Operations Management - Session 1

Operations Management Basics

Engagement model:

• Session PPT

• Video clips

• Knowledge sharing by colleagues

• Demo from a tier 1 ERP software (Oracle JD Edwards)

• Few break out sessions – Real time industry issues, you can
deliberate and find an answer
 Operations Management Basics

• Operations Management definition?

• SCM
• Operations Management Vs SCM
• Why Study OM as a subject?
• Operations Management evolution
• Productivity challenges!!
• Typical operations function responsibilities
• Achieving Competitive Advantage through operations
• Current Challenges in Operations Management
• Ethics, Social Responsibility, and Sustainability aspects
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• Quick question

Explain the Operations management function from your current

employer?

Take 2 mins to deliberate your answer.

 Operations Management Basics

CORE FUNCTIONS

Marketing, which generates the

demand, or at least takes the order
for a product or service (nothing
happens until there is a sale).

Operations, which creates,

produces, and delivers the product.

Finance, which tracks how well the

organization is doing, pays the bills,
and collects the money.
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Operations Management?

• Transformation activity – Inputs to output

• Inputs – Raw materials/capital/manpower and Output – Goods and services

• “Producing products/services every day to provide for the well-being of

society”

• If there is a customer, there is Operations Management practice

• Immaterial to size and nature of the company

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Operations management – A system perspective
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The Economic System Adds Value by
Transforming Inputs to Outputs

OM in Action
Improving Productivity at Starbucks
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Production Management Vs Operations Management Vs SCM

Production
The creation of goods and services

Operations management (OM)

Activities that relate to the creation of goods and services through the
transformation of inputs to outputs.

Production + Other OM functions

SCM:
A global network of organizations and activities that supplies a firm with
goods and services

Supplier + OM + Other stakeholders

Production Management < Operations Management < SCM

 Operations Management Basics
Operations Management?

Hard Rock Cafe at Universal Studios in Orlando - 3,500 custom

products—in this case meals—every day.

• These products are designed, tested, and then analyzed for cost of
ingredients, labor requirements, and customer satisfaction.

• On approval, menu items are put into production—and then only if

the ingredients are available from qualified suppliers.

• The production process, from receiving, to cold storage, to grilling or

baking or frying, and a dozen other steps, is designed and
maintained to yield a quality meal.

• Operations managers, using the best people they can recruit and
train, also prepare effective employee schedules and design efficient
layouts.
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Operations management – Examples

Core
Other OM
manufacturing
Manufacturing functions like
and assembly Machineries
company Procurement
operations
and quality

Other OM
Restaurant
Kitchen – Food functions like Food items
preparation Procurement
and quality
Out
Inputs
Class Other OM put
Education room functions like Knowledge
teaching Procurement gathering
and labs and quality

Teller Other OM Cash

Banking operations functions like withdrawal
and loan Procurement and loan
process and quality disbursement
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Why OM?

One of the three major functions of any organization.

To know how goods and services are produced

Understand what operations managers do

Costly part of an organization. A large percentage of the

revenue of most firms is spent in the OM function. Major
opportunity for an organization to improve its
profitability and enhance its service to society.
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What Operations Managers Do?

The 10 strategic OM decisions

1. Design of goods and services – Required operation, product design

parameters like quality and cost limits, put a boundary around what to do?

2. Managing quality – Meet customer requirements, QMS policies and

procedures, how to achieve quality and TQM and quality models

3. Process strategy – How to produce a good or service. Hit the basic cost
expectations, CAPEX, technology, machines, employee skills etc

4. Location strategies – Fulfill various stakeholders' expectations like

customer, supplier, employee, eco system, logistics, Govt policy etc

5. Layout strategies - Capacity, employee skills, inventory policy and essential

to determine the ‘Flow’ for an organization.
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What Operations Managers Do?

The 10 strategic OM decisions

6. Human resources – Education, skill, nature of employment, recruitment,

retain, HR policies and compliance

7. Supply-chain management (Procurement) - Core strategy to align with

corporate strategy, whom/where/how to buy, supplier selection, development,
relationship management, contract adherence etc

8. Inventory management – Safety stock, push/pull, EOQ, VMI, ABC analysis

9. Scheduling – Optimum utilization of resources – employees, machines,

facilities, tools and other precious assets

10. Maintenance – Break down, preventive and condition-based maintenance,

and where to perform
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Some influential bodies:

•APICS, the Association for Operations Management

([Link])
•American Society for Quality (ASQ) ([Link])
•Institute for Supply Management (ISM) ([Link])
•Project Management Institute (PMI) ([Link])
•Council of Supply Chain Management Professionals
([Link])

From India?

