured by the department. On the
contrary, the scope of operations management is larger in comparison to the
production management wherein the operations manager looks after the product
design, quality, quantity, process design, location, manpower required, storing,
maintenance, logistics, inventory management, waste management, etc.

Page 2 of 26
Operations Management Module I

3. Production Management can only be found in the firms where production of goods is
undertaken. Unlike, one can find operations management in every organization, i.e.,
manufacturing concerns, service-oriented firms, banks, hospitals, agencies, etc.

4. The basic objective of production management is to provide the right quality goods in
the right quantity at right time and best price. In contrast, operations management
aims at making the best possible use of organization’s resources, in order to fulfil the
customer’s wants.

Conclusion

Production and Operations Management are so closely intertwined, that it is quite difficult to
differentiate the two. Production management covers administer all the activities which are
involved in the process of production. On the other hand, operations management entails all
the activities involved in the production of goods and delivery of services such as material
management, quality management, maintenance management, process management, process
design, product design and so on.

Services as a Part of Operations Management

Services operations management is related with delivering service to the customers of the
service. It involves understanding the service needs of the target customers, managing the
processes that deliver the services, ensuring objectives are met, while also paying attention to
the constant improvement of the services.

As such operations management is a central organizational function and one that is critical to
organizational triumph. Service organisations react to the wants of customers and leave
certain experiences in the minds of the customer through a service delivery system. It was
found in research study that growth of service industry is rapid at global level.

Service organization is one when two or more people are engaged in systematic efforts to
provide services to customers. These organizations exist to serve customers and satisfy their
need.

Functions of service operation are to restore the normal service to the user as quickly as
possible. There is service desk that made up dedicated number of staff responsible for dealing
with variety of services events, often made via telephone call, web interface or automatically
reported infrastructure events.

Key objectives of service operation are to synchronize and perform the activities and
processes required to deliver and manage services at agreed levels to business users and
customers. Service operation is also responsible for on-going management of the technology
that is used to deliver and support services.

Management scholars stated that highly designed and well implemented processes will be
worthless if day to day operation of those processes is not suitably conducted, controlled and
managed, nor will service improvements be possible if day to day activities to monitor

Page 3 of 26
Operations Management Module I

performance assess metrics and gathering data are not systematically conducted during
service operation.

Advantages of service operation are as under:

1. Scalability: Service organization can be adapted for any size of organization.

2. Reduction in Costs: Service organization has established its value in reducing the
overall cost of managing services.

3. Improved Quality: Service organization helps improve the quality of IT services

through sound management practices.

4. Alignment to Standards: Service organization may well align to the ISO/IEC 20000
Standard for Service Management.

5. Return on Investment (ROI): Service organization helps IT organizations

demonstrate their return on investment and measurable value to the business. This
helps establish a business case for new or continuing investment in IT.

6. Seamless Sourcing Partnerships: Outsourcing, often with multiple service

providers, is increasingly common today and service organization offers a common
practice base for improved service chain management.

There are numerous disadvantages in service operation management:

1. New service development

2. Managing service experiences

3. Front-office/Back-office

4. Analysing processes

5. Service quality

6. Yield management

7. Inventory management

8. Waiting time management

To summarize, business companies are continually involved to enhance their performances in

order to compete actively in the market. Service industries manage and market their
operations and services differently from manufacturing products.

It is established that providing excellent and quality customer service is a crucial factor in an
intrinsic capable market environment between the product and service industries. Service
operations can be grouped into many industries, such as banking, hospitality. Most services
industries which provide clients what they need and are satisfied. This helps the company to
enhance its market share, and generate more profit. Service operations provide certain
intangible services that may not be easily recognisable.

Page 4 of 26
Operations Management Module I

Operations as a Key Functional Area

Operations Management is a branch that deals with managing operations and processes
within the organisation. Efficacious management of operations ensures successful delivery of
the project. The operation managers optimise the operations by making judicious use of
resources and capital. They manage all the aspects related to the operations that take place in
businesses. Operation managers are not only found in a company but also in manufacturing
units. They are required to perform various functions as a part of their job responsibilities.
These examples give a basic understanding of the functions of operations management.

Example 1:

Sam is an operations manager of a mobile phone manufacturing company called “ABC ltd.”
The company wants to sell a batch of new phones. Therefore, the responsibilities Sam needs
to fulfil are:
• Ensure the products are designed to meet the criteria of customer expectations
through analysis of past data.
• Predict the future requirements through analysis and ensure that the production
amount meets the demand in the market.
• Secure the supply chain system. It involves arranging raw materials and delivering the
same, maintaining existing inventory, ensuring a successful smooth production
process, confirming the production numbers, distributing them in the market, and
guaranteeing their sales.
• Ensuring there is no loss incurred from the organization’s side by evaluating the cost
and best alternatives available. This reduces the overall cost and overhead costs,
efficient processes, and timely delivery of goods and services.

Example 2

One of the biggest companies in the U.S, Amazon, is a good example of successful
operations management. It is an online retailer with its headquarters in the U.S. which started
as an online bookstore and later evolved into an e-commerce retailer and an online
marketplace.

To stand out, it had to begin with building a strong brand image. Hence, it created a
robust supply chain. As a result, it made its services highly efficient, faster, and capable of
catering to many customers. This led to the introduction of the Amazon prime service that
allowed customers to get their products delivered to them within a short time. Apparently, the
refreshing idea of faster deliveries from an e-commerce company attracted a lot of new
customers.

The company developed a supply chain that had end-to-end visibility equipped with
advanced technologies to allow the company takes control of all aspects of it. The company
also automated its warehouse management and established multiple delivery stations to

Page 5 of 26
Operations Management Module I

ensure faster delivery. Presently, with its enormous success and popularity, Amazon is one of
the prime examples that show how effective operations management can benefit an
organization.

