Operations Management

Session 1
Operations Functions
 Why study OM?
1. OM is one of three major functions (marketing,
finance, and operations) of any organization and
we study how people organize themselves for
productive enterprise.

2. It provides a major opportunity for an

organization to improve its profitability and
enhance its service to society.
OPERATIONS MANAGEMENT
• materials
• Information
INPUT/5M
• finance

• Processes that leads to conversion of i/p to

TRANSFORMATION
o/p

• Product or
OUTPUT
• Service
Operations Functions In
Organization
Basic Function : production & distribution
of physical goods OR services

Basic Elements :
 conversion process
 input
 output
 Information feedback


Operations System for a firm




Feedback

Conversion
process
• Land • Service
• Labor • Influenced By Random • Goods
• Equipments Fluctuations like
• OR 5M Recession, late
delivery, labor turn
Input over Output

Feed back like price received,

Labor efficiency, inventory level
 Operations Management is defined as
the design, operation and
improvement of systems that create
and deliver firm’s primary product &
services

 Operations Management deals with

both manufacturing as well as service
providing
Production Operations

 It implies the creation of  It refers to a function or

g ood s an d s ervices to
satisfy human needs system that transforms
 In volves con version of
i n p u t i n t o ou t p u t of
in p u t [ resou rces] in to greater value.
output [ products]  I t i s d e f in e d a s a
 E a r l i e r w o r d transformation or
‘manufacturing was used conversion process
synonymously with  Syst em encoura gi ng
‘p r o d u c t i o n’ . B u t n o w transformation of 5m
former is limited to
tangible goods and latter to output is called
to tangibles and production system and
intangibles [accepted by transformation process
limited man agemen t is ‘production’
practitioners]  Thus both terms
 Value addition is brought opera t i on a n d
b y a l t e r a t i o n , production can be
transportation , storage
and quality assurance
con si dered a s
synonymous
 Production management refers to application of
management principles to the production system
such as factory or manufacturing plant and
operations management refers to set of activities
that create value in form of goods or services by
transforming input to output

 The 2 difference includes-

 Term ‘production management’ is used for a
productive system where tangible goods are
produced where as operations management is
more frequently used where input is transformed
into intangible service
 Om is the more recent term used to activities
involved in the process of transforming input to
output [ goods or service] where as production
management was used earlier to refer to
activities related to transforming input to output [
tangible]
Nature of production or operations
1. It is a system [system concept]
Collection of interrelated entities [elements- input,
conversion process, output, communication
subsystem, control system]
2. Organizational function
To create goods and service, organization should
perform 4 basic functions
 Marketing
 Production and operation
 Finance
 Human resource
3. Conversion process
A simple transformation of 5M into output

inpu
output
t
4. As a means of creating utility
Utility is the power to satisfy human needs.
The various types of utility that are
created during the conversion process
includes following

The activities carried out while creating

utilities are referred as production function
Different types of utility

[can be included for scope of OM]
 Form utility- created by changing size,
shape, color, size etc [ wood to furniture]
 place utility- transporting input from
source to place of use
 T ime u t ilit y - c re at e d b y st o rag e o r
reservation of raw material, f inished and
semi finished product
 Possession utility- transfer of ownership
 Serv ic e u tility- ren derin g serv ic e to
customers
 Knowledge utility- imparting knowledge
to a person.
Areas in which OM can offer competitive advantage

[can be included for scope of OM]


 Shorter new product lead time [ speed
to market]
 High inventory turnover
 Shorter manufacturing cycle time
 Greater flexibility
 Better customer service
 Reduced wastage
 Higher productivity
Objectives of OM /PM
 Maximum customer satisfaction through
quality, reliability, cost, delivery time.
 Minimum scrap resulting in better quality
 Maximum utilization of resources
 Minimum possible inventory level
 Maximum employee satisfaction
 Maximum production
 Minimum cycle time
 Concern for protection of environment
Function of OM/ PM managers
 Production technique- equipment design,
process design, plant layout, materials
handling
 Capacity management- forecast demand,
facility location and resource allocation
 Industrial engineering- work study, method
study, time study
 Inventory control- purchasing, storing,
controlling inventory levels
 quality control- inspection, quality control,
quality assurance
 Maintenance- service, repair, preventive
maintenance, TPM, equipment replacement
Decision areas of OM/PM
TYPE OF DECISION AREA OF INVOLVEMENT