Opens wide variety of job openings?

Operations Management Basics
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Goods and Services

The distinction between goods and services is not clear-

cut. In reality, almost all services and almost all goods
are a mixture of a service and a tangible product.

Very few services and products are “pure,”

Ex: Service : Counselling

Product: Snacks
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service sector
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U.S. Agriculture, Manufacturing, and Service Employment

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US Job statistics
Source: Bureau of Labor Statistics, 2015.
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The Productivity Challenge??

Productivity is the ratio of outputs (goods and services) divided by

the inputs (resources, such as labor and capital). The operations
manager’s job is to enhance (improve) this ratio of outputs to inputs.
Improving productivity means improving efficiency.

Two ways: reducing inputs while keeping output constant or

increasing output while keeping inputs constant

“Production and productivity”

Production is the making of goods and services.

 Operations Management Basics

Productivity Variables:

Labor, which contributes about 10% of the annual increase.

• Basic education appropriate for an effective labor force.
• Diet of the labor force.
• Social overhead that makes labor available, such as transportation
and sanitation

Capital, which contributes about 38% of the annual increase.

Human beings are tool-using animals. Capital investment provides
those tools.

Management, which contributes about 52% of the annual increase.

Management is responsible for ensuring that labor and capital are
effectively used to increase productivity. Management accounts for over
half of the annual increase in productivity. This increase includes
improvements made through the use of knowledge and the application
of technology.
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Productivity and the Service Sector

• Typically labor intensive (e.g., counseling, teaching).

• Frequently focused on unique individual attributes or
desires (e.g., investment advice).
• Often an intellectual task performed by professionals
(e.g., medical diagnosis).
• Often difficult to mechanize and automate (e.g., a
haircut).
• Often difficult to evaluate for quality (e.g., performance
of a law firm).
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Challenges in Operations Management

Globalization: Resources in the form of capital, materials, talent, and labor

are also now global. As a result, countries throughout the world are
contributing to globalization as they vie for economic growth. Operations
managers are rapidly seeking creative designs, efficient production, and high-
quality goods via international collaboration.

Supply-chain partnering: Shorter product life cycles, demanding customers,

and fast changes in technology, materials, and processes require supply-chain
partners to be in tune with the needs of end users. And because suppliers may
be able to contribute unique expertise, operations managers are outsourcing
and building long-term partnerships with critical players in the supply chain.

Sustainability: Operations managers’ continuing battle to improve

productivity is concerned with designing products and processes that are
ecologically sustainable. This means designing green products and packaging
that minimize resource use, can be recycled or reused, and are generally
environmentally friendly.
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Challenges in Operations Management
Rapid product development: Technology combined with rapid international
communication of news, entertainment, and lifestyles is dramatically chopping
away at the life span of products. OM is answering with new management
structures, enhanced collaboration, digital technology, and creative alliances that
are more responsive and effective.

Mass customization: OM must rapidly respond with product designs and flexible
production processes that cater to the individual whims of consumers. The goal is
to produce customized products, whenever and wherever needed.

Lean operations: Lean is the management model sweeping the world and providing
the standard against which operations managers must compete. Lean can be
thought of as the driving force in a well-run operation, where the customer is
satisfied, employees are respected, and waste does not exist. The theme of this text
is to build organizations that are more efficient, where management creates
enriched jobs that help employees engage in continuous improvement, and where
goods and services are produced and delivered when and where the customer
desires them. These ideas are also captured in the phrase Lean.
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Ethics, Social Responsibility, and Sustainability

Conflicting perspectives of stakeholders, such as

customers, distributors, suppliers, owners, lenders,
employees, and community. Stakeholders, as well as
government agencies at various levels, require constant
monitoring and thoughtful responses.

Develop and produce safe, high-quality green products

Train, retain, and motivate employees in a safe workplace
Honor stakeholder commitments
 LET US SUM UP

- The role of Operations Management is very critical

for an organization success

- Plays a critical role to determine both top line and

bottom line for an organization

- Embracing sound operations management practices

are quite challenging

- Operations management portfolio has important

functions like Quality management, layout design
etc. Too big to fail.