Some of the key functions of an Operations Manager includes:

1. Finance: Finance plays a chief role in operations management. It is essential to

ensure that the organization’s finance has been utilized properly to carry out major
functions such as the creation of goods or services so that the customer’s needs could
be satisfied.

2. Operation: This function in operation management is mainly concerned with

planning, organising, directing and controlling all the activities of an organisation
which helps in converting the raw materials and human efforts into valuable goods
and services for satisfying customer needs.

3. Strategy: Strategy in operation management refers to planning tactics that could help
them to optimise the resources and have a competitive edge over others. Business
strategies imply to supply chain configuration, sales, capacity to hold money,
optimum utilisation of human resources and many more.

4. Design of the product: Incorporating innovative technologies play a crucial role in

the selling of a product. Thus, it is the duty of operations manager to ensure that the
product is designed catering to the market trends and needs of the customers. The
modern-day customers are more concerned about the quality of the product than its
quantity. So, the operation managers focus on producing top-notch quality products.

5. Forecasting: Forecasting refers to the process of making an estimation regarding

certain events that might occur in the future. In operation management, forecasting
refers to the estimation of customer’s demand so that production can be done
accordingly. Through this, the manager gets to know what to produce, when to
produce and how to produce in accordance with the customer’s needs.

6. Supply Chain Configuration: The main motive of Supply Chain Configuration is to

ensure effective management, monitoring and controlling of all the main activities
that are held in a firm. The supply chain configuration starts from the supply of the
raw materials and continues till the production of the final product and then their
selling to the customers which will satisfy their needs and wants.

7. Managing the Quality: Quality management plays an imperative role in selling a

product. The operation managers allocate the task of quality management to a team
and then supervise their task. The managers identify project defects and rectify them
to ensure quality. For this, certain systems are used that measure and maintain the
quality of the product.

Operations in Commercial Organizations

Introduction

Page 6 of 26
Operations Management Module I

Operations refer to activities that businesses engage in on a daily basis to increase the value
of the enterprise and earn a profit. The activities can be optimized to generate
sufficient revenues to cover expenses and earn a profit for the owners of the business.

Operations evolve as the business grows, and the management should plan to accommodate
the changes to prevent glitches occurring in the system. For example, as a small
business grows, it must be ready to handle arising challenges such as legal, marketing, and
capacity issues. If the business does not evolve with the changes in business operations,
glitches such as errors and omissions will emerge.

Operations in Different Industries

The operations of a business vary across industries, and they are structured according to the
requirements of the specific industries. Mastering the operations of a specific industry can
help the business achieve success. Here is an analysis of business operations in different
industries:

1. Retail Industry: One of the main goals of a retail business is to stock products that
customers are looking for and at a price that the customers are willing to pay. This
means that the business must maintain an efficient inventory system so that it knows
what is in stock at any given time, while reducing instances of dead stock. Deadstock
refers to products that the company has in stock but that are not in high demand.

In order to maximize revenues, the business should stock fast-moving items that
customers are willing and happy to pay for. The business should also negotiate
friendly credit terms with suppliers so that they can get the required products on credit
to prevent stock-outs.

2. Service Industry: The business operations of a service business are divided into the
front-end and back-end side of the business. The management must ensure that the
two divisions are running efficiently to prevent laxity on one side, which can hinder
the achievement of the company’s objectives.

On the front end, the business should focus on streamlining the service delivery to
customers to increase their satisfaction. It should also formulate a means of receiving
feedback and complaints from customers to know their expectations and how to
improve service delivery.

On the back end, the management should employ the right people in each department.
For example, the company should appoint trained and experienced staff to prepare
forecasts for client projects to prevent the actual costs from exceeding client budgets.

3. Manufacturing Industry: Manufacturing companies are involved in turning raw

materials into physical products, which are then sold to consumers. One of the things
that a manufacturing company can do to achieve efficiency is to source quality raw
materials from credible suppliers. For perishable and edible products, the business
should look into how raw materials are stored, processed, and shipped to consumers.

Page 7 of 26
Operations Management Module I

The company can also eliminate bottlenecks that increase processing times to save
time during manufacturing and shipping. If the company is struggling with shipping
logistics, it can outsource shipping and concentrate on other areas of the business that
it excels in.

4. Technology Industry: The key to streamlining operations of a technology company

is hiring the right staff and training them on how to execute the tasks they are
assigned. This means that the company should put a hiring criterion in place that helps
them hire the best candidates for the job. The company should also come up with an
internal training and mentorship program where senior staff works hand-in-hand with
junior staff to help them perfect their skills.

Another way of increasing efficiency is by collaborating the different tools such as

apps, websites, and systems that the company uses. The company’s management
should continually monitor internal and external processes to spot any glitches and
address these issues quickly.

Operations in Non-Commercial Organizations

Introduction

Terms such as competitive advantage, markets and business, are usually associated with
companies in the for-profit sector. Yet operations management is also relevant to
organizations whose purpose is not primarily to earn profits. Managing the operations in an
animal welfare charity, hospital, research organization or government department is
essentially the same as in commercial organizations. Operations have to take the same
decisions – how to produce products and services, invest in technology, contract out some of
their activities, devise performance measures, and improve their operations performance and
so on.

However, the strategic objectives of not-for-profit organizations may be more complex and
involve a mixture of political, economic, social and environmental objectives. Because of this
there may be a greater chance of operations decisions being made under conditions of
conflicting objectives. So, for example, it is the operations staff in a children’s welfare
department who have to face the conflict between the cost of providing extra social workers
and the risk of a child not receiving adequate protection.

Operations managers play an important role on the management team at both for-profit
companies and non-profits. In both types of organizations, operations managers are
responsible for directing activities and the use of resources in order to produce a particular
outcome, such as delivery of a product or service. In non-profit organizations, operations
managers may also be responsible for directing fund raising efforts, monitoring government
regulations and guiding public policy.