Strategic decision Manufacturing process and

technology design
plant location
plant layout
Long range capacity planning

Operations decisions Production planning

Inventory planning
Procurement planning

Control decision Labor productivity

Quality
maintenance
Scope of OM
Add following

 Different types of utilities offered

 Areas in which OM offer competitive advantage
 Objectives of OM
 Functions of OM manager
 Decision areas of OM
 History Of OM
Factory Production Industrial Human Theories Of
Managemen Managemen Engineering Relation Motivation
t t School

Georgius -Industrial Principles of -Linear

Agricola Revolution Scientific Programming
-Division Of Managemen -IT Revolution
Labor t

1700 1800 1900 1990

 Types of classification of production or
operation system
 manufacturing and service system [non manufacturing
unit]
 Manufacturing units produce tangible goods
 Production system that produce services are referred as service system

 Series and parallel production system

 Production system may exist in series. Eg. When completed products are
shifted from factory to ware house [ factory and warehouse are 2
production system that are in series
 Production system can also be in parallel [ no. of factories produce similar
products and supply several market areas]
 Continuous flow and intermittent production system
 Continuous- facilities are standardized as to routing and flow [large
scale office operations]
 Intermittent- facilities should be flexible enough to handle variety of
products and size [ hospitals]
 Manufacturing vs. service [non
manufacturing]
The difference involve following

 Customer contact
 U n i f o r m i t y o f i n p u t [ s e r v i c e s e c to r h a s m o re
variability]
 Uniformity of output [ service sector has greater
variability]
 Labor contact [ service require more labor contact]
 Quality assurance [more challenging in service sector]
 Measurement of productivity [ it can be measured
more directly in manufacturing due to high degree of
uniformity]
Manufacturing Vs Service
Operations
 Tangible/ intangible nature of output
Manufacturing is characterized by
tangible o/p that consumers consume
over time whereas
Services characterized by intangible
output that consumers consume
immediately
 Consumption of output
 Customer Participation
In manufacturing the contact with
customers is limited and there is no
customer participation in conversion
process
In services there ensures direct
customer contact as well as frequent
customer participation in conversion
process
 Comparison of manufacturing vs.
service sectors
MANUFACTURING SERVICE SECTOR
 Physical, durable product  Intangible, perishable

 Output can be inventoried product

 Output cannot be
 Low customer contact
inventoried
 Long response time
 High customer contact
 Regional, national &
 Short response time
international markets
 Local markets
 Large facilities
 Labor intensive
 Capital intensive
 Quality not measured easily
 Quality easily measured
Similarities
 Is concerned about quality,
productivity, timely response to its
customers
 Must make choices about capacity,
location & layout
 Has suppliers to deal with
 Has to plan operations, schedules and
resources
 Must balance capacity with demand
by a careful choice of resources
 Has to make an estimate of demand
Operation Strategy
Strategy : Plan of action designed to
achieve a particular goal
Operations Strategy : A set of goals,
policies and self imposed restrictions
that together describe how
organization directs its resources so
as to achieve its mission (survival,
profitability or growth)
 Strategy
 Derived from Greek word ‘ strategos’ meaning ‘leading
an army’
 Has its origin from military
 It includes:

 Setting broad objectives that direct enterprise towards

overall goal
 Planning the path that can help in achieving goal
 Dealing in ‘team work’ rather than ‘individual activities’
 Being detached from confusions and distractions
offered by environment
 Contents of strategy
It is the interaction between the operation’s performance
objectives & the decisions that it takes concerning
resource deployment