1. Identifying Resources: In any organization, the operations manager is generally

responsible for identifying the resources necessary to achieve the organization's goals.
In a non-profit, these resources often come from donors and fund-raising activities.

Page 8 of 26
Operations Management Module I

The operations manager may need in-depth knowledge of relevant grant-making

bodies and the grant-making process.

In a non-profit organization the operations manager may also be responsible for

ensuring that enough fund-raising events are taking place, and that the company's
resources are directed where they are most needed in the organization, for example, to
ongoing programs.

2. Directing Resources: Non-profit organizations, especially those providing human

services, may be much more involved in aspects of public policy than for-profit
companies. The operations manager may need to stay up-to-date on the rules and
regulations involved in providing federal or state public services.

While an operations manager at a large non-profit may have a role in directing

resources toward creating public information campaigns or lobbying efforts that
influence public policy, in a small non-profit the operations manager may instead
direct resources toward creating links with other non-profit organizations in order to
pool resources.

3. Performance Appraisals: In the for-profit sector, businesses usually pay all their
employees. By contrast, the non-profit sector often relies heavily on volunteers. The
operations manager for a non-profit develops policies, objectives and measures of
performance for volunteers as well as for paid employees. Because volunteers are
unpaid, the operations manager must keep in mind that they are motivated differently
from paid workers and set volunteer goals, rewards and performance criteria
accordingly. For example, volunteer performance criteria may include learning more
about the issue the non-profit addresses, while paid employees' performance
evaluations may focus more on completing a certain amount of work to a set standard.

4. Board Member Liaising: In a non-profit organization the members of the board of

directors are generally unpaid volunteers. The operations manager may be responsible
for liaising with the board members to make sure they are being effective.

For example, celebrity board members may be recruited for their ability to bring
attention to the non-profit's cause. The operations manager may need to make sure the
celebrity board member attends fund raising and media events. The operations
manager also may see that board members work on committees in which they have
expertise and are doing the work they have agreed to do.

Significance of Operations Management

1. Achievement of Objectives: Operations management has an effective role in the

achievement of pre-determined objectives of an organization. It ensures that all
activities are going as per plans by continuously monitoring all operations of
organization.

Page 9 of 26
Operations Management Module I

2. Improves Employee Productivity: Operation management improves the

productivity of employees. It checks and measures the performance of all people
working in the organization. Operation manager trains and educate their employees
for better performance.

3. Enhance Goodwill: Operation management helps in improving the goodwill and

presence of the organization. It ensures that quality products are delivered to all
customers that could provide them better satisfaction and makes them happy.

4. Optimum Utilization of Resources: Operation management focuses on optimum

utilization of all resources of the organization. It frames proper strategies and
accordingly continues all operations of the organization. Operation managers keep a
check on all activities and ensure that all resources are utilized on only useful means
and are not wasted.

5. Motivates Employees: Operation management helps in motivating the employees

towards their roles. Operation managers guide all peoples in performing their roles
and provide them with better atmosphere. Employees are remunerated and rewarded
according to their performance level.

6. Increase Productivity: Operation management played an important role in increasing

the productivity of business. It manages all aspects of production activities to achieve
highest efficiency possible. Operation manager are responsible for designing
production plan for carrying out the operations. They ensure that all inputs used by
organisations are efficiently transformed into outputs that is products or services. It is
crucial for all business for properly managing their day-to-day activities and efficient
utilisation of all its resources which helps in raising productivity.

7. Raises Revenue: Operational management directly influences the profitability of the

business. It works on reducing the cost of operations to business by reducing the
wastage of resources. Operations managers monitor every production activity and
take all necessary steps for maintaining efficiency in the organisation. They try to
maintain an appropriate balance between cost and revenue. Maintenance of quality of
products and delivering them as per customer needs is another function played by
these operation managers. It helps in attracting more and more customers which
increase the overall revenue of business.

8. Achievement of Organisation Goals: Every organisation strives towards

achievement of its desired goals. Proper management of production activities helps
business to properly implement their strategic plans in their operation. Operation
management ensures that all operations of business are going in desired direction.
It regularly monitors every activity and takes all corrective measures as required
according to prevailing situations. Proper functioning of business as per strategic
plans helps in achievement of desired goals.

Page 10 of 26
Operations Management Module I

9. Improve Customer Satisfaction: Customer satisfaction is necessary for every

business to improving its relations with its customers. It helps them in retaining them
for the long term. Operation management monitors the quality of products
manufactured by organisations. It ensures that high-quality products are produced in
accordance with the requirements of customers. When products manufactured by
business completely fulfil the needs of customers, their satisfaction level will
improve.

10. Reduce Investment Need: Operation management reduces the additional capital
requirements of the business. It ensures that all capital employed in the business are
efficiently used. Management of operations ensures that all production activities go
uninterrupted without any shortage of capital. By increasing the efficiency and
avoiding the wastage of employed resources, it avoids any deficiency of capital in
business. Businesses are not required to invest more in their production activities.

11. Enhance Goodwill: Maintaining proper goodwill in the market is the goal of every
business. Operation management focuses on improving the position of the
organisation in the market. It ensures that business works for providing better services
to its customers. Business should manufacture durable and high-quality products that
may provide better satisfaction to users. Customers will gain confidence in their
products which will improve their market image.

12. Improve Innovation: Operation management helps in implementing innovative

changes in organisational activities. All decision regarding production planning is
taken by operation managers by doing research and analysis of prevailing market
situations. It takes into account all technological changes and builds a strong base of
knowledge and operations. This helps in bringing various innovations in operations of
the business.

Challenges of Operation Management

Challenges in Operations management arise as a result of need of efficient and effective

systems. Efficient systems are required for making cost effective and sustainable processes.
Effective systems are required to support customer requirements.

1. Challenges Due to Marketplace Development: The marketplace is now demanding

customized products in place of mass-marketed products. This has created a challenge
for operations management to develop systems which are capable to produce wide
variety of products at low cost. Secondly, especially in the service industry, the
customer is becoming partner often unwillingly. For example, in a self-serving
restaurant customer has to pick his order on a beep. This trend is coming to
manufacturing also giving pressure to operations management.

2. Challenges due to Economic Reforms: This is particularly applicable in Indian

Scenario after 1991’s economic reforms. Before the economic reforms, Indian
Industry enjoyed undue advantage due to high import tariffs. In some cases, tariff

Page 11 of 26
Operations Management Module I

rates were as high as 350 percent. Among the many changes effected, tariff reductions
demanded a basic shift in the approach of business. “Cost plus some margin is the
price” was approach before economic reforms. After reforms prices are guided by
market forces. Subtract some margin from this price to get that cost under which a
business has to deliver the products. To match the offerings of overseas players,
Indian companies were also expected to improve their performance with respect to
cost, delivery, quality and service.

3. Challenges due to Factors of Production: Factors of production such as managing

an increasingly diverse workforce, shortage of skilled workers, availability of raw
materials from sustainable sources are challenges to modern systems of operations
management.

4. Challenges due to Technological Environment: Information technology is one of

the most important enablers for developing and easy implementation of tools such as
ERP, computer-aided manufacturing, Flexible manufacturing system etc. Now the
challenge is investing in the right technology and mastering it. It is difficult for any
small and medium company to implement regularly changing technology.

5. Challenges due to Regulatory Environment: Global pressure of intellectual

property rights protection has created a pressure on developing nation to keep their
systems in the alignment of the requirement of these legal provisions. Similarly new
financial reporting systems, environmental protection laws are giving challenge to
operation managers which are new to this field.

6. Challenges due to Innovative Business Models: With the advent of new technology,
particularly IT and related e-commerce, new business models are emerging. These
new business models such as e-choupal of ITC, Flipkart have posed new challenges to
operation managers with respect to supply chain management.

7. Globalization: Operation managers face competition from the company across the
street, as well as, from across the country and across the world. Tishta Bachoo,
Accounting Professor at Curtin University in Australia, explains that companies who
compete with others abroad will have to improve quality while lowering prices to
remain competitive. This falls on the operations manager as he or she is the one who
“engages in the four functions of planning, organizing, leading, and controlling to
ensure that the product or service remains competitive in the market.” Batchoo adds
that the operations manager must tap into their creative skills as innovation will be a
key factor of success as will knowledge about international business and the myriad
cultures of the businesses around the globe.

8. Sustainability: In her article, Business Definition of Operational Sustainability, Kay

Miranda, journalist for the Houston Chronicle, defines business operational
sustainability as a “method of evaluating whether a business can maintain existing
practices without putting future resources at risk.” When discussing the concept of
sustainability, it is often referred to as the Three Pillars of Sustainability which are

Page 12 of 26
Operations Management Module I

social, environmental, and economic. Operations managers must concern themselves

with the outcomes of each of the pillars including how their work affects safety,
welfare, communities, the environment and economic sustainability. Effective
operations managers must implement best practices with a concern for all three pillars
of sustainability. They also need to initiate and verify corrective action when any
outcome of one of the three pillars becomes jeopardized.

9. System Design: In Key Issues in Operations, a blog detailing the relationship

between system design and operational management, the main theme is that
organizations must develop systems capable of “producing quality goods and services
in demanded quantities in acceptable time frames.” Designing the system, planning
the system, and managing the system present a wide variety of challenges to even the
savviest operations managers. As operations managers work in multidisciplinary
environments, they must be aware of and effectively respond to the challenges
presented by globalization, sustainability, ethical conduct, effective communication,
and system design. Doing these calls for operations managers to excel in the business,
technical, and interpersonal aspects of their work as they actively support the mission
and vision of their organization.

Meaning of Productivity

Operations Management is responsible for managing the transformation of many inputs into
outputs, such as goods or services. A measure of how efficiently inputs is being converted
into outputs is called productivity. Productivity measures how well resources are used. It is
computed as a ratio of outputs (goods and services) to inputs (e.g., labour and materials). The
more efficiently a company uses its resources, the more productive.

Productivity is commonly defined as a ratio between the volume of output and the volume of
inputs. In other words, it measures how efficiently production inputs, such as labour and
capital, are being used in an economy to produce a given level of output. Broadly,
productivity measures can be classified as single factor productivity measures (relating a
measure of output to a single measure of input, e.g., labour productivity) or multifactor
productivity measures (relating a measure of output to a bundle of inputs, e.g., multifactor
productivity). Productivity is considered a key source of economic growth and
competitiveness.

Measurement of Productivity in Operations

Single Factor Productivity

Single-Factor Productivity is a measure of output against specific input. Partial productivity

is concerned with efficiency of one class of input. Its significance lies in its focus on
utilization of one resource.

Labor productivity is a single factor productivity measure. It is the ratio of output to labor
input (units of output per labor hour). Material productivity is the ratio of output to materials
input. Machine productivity is the ratio of machine units of output per machine hour, output

Page 13 of 26
Operations Management Module I

per unit machine. Capital productivity is the ratio of output to capital input and it is measured
in Rupees. Energy Productivity is units of output per kilowatt-hour (Rupee value of output
per kilowatt-hour).

Advantages of Single-Factor Productivity:

1. Ease in obtaining relevant data and easy to comprehend.

2. Acts as a good diagnostic measure to identify areas of improvement by evaluating

inputs separately across the output.

3. Ease in comparing with other businesses in the industry.

Disadvantages of Single-Factor Productivity:

1. Does not reflect the overall performance of the business.

2. Misinterpreted as technical change or efficiency/effectiveness of labor.

3. Management may identify wrong areas of improvements if the focus areas of a

business are not examined accurately.