• Tangible & intangible Performance

resources Objectives
• Operations capabilities
• Operations processes • Customer need
• Market
Operations positioning
strategy decision • Competitors
areas action
Approaches to design / 4 perspectives on operations
strategy
4 Perspectives of Operation
Strategy
 top down perspective : It suggest that
operation strategy is derived from
organization’s business strategy
 bottom up perspective :
* it is experienced based
* the strategy emerges
through decisions taken over time
 operations led perspective :
* the excellence in
operations is used to drive the
organization strategy
* it is based on Resource-
Based View(RBV) of firm
 Market led perspective : Operation
strategy is developed as per the need/
response of market environment
Elements Of Operation Strategy
1) positioning the production system
 selecting type of product, its design, type of
processing system etc
 2 types of product design include custom and
standardized

2) Focus on factory or service facility

 A n i m p o r t a n t a s p e c t o f O S i s to m a ke t h e
production facility specialized in some way
 Create it as a competitive advantage so that f irm
can strive in market
3) product/ service design & development
 After product is designed it goes through various
stages of life cycle [PLC]
 The activities of operations, service, marketing and
engineering are intensive during new product or
service development stage
 As it moves to latter stages of PLC, the efforts can
be reduced
 Product design affects quality, production cost etc.
This efforts diminishes as product moves through
later stage of PLC (introducing, growth, maturity etc)

4) Allocation of resources to strategic alternatives

 Resources like capital, Human resource , machine
materials etc directly affect production.
 As availability of resources vary at each time, it
should be allocated such that objectives of
organization is achieved at its best
5) Facility planning, location selection etc
The decisions involved regarding
acquisition of land and production
equipments, specialized production
technologies, location of new factories are
considered here
 These decisions are crucial as they have
long lasting effects and also are subjected
to high risk

6 . Te c h n o l o g y s e l e c t i o n a n d p r o c e s s
development
 An essential art of OS is determination of
how product will be produced
 It involve deciding and planning every detail
of production process and facilities
 Operation Strategy as a Competitive
Weapon
 The main aim of operations strategy is to help the
organization achieve its purpose. This purpose is
p a s s e d d o w n f ro m t h e m i s s i o n , t h ro u g h
corporate & business strategy, on to operations
strategy and then to operations functions.

 Operations strategy act as a competitive weapon

because it is the link between abstract/ fuzzy
higher strategies and more precise details
needed by operations

 To develop competitive advantage, operation

strategy aim in developing distinctive capabilities
for the business.
 Operation Strategy assist organization to develop
competitive advantage

 OS is formulated such that it is consistent with higher strategies

and thus help organization to achieve its objectives
 OS also makes sure that it is consistent with other departmental
strategies [ horizontal consistency]
 Defines overall direction of operations department
 Give priority to value addition in the case of production &
operations
 Make products that continue to satisfy customer demand over
long term
 Identify weakness [ in any] in the operations department and
make appropriate measures to overcome them
 Identify potential threat in environment and implement
strategies to avoid same
 Focus resources on areas that are critical for operation’s
success
 Take into account, the views of stakeholders, try to gain support
both within the organization & also from external bodies
3 levels of competitive weapons
 Operations strategy implements the
higher strategies
 Operations strategy supports the
higher strategies
 Operations strategy drives the higher
strategies
 Operations strategy implements the higher
strategies
 Here the main role of OS is to provide a path for
transmitting organization’s aims, downwards from
its corporate & business strategy
 This is a supporting role, because we assume that
higher strategies are already fixed and operations
strategy is concerned with allocation of resources
 This step is to ‘operationalize higher strategies’
and Using distinctive methods of operationalizing
can create competitive advantage
 Operations strategy supports the higher
strategies
 This step try to make sure that the higher
strategies are actually achievable before
considering implementation
 The operations department need to develop
strategies & capabilities that help in
achieving the strategies
Operations strategy drives the higher strategies