Multifactor Productivity

The concept of multi-factor productivity was developed by Scott D. Sink, multifactor

productivity measurement model considered labour, material and energy as major inputs.
Capital was deliberately left out as it is most difficult to estimate how much capital is being
consumed per unit/ time. The concept of depreciation used by accountants make it further
difficult to estimate actual capital being consumed.

Multi-factor productivity is ratio of output to a group of inputs such as; labor, energy and
material. Multi-factor productivity is an index of output obtained from more than one of the
resources (inputs) used in production. It is the ratio of net output to the sum of associated
labor and other factor inputs

Advantages of Multi-Factor Productivity:

1. Considers intermediate inputs of a business.

2. Measures technical change in an industry.

Disadvantages of Multi-Factor Productivity:

1. Difficulty in obtaining all the inputs.

2. Difficulty in communicating inter-industry linkages and aggregation.

Multifactor productivity (MFP) is a measure of economic performance that compares the

amount of output to the number of combined inputs used to produce that output.
Combinations of inputs can include labor, capital, energy, materials, and purchased services.

Productivity Variables

Page 14 of 26
Operations Management Module I

Productivity variables consisted of factors that are critical to ensure productivity. Three types
of productivity variable are here as discuss below:

1. Labour: Labour consists of workforce whether skills, semi skill or non-skills. Labour
skills are varied but the productivity still can be improved by improving on some key
areas that affect the labour.

Improvement in the contribution of labour to productivity is the result of a healthier,

better-educated, and better-nourished labour force. Some increase may also be
attributed to a shorter work week. Historically, about 10% of the annual improvement
in productivity is attributed to improvement in the quality of labour.

According to Henzer, the labour productivity can be improved by improving on three

areas which are:
• Basic education appropriate of an effective labour force
• Diet of labour force and social overhead that makes labour available.
• Social overhead is such as transportation and accommodation provided
labours working in the organization.

Labour productivity improvement is the most talk about topic by management

because it is something hard to manage as labour quality, skills are different, and parts
of results in productivity can be qualitative rather than quantitative.

2. Capital: Capital is an important asset to improve productivity. Capital goods are

ready durable that can be used in the production function such as machinery and
factory building. Businesses are investing a significant number of financial resources
to equip themselves with latest capital technology or tools to improve their
productivity. Example is investment in utilizing new machinery and information
technology for production rather than using labour-intensive methods. Interest and
taxes affect the capital investment and making it expensive. Drop in capital
investment can results in drop of productivity.

3. Management: Management is one of factor of production and economics resources.

According to survey, management is the most important key to improve significantly
the productivity of the organization. This is because management can collect,
disseminate and utilize their knowledge and skills to applicable level in organization
to see the results in productivity. Management can used labour resources effectively
and know how to use cost-effective capital goods to further enhance the business
productivity. To create a strong and knowledgeable management, investment in
training and education is necessary in organization.

Productivity and Service Sector

Page 15 of 26
Operations Management Module I

Productivity is the measure of an organization's ability to produce a good or a service. While

organizations that produce goods can point to the total finished number of products as
evidence, it's comparatively difficult to measure the service sector's productivity.

Quality v/s Quantity

One reason that increasing productivity in the service sector is difficult is that raising the
number of customers helped doesn't necessarily increase the quality of service they're
provided. In fact, the opposite may be true; customers who feel they've been rushed through
or given generic service may be unlikely to return. It may also be unsafe; in the health care
industry, for example, nurses are judged based not just on the quantity of patients they help,
but on the quality, as well. As a result, if increasing productivity is not in the best interests of
the customer, there's little incentive to improve it.

Measurement Difficulty

Because measuring productivity is so difficult in the service sector, it's difficult to know how
much productivity has increased, according to Qualtrics.

For example, imagine a retail salesperson who is helping a client select a new fall wardrobe.
The client may spend well over a thousand dollars on three items in an hour's time. Compare
this salesperson with one who assists five customers over the same period of time except each
customer spends roughly $5 on two items. Determining the productivity of each worker is
difficult, because the metric could be total dollars sold, total number of inventories moved,
total number of full-price items moved or total number of satisfied customers.

Efficiency and Productivity

Increased productivity leads to reduction in staffing required. One way a non-service sector
company can increase productivity is by producing more goods with the same or smaller
amount of input. However, in the service sector, it's not always possible to increase output
given the same number of inputs, because the input is usually people. In other words, while a
goods-producing business may be able to use its resources more efficiently, a service sector
business can't usually decrease its assets i.e. people without negatively affecting productivity.

Improving Service Sector Productivity

Because productivity in the service sector is difficult to measure and improve, there are a lot
of difficulties of increasing labour productivity. There is no specific labour productivity
formula, so it's wise to discuss ways to improve productivity with employees and possibly
clients. Poor productivity may be a result of low morale or outdated technology, or from
employing the wrong team. Providing quality service while maximizing efficiency by helping
the highest number of clients possible and keeping them satisfied at the same time is the best
determinant of an efficient and productive organization.

Factors influencing Productivity

Page 16 of 26
​
0​
Operations Management Module I

1. Technical Factor: Productivity largely depends on technology. Technical factors are

the most important ones. These include proper location, layout and size of the plant
and machinery, correct design of machines and equipment, research and development,
automation and computerization, etc. If the organization uses the latest technology,
then its productiveness will be high.

2. Production Factor: Productivity is related to the production-factors. The production

of all departments should be properly planned, coordinated and controlled. The right
quality of raw-materials should be used for production. The production process
should be simplified and standardized. If everything is well it will increase the
productiveness.

3. Organizational Factor: Productivity is directly proportional to the organizational

factors. A simple type of organization should be used. Authority and Responsibility of
every individual and department should be defined properly. The line and staff
relationships should also be clearly defined. So, conflicts between line and staff
should be avoided. There should be a division of labour and specialization as far as
possible. This will increase organization's productiveness.

4. Personnel Factor: Productivity of organization is directly related to personnel

factors. The right individual should be selected for suitable posts. After selection, they
should be given proper training and development. They should be given better
working conditions and work-environment. They should be properly motivated;
financially, non-financially and with positive incentives. Incentive wage policies
should be introduced. Job security should also be given. Opinion or suggestions of
workers should be given importance. There should be proper transfer, promotion and
other personnel policies. All this will increase the productiveness of the organization.

5. Finance Factor: Productivity relies on the finance factors. Finance is the life-blood
of modem business. There should be a better control over both fixed capital and
working capital. There should be proper Financial Planning. Capital expenditure
should be properly controlled. Both over and underutilization of capital should be
avoided. The management should see that they get proper returns on the capital which
is invested in the business. If the finance is managed properly the productiveness of
the organization will increase.

6. Management Factor: Productivity of organization rests on the management factors.

The management of organization should be scientific, professional, future-oriented,
sincere and competent. Managers should possess imagination, judgment skills and
willingness to take risks. They should make optimum use of the available resources to
get maximum output at the lowest cost. They should use the recent techniques of
production. They should develop better relations with employees and trade unions.
They should encourage the employees to give suggestions. They should provide a
good working environment, and should motivate employees to increase their output.

Page 17 of 26
Operations Management Module I

Efficient management is the most significant factor for increasing productiveness and
decreasing cost.

7. Government Factor: Productivity depends on government factors. The management

should have a proper knowledge about the government rules and regulations. They
should also maintain good relations with the government.

8. Location Factor: Productivity also depends on location factors such as Law and
order situation, infrastructure facilities, nearness to market, nearness to sources of
raw-materials, skilled workforce, etc.

Sustainability in Operations

Introduction

Sustainability in operations refers to a company's strategy to reduce negative

environmental impact resulting from their operations in a particular market. An
organization’s sustainability practices are typically analysed against environmental, social,
and governance (ESG) metrics.

In recent years, Sustainable Operations Management (SOM) has started receiving attention
from both operations management and management science researchers. SOM includes
topics such as green supply chain, green procurement and reverse logistics.

SOM can be defined as the operations strategies, tactics and techniques, and operational
policies to support both the economic and the environmental objectives and goals.

SOM has a potentially vital role to play in contributing to solutions for the complex
sustainability challenges confronted by many organisations. As a result, a number of
operations management researchers and practitioners are dealing with the challenges of
integrating the issues of sustainability in protecting the environment and reducing the carbon
footprint.

Both researchers and practitioners recognise the importance of SOM as a key strategic
component in the development of cost-effective and sustainable global supply chains to meet
the increasing needs of customers in terms of flexibility, responsiveness and cost while
safeguarding natural resources for future generations.

Framework for Sustainable Operations Management

Reverse Logistics

Introduction

Reverse logistics is a type of supply chain management that moves goods from customers
back to the sellers or manufacturers. Once a customer receives a product, processes such as
returns or recycling require reverse logistics.

Reverse logistics start at the end consumer, moving backward through the supply chain to the
distributor or from the distributor to the manufacturer. Reverse logistics can also include

Page 18 of 26
Operations Management Module I

processes where the end consumer is responsible for the final disposal of the product,
including recycling, refurbishing or resale.

When is Reverse Logistics Used?

Organizations use reverse logistics when goods move from their destination back through the
supply chain to the seller and potentially back to the suppliers. The goal is to regain value
from the product or dispose of it. Worldwide, returns are worth almost a trillion dollars
annually and have become increasingly common with the growth of ecommerce.

The objectives of reverse logistics are to recoup value and ensure repeat customers. Less than
10% of in-store purchases are returned, compared to at least 30% of items ordered online.
Savvy companies use reverse logistics to build customer loyalty and repeat business and to
minimize losses related to returns.

Reverse Logistics vs. Traditional Logistics

Traditional product flow starts with suppliers and moves on to a factory or distributor. From
there, the goods go to retailers and customers. Reverse logistics management starts at the
consumer and, moving in the opposite direction, returns products to any point along
the supply chain.

Well-designed supply chains are responsive to changes and can handle some reverse logistics
requirements. This reverse process can return products one step back in the chain or to the
original supplier. They can even send returned products back to regular sales or discount
channels (like liquidators).

Page 19 of 26
Operations Management Module I

Management
production
resource.
responsible
ensuring andis aanfactor
Management
thatforlabour economic
and ofcapital
is
are
over
in effectively
productivity.
accounts
half for
of the
productivity. used
Management
annual
This to increase
increase
increase
includes
through
use of
application
knowledge improvements
the
knowledge
of
and and
technology. the
technology made
Using
is
critical
societies
knowledgein
postindustrial
Consequently, societies.
postindustrial
aresocieties.
also knownA as
which
has
work
and much
migrated
to society
of the
from
technical
information-processingis one
labour
manual in
force
tasks requiring
education.
education
important
are the The
and
high-costongoing
required
training
responsibility ofare
items that
operations
build
and
knowledge
contemporary managers
organizations
workforces.
base The
of
society as they
expanding
requires
that managers
technology
effectively.
Management
production and
andisuseknowledge
aanfactor
economicofcapital
resource.
responsible
ensuring
are Management
that
effectively
productivity. forlabour
used
Management toand is
increase
accounts
over
in half for
of the
productivity.
includes
through annual
This
improvements
the increase
increase
made
use of knowledge
application
knowledge
critical in
postindustrial of
and and
technology. the
technology
societies. Using
is
Consequently,
societies
knowledge
which are
much postindustrial
also
societies.
society
of the known
is A
one
labour as
in
force
has
work
and
tasksmigrated
to from
technical
information-processing
requiring
education. The manual
ongoing
required
education
important
are the
build and training
high-cost
responsibility
operations managers
organizations of
asare
items theythat
and workforces.
knowledge
contemporary
that managers
technology base The
of
society
use expanding
requires
effectivel and knowledge
How Reverse Logistics Works

Reverse logistics moves goods from the traditional endpoint of the supply chain at least one
step backward. This process can involve various plans and controls. Some companies prefer
to outsource this work.