 An organization can only succeed in the long

term if customers perceive their products as
somehow better than those of competitors.
 For this, they develop distinctive capabilities
that can give a competitive advantage.
 In many cases, this are included in business
& corporate strategies. In this cases, the
operations strategy shows more dominance
that it is even able to define higher strategies.
Further Reading Materials:
Interaction Of Operations
Management With Other
Functional Areas
OM & OTHER FUNCTIONAL AREAS
 Most businesses are supported by the functions of
operations, marketing, and finance
 The major functional areas must interact to achieve the
organization goals
 Marketing is not fully capable of meeting customer
needs if they do not understand what operations can
produce
 Finance cannot judge the need for capital investments if
they do not understand operations concepts and needs
 Information systems enables the information flow
throughout the organization
 Human resources must understand job requirements
and worker skills
 Accounting needs to consider inventory management,
capacity information, and labor standards
FINANCE
 Financial decisions affect the choice of equipment, use
of overtime, cost-control policies and price-volume
decisions.
 Operations functions are often dictated by economics
MARKETING
 It is important for understanding customer needs and
developing new markets and product potential
 Understanding between marketing and operations takes
organizations to higher levels
ACCOUNTING
 It provides data on product and service costs that help
evaluate operational performance.
 Budgeting and operational planning depend on accuracy
of accounting data.
DESIGN
 Product design ensures that the end products
meet customer needs.
 T he design process includes process
development and engineering.
 New initiatives in design elevate the role of
operations in this process
HUMAN RESOURCES
 It includes the recruitment of employees, their
training and enhancing their well being
 This depends on operations approaches.
 Flexible design of operations is needed to
accommodate all employees.
INFORMATION SYSTEMS
 Information systems provide the means for
capturing and analyzing, and coordinating the
information needs of all of the preceding areas
as well as operations.
Features of production system
 Degree of standardization

 Type of operation

 Manufacturing operation vs. service

operation
Degree of standardization
 It can range from highly standard to
highly customized systems
 Standardized have high degree of
uniformity [ newspapers, automobile
tyres]
 Customized means products or
service is designed for specific
customer [ tailoring, surgery]
 JOB SHOP BATCH REPETITIVE OR CONTINUOUS
ASSEMBLY

Customized Semi standardized Highly

goods or standardize standardized
service d goods/
service
Examples E.g.. Hair Education, Car wash Steel mill or
styling bakery paper mill

Volume low Low to high Very high

moderate

Output Very high moderate low Very low

Variety

Equipment Very high moderate low Very low

Flexibility

Advantage Able to flexibility Low unit cost, Very high

handle high volume volume
variety of
work
Type of operations
 It depends on nature of output
 It can be either continuous or
intermittent [batch production system]
 Batch processing and job shop
processing are 2 kinds of intermittent
processing
The key decisions involved in operation
strategy formulation & implementation
includes
1. Capacity :
 The amount needed to meet the
expected demand
 what kind of capacity (type) to be
provided at each stage of time
2. Supply network design
 selection of supplier
 how to develop capabilities of
supplier

3. information & process technology

Successful operation strategy is the
development & application of
operating capabilities, technology &
method that is difficult to replicate &
that can provide value to customers
4. human resource system
 recruitment
 skills
 compensation

5. work planning
 Purchasing
 Inventory
 Forecasting
6. Performance measurement
7. Quality Improvement
5 P’s of operations
1. Product
 Defined as anything that can be offered to a market
that might satisfy a want or need
 In manufacturing, products are purchased as raw
materials and sold as finished goods
 Various aspects of products to be considered
include
 Performance
 Quality and reliability
 Aesthetics
 Quantity and selling price
 Delivery schedule
2. Plant
 Refers to a place where goods and services are
produced
 Commonly referred as factory, mill or establishment
 The plant is concerned with activities;
 Design and layout of building and offices
 Reliability, perfect, maintenance of equipment’s
 Safety of operations
 The financial constraint

3. People
 Referred as human resources who are engaged in
operations
 Following factors should be considered
1. Wages/salary administration
2. Conditions of work/safety
3. Motivation
4. Training of employees
4. Programmes
 Defined as a planned series of events
 the programme prepares schedules for:
1. Purchasing
2. Transforming
3. Maintenance
4. Cash
5. Storage and transport
5. Process
 Def ined as a designed sequence of activities
for changing the properties or attributes of an
object or system
 In deciding about the process it is necessary
to examine the following factors:

1. Available capacity
2. Manpower skills available
3. Type of production
4. Layout of plant
5. Safety
6. Maintenance required
7. Manufacturing costs