Reverse Logistics Process

Page 20 of 26
Operations Management Module I

The reverse logistics process involves managing returns and buying surplus goods and
materials. The process is also responsible for dealing with any leases or refurbishments.
Reverse logistics vary across different industries, and there are different economic incentives
for improving reverse logistics management.

For example, in the beverage industry, the reverse logistics process uses empty tap
containers. Beverage production companies want to recapture the value of their containers by
reusing them. This requires planning transportation, managing shipping loads and cleaning
the containers.

In the construction industry, reverse logistics moves and recycles salvaged materials to new
sites. As the construction industry adopts more sustainable practices to reduce waste, there is
an opportunity for cost savings by using reverse logistics.

In the food industry, reverse logistics is responsible for returning packaging materials and
pallets. Companies also must deal with rejected food shipments. Rejections can create
logistical challenges due to delays that lead to food spoilage and concerns over tampering.

Types of Reverse Logistics

The different types of reverse logistics are also known as reverse logistics components. They
focus on returns management and return policies and procedures (RPP) and account for
remanufacturing, packaging, unsold goods and delivery issues. Other types of reverse
logistics account for leases, repairs and product retirement.

Reverse Logistics Components:

1. Returns Management: This process deals with product returns from customers or
avoiding returns in the first place. These activities should be fast, controllable, visible
and straightforward. Customers judge a company on its return flow and re-return
policies. A re-return is the return of an item a second time. Often, these returns trigger
the extended return policies, such as offering store credit.

For example, a customer buys a returned product on clearance, takes it home and
discovers it broken. The store policy would not normally accept the return, but it does
allow for a store credit for the faulty product. A re-return can also occur when a
vendor rejects the return and gives it back to the purchaser without a refund. This
scenario could happen with custom-made items.

2. Return Policy and Procedure (RPP): The policies about returns that a company
shares with customers is its RPP. These policies should be visible and consistent.
Employees should also adhere to them.

3. Remanufacturing or Refurbishment: Another type of reverse logistics management

includes remanufacturing, refurbishing and reconditioning. These activities repair,
rebuild and rework products. Companies recover interchangeable, reusable parts or
materials from other products, also known as the cannibalization of parts.
Reconditioning involves taking apart, cleaning and reassembling products.

Page 21 of 26
Operations Management Module I

4. Packaging Management: This type of reverse logistics focuses on reuse of packing

materials to reduce waste and the disposal.

5. Unsold Goods: Reverse logistics for unsold goods handles returns from retailers to
manufacturers or distributors. These types of returns can be due to poor
sales, inventory obsolescence or a delivery refusal.

6. End-of-Life (EOL): When a product is EOL, it is no longer useful or does not work.
The product may no longer meet a customer's needs or be replaced by a newer, better
version. Manufacturers often recycle or dispose of products that are end-of-life. These
goods can create environmental challenges for manufacturers and countries.

7. Delivery Failure: With failed deliveries, drivers return products to sorting centers.
From there, the sorting centers return the products to their point of origin. While rare,
some sorting centers may have the staff available to identify why a delivery failed,
correct the problem and resend.

8. Rentals and Leasing: When a piece of equipment comes to the end of its lease or
rental contract, the company that owns the product can remarket, recycle or redeploy
it.

9. Repairs and Maintenance: In some product agreements, customers and companies

maintain equipment or repair it if issues arise. In some cases, the company sells
damaged returned products to another consumer after repair.

Design for Sustainability

Sustainable design seeks to reduce negative impacts on the environment, and the health and
comfort of building occupants, thereby improving performance. The basic objectives of
sustainability are to reduce consumption of non-renewable resources, minimize waste, and
create healthy, productive environments. Sustainable design principles include the ability to:
• Optimize potential;
• Minimize non-renewable energy consumption;
• Use environmentally preferable products;
• Protect and conserve water;
• Enhance environmental quality;
• Optimize operational and maintenance practices.

The aim of the organization is to devise a mechanism that allows the generation of
sustainable design scenarios that are coherent with the context of the organization. This
mechanism is characterized by taking into consideration internal and external issues of the
organization. In other terms, design scenarios are not limited to traditional technological or
component choice options. In fact, they are considered as value chain–oriented sustainable
design strategies. The mechanism consists of two main steps:

Page 22 of 26
Operations Management Module I

• The first consists on identifying internal and external issues by integrating three
strategic analysis tools i.e., SWOT, PESTEL, and 7S techniques.
• The second is the generation of strategic scenarios by combining these issues to create
strategies that cope with the context of the organization.

The main contribution of this mechanism is to prevent the risk of adopting incoherent product
designs scenarios that sometimes are expensive to adopt. The second contribution is to adopt
the life cycle approach to take into account all phases of the product as its design phase. The
operations manager’s greatest opportunity to make substantial contributions to the company’s
environmental objectives occurs during product life cycle assessment.

Life cycle assessment evaluates the environmental impact of a product, from raw material
and energy inputs all the way to the disposal of the product at its end-of-life. The goal is to
make decisions that help reduce the environmental impact of a product throughout its entire
life. Focusing on the 3R i.e., reduce, reuse, and recycle can help accomplish this goal. By
incorporating the 3R, product design teams, process managers, and supply-chain personnel
can make great strides toward reducing the environmental impact of products

Remanufacturing

Remanufacturing is an industrial process by which a previously sold, worn, or non-

functional product can be rebuilt and recovered. Through the disassembly, cleaning, repair
and replacement of worn out and obsolete components, the piece can be returned to a ‘like-
new’ or ‘better-than-new’ condition and will be just as reliable as the original product.
Remanufacturing plays an important role in the concept of a circular economy.

Types of Remanufacturing:

There are three main types of remanufacturing activities, each with different operational
challenges.

1. Remanufacturing without Identity Loss: With this method, a current machine is

built on yesterday's base, receiving all enhancements, expected life and warranty of a
new machine. The physical structure (the chassis or frame) is inspected for soundness.
The whole product is refurbished and critical modules are overhauled, upgraded or
replaced. Any defects in the original design are eliminated.

This is the case for customized remanufacturing of machine tools, airplanes,

computer mainframes, large medical equipment and other capital goods. Because of
its uniqueness, this product recovery is characterized as a project.

2. Remanufacturing with Loss of Original Product Identity: With this method, used
goods are disassembled into pre-determined components and repaired to stock, ready
to be reassembled into a remanufactured product. This is the case when
remanufacturing automobile components, photocopiers, toner cartridges, furniture,
ready-to-use cameras and personal computers.

Page 23 of 26
Operations Management Module I

Once the product is disassembled and the parts are recovered, the process concludes
with an operation similar to original manufacturing. Disassembled parts are
inventoried, just like purchased parts and made available for final assembly.
Remanufacturing with loss of original product identity encompasses some unique
challenges in inventory management and disassembly sequence development.

3. Repetitive remanufacturing without Identity Loss: In this method, there is the

additional challenge of scheduling the sequence of dependent processes and
identifying the location of inventory buffers. There is a fine line between repetitive
remanufacturing without loss of identity and product overhaul. The final output has an
as-new appearance and is covered by a warranty comparable to that of a new product.

4. Remanufacturing by Recoating of Worn Engine Parts: In addition to these is a less

significant type of remanufacturing, remanufacturing by recoating of worn engine
parts. This type of remanufacturing serves many engine parts and other large and
expensive components that become worn after a period of use.

Remanufacturing technology is becoming more popular as companies look for a way to

combat the current climate crisis, as it allows a company to reduce waste and environmental
pollution. Not only is remanufacturing an environmentally friendly process, it allows
products to be reused, rather than go to waste, and therefore supports a circular economy. As
a result, remanufacturing technology greatly benefits the development of the economy and is
becoming a new point of economic growth.

Challenges in Creating Sustainable Operations

1. Transparency in the Supply Chain: It is only possible to create a sustainable

company with traceability and transparency in the supply chain. And this remains a
primary concern related to sustainability. A corporation must show a detailed view of
a product's lifecycle from raw materials to the point of sale. It is only possible to take
significant action by mapping out what must be done and where. Re-establishing trust
for businesses can be done through transparency. Supply chain scandals revolving
around issues such as working conditions and child labor have surrounded the retail
sector for years.

For instance, Zara has allegedly benefited from “slave labor conditions” in countries
such as Brazil. Long working hours, subpar payment, and difficult work conditions
are just a few of the ghosts hunting some of the employees working for retail giants,
especially in fast fashion.

2. Energy Transition: Many people worldwide don't have access to electricity and gas.
They have to cook with the help of fossil fuels and use it for electricity. Companies
should keep an eye on their electricity usage. To create more sustainable societies,
there needs to be an energy shift toward a cleaner, more affordable, and more
effective model.

Page 24 of 26
Operations Management Module I

3. Circular Economy Principle: The most significant general sustainability issue will
be the circular economy. It might be the most effective route toward sustainability,
particularly for international corporations. Due to the scarcity of natural resources, it
is crucial. Waste is becoming a valuable input thanks to the circular economy.

The company can stop using virgin resources and adding to pollution. They can
achieve it by closing the resource supply and disposal circle. It is a concept worth
exploring for industries where raw materials are essential to manufacturing (i.e., food,
beverage, and apparel). These business models aim to keep materials in use. They
renew natural systems and reduce waste and pollution.

4. Diversity, Equity and Inclusion: Companies will be more ambitious in the future
about redefining what it means to be devoted to diversity, equity, and inclusion (DEI).
Instead, the corporation must incorporate DEI principles throughout all operations,
from sales to PR to HR. They should also refocus the purchasing power. It will open
up their chances for various suppliers throughout their value chains.

5. Educating the Public: Sales of environmentally friendly goods and services do not
reflect the effort that went into their development. Businesses must learn more about
to Evaluate, Categorize, Advertise sustainable goods and services It will prevent
greenwashing and have a beneficial impact on consumer behaviour

6. Deciding Focus Area: Leadership teams often struggle to determine which aspects of
the business should be prioritized in a sustainability transformation. To create
competitive advantage from environmental, social, and governance initiatives,
everything must be in-scope. Companies need to execute an in-depth, comprehensive
transformation, not just a small number of isolated initiatives, embedding ESG across
the organization to deliver real change.

7. Leader Enablement: Leaders must be aligned, committed, and supported if they are
to demonstrate new behaviors. Leadership coaching at the outset is critical, along with
incentive structures that reinforce the transformation's objectives.

At many companies, climate and sustainability are key topics for top leaders and
boards, but that urgency and awareness needs to cascade down to the organization's
managers. This means exploring ways to integrate ESG KPIs into performance targets
and link them to pay and incentives.

8. Great Migration: ‘The Great Migration’ describes the global movement of people,
jobs, labour and supply chains. It requires a new model of business which is flexible
to these changes and to global trends.

9. Great Convergence: ‘The Great Convergence’ will see business, governments,

NGOs and individuals united in the global goal to address the challenges facing the
world. With the launch of the SDGs, the organization are set on the path towards
collaboration in finding solutions to our global challenges.

Page 25 of 26
Operations Management Module I

10. Great Imitation: ‘The Great Imitation’ might be the negative indirect consequence of
corporate responsibility being pushed into the mainstream. It is the risk of companies
imitating a sustainable business without actually taking the action that backs it up.

Page 26 of 26